UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington,
D. C. 20549
  [
X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the year ended May 31, 2009
 [ ]Transition report Pursuant to Section 13 or 15(d) of the Exchange Act
 FORM
10-K


Commission
file number 333-145730






PRINCIPLE
SECURITY INTERNATIONAL, INC.


(Exact
name of registrant as specified in its charter)




Nevada


(State
or other jurisdiction of incorporation or organization)






Unit
B – 2015 Burrard Street


Vancouver,
British Columbia


Canada
V6J 3H4


(Address
of principal executive offices, including zip code.)




(778)
233-3562


(Registrant's
telephone number, including area code)






Securities
registered under Section 12(b) of the Exchange Act:
  Title of each class
registered:  NoneName
of each exchange on which registered:   None
  Securities
registered under Section 12(g) of the Exchange Act:
  Common
Stock, par value $0.00001




Indicate
by check mark whether the registrant (1) has filed all reports required 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.  [ X ]
Yes    [   ] No




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulations S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy if information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [  
 ]




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 if the Exchange Act.




Large
      Accelerated filer
            [
            ]
            Accelerated
      filer                  
        [     ]Non-accelerated
      filer
            [
            ]
            Smaller
      reporting company  [ X ](Do not check if a smaller
      reporting company)





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




On May
31, 2009 and August 20, 2009, we had
8,518,000 shares of voting common stock issued and outstanding.




The aggregate market value of the
voting common stock held by non-affiliates (6,018,000 shares of voting common
stock) as of May 31, 2009 and August 20, 2009, the date of the filing of this
annual report, computed at the par value of the stock of $0.00001 was $60
assuming solely for the purposes of this calculation that the directors and
executive officers of the issuer are “affiliates”. This determination of affiliate status
is not necessarily a conclusive determination for other
purposes.




Some
exhibits required to be filed hereunder, are incorporated herein by reference
to our original Form SB-2 Registration Statement, filed under our SEC File
No. 333-145730 on August 27, 2007, and our Annual Report on Form 10-K
for the fiscal year ended May 31, 2008, both of which can be found in their
entirety on the SEC website at www.sec.gov.
  
 1












Available
Information
   Our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and all amendments to those reports that we file with the U.S.
Securities and Exchange Commission (SEC) are available at the SEC's public
reference room at 100 F Street, N.E., Washington, D.C. 20549. The public may
obtain information on the operation of the public reference room by calling the
SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC.
        2
  TABLE
OF CONTENTS
  PageITEM
      1.
              Description
      of Business
              4ITEM
      1A.
              Risk
      Factors
              5ITEM
      1B.
              Unresolved
      Staff Comments
              5ITEM
      2.
              Description
      of Properties
              5ITEM
      3.
              Legal
      Proceedings
              6ITEM
      4.
              Submission
      of Matters to a Vote of Security Holders
              6PART
      IIITEM
      5.
              Market
      for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              6ITEM
      6.
              Selected
      Financial Data
              7ITEM
      7.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              7ITEM
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              10ITEM
      8.
              Consolidated
      Financial Statements and Supplementary Data
              10ITEM
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              29ITEM
      9A.
              Controls
      and Procedures
              29ITEM
      9B.
              Other
      Information
              30PART
      IIIITEM
      10.
              Directors,
      Executive Officers and Corporate Governance
              30ITEM
      11.
              Executive
      Compensation
              32ITEM
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              33ITEM
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              33ITEM
      14.
              Principal
      Accounting Fees and Services
              33PART IVITEM
      15.
              Exhibit
      List and Reports on Form 8-K
              34Signatures
              35Exhibit
      Index
              36
 
 
 3
  PART
I


ITEM
1.      DESCRIPTION OF BUSINESS




History
of Operations




We were
incorporated in the State of Nevada on November 27, 2006. We are still in the
development stages of our business and have not yet generated any revenues to
date. Through our wholly owned Canadian subsidiary, Principle Security
International Incorporated, we are working towards the establishment of a
customer service oriented security firm specializing in uniformed guard
services, private investigations and a training facility for security personnel.
Our sole officer and director has been building a database of potential clients
and continues to actively contact businesses in hopes of securing a
contract in the near future.




Our
auditors have issued us a going concern opinion, which means that there is
substantial doubt that we can continue as an on-going business for the next
twelve months unless we obtain additional capital to pay our bills. We do not
anticipate generating any revenues until we secure a contract to provide
our security guard services. Accordingly, we must raise cash from sources other
than the sale of our services. Our only other source for cash at this time is
investment by others, through bank loans or through equity sales of our
securities.




At May
31, 2009, we only had $1,496 in cash in the bank and an
accumulated deficit of $149,673 since inception. We expect to generate
operating losses during some or all of our planned development stages, which
raises substantial doubt about our ability to continue as a going concern. We
believe that we cannot sustain our operations from existing working capital and
operations over the next 12 months without raising additional capital either
from sales of our securities or through bank or other loans. At the
present time, we have not made any plans to raise additional money and there is
no assurance that we would be able to raise money when needed. If financing is
not available on satisfactory terms, we may be unable to continue, develop or
expand our activities.




Since
inception, we issued 8,518,000 shares of common stock via private placement for
cash proceeds of $78,700. On November 28, 2006, we issued 2,500,000 shares of
common stock through a private placement pursuant to Reg. S of the Securities
Act of 1933 to our sole officer and director, Mr. Charles Payne in consideration
of $2,500. On February 23, 2007, we completed a private placement of 5,800,000
shares of common stock pursuant to Reg. S of the Securities Act of 1933 and
raised $43,500. On May 8, 2007, we completed an additional private placement of
218,000 shares of common stock pursuant to Reg. S of the Securities Act of 1933
and raised $32,700.




All of
the issued and outstanding shares of common stock were issued pursuant to Reg. S
of the Securities Act of 1933. All transactions closed outside the United States
of America with non-US persons.




Principal
Products/Services Description




Through
our wholly owned Canadian subsidiary, Principle Security International
Incorporated, we are working towards the establishment of a customer service
oriented security firm specializing in uniformed guard services, private
investigations and a training facility for security personnel.




Uniformed
Guard Services




Specifically
we plan to implement two main revenue streams, static guards and mobile
guards.




1.     
Static Guards- A static guard is one who mans a post such as in an office
building or a shopping mall. These guards will be billed on an hourly basis with
the rate starting at C$23.00 per hour. There will be some variety in guard
packages available which will be reflected in billing rates:




Guard Profile A:This is
referred to as a “high profile guard”. The uniform will consist of a bomber
jacket, collared shirt, cargo pants and boots. This type of service will be used
at sites where a high deterrent factor is required and there is a need for
security to be readily apparent. Examples of this would be shopping malls,
campuses, hospitals and community patrols. All of these uniforms will have
company logos and multiple badges clearly identifying staff as security. This
type of guard package will be the standard one provided by PSI and will be
billed at the base rate.




Guard Profile B: This is
referred to as a “low profile guard”. This uniform will include a blazer, dress
pants, dress shoes and a shirt and tie. Typically, this presentation will be
used at sites such as office buildings, conventions, annual general meetings and
other places where a more subtle approach is needed. Jackets will have logos
visible to facilitate identification as security staff but they will not be as
obvious as the “high profile” uniform. There is typically less of a demand for
this service and billing will start at base and be discounted from
there.






4




Guard Profile C: This service
will be very low key and the uniform is referred to as “business attire”. This
consists of a conservative suit, shirt and tie with dress shoes. This format
will be used when absolute discretion is required and will only be available to
clients that truly need the service. There will be no logos or badges visible;
instead staff will wear a discreet lapel pin identifying them as security
personnel. This will only be available at a premium rate.




2.     
Mobile Guards -There will be two different forms of mobile security available.
The first will be mountain bike patrols and the second will be vehicle patrols.
There are two functions that Mobile will provide:




A) Patrols: Often a client’s
situation does not necessitate security staff on site 24/7. An effective
compromise that will deliver a solid security presence is mobile patrols.
Typically mobile patrols occur only after regular business hours. The client
will specify, after consultation with PSI staff, when patrols are required. A
time window, usually consisting of several hours, will be decided on and the
mobile patrol, which may take only 20 – 30 minutes, will be conducted in that
window at a different time every day. Mobile patrols are often used in
conjunction with a static guard. The static guard maintains site security during
business hours and mobile patrols take over for the remainder of the
night.




Billing is dependant on how long it takes to patrol the site according to the
client’s criteria. The standard is C$0.75 per minute with a minimum billing of
15 minutes which includes five minutes for travel time and five minutes for
report writing.




B) Alarm/Crisis Response:Alarm systems in the home and office are becoming very common. In many
areas the police will not respond when the alarm is set off unless it has been
verified by a third party to be an actual break and enter. Our Mobile staff will
attend to and properly investigate the site when an alarm has been triggered.
They will then proceed to either contact the authorities or whomever the client
dictates depending on the situation. Our service will be available 24 hours a
day and will deliver true peace of mind.




Billing for alarm/crisis response will either be on a per attendance basis or as
an ongoing security subscription. The attendance fee of C$50.00 allows for 30
minutes of on site time which is sufficient to conduct the majority of alarm
investigations. Should the attendance require more time then any additional
minutes will be billed at the patrol rate of C$0.75 per minute. If clients
prefer they can be billed C$10.00 per month, with a minimum 1 year contract,
which allows them three alarm investigations per year. If the investigation
takes longer than 30 minutes then extra time is billed as above. Subsequent
alarm investigations would be billed as an attendance.




Private
Investigation Services




The
primary market for private investigations services in British Columbia is fraud
investigations through the Insurance Corporation of British Columbia (ICBC) and
the Worker’s Compensation Board (WCB). In order to conduct such investigations
it is required that each private investigator (PI) and the private investigation
company be vetted through these agencies own special investigative units (SIU).
Once the vetting process is complete, a vendor number is issued and the company
can now pursue contracts. Other private investigative services will be offered
on a limited per case basis mainly to existing clientele. Through our President,
Charles Payne, we currently have relationships with accredited PIs who are
available immediately if needed as subcontractors. All investigations will be
billed at approximately C$95.00 per hour.




Accredited
Training School for Security Personnel




In order
to better control quality and delivery of the product, we will also maintain an
accredited security training facility. The main courses that will be taught will
be the required Basic Standards Training 1 and 2 that all contract guards must
pass in order to be licensed. We anticipate charging a fee of C$350 per student
to offer both courses. Other courses will be offered to clients according to
their needs and special courses can be designed to meet specific requirements.
These courses will be billed on a per course basis that will be determined
later.




ITEM
1A.    RISK FACTORS




We are a
smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are
not required to provide the information required under this item.




ITEM
1B.    UNRESOLVED STAFF COMMENTS




None.




ITEM
2.      PROPERTIES










5




ITEM
3.      LEGAL PROCEEDINGS




We know
of no material, active or pending legal proceedings against us, nor are we
involved as a plaintiff in any material proceedings or pending litigation. There
are no proceedings in which any of our directors, officers or affiliates, or any
registered beneficial shareholder are an adverse party or has a material
interest adverse to us. From time to time, we may be a party to certain legal
proceedings in the ordinary course of business, including proceedings relating
to the enforcement of our rights under contracts with our portfolio companies.
While the outcome of these legal proceedings cannot be predicted with certainty,
we do not expect that these proceedings will have a material effect upon our
financial condition or results of operations.




ITEM
4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS




During
the fourth quarter, there were no matters submitted to a vote of our
shareholders.








PART
II




ITEM
5.      MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER
MATTERS




Our
shares of common stock are registered for trading with the OTCBB under the stock
symbol PCPL; however, trading has not yet commenced. As a result, the table setting
forth the high and low closing prices of the common stock for the fiscal
years ended May 31, 2009 and 2008, as reported by Nasdaq, has been
omitted.




Stockholders




At May
31, 2009 and August 20, 2009, we had a total of 36 shareholders of record
holding our issued and outstanding common stock, including shares held by
brokerage clearing houses, depositories or otherwise in unregistered form. The
beneficial owners of such shares are not known to the Company.




Dividends




We
have not declared any cash dividends with respect to our common stock
and do not intend to declare any dividends in the foreseeable future. There are
no material restrictions limiting, or that are likely to limit our ability to
pay dividends in our common stock if we decide to do so in the
future.




Section Rule 15(g) of the Securities Exchange Act of
1934




Our
shares of common stock are covered by section 15(g) of the Securities
Exchange Act of 1934, as amended, and Rules 15g-1 through 15g-6, and 15g-9
promulgated thereunder. They impose additional sales practice requirements on
broker/dealers who sell our securities to persons other than established
customers and accredited investors (generally institutions with assets in excess
of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouses).




Rule
15g-1 exempts a number of specific transactions from the scope of the penny
stock rules.




Rule
15g-2 declares unlawful broker/dealer transactions in penny stocks unless the
broker/dealer has first provided to the customer a standardized disclosure
document.




Rule
15g-3 provides that it is unlawful for a broker/dealer to engage in a penny
stock transaction unless the broker/dealer first discloses and subsequently
confirms to the customer current quotation prices or similar market information concerning the penny
stock in question.




Rule
15g-4 prohibits broker/dealers from completing penny stock transactions for a
customer unless the broker/dealer first discloses to the customer the amount of
compensation or other remuneration received as a result of the penny stock
transaction.




Rule
15g-5 requires that a broker/dealer executing a penny stock transaction, other
than one exempt under Rule 15g-1, disclose to its customer, at the time of or
prior to the transaction, information about the sales persons compensation.






6




Rule
15g-6 requires broker/dealers selling penny stocks to provide their customers
with monthly account statements.




Rule
15g-9 requires broker/dealers to approve the transaction for the customer’s
account; obtain a written agreement from the customer setting forth the identity
and quantity of the stock being purchased; obtain from the customer information regarding his
investment experience; make a determination that the investment is suitable for
the investor; deliver to the customer a written statement for the basis for the suitability determination;
notify the customer of his rights and remedies in cases of fraud in penny stock
transactions; and, the FINRA's toll free telephone number and the central number of the North American
Administrators Association, for information on the disciplinary history of
broker/dealers and their associated persons.




The
application of the penny stock rules may affect your ability to resell your
shares.




Securities
Authorized for Issuance Under Equity Compensation Plans




We do not
have any equity compensation plans and accordingly we have no securities
authorized for issuance thereunder.




ITEM
6.      SELECTED FINANCIAL DATA




We are a
smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are
not required to provide the information required under this item.




ITEM
7.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.




This
Management’s Discussion and Analysis of Financial Condition or Plan of Operation
and other sections of this report contain forward-looking statements that are
based on the current beliefs and expectations of management, as well as
assumptions made by, and information currently available to, the Company’s
management. Because such statements involve risks and uncertainties, actual
actions and strategies and the timing and expected results thereof may differ
materially from those expressed or implied by such forward-looking statements.
Forward-looking statements are often identified by words like: believe, expect,
estimate, anticipate, intend, project and similar expressions, or words which,
by their nature, refer to future events.




The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the audited financial statements
and accompanying notes and other financial information appearing elsewhere in
this annual report on Form 10-K.




History
of Operations




We were
incorporated in the State of Nevada on November 27, 2006. We are an early
development stage corporation. Through our wholly owned Canadian subsidiary,
Principle Security International Incorporated, we are working towards the
establishment of a customer service oriented security firm specializing in
uniformed guard services, private investigations services and a training
facility for security personnel. We have not yet generated or realized any
revenues from our business operations.




Our
auditors have issued a going concern opinion. This means that there is
substantial doubt that we can continue as an on-going business for the next
twelve months unless we obtain additional capital to pay our bills. This is
because we have not generated any revenues and no revenues are anticipated until
we begin to implement our business plan and begin to provide our security guard
services. Accordingly, we must raise cash from sources other than the sale of
our services. Our only other source for cash at this time is investment by
others. Our sole
officer and director has been building a database of potential clients and will
be maintaining the database on an on-going basis. For the fiscal years
ended 2009 and 2008, much of our resources were directed at developing our
services and business plans in hopes of securing a contract to perform uniformed
guard services and establishing a training
facility for security personnel. Our sole officer and director has been actively
contacting a number of businesses in order to secure a contract, but has not
done so to date.





Plan
Of Operation


Our
business plan is to become a manpower oriented security provider. Our services
will include specialized uniformed guard services, a private investigations
division and an accredited training school for security personnel. At the time
that we designed our original business plan, our intention was to focus
foremost, on contracting out uniformed guards which would be hired out on a
contract basis to select clientele. With the recent changes to the Private
Investigators and Security Agencies Act (PISA), in British Columbia, we have
redirected our original business plan to prioritize the establishment of the
accredited security training school.








7




Effective
September 1, 2008, the provincial government of British Columbia announced that
the Security Services Act (SSA) will replace the PISA. As part of the
legislative changes introduced under the SSA, an increased number of security
service providers throughout the province of British Columbia are now required
to undergo licensing and training. Additions include; Armored Car Guards,
Doorpersons/Bouncers, Bodyguards and In-House Security Patrol & Private
Investigators. Licensing and training is a mandatory requirement for contract
security guards in British Columbia and there currently exists a market for
these services.  All groups are required to be compliant with the new
legislation by November 1, 2009. With a
concrete enforcement date for the new legislative changes in place, we
anticipate that the market for these services will expand, creating increased
business opportunities for our services.




We have
begun the application process to establish the security training facility and
are continuing to scout suitable properties that meet both the Company’s and the
Ministry’s needs. The main courses that will be taught will be the required
Basic Standards Training 1 and 2 that all security guards must pass in order to
be licensed. Initially, all training will be provided by Charles Payne, our sole
officer and director who has taught both the mandatory security courses, basic
standards training, and advanced courses in private investigation, close
protection and loss prevention in the past. Additional trainers will be hired,
if needed at a later date when we have begun to generate revenues from our
training school. We anticipate charging a fee of C$350 per student to offer both
courses. Classes will be held throughout the week, dependent upon the number of
students and demand. We also intend to offer specific training courses tailored
to the client’s requests including; campus security, film security, hospital
security, hotel security, office tower security etc. These courses will be
billed on a per course basis that will be determined later.




We plan
to complete our web page under the URL address www.principlesecurity.ca
during the next several months andanticipate the cost will be
approximately $500. Most of the design and set up will be done by our sole
officer and director. We will need to incorporate several changes into the
design of our webpage to reflect our current focus on the establishment of
the accredited training facility. We expect to complete the website once we have
secured a suitable location for the accredited training
school. We are
continuing our search to locate a suitable site to establish the training school
and anticipate that the costs associated with the acquisition and set up of the
new facility will be approximately Cdn $4,000. We have been working with several
leasing agents to help us find an appropriate location for the school in the
municipalities of Vancouver, Burnaby, Coquitlam and British Columbia but
our efforts have not yielded any promising prospects. We had initially
anticipated that the security training facility would be operational by August
2009, but most properties we have considered would either not allow for the
appropriate zoning conditions necessary to operate a training facility or the
proposed rental fees would exceed what our current budget would allow for. With
the change in the current regulations, we are hoping more favorable prospects
will be available to us in the near future.




Concurrent
with the scouting of a suitable location for the training school we are
working towards finalizing the Approved Security Training School Application
with the Private Career Training Institutions Agency of British Columbia
(PCTIA). The fees to file the application are Cdn $2,125.




Once we
have raised the cash sufficient to finish the website and it is fully
functional and the accredited training school is established, we intend to focus
on marketing and advertising. We intend to place employment ads
through various local media streams to attract clientele for the training
school. We estimate that we will require approximately Cdn $2,000 for
advertising expenses. Our sole officer and director has been actively seeking
prospective clients through his networking contacts on an on-going basis and
will continue to do so.




We do not
intend to hire any employees or develop the uniformed guard services and private
investigative services until we have established our training school and
acquired a steady stream of clients and revenues. Once we have successfully
established the training school, we plan to launch the uniformed guards service
sector of our business plan and will direct our energies towards the development
of the initial static guard sites.




Currently,
we do not have sufficient funds to carry out our business plan and need to
raise additional capital from a public offering, a private placement or loans.
We anticipate that additional funding will be in the form of issuance of debt
and/or equity financing from the sale of our common stock; however, we have no
assurance that we will be able to raise sufficient funds from the sale of our
common stock to pay all of our anticipated expenses. Management has been
exploring a number of options to meet our obligations and future capital
requirements, including the possibility of equity offering and debt financing
but has not entered into any agreement for any of the foregoing. There can be no
assurance that additional financing will be available to us when needed, or, if
available, that it can be obtained on commercially reasonable terms. We
currently have no plans or commitments for additional funding. If financing is
not available on satisfactory terms, we may be unable to continue, develop or
expand our activities.




We have
no employees, other than our sole officer and director, Charles Payne. We do not
intend to hire additional employees at this time. From inception through to
April 30, 2008, our sole officer was compensated for his administrative and
consulting services to the Company and paid Cdn $2,000 a month. However, as of
May 1, 2008, Mr. Payne is no longer being compensated for his services to the
Company, as we do not have sufficient funds to pay him this time. 
His compensation may be reinstated in the future if and
when additional funds become available.




We will
not be conducting any research. We do not intend to buy or sell any
property or significant equipment during the next twelve months.








8




Results
of Operations




Fiscal year ended May 31,
2009 compared to the fiscal year ended May 31, 2008
  For the
fiscal year ended May 31, 2009, we incurred a net operating loss of $58,090, or
$0.01 per share, as compared to a net loss of $72,251, or $0.01 per
share, for the fiscal year ended May 31, 2008. Our cumulative net
losses from inception on November 27, 2006 to the fiscal year ended May 31, 2009
were $149,673.
  We
incurred total expenses of $58,090 for the fiscal year ended May 31, 2009, as
compared to total expenses of $75,251 for the fiscal year ended May 31,
2008. The majority of our expenses for the fiscal year ended May 31,
2009 were attributed to audit fees in the amount of $17,093 (2008 -
$12,075, cumulative - $29,168); accounting and administration fees in the amount
of $12,684 (2008 - $2,700, cumulative - $15,534); and consulting fees paid to
our sole officer and director in the amount of $12,094 (2008 - $31,854,
cumulative - $47,430). Our other expenses consisted of $6,097 in transfer
agent and filing fees (2008 - $2,531, cumulative - $9,123); $2,592 in office
rent (2008 - $3,477, cumulative - $7,374); $2,591 in license fees (2008 -
$Nil, cumulative - $2,591); $1,184 in telephone and internet service fees (2008
- 1,076, cumulative - $2,260); $1,391 in legal fees incurred in connection with
the preparation and filing of our periodic reports with the SEC (2008 - $10,824,
cumulative - $23,052); $1,206 in loss (gain) on foreign exchange (2008 -
($247), cumulative - $1,338); $523 in interest expense on our outstanding
convertible debentures (2008 - $Nil, cumulative $523); $363 in equipment
depreciation expense (2008 - $625, cumulative - $1,029); $208 in bank service
charges and fees (2008 - $309, cumulative - $912); and $64 in miscellaneous
office expense (2008 - $664, cumulative - $1,351).
  Our
expenses decreased during the fiscal year ended May 31, 2009 mainly due
to a decrease in consulting fees and a reduction in legal
fees.
  Liquidity
and Capital Resources
  We
currently only have $1,496 in cash in the bank and are continuing
to seek sources of funding to continue our business operations. It is expected
we will continue to need further funding until we are able to security a
contract for our services. We currently plan to fund future operations by public
offerings or private placement of equity and/or debt securities as we have done
in the past. However, there can be no assurance that debt or equity financing
will be available to us on acceptable terms to meet these requirements, as and
when needed. Our auditors have expressed substantial doubt about our
ability to continue as a going concern.
 
 As of the
date of this annual report, we have not yet generated any revenues.
  We do not
intend to purchase any significant property or equipment, nor incur any
significant changes in employees during the next 12 months.
  Net cash
flows from financing activities for the fiscal year ended May 31, 2009 were
$13,800 received from convertible debentures we issued in exchange for cash to
use as operating capital. Following are the details of the convertible
debentures issued during the fiscal year ended May 31, 2009:
  n
December 24, 2008, we issued a convertible debenture in exchange for $5,000
in cash. The convertible debenture bears interest at a rate of 10% per annum on
any unpaid principal balance, is secured by the assets of the Company and
accrued interest is due and payable at the end of each calendar quarter, with
the first payment due on the last day of the first calendar quarter after
December 24, 2008. The principal amount is repayable at any time in whole
or in part. The holder of the convertible debenture has the right to
convert any portion of the unpaid principal and/or accrued interest into shares
of our common stock at any time within thirty-six (36) months from December
24, 2008 on the basis of $0.0125 per Unit, where a Unit consists of one
share of common stock for an equivalent amount of principal and interest
due and payable.
  n
December 24, 2008, we issued a second convertible debenture in exchange for
$5,000 in cash. The convertible debenture bears interest at a rate of 10% per
annum on any unpaid principal balance, is secured bythe assets of the Company
and all principal and accrued interest is due and payable at the end of each
calendar quarter, with the first payment due on on the last day of the
first calendar quarter after December 24, 2008. The principal amount
is repayable at any time in whole or in part. The holder of the
convertible debenture has the right to convert any portion of the unpaid
principal and/or accrued interest into shares of our common stock at any time
within thirty-six (36) months from December 24, 2008 on the basis of
$0.0125 per Unit, where a Unit consists of one share of common stock for an
equivalent amount of principal and interest due and payable.
  n March
5, 2009, we issued a convertible debenture in exchange for $3,800 in cash.
The convertible debenture bears interest at a rate of 10% per annum on any
unpaid principal balance, is secured bythe assets of the Company and all
principal and accrued interest is due and payable at the end of each calendar
quarter, with the first payment due on on the last day of the first
calendar quarter after March 5, 2009. The principal amount is repayable at
any time in whole or in part.  The holder of the convertible debenture has
the right to convert any portion of the unpaid principal and/or accrued interest
into shares of our common stock at any time within thirty-six (36) months from
March 5, 2009 on the basis of $0.0125 per Unit, where a Unit consists of one
share of common stock for an equivalent amount of principal and interest
due and payable.
   At May
31, 2009, there were no amounts due to related parties, as our
sole officer,
director and shareholder forgave loans due to him from the Company totaling
$35,020 during the fiscal year.
   9
   Off-Balance
Sheet Arrangements
  We have
no off-balance sheet arrangements or contractual or commercial
commitments.
 ITEM
7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.




As a
smaller reporting issuer (as defined in Item 10(f)(1) of Regulation
S-K), we are not required to report quantitative and qualitative
disclosures about market risk specified in Item 305 of Regulation
S-K.


ITEM
8.      CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.


































































10





























Principle
Security International, Inc.


(A
Development Stage Company)





Consolidated
Financial Statements


(Expressed
in U.S. Dollars)


31
May 2009




































11




James
      Stafford
 James
      Stafford
                Chartered
      Accountants
                  Suite
      350 – 1111 Melville
      Street
                  Vancouver, British Columbia
                  Canada
      V6E
      3V6
                  Telephone
      +1 604 669
      0711
                  Facsimile
      +1 604 669
      0754
                  *
      Incorporated professional, James Stafford, Inc
  .
 Report
of Independent Registered Public Accounting Firm
 
 
 To
the Board of Directors and Stockholders of
 Principle
Security International, Inc.
 (A
Development Stage Company)
 
 We have
audited the consolidated balance sheet of Principle Security International,
Inc.(the “Company”) as at 31 May 2009 and the related consolidated
statements of operations, cash flows and changes in stockholders’ deficiency for
the year ended 31 May 2009. 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
audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America).  Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audit provides a reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of 31 May
2009, and the results of its operations, its cash flows and its changes in
stockholders’ deficiency for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  As discussed in Note 1
to the consolidated financial statements, conditions exist which raise
substantial doubt about the Company’s ability to continue as a going concern
unless it is able to generate sufficient cash flows to meet its obligations and
sustain its operations.  Management’s plans in regard to these matters
are also described in Note 1. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
 
 The
consolidated financial statements as at 31 May 2008 and 2007 were audited by
predecessor auditors who expressed an opinion without reservation on those
statements in their report dated 11 August 2008.
 
 
 /s/ James Stafford
 Vancouver,
Canada                                                                                                                                              
Chartered
Accountants
 
 14 August
2009
   12





I.
      Vellmer Inc.Chartered
      Accountant*721
      – 602 W. Hastings StreetVancouver,
      B.C., V6B 1P2Tel:
              604-687-3773Fax:
              604-687-3778E-mail:
              vellmer@i-vellmer.ca*denotes
      an incorporated professional
 
 
 
 
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 To the
Stockholders of
 Principle
Security International, Inc.
 (A
Development Stage Company)
 
 I have
audited the accompanying consolidated balance sheet of Principle Security
International Inc. as at May 31, 2008 and the related consolidated statements of
operations, stockholders’ equity and cash flows for the year ended May 31, 2008
and the period ended May 31, 2007.  These consolidated financial
statements are the responsibility of the Company’s management.  My
responsibility is to express an opinion on these consolidated financial
statements based on my audits.
 
 I
conducted my audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that I plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  I believe that my audits provide a reasonable basis for
my opinion.
 
 In my
opinion, these consolidated financial statements present fairly, in all material
respects, the financial position of Principle Security International Inc. as at
May 31, 2008 and the results of its operations and its cash flows for the year
ended May 31, 2008 and the period ended May 31, 2007 in conformity with
accounting principles generally accepted in the United States of
America.
 
 The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern.  As discussed in Note 1 to the financial
statements, the Company’s business is in the development stage and has not
generated any revenue to date.  At May 31, 2008 the Company has
limited cash resources and will likely require new financing, either through
issuing shares or debt, to continue the development of its
business.  These factors together raise substantial doubt about its
ability to continue as a going concern. Management’s plans in regards to these
matters are also discussed in Note 1. The financial statements do not include
any adjustment that might result from the outcome of this
uncertainty.
 
 
 Vancouver,
Canada                                                                                                  /s/
I. Vellmer
Inc.
 August
11,
2008                                                                                                      Chartered
Accountants







13


Principle
Security International, Inc.


(A
Development Stage Company)


Consolidated
Balance Sheets


(Expressed
in U.S. Dollars)


As
at 31 May






2009
            
            2008$
            
            $AssetsCurrentCash
      and cash equivalents (Note 2)
            
            1,496
            
            21,067Goods
      and Services Tax recoverable
            
            234
            
            861,730
            
            21,153Equipment (Note
      3)
            
            1,057
            
            1,4202,787
            
            22,573LiabilitiesCurrentAccounts
      payable and accrued liabilities (Note 4)
            
            13,508
            
            436Convertible
      debentures (Note 5)
            
            14,323
            
            -Due
      to related party (Note 6)
            
            -
            
            35,02027,831
            
            35,456Stockholders’
      deficiencyCapital stock (Note
      7)Authorized100,000,000
      of common shares, par value $0.00001100,000,000
      of preferred shares, par value $0.00001Issued
      and outstanding2008
      – 8,518,000 common shares, par value $0.000012009
      – 8,518,000 common shares, par value $0.00001
            
            85
            
            85Additional
      paid in capital
            
            124,544
            
            78,615Deficit,
      accumulated during the development stage
            
            (149,673)
            
            (91,583)(25,044)
            
            (12,883)2,787
            
            22,573




Nature and Continuance of Operations(Note 1), Contingency (Note
10) and Subsequent Events(Note 10)





On
behalf of the Board:





/s/ 
Charles
Payne,Director




The
accompanying notes are an integral part of the consolidated financial
statements.


14


Principle
Security International, Inc.


(A
Development Stage Company)


Consolidated
Statements of Operations


(Expressed
in U.S. Dollars)






For
      the period from the date of inception on 27 November 2006 to
              31
      May 2009
              (unaudited)
            
            For
      the year ended
              31
      May 2009
            
            For
      the year ended
              31
      May 2008
            
            For
      the year ended
              31
      May 2007$
            
            $
            
            $
            
            $ExpensesAccounting
      and administration
            
            15,534
            
            12,684
            
            2,700
            
            150Amortization
            
            1,029
            
            363
            
            625
            
            41Bank
      charges
            
            912
            
            208
            
            309
            
            395Consulting
      fees (Notes 6, 7 and 9)
            
            47,430
            
            12,094
            
            31,854
            
            3,482Interest
      expense (Note 5)
            
            523
            
            523
            
            -
            
            -Legal
      fees
            
            23,052
            
            1,391
            
            10,824
            
            10,837Licenses
            
            2,591
            
            2,591
            
            -
            
            -Marketing
      and advertising
            
            156
            
            -
            
            -
            
            156Office
      expenses
            
            1,351
            
            64
            
            664
            
            623Office
      rent
            
            7,374
            
            2,592
            
            3,477
            
            1,305Professional fees
            
            29,168
            
            17,093
            
            12,075
            
            -Security
      supplies, uniforms, general
            
            2,724
            
            -
            
            1,255
            
            1,469Telephone
      and internet fees
            
            2,260
            
            1,184
            
            1,076
            
            -Transfer
      agent and filing fees
            
            9,123
            
            6,097
            
            2,531
            
            495Vehicles
      expenses
            
            5,108
            
            -
            
            5,108
            
            -Loss
      (gain) on foreign exchange
            
            1,338
            
            1,206
            
            (247)
            
            379Net
      loss for the period
            
            (149,673)
            
            (58,090)
            
            (72,251)
            
            (19,332)Basic
      and diluted earnings per common share
            
            (0.01)
            
            (0.01)
            
            (0.00)Weighted
      average number of common shares used in per share
    calculations
            
            8,518,000
            
            8,518,000
            
            5,599,535







The
accompanying notes are an integral part of the consolidated financial
statements.




















15


Principle
Security International, Inc.


(A
Development Stage Company)


Consolidated
Statements of Cash Flows


(Expressed
in U.S. Dollars)






For
      the period from the date of inception on
              27
      November 2006 to 31 May 2009
              (unaudited)
            
            For
      the year ended
              31
      May 2009
            
            For
      the year ended
              31
      May 2008
            
            For
      the year ended
              31
      May 2007$
            
            $
            
            $
            
            $Cash
      flows from (used in) operating activitiesNet
      loss for the period
            
            (149,673)
            
            (58,090)
            
            (72,251)
            
            (19,332)Adjustments
      to reconcile loss to net cash used by operating activitiesAmortization
      (Note 3)
            
            1,029
            
            363
            
            625
            
            41Interest
      (Note 5)
            
            523
            
            523
            
            -
            
            -Contribution
      to capital by related party (Notes 6 and 7)
            
            10,909
            
            10,909
            
            -
            
            -Changes
      in operating assets and liabilities(Increase)
      decrease in Goods and Services Tax recoverable
            
            (234)
            
            (148)
            
            72
            
            (158)Increase
      (decrease) in accounts payable and accrued liabilities
            
            13,508
            
            13,072
            
            (1,688)
            
            2,124Increase
      in due to related parties (Notes 6 and 7)
            
            20
            
            -
            
            -
            
            20(123,918)
            
            (33,371)
            
            (73,242)
            
            (17,305)Cash
      flows used in investing activitiesPurchase
      of property, plant and equipment
            
            (2,086)
            
            -
            
            -
            
            (2,086)Cash
      flows from financing activitiesCommon
      shares issued for cash (Note 7)
            
            78,700
            
            -
            
            -
            
            78,700Convertible
      debentures (Note 5)
            
            13,800
            
            13,800
            
            -
            
            -Loans
      from related parties (Notes 6 and 7)
            
            35,000
            
            -
            
            35,000
            
            -127,500
            
            13,800
            
            35,000
            
            78,700Increase
      (decrease) in cash and cash equivalents
            
            1,496
            
            (19,571)
            
            (38,242)
            
            59,309Cash
      and cash equivalents, beginning of period
            
            -
            
            21,067
            
            59,309
            
            -Cash
      and cash equivalents, end of period
            
            1,496
            
            1,496
            
            21,067
            
            59,309





Supplemental Disclosures with Respect
to Cash Flows(Note 9)










The
accompanying notes are an integral part of the consolidated financial
statements.


16


Principle
Security International, Inc.


(A
Development Stage Company)


Consolidated
Statements of Changes in Stockholders’ Deficiency


(Expressed
in U.S. Dollars)


Number
      of shares issued
            Share
      capital
            Additional
      paid in capital
            Deficit,
      accumulated during the
              development
      stage
            Stockholders’
      deficiency$
            
            $
            
            $
            
            $Balance
      at 27 November 2006 (inception)
            
            -
            
            -
            
            -
            
            -
            
            -Common
      shares issued – cash ($.001 per share) (Note 6)
            
            2,500,000
            
            25
            
            2,475
            
            -
            
            2,500Common
      shares issued – cash ($.0075 per share) (Note 6)
            
            5,800,000
            
            58
            
            43,442
            
            -
            
            43,500Common
      shares issued – cash ($.15 per share) (Note 6)
            
            218,000
            
            2
            
            32,698
            
            -
            
            32,700Net
      loss for the period
            
            -
            
            -
            
            -
            
            (19,332)
            
            (19,332)Balance
      at 31 May 2007 (unaudited)
            
            8,518,000
            
            85
            
            78,615
            
            (19,332)
            
            59,368Net
      loss for the period
            
            -
            
            -
            
            -
            
            (72,251)
            
            (72,251)Balance
      at 31 May 2008
            
            8,518,000
            
            85
            
            78,615
            
            (91,583)
            
            (12,883)Contributions
      to capital by related party
              (Notes 6, 7 and 9)
            
            -
            
            -
            
            45,929
            
            -
            
            45,929Net
      loss for the year
            
            -
            
            -
            
            -
            
            (58,090)
            
            (58,090)Balance
      at 31 May 2009
            
            8,518,000
            
            85
            
            125,544
            
            (149,673)
            
            (25,044)
































The
accompanying notes are an integral part of the consolidated financial
statements.
  17
   Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 31
May
2009


1.
            Nature
      and Continuance of Operations





Principle
Security International, Inc. (the “Company”) was incorporated under the laws of
the State of Nevada on 27 November 2006.  The Company intends to
conduct its business through its wholly owned subsidiary, Principle Security
International Incorporated, a company incorporated in Canada.





These
consolidated financial statements represent the presentation on a consolidated
basis of the accounts of the Company and its wholly owned subsidiary, Principle
Security International Incorporated, a company incorporated under the laws of
British Columbia, Canada on 29 November 2006.





The
Company is a development stage enterprise, as defined in Statements of Financial
Accounting Standards (“SFAS”) No. 7.  The Company is devoting all of
its present efforts to securing and establishing a new business and its planned
principle operations have not commenced.  Accordingly, no revenue has
been derived during the organization period.





The
consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States of
America (“GAAP”) applicable to development stage enterprises, and are expressed
in U.S. dollars.  The Company’s fiscal year end is 31
May.





The
Company’s consolidated financial statements as at 31 May 2009 and for the year
then ended have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and commitments in the
normal course of business.  The Company has a loss of $58,090 for the
year ended 31 May 2009 (2008 - $72,251, 2007 - $19,332) and has a working
capital deficit of $26,101 at 31 May 2009 (2008 – working capital of
$14,303).





Management
cannot provide assurance that the Company will ultimately achieve profitable
operations or become cash flow positive, or raise additional debt and/or equity
capital.  Management believes that the Company’s capital resources
should be adequate to continue operating and maintaining its business strategy
during the fiscal year ending 31 May 2010.  However, if the Company is
unable to raise additional capital in the near future, due to the Company’s
liquidity problems, management expects that the Company will need to curtail
operations, liquidate assets, seek additional capital on less favorable terms
and/or pursue other remedial measures.  These consolidated financial
statements do not include any adjustments related to the recoverability and
classification of assets or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going
concern.





At 31 May
2009, the Company was not engaged in a business and had suffered losses from
development stage activities to date.  Although management is
currently attempting to implement its business plan, and is seeking additional
sources of equity or debt financing, there is no assurance these activities will
be successful.  Accordingly, the Company must rely on its president to
perform essential functions without compensation until a business operation can
be commenced.  These factors raise substantial doubt about the ability
of the Company to continue as a going concern.  The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.






18




Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 31
May
2009


2.
            Significant
      Accounting Policies




The
following is a summary of significant accounting policies used in the
preparation of these consolidated financial statements.





Basis
of presentation





The
consolidated financial statements of the Company have been prepared in
accordance with GAAP and are expressed in U.S. dollars.  The Company’s
fiscal year end is 31 May.





Cash
and cash equivalents





Cash and
cash equivalents include highly liquid investments with original maturities of
three months or less. As at 31 May 2009, the Company has cash and cash
equivalents in the amount of $1,496 (2008 - $21,067).





Equipment





Equipment
is recorded at cost and depreciation is provided over its estimated economic
lives at 30%.





Long-lived
assets





In
accordance with SFAS No. 144, “Accounting for Impairment or
Disposal of Long-Lived Assets”, the carrying value of long-lived assets
is reviewed on a regular basis for the existence of facts or circumstance that
may suggest impairment.  The Company recognizes an impairment when the
sum of the expected undiscounted future cash flows is less than the carrying
amount of the asset.  Impairment losses, if any, are measured as the
excess of the carrying amount of the asset over its estimated fair
value.





Financial
instruments





The
carrying value of cash and cash equivalents, Goods and Services Tax recoverable,
accounts payable and accrued liabilities and convertible debentures approximates
their fair value because of the short maturity of these
instruments.  The Company’s operations are in Canada and virtually all
of its assets and liabilities are giving rise to significant exposure to market
risks from changes in foreign currency rates.  The Company’s financial
risk is the risk that arises from fluctuations in foreign exchange rates and the
degree of volatility of these rates.  Currently, the Company does not
use derivative instruments to reduce its exposure to foreign currency
risk.





Derivative
financial instruments





The
Company has not, to the date of these consolidated financial statements, entered
into derivative instruments to offset the impact of foreign currency
fluctuations.





19




Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 31
May
2009


Income
taxes





Deferred
income taxes are reported for timing differences between items of income or
expense reported in the financial statements and those reported for income tax
purposes in accordance with SFAS No. 109, “Accounting for Income Taxes”,
which requires the use of the asset/liability method of accounting for income
taxes.  Deferred income taxes and tax benefits are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, and for tax loss and credit
carry-forwards.  Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled.  The Company provides for deferred taxes for the estimated
future tax effects attributable to temporary differences and carry-forwards when
realization is more likely than not.





Basic
and diluted net loss per share





The
Company computes net loss per share in accordance with SFAS No. 128, “Earnings per
Share.”  SFAS No. 128 requires presentation of both basic and
diluted earnings per share (“EPS”) on the face of the income
statement.  Basic EPS is computed by dividing net loss available to
common shareholders (numerator) by the weighted average number of shares
outstanding (denominator) during the period.  Diluted EPS gives effect
to all potentially dilutive common shares outstanding during the period using
the treasury stock method and convertible preferred stock using the if-converted
method.  In computing diluted EPS, the average stock price for the
period is used in determining the number of shares assumed to be purchased from
the exercise of stock options or warrants.  Diluted EPS excludes all
potentially dilutive shares if their effect is anti-dilutive.





Comprehensive
loss





SFAS No.
130, “Reporting Comprehensive
Income”, establishes standards for the reporting and display of
comprehensive loss and its components in the financial statements.  As
at 31 May 2009, the Company has no items that represent a comprehensive loss
and, therefore, has not included a schedule of comprehensive loss in the
consolidated financial statements.





Segments
of an enterprise and related information





SFAS No.
131, “Disclosures about
Segments of an Enterprise and Related Information,” supersedes SFAS No.
14, “Financial Reporting for
Segments of a Business Enterprise.”  SFAS No.131 establishes
standards for the way that public companies report information about operating
segments in annual financial statements andrequires reporting of
selected information about operating segments in interim financial statements
issued to the public.  It also establishes standards for disclosures
regarding products and services, geographic areas and major
customers.  SFAS No.131 defines operating segments as components of a
company about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.  The Company has
evaluated this SFAS and does not believe it is applicable at this
time.




20




Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 31
May
2009


Start-up
expenses





The
Company has adopted Statement of Position No. 98-5, “Reporting the Costs of Start-up
Activities,” which requires that costs associated with start-up
activities be expensed as incurred.  Accordingly, start-up costs associated
with the Company's formation have been included in the Company's general and
administrative expenses for the period from the date of inception on 27 November
2006 to 31 May 2009.





Foreign
currency translation





The
Company’s functional and reporting currency is in U.S. dollars.  The
consolidated financial statements of the Company are translated to U.S. dollars
in accordance with SFAS No. 52, “Foreign Currency
Translation.”  Monetary assets and liabilities denominated in
foreign currencies are translated using the exchange rate prevailing at the
balance sheet date.  Gains and losses arising on translation or
settlement of foreign currency denominated transactions or balances are included
in the determination of income.  The Company has not, to the date of
these consolidated financial statements, entered into derivative instruments to
offset the impact of foreign currency fluctuations.





Use
of estimates





The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenditures
during the reporting period.  Actual results could differ from these
estimates.




Changes
in Accounting Policies





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115”.  This statement permits entities to choose to measure
many financial instruments and certain other items at fair value. Most of the
provisions of SFAS No. 159 apply only to entities that elect the fair value
option. However, the amendment to SFAS No. 115 “Accounting for Certain Investments
in Debt and Equity Securities” applies to all entities with
available-for-sale and trading securities. SFAS No. 159 is effective as of the
beginning of an entity’s first fiscal year that begins after 15 November 2007.
Early adoption is permitted as of the beginning of a fiscal year that begins on
or before 15 November 2007, provided the entity also elects to apply the
provision of SFAS No. 157, “Fair Value
Measurements”.  The adoption of SFAS No. 159 did not have a
material impact on the Company’s consolidated financial statements.





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”.
The objective of SFAS No. 157 is to increase consistency and comparability in
fair value measurements and to expand disclosures about fair value
measurements.  SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. SFAS No. 157 applies
under other accounting pronouncements that require or permit fair value
measurements and does not require any new fair value measurements. The
provisions of SFAS No. 157 are effective for fair value measurements made in
fiscal years beginning after 15 November 2007. The adoption of SFAS No. 157 did
not have a material impact on the Company’s consolidated financial
statements.








21
 
  Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 31
May
2009


Recent
Accounting Pronouncements





In June
2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 168,
“The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principle – a
replacement of FASB statement No. 162”.  SFAS  No.
168 replaces the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles as stated with FASB Accounting Standards
Codification becoming the source of authoritative U.S. GAAP recognized by the
FASB to be applied by nongovernmental entities. Rules and interpretive releases
of the SEC under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. SFAS No. 168 is effective for financial
statements issued for fiscal years and interim periods beginning after 15
September 2009.  The Company does not expect this adoption will have a
material impact on the Company’s consolidated financial statements.




In June 2009, the FASB
issued SFAS No. 167,“Amendments
to FASB Interpretation No. 46(R)”.  SFAS No. 167
is intended to establish general standards of financial reporting for
companies with variable interest entities.  It requires timely and
useful disclosure of information related to the Company’s involvement with
variable interest entities.  This disclosure should alert all users to
the effects on specific provisions of FASB Interpretation No. 46 (revised
December 2003), “Consolidation
of Variable Interest Entities”, related to the changes to the
special-purpose entity proposal in FASB Statement No. 166, “Accounting for Transfers of
Financial Assets”,and the treatment of
specific provisions of Interpretation 46(R).  SFAS No. 167 is
effective for financial statements issued for fiscal years and interim periods
beginning after 15 November 2009.  The Company has determined that the
adoption of SFAS No. 167 will have no impact will have on its consolidated
financial statements.




In June
2009, the FASB issued SFAS No. 166, “Accounting
for Transfers of Financial Assets—an amendment of FASB Statement”(“SFAS
166”).  SFAS No. 166 is intended to establish standards of financial
reporting for the transfer of assets and transferred assets to improve the
relevance, representational faithfulness, and comparability.  SFAS 166 was
established to clarify derecognition of assets under FASB Statement No. 140,Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities.SFAS No. 166 is effective for financial
statements issued for fiscal years and interim periods beginning after 15
November 2009.  The Company has determined that the adoption of SFAS
No. 166 will have no impact will have on its consolidated financial
statements.





In May
2009, the FASB issued SFAS No. 165, “Subsequent Events”. SFAS No.
165 is intended to establish general standards of accounting for and disclosure
of events that occur after the balance sheet date, but before financial
statements are issued or are available to be issued.  It requires the
disclosure of the date through which an entity has evaluated subsequent events
and the basis for that date–that is, whether that date represents the date the
financial statements were issued or were available to be issued. This disclosure
should alert all users of financial statements that an entity has not evaluated
subsequent events after that date in the set of financial statements being
presented.  SFAS No. 165 is effective for financial statements issued
for fiscal years and interim periods ending after 15 June 2009. The adoption of
this statement did not have a material impact on its consolidated financial
statements.






22
 
  Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 31
May
2009


In May
2008, the FASB issued SFAS No. 163, “Accounting
for Financial Guarantee Insurance Contracts – An interpretation of FASB
Statement No. 60”. SFAS No. 163 requires that an insurance enterprise
recognize a claim liability prior to an event of default when there is evidence
that credit deterioration has occurred in an insured financial obligation. It
also clarifies how Statement 60 applies to financial guarantee insurance
contracts, including the recognition and measurement to be used to account for
premium revenue and claim liabilities, and requires expanded disclosures about
financial guarantee insurance contracts. It is effective for financial
statements issued for fiscal years beginning after 15 December 2008, except for
some disclosures about the insurance enterprise’s risk-management
activities. SFAS No. 163 requires that disclosures about the risk-management
activities of the insurance enterprise be effective for the first period
beginning after issuance. Except for those disclosures, earlier application is
not permitted. The adoption of this statement is not expected to have a material
effect on the Company’s consolidated financial statements.





In May 2008, the FASB
issued SFAS No. 162,“The Hierarchy of Generally Accepted
Accounting Principles”.SFAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles.  This statement shall be
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles”.  The Company
does not expect this adoption will have a material impact on the
Company’s consolidated financial statements.





In March 2008, the FASB
issued SFAS No. 161,“Disclosures about Derivative
Instruments and Hedging Activities – an amendment to FASB Statement No.
133”.SFAS No. 161
is intended to improve financial standards for derivative instruments and
hedging activities by requiring enhanced disclosures to enable investors to
better understand their effects on an entity's financial position, financial
performance, and cash flows. Entities are required to provide enhanced
disclosures about: (a) how and why an entity uses derivative instruments; (b)
how derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations; and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows.  It is effective for financial
statements issued for fiscal years beginning after 15 November 2008, with early
adoption encouraged.  The Company is currently evaluating the impact
of SFAS No. 161 on its consolidated financial statements, and the adoption of
this statement is not expected to have a material effect on the Company’s
consolidated financial statements.





In December 2007, the FASB
issued SFAS No. 160, “Non-controlling
Interests in Consolidated Financial Statements”. This Statement amends
ARB 51 to establish accounting and reporting standards for the non-controlling
(minority) interest in a subsidiary and for the deconsolidation of a subsidiary.
It clarifies that a non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. SFAS No. 160 is effective for fiscal years
beginning after 15 December 2008. The Company has not yet determined the impact,
if any, that SFAS No. 160 will have on its consolidated financial
statements.






23




Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 31
May
2009


In
December 2007, the FASB issued SFAS No.141(R), “Business
Combinations.” SFAS No. 141(R) replaces SFAS No. 141. The statement
retains the purchase method of accounting for acquisitions, but requires a
number of changes, including changes in the way assets and liabilities are
recognized in the purchase accounting. It changes the recognition of assets
acquired and liabilities assumed arising from contingencies, requires the
capitalization of in-process research and development at fair value, and
requires the expensing of acquisition-related costs as incurred. SFAS No. 141
(R) is effective for financial statements issued for fiscal years beginning
after 15 December 2008. The Company is evaluating the impact adopting SFAS No.
141(R) will have on its consolidated financial statements, and the adoption of
this statement is not expected to have a material effect on the
Company’s consolidated financial statements.




International
Financial Reporting Standards




In
November 2008, the Securities and Exchange Commission (“SEC”) issued for comment
a proposed roadmap regarding potential use of financial statements prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board.  Under the proposed
roadmap, the Company would be required to prepare consolidated financial
statements in accordance with IFRS in fiscal year 2014, including comparative
information also prepared under IFRS for fiscal 2013 and 2012.  The
Company is currently assessing the potential impact of IFRS on its consolidated
financial statements and will continue to follow the proposed roadmap for future
developments.





3.
            Equipment





Accumulated
      amortization
            
            Net
      Book ValueCost
            
            2009
            
            2008$
            
            $
            
            $
            
            $Computer equipment
            
            2,086
            
            1,029
            
            1,057
            
            1,420





During
the year ended 31 May 2009, the total additions of the Company to equipment were
$Nil (2008 - $Nil).





4.
            Accounts Payable and Accrued
      Liabilities





Accounts
payable and accrued liabilities are non-interest bearing, unsecured and have
settlement dates within one year.








24






Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 31
May
2009


5.
            Convertible
      Debentures






31
      May 2009
            
            31
      May 2008$
            
            $Issued
      on 24 December 2008, the convertible debenture bears interest at 10% per
      annum on any unpaid principal balance and is secured by a general
      charge on the assets of the Company. The principal amount is repayable at
      any time in whole or in part and accrued interest shall be due at the end
      of each calendar quarter, with the first payment due on the last day of
      the first calendar quarter after 24 December 2008. The holder of the
      convertible debenture has the right to convert any portion of the unpaid
      principal and/or accrued interest into common shares of the Company at any
      time up to 24 December 2011 at $0.0125 per Unit where a Unit
      consists of one common share for an equivalent amount of principal and
      interest due and payable. During the year ended 31 May 2009, the Company
      accrued interest expense of $216. The balance as at 31 May 2009 consists
      of principal and accrued interest of $5,000 (2008 - $Nil) and $216 (2008 -
      $Nil), respectively (Note 10).
            
            5,216
            
            -Issued
      on 24 December 2008, the convertible debenture bears interest at 10% per
      annum on any unpaid principal balance and is secured by a general charge
      on the assets of the Company. The principal amount is repayable at any
      time in whole or in part and accrued interest shall be due at the end of
      each calendar quarter, with the first payment due on the last day of the
      first calendar quarter after 24 December 2008.The holder of the
      convertible debenture has the right to convert any portion of the unpaid
      principal and/or accrued interest into common shares of the Company at any
      time up to 24 December 2011 at $0.0125 per Unit where a Unit consists
      of one common share for an equivalent amount of principal and interest due
      and payable. During the year ended 31 May 2009, the Company accrued
      interest expense of $216. The balance as at 31 May 2009 consists of
      principal and accrued interest of $5,000 (2008 - $Nil) and $216 (2008 -
      $Nil), respectively (Note 10).
            
            5,216
            
            -Issued
      on 5 March 2009, the convertible debenture bears interest at 10% per annum
      on any unpaid principal balance and is secured by a general charge on the
      assets of the Company. The principal amount is repayable at any time in
      whole or in part and accrued interest shall be due at the end of each
      calendar quarter, with the first payment due on the last day of the first
      calendar quarter after 5 March 2009. The holder of the convertible
      debenture has the right to convert any portion of the unpaid principal
      and/or accrued interest into common shares of the Company at any time up
      to 5 March 2012 at $0.0125 per Unit where a Unit consists of one common
      share for an equivalent amount of principal and interest due and payable.
      During the year ended 31 May 2009, the Company accrued interest expense of
      $91. The balance as at 31 May 2009 consists of principal and accrued
      interest of $3,800 (2008 - $Nil) and $91 (2008 - $Nil),
      respectively.
            
            3,891
            
            -14,323
            
            -










25






Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 31
May
2009    6.
                  Due
      to Related Party and Related Party
Transaction


As at 31
May 2009, the amount due to related party consists of $Nil (2008 - $35,020)
payable to a director and shareholder of the Company.  This balance is
non-interest bearing, unsecured and has no fixed terms of
repayment.








During
year ended 31 May 2009, a director and shareholder of the Company forgave loans
to the Company totaling $35,020.  This loan forgiveness has been recorded
as contributions to capital of the Company (Notes 7 and 9).





During
the year ended 31 May 2009, a director and shareholder of the Company made
contributions to capital for consulting fees in the amount of $10,909 (2008 –
$Nil) (Notes 7 and 9).








7.
            Capital
      Stock





Authorized




The total
authorized capital is 100,000,000 common shares with a par value of $0.00001 per
common share and 100,000,000 preferred shares with a par value of
$0.00001.




Issued
and outstanding




The total
issued and outstanding capital stock is 8,518,000 common shares with a par value
of $0.00001 per common share.




During
the year ended 31 May 2007, the Company issued 8,518,000 common shares for cash
proceeds of $78,700.




The common stock is not subject to warrants, agreements or options at
31 May 2009.




During
the year ended 31 May 2009, a director and shareholder of the Company made
contributions to capital for consulting fees in the amount of $10,909 (2008 –
$Nil) (Notes 6 and 9).


During
year ended 31 May 2009, a director and shareholder of the Company forgave loans
to the Company totaling $35,020.  This loan forgiveness has been recorded
as contributions to capital of the Company (Notes 6 and 9).




26






Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 31
May
2009
  8.
                  Income
      Taxes
                    
                    The
      Company has losses carried forward for income tax purposes to 31 May
      2009.  There are no current or deferred tax expenses for the
      year ended 31 May 2009 due to the Company’s loss position. The Company has
      fully reserved for any benefits of these losses.  The deferred
      tax consequences of temporary differences in reporting items for financial
      statement and income tax purposes are recognized, as
      appropriate.  Realization of the future tax benefits related to
      the deferred tax assets is dependent on many factors, including the
      Company’s ability to generate taxable income within the net operating loss
      carryforward period.  Management has considered these factors in
      reaching its conclusion as to the valuation allowance for financial
      reporting purposes.
                        The
      provision for refundable federal income tax consists of the
      following:


For
      the year ended 31 May 2009
            
            For
      the year ended 31 May 2008
            
            For
      the year ended 31 May 2007$
            
            $
            
            $Deferred tax asset attributable to:Current operations
            
            16,392
            
            20,148
            
            4,514Amortization
            
            (111)
            
            (213)
            
            (14)Forgiveness of related party debt (Notes 6, 7 and 9)
            
            (5,253)Less: Change in valuation allowance
            
            (11,028)
            
            (19,935)
            
            (4,500)Net refundable amount
            
            -
            
            -
            
            -




The composition of the Company’s deferred tax assets as at 31 May 2009 and 2008
are as follows:





2009
            
            2008$
            
            $Net income tax operating loss carryforward
            
            113,624
            
            72,251Statutory federal income tax rate
            
            15%-30.67%
            
            15%-34.50%Deferred tax asset
            
            33,087
            
            24,435Tax loss carryforwardLess: Valuation allowance
            
            (33,087)
            
            (24,435)Net deferred tax asset
            
            -
            
            -





The
potential income tax benefit of these losses has been offset by a full valuation
allowance.





27




Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 31
May
2009





As at 31
May 2009, the Company has an unused net operating loss carry-forward balance of
approximately $113,624 that is available to offset future taxable
income.  This unused net operating loss carry-forward balance expires
in 2029.





9.
            Supplemental
      Disclosures with Respect to Cash
Flows





For
      the period from the date of inception on 27 November 2006 to
              31
      May 2009
              (unaudited)
            
            For
      the year ended
              31
      May 2009
            
            For
      the year ended
              31
      May 2008
            
            For
      the year ended
              31
      May 2007$
            
            $
            
            $Cash paid during the year for interest
            
            -
            
            -
            
            -
            
            -Cash paid during the year for income taxes
            -
            
            -
            
            -
            
            -Foreign exchange gain
            
            1,338
            
            1,206
            
            (247)
            
            379




During
the year ended 31 May 2009, a director and shareholder of the Company made
contributions to capital for consulting fees in the amount of $10,909 
(2008 – $Nil) (Notes 6 and 7).





During
year ended 31 May 2009, a director and shareholder of the Company forgave loans
to the Company totaling $35,020.  This loan forgiveness has been recorded
as contributions to capital of the Company (Notes 6 and 7).





10.
            Contingency









11.
              Subsequent
      Events
 
 There are
no subsequent events from the date of the year ended 31 May 2009 to the date the
financial statements were available to be issued on 14 August 2009.











28


ITEM 9.     
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.


There
have been no disagreements with our current or former accountants on accounting
or other financial disclosures since inception. During the fiscal year ended May
31, 2009, we changes our principal auditing firm to James Stafford Chartered
Accountants, Vancouver, British Columbia, Canada.




ITEM 9A.    CONTROLS
AND PROCEDURES.




Evaluation
of Disclosure Controls and Procedures


We
maintain “disclosure controls and procedures,” as such term is defined in Rule
13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that
are designed to ensure that information required to be disclosed in our Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission rules and forms, and
that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. We
conducted an evaluation (the “Evaluation”), under the supervision and with the
participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”), of the effectiveness of the design and operation of our disclosure
controls and procedures (“Disclosure Controls”) as of the end of the period
covered by this report pursuant to Rule 13a-15 of the Exchange Act. Based on
this Evaluation, our CEO and CFO concluded that our Disclosure Controls were
effective as of the end of the period covered by this report.




Changes
in Internal Controls




There
were no changes in our internal control over financial reporting during
the fiscal year ended May 31, 2009 that have materially affected, or
are reasonably likely to have materially affect, our internal control over
financial reporting.




Limitations
on the Effectiveness of Controls




Our
management, which includes our CEO and CFO, does not expect that our Disclosure
Controls and internal controls will prevent all errors and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company will be or have been
detected.




The
design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions; over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.




CEO
and CFO Certifications




Included
in this report are Certifications of of our principal executive and
principal accounting officer. These Certifications are required in
accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302
Certifications). This Item of this report, which you are currently reading is
the information concerning the Evaluation referred to in the Section 302
Certifications and this information should be read in conjunction with the
Section 302 Certifications for a more complete understanding of the topics
presented.




Management’s
Annual Report on Internal Control over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting as of May 31, 2009 using the criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).




A
material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis. In its
assessment of the effectiveness of internal control over financial reporting as
of May 31, 2009, management concluded that our internal controls over
financial reporting were not operating effectively. It was determined that there
were control deficiencies that when aggregated, may possibly be viewed as a
material weakness in our internal control over financial reporting as of May 31,
2009 and it is clarified that management did not identify any material
weaknesses in its internal control over financial reporting.






29






Internal
Control deficiencies identified for the period ended May 31, 2009, were as
follows:




1.     
We do not employ an Audit Committee – While not being legally obligated to have
an audit committee, it is our view that such a committee, including a financial
expert member, is an utmost important entity level control over our financial
statements. Currently our sole officer and director, who is also the sole member
of the Board of Directors, acts in the capacity of the Audit Committee. Because
he is our sole member, he cannot be considered independent and lacks sufficient
financial expertise for overseeing financial reporting
responsibilities.




As a
result of the material weaknesses described above, management has concluded that
the Company did not maintain effective internal control over financial reporting
as of May 31, 2008 based on criteria established in Internal Control—Integrated
Framework issued by COSO.




Our
auditors did not test the effectiveness of nor relied on our internal controls,
or lack thereof, during their audit of our fiscal year ended May 31,
2009.




ITEM
9B.    OTHER INFORMATION




None.




PART
III




ITEM
      10.
            DIRECTORS, EXECUTIVE OFFICERS,
      PROMOTERS AND CONTROL PERSONS;
      COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
  ACT.




Directors
and Executive Officers


The
following table sets forth the name, positions and age of our sole executive
officer and director. Directors are elected at the annual meeting of
stockholders and serve for one year or until their successors are elected and
qualify. Officers are elected by the Board of Directors and their terms of
office are, except to the extent governed by employment contract, at the
discretion of the Board of Directors.


Name
            Age
            TitleChief
      Executive and Chief Financial Officer,Charles
      Payne
            47
            President,
      Secretary/Treasurer, PrincipalAccounting
      Officer and sole Director





Background
of Officers and Directors




Mr.
Charles Payne has been our President, Principal Executive Officer, Principal
Accounting Officer, Secretary, Treasurer and sole member of the Board of
Directors since our inception on November 27, 2006. Mr.
Payne graduated from the University of British Columbia in 1987 with a
Bachelor of Arts D egree in
International Relations.




Prior to
founding Principle Security International, Inc., Mr. Payne was involved in
the Security and Investigations industry in the Greater Vancouver, British
Columbia area since 1980 in a variety of capacities including private
investigator, skip tracer (an unlicensed investigator, employed by a collection
agency who is responsible for locating debtors and forwarding their contact
information to the collection agency) for D. Appleton and Associates (May
1993-July 1994) and PDQ Skip Tracing (July 1994 – December 1994) and as a
protective services operative agent for Intercon Security Limited (1989 through
2006).  Mr. Payne possesses extensive experience in basic guard services and mobile alarm/crisis
response, both as a manager and an employee.




From
April 2001 to March 2004, Mr. Payne was the assistant chief education officer
for Hilltop Security Academy; in Surrey, British Columbia, Canada. He has taught
both the mandatory security courses, basic standards training, and advanced
courses in private investigation, close protection and loss
prevention.




From
April 2004 to October 2004, Mr. Payne was employed as the manager of training,
BC for Paladin Security Group in Burnaby, British Columbia, Canada. Mr. Payne’s
main duty was the instruction
of mandatory security courses for all new staff and the design and
implementation of new courses. He also provided staff evaluations and new
employee orientation.




Mr. Payne
has acted as a private security consultant in Alberta, Canada from October 2004
to November 2005, where he provided confidential security services for several
private clients.






30




From
November 2005 to present, Mr. Payne has been acting as an independent security
personnel contractor for a variety of film production companies in the Greater
Vancouver area in British Columbia, Canada.




Other
than our board of directors, Mr. Payne has not been a member of the board of
directors of any corporations during the last five years. Mr. Payne devotes his
time as required to the business of the Company.




Involvement
in Certain Legal Proceedings




To our
knowledge, during the past five years, our sole officer and director: (1)
has not filed a petition under the federal bankruptcy laws or any state
insolvency law, nor had a receiver, fiscal agent or similar officer appointed by
a court for the business or property of such a person, or any partnership in
which he was a general partner at or within two years before the time of such
filing, or any corporation or business association of which he was an executive
officer within two years before the time of such filing; (2) was not convicted
in a criminal proceeding or named subject of a pending criminal proceeding
(excluding traffic violations and other minor offenses); (3) was not the subject
of any order, judgment or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining him from or otherwise limiting the following activities: (i) acting as
a futures commission merchant, introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage transaction merchant, associated
person of any of the foregoing, or as an investment advisor, underwriter, broker
or dealer in securities, or as an affiliated person, director of any investment
company, or engaging in or continuing any conduct or practice in connection with
such activity; (ii) engaging in any type of business practice; (iii) engaging in
any activity in connection with the purchase or sale of any security or
commodity or in connection with any violation of federal or state securities
laws or federal commodity laws; (4) was not the subject of any order, judgment
or decree, not subsequently reversed, suspended or vacated, of any federal or
state authority barring, suspending or otherwise limiting for more than 60 days
the right of such person to engage in any activity described above under this
Item, or to be associated with persons engaged in any such activity; (5) was not
 found by a court of competent jurisdiction in a civil action or by the
Securities and Exchange Commission to have violated any federal or state
securities law and the judgment in subsequently reversed, suspended or vacate;
or (6) was not found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have violated any
federal commodities law, and the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated.




Compliance
with Section 16(a) of the Exchange Act


Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors, officers and persons who beneficially own more than ten percent of
our issued and outstanding common stock to file initial reports of ownership and
any changes in ownership of our common stock or other equity securities
of the Company. Officers, directors and greater than ten percent
stockholders are required by Securities
and Exchange Commission regulations to furnish us with copies of all Section
16(a) forms they file. To the best of our knowledge, all such reports as
required, were filed on a timely basis in compliance with Section
16(a).




Audit
Committee and Audit Committee Financial Expert




We
do not yet have an audit committee or audit committee financial expert
because we are still in the development stages and we believe the cost related
to retaining a financial expert at this time is prohibitive. Further, because of
our limited operations, we believe the services of a financial expert are not
warranted at this time. The Board
of Directors currently acts in the capacity of an audit committee.




Code
of Ethics




We have
adopted a Code of Ethics for our directors, officers and employees. Our Code of
Ethics emphasizes that all employees, officers and directors have a
responsibility for maintaining financial integrity within our company that is
compliant with generally accepted accounting principles and the required
federal, state and provincial securities laws. Our Code
of Ethics can be found in its entirety and is incorporated herein by this
reference to a prior filing in our Exhibit Table Index at the end of this annual
report.










31




ITEM
11.      EXECUTIVE COMPENSATION




The
following table sets forth information with respect to compensation paid by us
to our sole executive officer and director during the three most recent fiscal
years. This information includes the dollar value of base salaries, bonus awards
and number of stock options granted, and certain other compensation, if
any:





Executive Officer Compensation
      TableNon-
            NonqualifiedEquity
            Deferred
            AllName
            
            
            
            
            
            Incentive
            Compensa-
            Otherand
            
            
            
            Stock
            Option
            Plan
            tion
            Compen-Principal
      Position(s)
            
            Salary
            Bonus
            Awards
            Awards
            Compensation
            Earnings
            sation
            TotalYear
            (US$)
            (US$)
            (US$)
            (US$)
            (US$)
            (US$)
            (US$)
            (US$)Charles
      Payne
            2009
            10,909
            0
            0
            0
            0
            0
            0
            10,909CEO, 
      President, Secretary, Treasurer
            2008
            21,854
            0
            0
            0
            0
            0
            0
            21,854and
      Principal Accounting Officer
            2007
            3,482
            0
            0
            0
            0
            0
            0
            3,482





For the
fiscal year ended May 31, 2007 we paid our President Cdn $2,000 for each of the
months of April and May 2007. From June 1, 2007 through to April 30, 2008, we
continued to pay our President Cdn. $2,000 per month for his administrative and
consulting services to the Company. However, as of May 1, 2008, Mr.
Payne was no longer being compensated for his services to the Company, as
we do not have sufficient funds to do so. His compensation may be reinstated in
the future, once additional funds become available.




We
currently have no other stock option plans, retirement, pension, or profit
sharing plans for the benefit of our sole director and officer.




Options/SAR
Grants




No
individual grants of stock options, whether or not in tandem with stock
appreciation rights (“SARs”) and freestanding SARs have been made to our sole
executive officer, or director or employees during the current fiscal year. No
previously granted stock options remain in effect.




Long-Term
Incentive Plan Awards




We do not
have any long-term incentive plans that provide compensation intended to serve
as incentive for performance to occur over a period longer than one fiscal year,
whether such performance is measured by reference to the Company’s financial
performance, stock price or any other measure.




Compensation
of Directors




The
following table sets forth information with respect to compensation paid by us
to our sole director during the last completed fiscal year. Our fiscal year end
is May 31, 2009:




Director
      Compensation Table(a)
            (b)
            (c)
            (d)
            (e)
            (f)
            (g)
            (h)Change
      inPensionFees
            
            
            
            Value
      andEarned
            
            
            Non-Equity
            Nonqualified
            Allor
            
            
            Incentive
            Deferred
            OtherPaid
      in
            Stock
            Option
            Plan
            Compensation           Compen-Cash
            Awards
            Awards
            Compensation
            Earnings
            sation
            TotalName
            ($)
            ($)
            ($)
            ($)
            ($)
            ($)
            ($)Charles
      Payne
            0
            0
            0
            0
            0
            0
            0






32






There are
no standard arrangements pursuant to which our sole director is compensated for
services he provides as a director. No additional amounts are payable to our
sole director for committee participation or special assignments.




Employment
Contracts and Termination of Employment and Change-in-Control
Arrangements




None.




ITEM
12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT




The
following table sets forth the beneficial shareholdings of those persons or
entities who beneficially hold five percent or more of the Company’s common
stock, and our directors and executive officers as a group, as of May 31, 2009
and August 20, 2009, the date of this report, with the computation being based
upon 8,518,000 shares of common stock being issued and outstanding. Each person
has sole voting and investment power with respect to the shares of common stock
shown and all ownership is of record and beneficial.




Direct Amount
      of
            
            PercentName of Beneficial
      Owner
            Beneficial
      Owner
            Position
            of
  ClassPresident,
      Principal Executive Officer,Principal
      Financial Officer, PrincipalCharles
      Payne
            2,500,000
            
            29.35%Accounting
      Officer, Treasurer, Secretaryand
      DirectorAll Officers and Directors as
      aGroup (1
      Person)
            2,500,000
            
            29.35%







Changes
in Control




To the
knowledge of management, there are no other present arrangements or pledges of
the Company’s securities, which may result in a change of control of the
Company.




Securities
Authorized for Issuance Under Compensatory Plans




None.




ITEM
13.      CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND
DIRECTOR INDEPENDENCE




Related Party
Transactions




During
the year ended May 31, 2009, our sole officer, director and shareholder made
contributions to capital for consulting fees in the amount of
$10,909.


During
year ended May 31, 2009, our sole officer, director and
shareholder forgave loans due and payable to him from the Company in the
amount of $35,020.




Director
Independence




Our board
of directors is currently composed of only one member, Charles Payne. Mr. Payne
is not an independent director, as the term "independent" is defined by the
rules of the Nasdaq Stock Market.




ITEM
14.      PRINCIPAL ACCOUNTING FEES AND
SERVICES




(1)
Audit Fees




The
aggregate fees billed for professional services rendered by our principal
accountants for the audit of our annual financial statements for the fiscal year
ended May 31, 2009 were $5,881 and $11,315 for the fiscal year ended May 31,
2008. The reviews for the financial statements included in our quarterly reports
on Form 10-Q during the fiscal year ended May 31, 2009 were $Nil.




33


(2)
Audit-Related Fees


We
incurred no fees for the fiscal years ended May 31, 2009 and 2008 for assurance
and related services by our principal accountants that were reasonably related
to the performance of the audit or review of our financial statements, and not
reported under Audit Fees above.




(3)
Tax Fees




There
were no fees billed for professional services rendered by our principal
accountants for tax compliance, tax advice, preparation and filing of tax
returns and tax planning for the fiscal years ended May 31, 2009 and
2008.




(4)
All Other Fees




We
incurred no other fees during the fiscal years ended April 30, 2009 for
products and services rendered by our principal accountants.


Audit Committee
Requirements
  Section 10A(i) of
the Exchange Act prohibits our auditors from performing audit services for us,
as well as any services not considered to be "audit services",  unless such
services are pre-approved by the audit committee of the Board of Directors, or
unless the services meet certain de minimis standards. Because
we are still in the development stage and have not yet completed our business
plans and/or generated any revenues, we have not yet appointed an audit
committee. Our Board of Directors ensure that:
  ·
              All
      audit services that the auditor may provide to us or any subsidiary
      (including, without limitation, providing comfort letters in connection
      with securities underwritings or statutory audits) as required by
      §10A(i)(1)(A) of the Exchange Act (as amended by the Sarbanes-Oxley Act of
      2002) are preapproved by the Board.
  ·
              All
      non-audit services (other than certain de minimis services
      described in §10A(i)(1)(B) of the Exchange Act (as amended by the
      Sarbanes-Oxley Act of 2002)) that the auditors propose to provide to us or
      any of our subsidiaries are preapproved by the
  Board.
  All audit
fees were approved by the Board of Directors.





ITEM
15.      EXHIBITS




The
following Exhibits required to be filed hereunder and listed as
incorporated  by reference can be found in their entirety in the Form
documents referenced, on the filing date listed, under our SEC File Number
333-145730 on the SEC website at www.sec.gov. These exhibits are
incorporated herein by this reference.




Incorporated
      by referenceFiledExhibit
            Document
      Description
            Form
            Date
            Number
            herewith3.1
            Articles of
      Incorporation
            SB-2
            August 27,
      2007
            3.13.2
            Bylaws
            SB-2
            August 27,
      2007
            3.2Lease Agreement between Principle
      Security International10.1
            Incorporated and Prominex
      Financial Services, Ltd.
            SB-2/A-1
            November 8,
      2007
            10.114.1
            Code of
    Ethics
            10-K
            September
      9, 2008
            14.1Certification of Principal
      Executive Officer and Principal31.1
            Financial Officer pursuant to
      15d-15(e), promulgated underthe Securities and Exchange Act
      of 1934, as amended
            
            
            
            XCertification pursuant to 18
      U.S.C. Section 1350, as32.1
            adopted pursuant to Section 906
      of the Sarbanes-Oxley Actof 2002 (Chief Executive Office
      and Chief Financial
            
            
            
            XOfficer)







34




















SIGNATURES






In
accordance with Section 13 or 15 (d) of the Exchange Act of 1934, the registrant
caused this report to be signed on behalf by the undersigned, thereto duly
authorized on this 20thday of
August 2009.




PRINCIPLE SECURITY
      INTERNATIONAL, INC.BY:
            CHARLES PAYNECharles
      Payne, President, Principal ExecutiveOfficer,
      Principal Financial Officer, PrincipalAccounting
      Officer, Secretary, Treasurer and amember
      of the Board of Directors.
































35










EXHIBIT
INDEX


Incorporated
      by referenceFiledExhibit
              Document
      Description
              Form
              Date
              Number
              herewith3.1
              Articles of
      Incorporation
              SB-2
              August 27,
      2007
              3.13.2
              Bylaws
              SB-2
              August 27,
      2007
              3.2Lease Agreement between Principle
      Security International10.1
              Incorporated and Prominex
      Financial Services, Ltd.
              SB-2/A-1
              November 8,
      2007
              10.114.1
              Code of
      Ethics
              10-K
              September
      9, 2008
              14.1Certification of Principal
      Executive Officer and Principal31.1
              Financial Officer pursuant to
      15d-15(e), promulgated underthe Securities and Exchange Act
      of 1934, as amended
              
              
              
              XCertification pursuant to 18
      U.S.C. Section 1350, as32.1
              adopted pursuant to Section 906
      of the Sarbanes-Oxley Actof 2002 (Chief Executive Office
      and Chief Financial
              
              
              
              XOfficer)




















36