UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
   Washington,
D.C. 20549
   FORM 10-Q
  XQUARTERLY REPORT UNDER TO
SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934
  FOR
THE QUARTERLY PERIOD ENDED FEBRUARY 28,
2010
  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
 (telephone number,
including area code)
   Check whether the issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the last 90 days.YES
[ X ] NO [   ]
   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,” “non-accelerated filer,” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
  Large
      accelerated filer
              [  
    ]
              Accelerated
      filer
              [ 
       ]Non-accelerated
      filer
              [  
      ]
              Smaller reporting
      company
              [X]
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).YES [
X ]   NO [   ]
  At
February 28, 2010, there were 21,295,006 shares of our common stock issued and
outstanding.






1







TABLE
OF CONTENTS








PART
      I - FINANCIAL INFORMATIONItem
      1. Consolidated Financial Statements
              
              3Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of Operations
              
              21Item
      3. Quantitative and Qualitative Disclosures of Market Risk
              
              24Item
      4. Controls and Procedures
              
              24PART
      II - OTHER INFORMATIONItem
      1. Legal Proceedings
              
              24Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
              
              24Item
      3. Defaults Upon Senior Securities
              
              24Item
      4. Submission of Matters to a Vote of Security Holders
              
              25Item
      5. Other Information and Subsequent Events
              
              25.Item
      6. Exhibits
              
              25SIGNATURES
              
              25


2




PART
I – FINANCIAL INFORMATION






ITEM
1. CONSOLIDATED FINANCIAL STATEMENTS




The
accompanying unaudited interim consolidated financial statements
of Principle Security International, Inc. have been prepared in accordance
with accounting principles generally accepted in the United States of America
and the rules of the Securities and Exchange Commission ("SEC"), and should be
read in conjunction with the audited consolidated financial statements and notes
thereto contained in our Annual Report filed with the SEC on Form 10-K on August
27, 2009. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of financial position
and the results of operations for the interim periods presented have been
reflected herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full
year.
  Forward-Looking
StatementsThe statements contained in this Form 10-Q that are not
purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These include statements about our
expectations, beliefs, intentions or strategies for the future, which are
indicated by words or phrases such as anticipate, expect, intend, plan, will,
the Company believes, management believes and similar words or phrases. The
forward-looking statements are based on our current expectations and are subject
to certain risks, uncertainties and assumptions. Our actual results could differ
materially from results anticipated in these forward-looking statements. All
forward-looking statements included in this document are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements.
          3


































Principle
Security International, Inc.


(A
Development Stage Company)





Consolidated
Financial Statements


(Expressed
in U.S. Dollars)


(Unaudited)


28
February 2010

























4





Principle
Security International, Inc.


(A
Development Stage Company)


Consolidated
Balance Sheets


(Expressed
in U.S. Dollars)


(Unaudited)




As
      at
              28
      February
              2010
            
            As
      at
              31
      May
              2009
              (Audited)$
            
            $AssetsCurrentCash
      and cash equivalents (Note 2)
            
            6,144
            
            1,496Amounts
      receivable
            
            609
            
            234Prepaid
      expenses
            
            5,000
            
            -11,753
            
            1,730Property, plant and
      equipment (Note 3)
            
            819
            
            1,05712,572
            
            2,787LiabilitiesCurrentAccounts
      payable and accrued liabilities (Note 4)
            
            3,497
            
            13,508Convertible
      debentures (Note 5)
            
            15,419
            
            14,323Demand
      loans (Note 6)
            
            61,538
            
            -Due
      to related party (Note 7)
            
            5,071
            
            -85,525
            
            27,831Stockholders’
      deficiencyCapital stock (Note
      8)Authorized100,000,000
      of common shares, par value $0.00001100,000,000
      of preferred shares, par value $0.00001Issued
      and outstanding28
      February 2010 – 21,295,006 common shares, par value
      $0.0000131 May 2009 –
      21,295,006 common shares, par value $0.00001
            
            213
            
            213Additional
      paid in capital
            
            124,416
            
            124,416Deficit,
      accumulated during the development stage
            
            (197,582)
            
            (149,673)(72,953)
            
            (25,044)12,572
            
            2,787


Nature and Continuance of Operations(Note 1), Contingency (Note 11)andSubsequent Events(Note
12)





On
behalf of the Board:


/s/
Charles Payne, Director





The
accompanying notes are an integral part of the consolidated financial
statements.
 5





Principle
Security International, Inc.


(A
Development Stage Company)


Consolidated
Statements of Operations


(Expressed
in U.S. Dollars)
 (Unaudited)





For
      the period from the date
              of
      inception on 27 November 2006 to
              28
      February
              2010
            
            For
      the three month period ended 28 February 2010
            
            For
      the three month period ended 28 February 2009
            
            For
      the nine month period ended 28 February 2010
            
            For
      the nine month period ended 28 February 2009$
            
            $
            
            $
            
            $
            
            $ExpensesAmortization
      (recovery) (Note 3)
            
            1,267
            
            (14)
            
            96
            
            238
            
            290Bank
      charges
            
            1,126
            
            81
            
            48
            
            214
            
            161Consulting
      fees (Note 7)
            
            57,185
            
            4,246
            
            152
            
            9,755
            
            12,292Interest
      expense (Notes 5, 6, 7 and 10)
            
            2,228
            
            699
            
            -
            
            1,705
            
            -Legal
      fees
            
            28,721
            
            5,198
            
            2
            
            5,669
            
            1,394Marketing
      and advertising
            
            156
            
            -
            
            -
            
            -
            
            -Office
      and miscellaneous
            
            26,462
            
            2,074
            
            1,498
            
            5,054
            
            6,376Professional
      fees
            
            61,753
            
            6,638
            
            5,734
            
            17,051
            
            18,392Transfer
      agent and filing fees (recovery)
            
            11,590
            
            (1,749)
            
            3,110
            
            2,467
            
            4,407Loss
      (gain) on foreign exchange
            
            7,094
            
            1,619
            
            (1,206)
            
            5,756
            
            553Net
      loss for the period
            
            (197,582)
            
            (18,792)
            
            (9,434)
            
            (47,909)
            
            (43,865)Basic
      and diluted loss per common share
            
            (0.001)
            
            (0.001)
            
            (0.002)
            
            (0.002)Weighted
      average number of common shares
              used
      in per share calculations
            
            21,295,006
            
            21,295,006
            
            21,295,006
            
            21,295,006








The
accompanying notes are an integral part of the consolidated financial
statements.
 6





Principle
Security International, Inc.


(A
Development Stage Company)


Consolidated
Statements of Cash Flows


(Expressed
in U.S. Dollars)
 (Unaudited)





For
      the period from the date of inception on 27 November 2006 to
              28
      February
              2010
            
            For
      the three
              month
      period ended 28 February
              2010
            
            For
      the three
              month
      period ended 28 February
              2009
            
            For
      the nine month period ended 28 February 2010
            
            For
      the nine month period ended 28 February 2009$
            
            $
            
            $
            
            $
            
            $Cash
      flows used in operating activitiesNet
      loss for the period
            
            (197,582)
            
            (18,792)
            
            (9,434)
            
            (47,909)
            
            (43,865)Adjustments
      to reconcile loss to net cash used by operating activitiesAmortization
      (recovery) (Note 3)
            
            1,267
            
            (14)
            
            96
            
            238
            
            290Interest
      (Notes 5, 6, 7 and 10)
            
            2,228
            
            699
            
            -
            
            1,705
            
            -Contribution
      to capital by related party
            
            10,909
            
            -
            
            -
            
            -
            
            -Changes
      in operating assets and liabilities(Increase)
      decrease in amounts receivable
            
            (609)
            
            79
            
            (174)
            
            (375)
            
            (865)Increase
      in prepaid expenses
            
            (5,000)
            
            (5,000)
            
            -
            
            (5,000)
            
            -Increase
      (decrease) in accounts payable and accrued liabilities
            3,497
            
            (328)
            
            40
            
            (10,011)
            
            3,167Increase
      in due to related party
            20
            
            -
            
            -
            
            -
            
            10,095(185,270)
            
            (23,356)
            
            (9,472)
            
            (61,352)
            
            (31,178)Cash
      flows used in investing activitiesPurchase
      of property, plant and equipment
            
            (2,086)
            
            -
            
            -
            
            -
            
            -Cash
      flows from financing activitiesCommon
      shares issued for cash (Note 8)
            
            78,700
            
            -
            
            -
            
            -
            
            -Convertible
      debentures (Note 5)
            
            13,800
            
            -
            
            10,000
            
            -
            
            10,000Demand
      loan (Note 6)
            
            61,000
            
            15,000
            
            -
            
            61,000
            
            -Loans
      from related party (Note 7)
            
            40,000
            
            -
            
            -
            
            5,000
            
            1,611193,500
            
            15,000
            
            10,000
            
            66,000
            
            11,611Increase
      (decrease) in cash and cash equivalents
            
            6,144
            
            (8,356)
            
            528
            
            4,648
            
            (19,567)Cash
      and cash equivalents, beginning of period
            
            -
            
            14,500
            
            972
            
            1,496
            
            21,067Cash
      and cash equivalents, end of period
            
            6,144
            
            6,144
            
            1,500
            
            6,144
            
            1,500





Supplemental Disclosures with Respect
to Cash Flows(Note 10)





The
accompanying notes are an integral part of the consolidated financial
statements.
 7





Principle
Security International, Inc.


(A
Development Stage Company)


Consolidated
Statements of Changes in Stockholders’ Deficiency


(Expressed
in U.S. Dollars)
 (Unaudited)





Number
      of shares issued
            Capital
      Stock
            Additional
      paid in capital
            Deficit,
      accumulated during the development stage
            Stockholders’
      deficiency$
            
            $
            
            $
            
            $Balance
      at 27 November 2006 (inception)
            
            -
            
            -
            
            -
            
            -
            
            -Common
      shares issued – cash ($0.0004 per share) (Note 8)
            
            6,250,002
            
            63
            
            2,437
            
            -
            
            2,500Common
      shares issued – cash ($0.003 per share) (Note 8)
            
            14,500,002
            
            145
            
            43,355
            
            -
            
            43,500Common
      shares issued – cash ($0.06 per share) (Note 8)
            
            545,002
            
            5
            
            32,695
            
            -
            
            32,700Net
      loss for the period
            
            -
            
            -
            
            -
            
            (19,332)
            
            (19,332)Balance
      at 31 May 2007
            
            21,295,006
            
            213
            
            78,487
            
            (19,332)
            
            59,368Net
      loss for the year
            
            -
            
            -
            
            -
            
            (72,251)
            
            (72,251)Balance
      at 31 May 2008
            
            21,295,006
            
            213
            
            78,487
            
            (91,583)
            
            (12,883)Contributions to capital by related party (Note 8)
            
            -
            
            -
            
            45,929
            
            -
            
            45,929Net
      loss for the year
            
            -
            
            -
            
            -
            
            (58,090)
            
            (58,090)Balance
      at 31 May 2009
            
            21,295,006
            
            213
            
            124,416
            
            (149,673)
            
            (25,044)Net
      loss for the period
            
            -
            
            -
            
            -
            
            (47,909)
            
            (47,909)Balance
      at 28 February 2010
            
            21,295,006
            
            213
            
            124,416
            
            (197,582)
            
            (72,953)



































The
accompanying notes are an integral part of the consolidated financial
statements.
 8




Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 (Unaudited)
 28 February 2010





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 Accounting Standards
Codification (the “Codification” or “ASC”) 915-10, “Development Stage
Entities”.  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 28 February 2010 and for the
three and nine month periods 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 $18,792 and $47,909 for the three and nine month period
ended 28 February 2010, respectively (28 February 2009 – $9,434 and $43,865,
respectively, cumulative – $197,585) and has a working capital deficit of
$73,772 at 28 February 2010 (31 May 2009 – $26,101).





Effective
5 October 2009, the Company completed a 2.5 to 1 forward stock split and
increased the issued and outstanding share capital from 8,518,000 common shares
to 21,295,006 common shares with the same par value of $0.00001. Unless
otherwise noted, all references herein to number of shares, price per share or
weighted average number of shares outstanding have been adjusted to reflect this
stock split on retroactive basis (Note 8).





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.






9


Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 (Unaudited)
 28 February 2010


At 28
February 2010, 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.





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.





Principles
of consolidation





All
inter-company transactions and balances have been eliminated in these
consolidated financial statements.





Cash
and cash equivalents





Cash and
cash equivalents include highly liquid investments with original maturities of
three months or less. As at 28 February 2010, the Company has cash and cash
equivalents in the amount of $6,144 (31 May 2009 – $1,496).





Property,
plant and equipment





Equipment
is recorded at cost and amortization is provided over its estimated economic
life at 30%.





Long-lived
assets





Long-term
assets of the Company are reviewed for impairment whenever events or
circumstances indicate that the carrying amount of assets may not be
recoverable, pursuant to guidance established in ASC 360-10-35-15, “Impairment or Disposal of
Long-Lived Assets”.





Management
considers assets to be impaired if the carrying value exceeds the future
projected cash flows from related operations (undiscounted and without interest
charges). If impairment is deemed to exist, the assets will be written down to
fair value. Fair value is generally determined using a discounted cash flow
analysis.









10


Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 (Unaudited)
 28 February 2010





Financial
instruments





The
carrying value of cash and cash equivalents, amounts receivable, accounts
payable, convertible debentures, demand loans and due to related party
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.





Income
taxes





Deferred
income taxes are reported for timing differences between items of income or
expense reported in the consolidated financial statements and those reported for
income tax purposes in accordance with ASC 740, “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 losses 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 income (loss) per share in accordance with ASC 260 “Earnings per
Share”.  ASC 260 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 income (loss)
available to common shareholders (numerator) by the weighted average number of
shares outstanding (denominator) during the period.  Diluted EPS gives
effect to all dilutive potential 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
excluded all dilutive potential shares if their effect is
anti-dilutive.









11
 
  Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 (Unaudited)
 28 February 2010


Comprehensive
loss





ASC 220,
“Comprehensive Income”,
establishes standards for the reporting and display of comprehensive loss and
its components in the consolidated financial statements.  As at 28
February 2010, 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





ASC 280,
“Segment Reporting”
establishes guidance for the way that public companies report information about
operating segments in annual consolidated financial statements and requires
reporting of selected information about operating segments in interim
consolidated financial statements issued to the public.  It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers.  ASC 280 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 Codification and does not
believe it is applicable at this time.





Start-up
expenses





The
Company has adopted ASC 720-15, “Start-Up Costs”, 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 28
February 2010.





Foreign
currency translation





The
Company’s functional and reporting currency is U.S. dollars.  The
consolidated financial statements of the Company are translated to U.S. dollars
in accordance with ASC 830, “Foreign Currency
Matters”.  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 consolidated 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 consolidated financial statements and the reported amounts of
revenues and expenditures during the reporting period.  Actual results
could differ from these estimates.






12
 
  Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 (Unaudited)
 28 February 2010





Changes
in Accounting Policies





Fair
Value Measurement and Disclosure




In August
2009, the Financial Accounting Standards Board (“FASB”) issued Accounting
Standard Update ("ASU") No. 2009-05, “Fair Value Measurement and
Disclosure (Topic 820) – Measuring Liabilities at Fair Value”, which
provides valuation techniques to measure fair value in circumstances in which a
quoted price in an active market for the identical liability is not
available.  The guidance provided in this update is effective 1
September 2009.  The adoption of this guidance did not have a material
impact on the Company’s consolidated financial statements.





The
Accounting Standards Codification





In June
2009, the FASB issued Statement of Financial Accounting Standards ("SFAS") No.
168, “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principle – a replacement of FASB Statement No. 162”.  The
Codification reorganized existing U.S. accounting and reporting standards issued
by the FASB and other related private sector standard setter into a single
source of authoritative accounting principles arranged by topic.  The
Codification supersedes all existing U.S. accounting standards; all other
accounting literature not included in the Codification (other than Securities
and Exchange Commission guidance for publicly-traded companies) is considered
non-authoritative.  The Codification was effective on a prospective
basis for interim and annual reporting periods ending after 15 September
2009.  The adoption of the Codification changed the Company’s
references to GAAP accounting standards but did not impact the Company’s results
of operations, financial position or liquidity.





Subsequent
Events





In May
2009, the FASB issued new guidance for accounting for subsequent
events.  The new guidance, which is now part of ASC 855, “Subsequent Events” is
intended to establish general standards of accounting for and disclosure of
events that occur after the balance sheet date, but before consolidated
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.  This disclosure should
alert all users of the consolidated financial statements that an entity has not
evaluated subsequent events after that date in the set of the consolidated
financial statements being presented.  The new guidance was effective
on a prospective basis for interim or annual reporting periods ending after 15
June 2009.  The adoption of this guidance did not have a material
impact on the Company’s consolidated financial statements.








13
 
   Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 (Unaudited)
 28 February 2010





Convertible
Debt





In May
2008, the FASB issued new guidance for accounting for convertible debt
instruments that may be settled in cash.  The new guidance, which is
now part of ASC 470-20, “Debt
with Conversion and Other Options” requires the liability and equity
components to be separately accounted for in a manner that will reflect the
entity’s nonconvertible debt borrowing rate.  The Company will
allocate a portion of the proceeds received from the issuance of convertible
notes between a liability and equity component by determining the fair value of
the liability component using the Company’s nonconvertible debt borrowing
rate.  The difference between the proceeds of the notes and the fair
value of the liability component will be recorded as a discount on the debt with
a corresponding offset to paid-in capital.  The resulting discount
will be accreted by recording additional non-cash interest expense over the
expected life of the convertible notes using the effective interest rate
method.  The new guidance was to be applied retrospectively to all
periods presented upon those fiscal years.  The adoption of this
guidance did not have a material impact on the Company’s consolidated financial
statements.





Useful
Life of Intangible Assets





In April
2008, the FASB issued new guidance for determining the useful life of an
intangible assets, the new guidance, which is now part of ASC 350, “Intangibles – Goodwill and
Other”.  In determining the useful life of intangible assets,
ASC 350 removes the requirement to consider whether an intangible asset can be
renewed without substantial cost of material modifications to the existing terms
and conditions and, instead, requires an entity to consider its own historical
experience in renewing similar arrangements.  ASC 350 also requires
expanded disclosure related to the determination of intangible asset useful
lives.  The new guidance was effective for consolidated financial
statements issued for fiscal years beginning after 15 December
2008.  The adoption of this guidance did not have a material impact on
the Company’s consolidated financial statements.





Derivative
Instruments and Hedging Activities





In March
2008, the FASB issued new guidance on the disclosure of derivative instruments
and hedging activities.  The new guidance, which is now part of ASC
815, “Derivatives and Hedging
Activities” requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value
amounts of, and gains and losses on, derivative instruments, and disclosures
about credit-risk-related contingent features in derivative
agreements.  The new guidance was effective prospectively for
consolidated financial statements issued for fiscal years beginning after 15
November 2008, with early application encouraged.  The adoption of
this guidance did not have a significant impact on the Company’s consolidated
financial statements.






14
 
  Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 (Unaudited)
 28 February 2010





Business
Combinations





In
December 2007, the FASB issued revised guidance for accounting for business
combinations.  The revised guidance, which is now part of ASC 805,
“Business Combinations”
requires the fair value measurement of assets acquired, liabilities assumed and
any noncontrolling interest in the acquiree, at the acquisition date with
limited exceptions.  Previously, a cost allocation approach was used
to allocate the cost of the acquisition based on the estimated fair value of the
individual assets acquired and liabilities assumed.  The cost
allocation approach treated acquisition-related costs and restructuring costs
that the acquirer expected to incur as a liability on the acquisition date, as
part of the cost of the acquisition.  Under the revised guidance,
those costs are recognized in the statement of income separately from the
business combination.  The revised guidance applies to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after 15 December
2008.    The adoption of this guidance did not have a
material impact on the Company’s consolidated financial statements.




Comparative
figures




Certain
comparative figures have been adjusted to conform to the current period’s
presentation.




Recent
Accounting Pronouncements




From June
2009 to October 2009, the FASB issued various updates, ASU No. 2009-2
through ASU No. 2009-15, which contain technical corrections to existing
guidance or affect guidance to specialized industries or
entities.  These updates have no current applicability to the Company
or their effect on the consolidated financial statements is
insignificant.





In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)”.  SFAS No. 167, which amends ASC 810-10, “Consolidation”, prescribes a
qualitative model for identifying whether a company has a controlling financial
interest in a variable interest entity (“VIE”) and eliminates the quantitative
model.  The new model identifies two primary characteristics of a
controlling financial interest: (1) provides a company with the power to direct
significant activities of the VIE, and (2) obligates a company to absorb losses
of and/or provides rights to receive benefits from the VIE.  SFAS No.
167 requires a company to reassess on an ongoing basis whether it holds a
controlling financial interest in a VIE.  A company that holds a
controlling financial interest is deemed to be the primary beneficiary of the
VIE and is required to consolidate the VIE.  SFAS No. 167, which is
referenced in ASC 105-10-65, has not yet been adopted into the Codification and
remains authoritative.  SFAS No. 167 is effective 1 June
2010.  The Company does not expect that the adoption of SFAS No. 167
will have a material impact on its consolidated financial
statements.








15
 
   Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 (Unaudited)
 28 February 2010





In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfer of Financial
Assets – an amendment of FASB Statement”.  SFAS No. 166 removes
the concept of a qualifying special-purpose entity from ASC 860-10, “Transfers and Servicing”, and
removes the exception from applying ASC 810-10, “Consolidation”. These
statements also clarifies the requirements for isolation and limitations on
portions of financial assets that are eligible for sale
accounting.  SFAS No. 166, which is referenced in ASC 105-10-65, has
not yet been adopted into the Codification and remains
authoritative.  This statement is effective 1 June
2010.  The Company does not expect that the adoption of SFAS No. 166
will have a material impact on its 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.
            Property,
      plant and equipment





Accumulated
      amortization
            
            Net
      Book ValueCost
            
            28
      February
              2010
            
            31
      May 2009
              (Audited)$
            
            $
            
            $
            
            $Computer
      equipment
            
            2,086
            
            1,267
            
            819
            
            1,057




During
the nine month period ended 28 February 2010, the total additions of the Company
to property, plant and equipment were $Nil (28 February 2009 –
$Nil).




4.
            Accounts Payable and Accrued
      Liabilities




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










16
 
  Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 (Unaudited)
 28 February 2010


5.
            Convertible
      Debentures




28
      February
              2010
            31
      May
              2009
              (Audited)$
            
            $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 nine month period ended 28 February 2010, the
      Company accrued interest expense of $399 (28 February 2009 – $90). The
      balance as at 28 February 2010 consists of principal and accrued interest
      of $5,000 (31 May 2009 – $5,000) and $615 (31 May 2009 – $216),
      respectively (Notes 10 and 11).
            5,615
            
            5,216Issued
      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 nine month period ended 28 February 2010, the
      Company accrued interest expense of $399 (28 February 2009 – $90). The
      balance as at 28 February 2010 consists of principal and accrued interest
      of $5,000 (31 May 2009 – $5,000) and $615 (31 May 2009 – $216),
      respectively (Notes 10 and 11).
            5,615
            
            5,216Issued
      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 nine month period ended 28 February 2010, the Company accrued
      interest expense of $298 (28 February 2009 – $Nil). The balance as at 28
      February 2010 consists of principal and accrued interest of $3,800 (31 May
      2009 – $3,800) and $389 (31 May 2009 – $91), respectively (Notes 10 and
      11).
            4,189
            
            3,89115,419
            
            14,323










17
 
  Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 (Unaudited)
 28 February 2010




6.
            Demand
      Loans28
      February
              2010
            31
      May
              2009
              (Audited)$
            
            $Issued
      on 18 June 2009, the demand loan bears interest at 2% 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 30 June 2009. During the nine month period ended 28
      February 2010, the Company accrued interest expense of $281 (28 February
      2009 – $Nil). The balance as at 28 February 2010 consists of principal and
      accrued interest of $20,000 (31 May 2009 – $Nil) and $281 (31 May 2009 –
      $Nil), respectively (Notes 10 and 11).
            20,281
            
            -Issued
      on 14 September 2009, the demand loan bears interest at 2% 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 30 September 2009. During the nine month period
      ended 28 February 2010, the Company accrued interest expense of $92 (28
      February 2009 – $Nil). The balance as at 28 February 2010 consists of
      principal and accrued interest of 10,000 (31 May 2009 – $Nil) and $92 (31
      May 2009 – $Nil), respectively (Notes 10 and 11).
            10,092
            
            -Issued
      on 16 November 2009, the demand loan bears interest at 2% 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 maturity, calculated at 31
      May of each year. During the nine month period ended 28 February 2010, the
      Company accrued interest expense of $91 (28 February 2009 – $Nil). The
      balance as at 28 February 2010 consists of principal and accrued interest
      of $16,000 (31 May 2009 – $Nil) and $91 (31 May 2009 – $Nil), respectively
      (Notes 10 and 11).
            16,091
            
            -Issued
      on 26 January 2010, the demand loan bears interest at 2% 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 maturity, calculated at 31
      May of each year. During the nine month period ended 28 February 2010, the
      Company accrued interest expense of $49 (28 February 2009 – $Nil). The
      balance as at 28 February 2010 consists of principal and accrued interest
      of $10,000 (31 May 2009 – $Nil) and $49 (31 May 2009 – $Nil), respectively
      (Notes 10 and 11).
            10,049
            
            -Issued
      on 11 February 2010, the demand loan bears interest at 2% 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 maturity, calculated at 31
      May of each year. During the nine month period ended 28 February 2010, the
      Company accrued interest expense of $25 (28 February 2009 – $Nil). The
      balance as at 28 February 2010 consists of principal and accrued interest
      of $5,000 (31 May 2009 – $Nil) and $25 (31 May 2009 – $Nil), respectively
      (Notes 10 and 11).
            5,025
            
            -61,538
            
            -






18




Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 (Unaudited)
 28 February 2010


7.
            Due
      to Related Party and Related Party
Transaction




As at 28
February 2010, the amount due to related party consists of a demand loan of
$5,071 (31 May 2009 – $Nil) payable to a director and officer of the
Company.  The current amount was issued on 16 June 2009, the demand
loan bears interest at 2% 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 30 June
2009.  During the nine month period ended 28 February 2010, the
Company accrued interest expense of $71 (28 February 2009 – $Nil). The balance
as at 28 February 2010 consists of principal and accrued interest of $5,000 (31
May 2009 – $Nil) and $71 (31 May 2009 – $Nil), respectively (Notes 10 and
11).
 
 During
the nine month period ended 28 February 2010, a director and shareholder of the
Company was paid consulting fees in the amount of $9,755 (28 February 2009 –
$12,292).


8.
            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 21,295,006 common shares with a par
value of $0.00001 per common share.
  The common stock is not subject to warrants, agreements or options at
28 February 2010.
  Effective
5 October 2009, the Company completed a 2.5 to 1 forward stock split and
increased the issued and outstanding share capital from 8,518,000 common shares
to 21,295,006 common shares with the same par value of $0.00001. Unless
otherwise noted, all references herein to number of shares, price per share or
weighted average number of shares outstanding have been adjusted to reflect this
stock split on retroactive basis (Note 1).
  During
the year ended 31 May 2007, the Company issued 21,295,006 common shares for cash
proceeds of $78,700.
  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.
  During
the year ended 31 May 2009, a director and shareholder of the Company forgave
loans to the Company totaling $35,020.  This loan forgiveness was recorded
as contributions to capital of the Company.


9.
            Income
      Taxes




The
Company has losses carried forward for income tax purposes to 28 February 2010.
There are no current or deferred tax expenses for the nine month period ended 28
February 2010 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 nine month period ended 28 February 2010
            
            For
      the nine month period ended 28 February 2009$
            
            $Deferred
      tax asset attributable to:Current
      operations
            
            11,292
            
            12,380Less:
      Change in valuation allowance and other
            
            (11,292)
            
            (12,380)Net
      refundable amount
            
            -
            
            -










19
 
  Principle
Security International, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (Expressed
in U.S. Dollars)
 (Unaudited)
 28 February 2010
 
  The
composition of the Company’s deferred tax assets as at 28 February 2010 and 31
May 2009 are as
follows:




28
      February 2010
            
            31
      May
              2009
              (Audited)$
            
            $Net
      income tax operating loss carryforward
            
            161,295
            
            113,624Statutory
      federal income tax rate
            
            15%-28.83%
            
            15%-30.67%Deferred
      tax asset
            
            44,379
            
            33,087Less:
      Valuation allowance
            
            (44,379)
            
            (33,087)Net
      deferred tax asset
            
            -
            
            -




The
      potential income tax benefit of these losses has been offset by a full
      valuation allowance.As
      at 28 February 2010, the Company has an unused net operating loss
      carry-forward balance of approximately $161,295 is available to offset
      future taxable income.  This unused net operating loss
      carry-forward balance expires through to
    2030.




10.
            Supplemental
      Disclosures with Respect to Cash
Flows





For
      the period from the date of inception on 27 November 2006 to
              28
      February
              2010
            
            For
      the three month period ended 28 February 2010
            
            For
      the three month period ended 28 February 2009
            
            For
      the nine  month period ended 28 February 2010
            
            For
      the nine month period ended 28 February 2009$
            
            $
            
            $
            
            $
            
            $Cash
      paid during the period for interestCash
      paid during the period for income taxes
            -
            
            -
            
            -
            
            -
            
            -Foreign
      exchange loss
            7,094
            
            1,619
            
            (1,206)
            
            5,756
            
            553




During the
      nine month period ended 28 February 2010, the Company accrued total
      interest expense of $1,705 related to various convertible debentures,
      demand loans and balance due to related party (Notes 5, 6 and 7).




11.
            Contingency






The
      Company is in default of certain terms related to the convertible
      debentures, demand loans and due to related party agreements and is in the
      process of renegotiating them (Notes 5, 6 and 7).




12.
            Subsequent
      Events




There
      are no subsequent events from the date of the period ended 28 February
      2010 to the date the consolidated financial statements were available to
      be issued on 12 April 2010.









20







ITEM
      2.
              MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
  Our
unaudited interim consolidated financial statements are stated in United States
Dollars (US$) and are prepared in accordance with United States Generally
Accepted Accounting Principles. In this quarterly report, unless otherwise
specified, all dollar amounts are expressed in United States dollars. All
references to “common shares” refer to our common stock. As used
in this quarterly report, the terms “we”, “us”, “our”, the “Company” and “PSI”
means Principle Security International, Inc., unless otherwise
indicated.
  General
  We were
incorporated in the State of Nevada on November 27, 2006. On November 29, 2006
we incorporated our wholly-owned subsidiary in Canada to conduct our business
operations in the Greater Vancouver area.
  We are a
development stage company. 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. We have not yet generated or realized any revenues from our
business operations.
  Since
inception, we have been implementing the early phases of our business plans,
including the establishment of our office, making application for our security
business license, making application and scouting locations for our accredited
security training facility, making application for our surety bond, registering
the URL address necessary to create our website, building a database of
potential clients, commencing interviews to hire a salesperson, designing our
corporate logos/badges and ordering uniforms.
  On
December 15, 2006, we obtained our surety bond in the amount of $5,000 Cdn., as
required by the Private Investigators and Security Agencies Act. This bond
enabled us to make application for a security business license. On January 3,
2007, we were granted our security business license. This license has been
renewed and is now valid until February 3, 2010. The license enables us to carry
on a business in the categories of “private investigator” and “security patrol”.
We have established our office and continue to lease office space on a
month-to-month basis at a cost of $500 Cdn. per month from a non-related third
party. To manage operating costs until the Company can raise additional funds or
start generating revenues the lessee has agreed to release the Company from
amounts owed for unpaid rent until further notice. We have initiated work
on our basic web page under the URL address
www.principlesecurity.ca.
  On
September 8, 2008, we received a two-year approval to operate a security
training school under the name “Principle Security Training
Academy”.
  We have
made application to our suppliers and completed the design of our corporate logo
and uniforms. We underwent a standard inspection by the Ministry of the Attorney
General of Canada working under Security Programs and we passed the
inspection.
  Our
auditors have issued us a going concern opinion, which means 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 and continue
our operations. 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. We intend to continue to try to raise the
additional funds we will need to fully implement our business plans from public
or private placement offerings of our securities and/or through loans. At the
present time, we have not made any plans to raise additional monies and there is
no assurance that we will be able to do so in the future. If financing is not
available on satisfactory terms, we may be unable to continue, develop or expand
our business plans.
  We have
not generated any revenues as we have not yet been able to secure a contract.
Our officers and directors have been building a database of potential clients
and will be maintaining the database on an ongoing basis. They have been
actively contacting a number of businesses in hopes of securing a contract, but
have not yet done so to date.
   21
 
 On
October 5, 2009, we completed a 2.5 to 1 forward stock split, which increased
the number of issued and outstanding shares of common stock from 8,518,000
common shares to 21,295,006
shares, with the same par value of $0.00001. The forward stock split did not
increase the authorized capital stock of the Company.
  Since
inception, we have issued 21,295,006 shares of common stock via private
placement sales of our restricted common stock for cash proceeds of $78,700, all
of which is being used to develop and grow our business operations. On November
28, 2006, we issued 6,250,002 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 in cash. On February 23,
2007, we completed a private placement of 14,500,002 shares of common stock
pursuant to Reg. S of the Securities Act of 1933 and raised $43,500 in cash. On
May 8, 2007, we completed an additional private placement of 545,002 shares of
common stock pursuant to Reg. S of the Securities Act of 1933 and raised $32,700
in cash. All of these transactions closed outside the US and were sold to non-US
persons.
  Results
of Operations
  Our total
net losses since inception on November 27, 2006 to February 28, 2010 are
$197,582.
  Three
months ended February 28, 2010 as compared to the three months ended February
28, 2009
  We
incurred net losses of $18,792, or $0.001 per share, for the three-month period
ended February 28, 2010, as compared to net losses of $9,434, or $0.001 per
share, for the three-month period ended February 28, 2009. The nearly double
increase in our expenses for the period ended February 28, 2010 as compared to
the period ended February 28, 2009 was mainly attributed to increases in
legal  ($5,198 - 2010 compared to $2 - 2009) and consulting fees ($4,246 -
2010 compared to $152 - 2009) incurred in the preparation and filing of our
quarterly and annual reports with the SEC. Our expenses for the three months
ended February 28, 2010 also consisted of the following:  professional
fees ($6,638 - 2010 compared to $5,734 - 2009); transfer agent and filing fees
($1,749 recovered - 2010 compared to $3,110 - 2009); amortization ($14 recovered
- 2010 compared to $96 - 2009); interest expense ($699 - 2010 compared to $Nil -
2009); office and miscellaneous ($2,074 - 2010 compared to $1,498 - 2009); loss
(gain) on foreign currency exchange ($1,619 - 2010 compared to ($1,206) - 2009);
and bank service charges ($81 - 2010 compared to $48 - 2009).
  Nine
months ended February 28, 2010 as compared to the nine months ended February 28,
2009
  We
incurred net losses of $47,909, or $0.002 per share, for the nine-month period
ended February 28, 2010, as compared to net losses of $43,865, or $0.002 per
share, for the nine-month period ended February 28, 2009. The increase was
mainly attributed to increases in legal fees ($5,669 - 2010 compared to
$1,394 - 2009, cumulative - $28,721) and losses on foreign currency
exchange ($5,756 - 2010 compared to $553 - 2009, cumulative - $7,094).
Our other expenses for the nine-month period ended February 28,
2010 consisted of the following: professional fees ($17,051 - 2010 compared
to $18,392 - 2009, cumulative - $61,753); consulting fees ($9,755 - 2010
compared to $12,292 - 2009, cumulative - $57,185); transfer agent and filing
fees ($2,467- 2010 compared to $4,407 - 2009, cumulative - $11,590); 
interest expense ($1,705 - 2010 compared to $Nil - 2009, cumulative - $2,228);
office and miscellaneous ($5,054 - 2010 compared to $6,376 - 2009, cumulative -
$26,462); amortization ($238 - 2010 compared to $290 - 2009, cumulative -
$1,267); and bank service charges ($214 - 2010 compared to $161 - 2009,
cumulative - $1,126).
  We are
not a party to any off-balance sheet arrangements that have, or are reasonably
likely to have, a current or future material effect on our financial condition,
changes in financial condition, sales or expenses, results of operations,
liquidity, capital expenditures or capital resources. We are not aware of any
trends or events that would materially affect our capital requirements or
liquidity. We believe that our current cash in the bank and our internal
cash generating capabilities will be sufficient to finance our ongoing capital
expenditures and other operating activities through fiscal 2010.
  Liquidity
and Capital Resources
  At
February 28, 2010 and as of the date of this filing, we have not generated any
revenues from our business activities.
  At
February 28, 2010, we had total assets of $12,572, consisting of $6,144 in cash;
$609 in amounts receivable; $5,000 in prepaid expenses; and $819 in
property, plant and equipment, net of depreciation.
  On
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. During
the nine month period ended February 28, 2010, we accrued interest expense
on this convertible debenture in the amount of $399 (February 28, 2009 - $90).
The balance due at February 28, 2010 consists
of principal and accrued interest of $5,000 and $615, respectively.
 
  22
  On
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 by the 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. During the nine month period ended February
28, 2010, we accrued interest expense on this convertible debenture in the
amount of $399 (February 28, 2009 - $90). The balance due at February 28, 2010
consists of principal and accrued interest of $5,000 and $615,
respectively.
  On 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 by the 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. During the
nine month period ended February 28, 2010, we accrued interest expense on this
convertible debenture in the amount of  $298 (February 28, 2009 - $Nil).
The balance due at February 28, 2010 consists of principal and accrued interest
of $3,800 and $389, respectively.
  On June
18, 2009, we entered into a demand loan with an unrelated third party. The
demand loan bears interest at the rate of 2% 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 June 30,
2009. During the nine month period ended February 28, 2010, we accrued
interest expense of $281 (February 28, 2009 - $Nil) on the demand loan. The
balance due at February 28, 2010 consists of principal and accrued interest
of $20,000 and $281, respectively.
  On
September 14, 2009, we entered into a demand loan with an unrelated third party.
The demand loan bears interest at the rate of 2% 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 September
30, 2009. During the nine month period ended February 28, 2010, we accrued
interest expense of $92 (February 28, 2009 - $Nil) on the demand loan. The
balance due at February 28, 2010 consists of principal and accrued interest of
$10,000 and $92, respectively.
  On
November 16, 2009, we entered into a demand loan with an unrelated third party.
The demand loan bears interest at the rate of 2% 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 maturity, calculated at May 31st of each year.
During the nine month period ended February 28, 2010, we accrued interest
expense of $91 (February 28, 2009 - $Nil) on the demand loan. The balance due at
February 28, 2010 consists of principal and accrued interest of $16,000 and $91,
respectively.
  On
January 26, 2010, we entered into a demand loan with an unrelated third party.
The demand loan bears interest at the rate of 2% 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 maturity, calculated at May 31st of each year.
During the nine month period ended February 28, 2010, we accrued interest
expense of $49 (February 28, 2009 - $Nil) on the demand loan. The balance due at
February 28, 2010 consists of principal and accrued interest of $10,000 and $49,
respectively.
  At February
28, 2010, the amount due to Charles Payne, an officer and director and a related
party, consists of a demand loan in the amount of $5,071. A demand loan was
entered into for current amount due on June 16, 2009. The demand loan bears
interest at 2% 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 June 30, 2009. During the nine month period
ended February 28, 2010, we accrued interest expense of $71 (February
28, 2009 - $Nil) on the demand loan. The balance due February 28, 2010
consists of principal and accrued interest in the amount of $5,000 and $71,
respectively.
  During
the nine month period ended February 28, 2010, Charles Payne, an
officer, director and shareholder of the Company was paid consulting fees in the
amount of $9,755, compared to consulting fees in the amount of $12,292 paid
during the nine month period ended February 28, 2009.
  At
February 28, 2010, our total liabilities were $85,525, consisting of accounts
payable and accrued liabilities in the amount of $3,497, convertible debentures
payable in the amount of $15,419, demand loans payable in the amount of $61,538
and amounts due to related party in the amount of $5,071.
  On
October 5, 2009, upon approval of the holders of the majority of our issued and
outstanding common stock, we completed a 2.5 to 1 forward stock split, which
increased the number of issued and outstanding shares of common stock from
8,518,000 common shares to 21,295,006 shares, with the same par value of
$0.00001. The forward stock split did not increase the authorized capital
stock.
 We have
not issued and do not have any outstanding stock options or
warrants.
   23
   ITEM
3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET
RISK
  We are a
non-accelerated filer and a smaller reporting company, as defined in Rule 12b-2
of the of the Securities Exchange Act of 1934, and as such, are not required to
provide the information under this item.
  ITEM
4. CONTROLS AND PROCEDURES
  Evaluation
of Disclosure Controls and Procedures
  We
maintain disclosure controls and procedures designed to ensure that information
required to be disclosed in reports filed under the Securities Exchange Act of
1934 (“Exchange Act”) is recorded, processed, summarized and reported within the
specified time periods. Our Chief Executive Officer and our Principal Financial
Officer (collectively, the “Certifying Officers”) are responsible for
maintaining our disclosure controls and procedures. Prior to the filing of
this report, our Certifying Officers evaluated the effectiveness of our
disclosure controls and procedures for the period covered by this report. Based
on the evaluation, our Certifying Officers concluded that our disclosure
controls and procedures were effective to provide reasonable assurance that (a)
information required to be disclosed by us in the reports we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the applicable rules and forms and (b) that it is
accumulated and communicated to our management, including the Certifying
Officers, as appropriate to allow timely decisions regarding required
disclosure.
  We also
maintain a system of internal controls designed to provide reasonable assurance
that (i) transactions are executed in accordance with Management's general and
specific authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with the United States
generally accepted accounting principles and to maintain accountability for
assets; (ii) access to assets is permitted only in accordance with Management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. We believe that our
internal controls are effective to provide reasonable assurance that our
unaudited interim consolidated financial statements are fairly presented in
conformity with generally accepted accounting principals. Since our most recent
evaluation, there have been no changes in our internal controls or in other
factors that could significantly affect our internal controls, nor were any
corrective actions required with regard to significant deficiencies and material
weaknesses. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect every misstatement and instance of fraud.
Controls are susceptible to manipulation, especially in instances of fraud
caused by the collusion of two or more people, including our senior management.
Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
  Under the
supervision and with the participation of our Certifying Officers, our
Management conducted an evaluation of the effectiveness of our internal control
over financial reporting based upon the framework in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on the results of our evaluation, our
Management has concluded that our internal controls over financial
reporting was effective as of the filing of this report. Since our most recent
evaluation, there have been no change in our internal control of financial
reporting that has materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
  This
report does not include an attestation report of our registered public
accounting firm regarding internal controls over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this
report.
   PART
II. OTHER INFORMATION
  ITEM
1. LEGAL PROCEEDINGS
  We are
not currently a party to any pending legal proceeding.
   ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 None.
 
 ITEM
3. DEFAULT UPON SENIOR SECURITIES
 
 None.
 
   24
   ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   
 
 ITEM
5. OTHER INFORMATION AND SUBSEQUENT EVENTS
 
 None.
 
 
 ITEM
6. EXHIBITS
 Exhibit
      No.
              Document
      Description31.1
              Certification
      of Principal Executive Officer and Principal Financial Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
              Certification
      of Principal Executive Officer and Principal Financial Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
  All other
exhibits required to be filed with this quarterly report on Form 10-Q are
incorporated by this reference and can be found in their entirety as exhibits to
our original registration statement on Form SB-2, filed with the U.S. Securities
and Exchange Commission on August 27, 2007, under our SEC File Number 333-145730
on their website at www.sec.gov.
   SIGNATURES
  In
accordance with Section 13 or 15 (d) of the Exchange Act, the registrant caused
this report to be signed on behalf by the undersigned, thereto duly authorized
on this 12th day of April, 2010.
  PRINCIPLE
      SECURITY INTERNATIONAL, INC.(Registrant)/s/
              CHARLES
      PAYNEBy:
              Charles
      PaynePresident,
      Principal Executive Officer, Principal Accounting Officer, Principal
      Financial Officer, Treasurer, Chairman of the Board of
      Directors
  
     25