10-Q 1 g3133.txt QTRLY REPORT FOR THE QTR ENDED 3-31-09 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended March 31, 2009 Commission File Number: 000-53123 ARRIN BACKGROUND, INC. (Exact Name of Registrant as Specified in its Charter) Nevada 90-0347683 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6968 La Jolla Blvd. Ste. 208 La Jolla, California 92037 (Address of principal executive offices, including zip code) (858) 531-5723 (Registrant's telephone number, including area code) Copies to: Daniel C. Masters, Esq. P. O. Box 66, La Jolla, CA 92037 (858) 459-1133 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act). Large accelerated filer [ ] Non-accelerated filer [ ] 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 [ ] There were 19,485,634 shares of the Registrant's Common Stock outstanding as of March 31, 2009. ITEM 1. FINANCIAL STATEMENTS. The un-audited quarterly financial statements for the period ended March 31, 2009, prepared by the company, immediately follow. 2 ARRIN BACKGROUND, INC. (A Development Stage Company) BALANCE SHEETS (unaudited)

See Notes to Financial Statements 3 ARRIN BACKGROUND, INC. (A Development Stage Company) STATEMENT OF OPERATIONS (unaudited)

See Notes to Financial Statements 4 ARRIN BACKGROUND, INC. (A Development Stage Company) STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY March 31, 2009 (unaudited)

See Notes to Financial Statements 5 ARRIN BACKGROUND, INC. (A Development Stage Company) STATEMENT OF CASH FLOWS (unaudited)

See Notes to Financial Statements 6 ARRIN BACKGROUND, INC. (A Development Stage Company) Notes to Financial Statements March 31, 2009 NOTE 1. NATURE AND BACKGROUND OF BUSINESS Arrin Background, Inc. ("the Company" or "the Issuer") was organized under the laws of the State of Nevada on January 14, 2008. The Company was established as part of the Chapter 11 reorganization of Arrin Systems, Inc. ("ASI"). Under ASI's Plan of Reorganization, as confirmed by the U.S. Bankruptcy Court for the Southern District of California, the Issuer was organized to provide employee background screening services to employers. This business was developed by ASI from its establishment in 2002 up until the time it filed a voluntary petition for bankruptcy under Chapter 11 of the Bankruptcy Code in 2007. This employee screening business, including a web site and knowledge of means of obtaining background information, but excluding customer lists, was acquired by the Issuer from ASI as part of the bankruptcy plan of reorganization of ASI. The Company has been in the development stage since its formation and has not yet realized any revenues from its planned operations. Management believes the Company lacks the resources to effectively market its services on its own and is therefore engaged in a search for a merger or acquisition partner with the resources to either develop this business or enter another line of business which will bring value to the Issuer's shareholders. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. BASIS OF ACCOUNTING The Company's financial statements are prepared using the accrual method of accounting. The Company has elected a December 31 year-end. b. BASIC EARNINGS PER SHARE In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share", which specifies the computation, presentation and disclosure requirements for earnings (loss) per share for entities with publicly held common stock. SFAS No. 128 supersedes the provisions of APB No. 15, and requires the presentation of basic earnings (loss) per share and diluted earnings (loss) per share. Basic net loss per share amounts are computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted earnings per share are computed by dividing the net loss by the weighted average number of common shares potentially outstanding, assuming that all outstanding warrants, options, etc. were exercised. The Company has warrants outstanding which are exercisable for a total of 5,000,000 common shares. c. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 7 ARRIN BACKGROUND, INC. (A Development Stage Company) Notes to Financial Statements March 31, 2009 d. CASH and CASH EQUIVALENT For the Balance Sheet and Statements of Cash Flows, all highly liquid investments with maturity of three months or less are considered to be cash equivalents. e. GOODWILL and OTHER INTANGIBLE ASSETS Goodwill represents the excess of the cost of businesses acquired over the fair value of the identifiable net assets at the date of acquisition. Goodwill and intangible assets acquired in a purchase or business combination and determined to have indefinite useful lives are not amortized, but instead are evaluated for impairment annually and if events or changes in circumstances indicate, the carrying amount may be impaired per Statement of Financial Accounting Standards, No.142 ("SFAS 142"), "Goodwill and Other Intangible Assets". An impairment loss would generally be recognized when the carrying amount of the reporting unit's net assets exceeds the estimated fair value of the reporting unit. The estimated fair value is determined using a discounted cash flow analysis. SFAS 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets". f. REVENUE RECOGNITION The Company recognizes revenues and the related costs when persuasive evidence of an arrangement exists, delivery and acceptance has occurred or service has been rendered, the price is fixed or determinable, and collection of the resulting receivable is reasonably assured. Amounts invoiced or collected in advance of product delivery or providing services are recorded as deferred revenue. The Company accrues for warranty costs, sales returns, bad debts, and other allowances based on its historical experience. g. STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation", provides for the use of a fair value based method of accounting for stock-based compensation. However, SFAS 123 allows the measurement of compensation cost for stock options granted to employees using the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", which only requires charges to compensation expense for the excess, if any, of the fair value of the underlying stock at the date a stock option is granted (or at an appropriate subsequent measurement date) over the amount the employee must pay to acquire the stock. The Company has elected to account for employee stock options using the intrinsic value method under APB 25. By making that election, the Company is required by SFAS 123 to provide pro forma disclosures of net loss as if a fair value based method of accounting had been applied. h. INCOME TAXES Income taxes are provided for using the liability method of accounting in accordance with SFAS No. 109 "ACCOUNTING FOR INCOME TAXES." A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are 8 ARRIN BACKGROUND, INC. (A Development Stage Company) Notes to Financial Statements March 31, 2009 reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment. i. IMPACT OF NEW ACCOUNTING STANDARDS The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company's results of operations, financial position, or cash flow. NOTE 3. GOING CONCERN The Company's financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company does not have significant cash or other material assets, nor does it have operations or a source of revenue sufficient to cover its operation costs and allow it to continue as a going concern. The officers and directors have committed to advancing certain operating costs of the company. Management plans to seek a merger or acquisition target with adequate funds to support operations. Management has yet to identify a merger or acquisition target, and there is no guarantee that the Company will be able to identify such a target business in the future. NOTE 4. STOCKHOLDERS' EQUITY - COMMON STOCK The authorized common stock of the Company consists of 262,500,000 shares with $0.001 par value. No other class of stock is authorized. As of March 31, 2009, there were a total of 19,485,634 common shares issued and outstanding. The Company's first and second stock issuances took place pursuant to the Plan of Reorganization confirmed by the Bankruptcy Court: On December 12, 2007, the Court ordered the distribution of shares in Arrin Background, Inc. to all general unsecured creditors of Arrin Systems, Inc. ("ASI"), with these creditors to receive one share in Arrin Background for each $2.94 of ASI's debt which they held. These creditors received an aggregate of 567,324 shares in the Company on January 14, 2008. The Court also ordered the distribution of shares and warrants in Arrin Background, Inc. to all administrative creditors of ASI, with these creditors to receive one share and five warrants in Arrin Background for each $0.10 of ASI's administrative debt which they held. On January 15, 2008, these creditors received an aggregate of 1,000,000 common shares in the Company and 5,000,000 warrants consisting of 1,000,000 "A Warrants" each convertible into one share of common stock at an exercise price of $1.00; 1,000,000 "B Warrants" each convertible into one share of common stock at an exercise price of $2.00; 1,000,000 "C Warrants" each convertible into one share of common stock at an exercise price of $3.00; 1,000,000 "D Warrants" each convertible into one share of common stock at an exercise price of $4.00; and 1,000,000 "E Warrants" each convertible into one share of common stock at an exercise price of $5.00. On February 4, 2008 the Company issued a total of 4,000,000 shares of common stock to an Officer and Director in exchange for $4,000 in cash to be used as operating capital for the Company. The shares were issued at a price of $0.001 per share which is their par value. On March 26, 2009 the Directors of the Company ordered both the authorized and issued shares forward split, 3.5 new shares for each 1 old share. 9 ARRIN BACKGROUND, INC. (A Development Stage Company) Notes to Financial Statements March 31, 2009 As a result of these issuances and the split there were a total 19,485,634 common shares issued and outstanding, and a total of 5,000,000 warrants issued and outstanding, at the end of the first quarter, March 31, 2009. NOTE 5. INCOME TAXES The Company had no business activity and made no U.S. federal income tax provision for the period ended March 31, 2009. NOTE 6. RELATED PARTY TRANSACTIONS The Company neither owns nor leases any real or personal property. An officer of the corporation provides office services without charge. Such costs are immaterial to the financial statements and accordingly, have not been reflected therein. The officers and directors for the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interest. The Company has not formulated a policy for the resolution of such conflicts. NOTE 7. WARRANTS AND OPTIONS There were 5,000,000 warrants outstanding, each to acquire one share of common stock of the Company, as at March 31, 2009. These warrants are more fully described above in Note 4: Stockholders' Equity. NOTE 8. COMMITMENT AND CONTINGENCY There is no commitment or contingency to disclose during the period ended March 31, 2009, other than the warrants described above. NOTE 9. SUBSEQUENT EVENTS There are no subsequent events to disclose. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS. The discussion contained herein contains "forward-looking statements" that involve risk and uncertainties. These statements may be identified by the use of terminology such as "believes," "expects," "may," "should" or anticipates" or expressing this terminology negatively or similar expressions or by discussions of strategy. The cautionary statements made in this Form 10Q should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10Q. Our actual results could differ materially from those discussed in this report. COMPANY HISTORY AND PLAN OF OPERATION. Arrin Background, Inc. ("the Company" or "the Issuer") was organized under the laws of the State of Nevada on January 14, 2008 as part of the implementation of the Chapter 11 plan of reorganization of Arrin Systems, Inc. ("ASI"). ASI filed for Chapter 11 Bankruptcy in April 2007 in the U.S. Bankruptcy Court for the Southern District of California. ASI's plan of reorganization was confirmed by the Court on December 12, 2007 and became effective on December 30, 2007. The plan of reorganization provided for the establishment of the Issuer and the sale to the Issuer of ASI's employee screening business, including a web site and knowledge of means of obtaining background information, but excluding customer lists, in exchange for 567,324 shares of the Issuer's common stock which were distributed to the general unsecured creditors of ASI. Also pursuant to the plan, as confirmed by the Bankruptcy Court, 1,000,000 shares and 5,000,000 warrants were issued to ASI's administrative creditors. The ASI web software and a receivable of $1,000 are the Company's only assets. Additional web site development and sales and marketing of the service for the background screening industry can be a costly process. Management has concluded that the Company does not have the resources to compete in this market. Therefore, as of the date hereof, the Company can be defined as a "shell" company, an entity which is generally described as having no or nominal operations and with no or nominal assets. As a shell company, our purpose at this time, described more fully below, is to negotiate and consummate a licensing agreement or a merger or an acquisition with a larger entity which will bring greater value to our shareholders. We hope to consummate this business combination with an entity engaged in a related business and thus capable of utilizing the web site software currently owned by the Company, however we will not limit our search for a business combination target to only businesses intending to engage in this business. Our primary goal is to find a business combination partner which will bring greater value to our shares and our shareholders. LIQUIDITY AND CAPITAL RESOURCES. The Company has no current operations and does not have any revenues or earnings from operations. The Company has no significant assets or financial resources. As of March 31, 2009, we had assets of $1,567 consisting of our web software (valued at $567) and a receivable (valued at $1,000). As of March 31, 2008 we had assets of $2,592 consisting of our web software (valued at $567), a receivable (valued at $1,000), and cash of $1,025. At both March 31, 2009 and March 31, 2008 we had no liabilities. As of December 31, 2008, the end of our first fiscal year, our assets totaled $1,567, the same as they were at March 31, 2009, and we had no liabilities, also the same as at March 31, 2009. We will, in all likelihood, sustain operating expenses without corresponding revenues, at least until the closing of a merger with or acquisition of an operating business. We are dependent upon our officers to meet any DE MINIMIS costs that may occur. Our two officers and directors have agreed to provide the necessary 11 funds, without interest, for the Company to comply with the Securities Exchange Act of 1934, as amended, provided that they are officers and directors of the Company when the obligation is incurred. All advances are interest-free. RESULTS OF OPERATIONS. The Company is still in its development stage and has no revenues to date. It did not incur any operating expenses during the three month period ended March 31, 2009. Its only activity during this period was the search for a merger or acquisition partner conducted by its officers. The search was conducted through occasional meetings and phone calls which did not involve any expense to the Company. We had a loss from inception on January 14, 2008 through March 31, 2008 of $2,750 and a loss for the year ended December 31, 2008 of $4,000, and we have the prospect of continued losses unless we complete a merger or acquisition with a profitable entity, of which there can be no assurance. GOING CONCERN. The accompanying financial statements are presented on a going concern basis. The company's financial condition raises substantial doubt about the Company's ability to continue as a going concern. The Company does not have significant cash or other material assets and it is relying on advances from stockholders, officers and directors to meet its limited operating expenses. OFF-BALANCE SHEET ARRANGEMENTS We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Our management team, under the supervision and with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, as of the last day of the fiscal period covered by this report, March 31, 2009. The term disclosure controls and procedures means our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and our principal financial officer concluded that, as of March 31, 2009, our disclosure controls and procedures were effective at a reasonable assurance level. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There have been no changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2009 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 12 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS None ITEM 1A - RISK FACTORS There have been no material changes to the risks of our business from those stated in our Form 10-K for the year ended December 31, 2008. ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5 - OTHER INFORMATION None ITEM 6. - EXHIBITS No. Description --- ----------- 31.1 Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: May 11, 2009 ARRIN BACKGROUND, INC. By: /s/ Harold Hartley ----------------------------------------- Harold Hartley President and Director By: /s/ William R. Willard ----------------------------------------- William R. Willard Secretary, Treasurer and Director 13

Arrin Background, Inc. 10-Q