**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-K**


**ANNUAL
      REPORT**


**PURSUANT
      TO SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





**[X]
      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND**


**EXCHANGE
      ACT OF 1934**





For
      the
      fiscal year ended December 31, 2005





OR





**[_]
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND**


**EXCHANGE
      ACT OF 1934**





For
      the
      transition period from ________________ to ________________





Commission
                File No.: 000-51444
              
              **Stone
                Arcade Acquisition Corporation**
              -------------------
              Name
                of issuer as specified in its charter
              
              c/o
                Stone-Kaplan Investments, LLC
              One
                Northfield Plaza, Suite 480
              Northfield,
                Illinois 60093
              ------------------------------------------------------------
              (address
                of principal executive offices) (Zip Code)




Delaware
            20-2699372(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            Identification
                No.)





Registrant's
      telephone number, including area code: (847) 441-0929





**Securities
      registered pursuant to Section 12(b) of the Act: None**





**Securities
      registered pursuant to Section 12(g) of the Act:**





**Common
      Stock, $.0001 par value**


(Title
      of
      Class)





**Common
      Stock Purchase Warrants**


(Title
      of
      Class)





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes o  No x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.


Yes o No x








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
o





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


o





Indicate
      by check mark if the registrant is a large accelerated filer, an accelerated
      filer or a non-accelerated filer.





Large
      Accelerated Filer o   Accelerated Filer o   Non-Accelerated
      Filer 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
o





State
      the
      aggregate market value of the voting and non-voting stock held by non-affiliates
      of the Issuer: $103,545,000 based upon the closing price of Issuer's Common
      Stock, $.0001 par value, as of December 30, 2005. This date was used because
      the
      Issuer’s common stock was not publicly traded at the end of its most recently
      completed second fiscal quarter.





Indicate
      the number of shares outstanding of each of the Registrant's classes of common
      stock, as of the latest practicable date; 25,000,000 at March 21,
      2006.





**DOCUMENTS
      INCORPORATED BY REFERENCE: NONE**




2


TABLE
        OF
        CONTENTS


Part
                I1.
            Business
            41A.
            Risk
                Factors
            92.
            Properties
            143.
            Legal
                Proceedings
            144.
            Submission
                of Matters to a Vote of Security Holders
            14Part
                II5.
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            166.
            Selected
                Financial Data
            177.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            177A.
            Quantitative
                and Qualitative Disclosures About Market Risks
            198.
            Financial
                Statements and Supplementary Data
            199.
            Changes
                In and Disagreements With Accountants on Accounting and Financial
                Disclosure
            199A.
            Controls
                and Procedures
            199B.
            Other
                Information
            20Part
                III10.
            Directors
                and Executive Officers of the Registrant
            2011.
            Executive
                Compensation
            2112.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            2213.
            Certain
                Relationships and Related Transactions
            2314.
            Principal
                Accountant Fees and Services
            23Part
                IV15.
            Exhibits
                and Financial Statement Schedules
            2416.
            INDEX
                TO FINANCIAL STATEMENTS
            F-1





3


**Item
      1. Business**





**Overview**





We
      are a
      blank check company formed on April 15, 2005 for the purpose of effecting a
      merger, capital stock exchange, asset acquisition or other similar business
      combination with an unidentified operating business in the paper, packaging,
      forest products and related industries. As used herein, the term “business
      combination” shall mean our initial acquisition of a target business in
      accordance with the terms described below, including the requirement that the
      target business have a fair market value that is at least 80% of our net assets
      at the time of the acquisition.





On
      August
      19, 2005, we consummated our initial public offering of 20,000,000 units with
      each unit consisting of one share of our common stock and two warrants. Each
      warrant will entitle the holder to purchase one share of our common stock at
      an
      exercise price of $5.00 per share. The units sold in our initial public offering
      were sold at an offering price of $6.00 per unit, generating gross proceeds
      of
      $120,000,000. After deducting the underwriting discounts and commissions and
      the
      offering expenses, the total net proceeds to us from the offering were
      approximately $113,236,000, of which $110,854,000 was deposited into a trust
      account and the remaining proceeds of $2,382,000 became available to be used
      to
      provide for business, legal and accounting due diligence for a prospective
      business combination and continuing operating expenses. The net proceeds
      deposited into the trust fund remain on deposit in the trust account earning
      interest. As of December 31, 2005, there was approximately $111,965,034
      including accrued interest receivable of $266,239, held in the trust
      fund.





We
      believe that companies involved in paper, packaging, forest products and related
      industries represent attractive acquisition targets for a number of reasons,
      including:




·
              *Numerous
                  middle market acquisition candidates.*Financial
                  buyers, including several private equity firms, have recently purchased
                  large portfolios of industry assets, and may be seeking liquidity
                  by
                  selective divestitures of certain assets. According to Thomson
                  Financial,
                  from January 1, 2004 to June 30, 2005, 43 merger and
                  acquisition transactions with disclosed values were completed in
                  the
                  paper, packaging and forest products industries with an aggregate
                  transaction value of $22.8 billion. In addition to divisional
                  divestitures, standalone competitors in the size range being targeted
                  by
                  management include many medium-sized family-owned businesses which
                  may
                  consider sale or recapitalization transactions as a way to provide
                  growth
                  capital to the businesses or due to their owners’ desires to transition
                  for personal reasons.


·
            *Industry
                economic environment.*The
                North American paper and forest products industry is mature, and
                long-term
                demand and financial performance tend to correlate with changes in
                U.S. gross domestic product. Over the last several years, the
                industry has seen significant consolidation and disciplined capital
                management, resulting in improving industry fundamentals such as
                operating
                rates and capacity utilization.





The
      packaging industry includes paper as well as plastic products. According to
      the
      Freedonia Group, in 2003, the total demand for paper and plastic packaging,
      excluding corrugated boxes, was 44.1 billion pounds and is projected to
      grow to 57.3 billion pounds by 2013. According to Standard &
Poors, the paper and forest products industry is among the largest in the
      U.S. with annual shipments of about $200 billion. The paper and
      paperboard segment typically accounts for about 85% of industry revenues, with
      wood products being the remainder. In 2003, total paper and paperboard
      production amounted to 88.4 million tons.





Roger
      Stone and Matthew Kaplan ,
      our
      Chief Executive Officer and President, respectively, are
      parties to non-competition agreements expiring in July 2007 that prohibit their
      participation or significant share ownership in businesses engaged in the
      manufacture of corrugated packaging, containers or containerboard. The
      corrugated container business, which is primarily shipping containers (i.e.
      the
      brown or white boxes in which food and consumer products are shipped), comprises
      the largest segment of the packaging business. In 2003, corrugated box shipments
      were $22.1 billion, according to the Fibre Box Association or approximately
      11% of annual shipments of paper and forest products. Accordingly, we may not
      be
      able to complete a business combination with a target company in this business
      segment. We believe, based upon management’s experience and analysis of
      available industry data, that the market size of the various industry segments
      within the paper, packaging, forest products and related industries are
      sufficiently large such that the excluded segment will have no material effect
      on our ability to find and complete such a combination.





4


**Effecting
      a business combination**





***General***





We
      are
      not presently engaged in, any substantive commercial business. We intend to
      utilize cash derived from the proceeds of our public offering, our capital
      stock, debt or a combination of these in effecting a business combination.
      Although substantially all of the net proceeds from the offering are intended
      to
      be generally applied toward effecting a business combination as described in
      this Annual Report on Form 10-K, the proceeds are not otherwise being designated
      for any more specific purposes. A business combination may involve the
      acquisition of, or merger with, a company which does not need substantial
      additional capital but which desires to establish a public trading market for
      its shares, while avoiding what it may deem to be adverse consequences of
      undertaking a public offering itself. These include time delays, significant
      expense, loss of voting control and compliance with various Federal and state
      securities laws. In the alternative, we may seek to consummate a business
      combination with a company that may be financially unstable, which would subject
      us to the numerous risks inherent in such companies.





***Sources
      of target businesses***





We
      anticipate that our officers and directors as well as their affiliates will
      bring to our attention target business candidates. While our officers and
      directors make no commitment as to the amount of time they will spend trying
      to
      identify or investigate potential target businesses, they believe that the
      various relationships they have developed over their careers, together with
      their direct inquiry, will generate a number of potential target businesses
      that
      will warrant further investigation.





Target
      business candidates may also be brought to our attention by various unaffiliated
      sources, including investment bankers, venture capital funds, leveraged buyout
      funds, hedge funds, management buyout funds and other members of the financial
      community who are aware that we are seeking a business combination partner
      via
      public relations and marketing efforts, direct contact by management or other
      similar efforts and who may present solicited or unsolicited proposals. We
      have
      engaged Morgan Joseph & Co. to act as our investment banker in connection
      with a possible business combination and will pay Morgan Joseph &
Co. a cash fee at the closing of the business combination for assisting us
      in structuring and negotiating the terms of the transaction of $1.2
      million.





We
      may
      pay finders’ fees or compensation to other third parties for their efforts in
      introducing us to potential target businesses which we would negotiate at the
      time. Such payments, which are typically, although not always, calculated as
      a
      percentage of the dollar value of the transaction, could be paid to entities
      we
      engage for this purpose or ones that approach us on an unsolicited basis and
      while payment of finders’ fees is customarily tied to completion of a
      transaction (and certainly would be in the case of an unsolicited proposal),
      we
      may pay fees to a finder whether or not a business combination is consummated.
      In no event, however, will we pay any of our existing officers, directors or
      stockholders or any entity with which they are affiliated any finder’s fee or
      other compensation for services rendered to us prior to or in connection with
      the consummation of a business combination. In addition, none of our officers
      or
      directors will receive any finder’s fee, consulting fees or any similar fees
      from any person or entity in connection with a business combination involving
      us
      other than any compensation or fees that may be received for any services
      provided following such business combination.





***Selection
      of a target business and structuring of a business
      combination***





Subject
      to the requirement that our initial business combination must be with a target
      business with a fair market value that is at least 80% of our net assets at
      the
      time of such acquisition, our management will have virtually unrestricted
      flexibility in identifying and selecting a prospective target business. In
      evaluating a prospective target business, our management will consider, among
      other factors, the following:





·
            financial
                condition and results of operation;


·
            cash
                flow potential;


·
            growth
                potential;


·
            experience
                and skill of management and availability of additional personnel;


·
            capital
                requirements;


·
            competitive
                position;


·
            barriers
                to entry by competitors;


·
            stage
                of development of the products, processes or services;


·
            security
                measures employed to protect technology, trademarks or trade secrets;


·
            degree
                of current or potential market acceptance of the products, processes
                or
                services;


·
            proprietary
                features and degree of intellectual property or other protection
                of the
                products, processes or services;


·
            regulatory
                environment of the industry; and


·
            costs
                associated with effecting the business combination.





5


These
      criteria are not intended to be exhaustive. Any evaluation relating to the
      merits of a particular business combination will be based, to the extent
      relevant, on the above factors as well as other considerations deemed relevant
      by our management in effecting a business combination consistent with our
      business objective. In evaluating a prospective target business, we will conduct
      an extensive due diligence review which will encompass, among other things,
      meetings with incumbent management and inspection of facilities, as well as
      review of financial and other information which will be made available to us.





The
      time
      and costs required to select and evaluate a target business and to structure
      and
      complete the business combination cannot presently be ascertained with any
      degree of certainty. Any costs incurred with respect to the identification
      and
      evaluation of a prospective target business with which a business combination
      is
      not ultimately completed will result in a loss to us and reduce the amount
      of
      capital available to otherwise complete a business combination. However, we
      will
      not pay any finder’s or consulting fees to our officers or directors, or any of
      their respective affiliates, for services rendered to or in connection with
      a
      business combination.





***Fair
      market value of target business***





The
      initial target business that we acquire must have a fair market value equal
      to
      at least 80% of our net assets at the time of such acquisition. The fair market
      value of such business will be determined by our board of directors based upon
      standards generally accepted by the financial community, such as actual and
      potential sales, earnings and cash flow and book value. If our board is not
      able
      to independently determine that the target business has a sufficient fair market
      value, we will obtain an opinion from an unaffiliated, independent investment
      banking firm which is a member of the National Association of Securities
      Dealers, Inc. with respect to the satisfaction of such criteria. Since any
      opinion, if obtained, would merely state that fair market value meets the 80%
      of
      net assets threshold, it is not anticipated that copies of such opinion would
      be
      distributed to our stockholders, although copies will be provided to
      stockholders who request it. We will not be required to obtain an opinion from
      an investment banking firm as to the fair market value if our board of directors
      independently determines that the target business has sufficient fair market
      value.





***Possible
      lack of business diversification***





While
      we
      may seek to effect business combinations with more than one target business,
      our
      initial business combination must be with a target business which satisfies
      the
      minimum valuation standard at the time of such acquisition, as discussed above.
      Consequently, it is likely that we will have the ability to effect only one,
      or
      perhaps two, business combinations. Accordingly, the prospects for our success
      may be entirely dependent upon the future performance of a single business.
      Unlike other entities which may have the resources to complete several business
      combinations of entities operating in multiple industries or multiple areas
      of a
      single industry, it is probable that we will not have the resources to diversify
      our operations or benefit from the possible spreading of risks or offsetting
      of
      losses. By consummating a business combination with only a single entity, our
      lack of diversification may:





·
            subject
                us to numerous economic, competitive and regulatory developments,
                any or
                all of which may have a substantial adverse impact upon the particular
                industry in which we may operate subsequent to a business
                combination; and


·
            result
                in our dependency upon the development or market acceptance of a
                single or
                limited number of products, processes or services.





***Limited
      ability to evaluate the target business’ management***





Although
      we intend to closely scrutinize the management of a prospective target business
      when evaluating the desirability of effecting a business combination, we cannot
      assure you that our assessment of the target business’ management will prove to
      be correct. In addition, we cannot assure you that the future management will
      have the necessary skills, qualifications or abilities to manage a public
      company. While it is our intention that our officers will devote their full
      efforts to our affairs subsequent to a business combination and that one or
      more
      of our directors will remain associated in some capacity with us following
      a
      business combination, the future role of our officers and directors in the
      target business cannot presently be stated with any certainty. Our current
      management will only be able to remain with the combined company after the
      consummation of a business combination if they are able to negotiate and agree
      to mutually acceptable employment terms in connection with any such combination,
      which terms would be disclosed to stockholders in any proxy statement relating
      to such transaction. While it is possible that one or more of our non-officer
      directors will remain associated in some capacity with us following a business
      combination, it is unlikely that any of them will devote their full efforts
      to
      our affairs subsequent to a business combination. Moreover, we cannot assure
      you
      that our officers and directors will have significant experience or knowledge
      relating to the operations of the particular target business.





6


Following
      a business combination, we may seek to recruit additional managers to supplement
      the incumbent management of the target business. We cannot assure you that
      we
      will have the ability to recruit additional managers, or that the managers
      we
      hire will have the requisite skills, knowledge or experience necessary to
      enhance the incumbent management.





***Opportunity
      for stockholder approval of business combination***





Prior
      to
      the completion of our initial business combination, we will submit the
      transaction to our stockholders for approval, even if the nature of the
      acquisition is such as would not ordinarily require stockholder approval under
      applicable state law. In connection with seeking stockholder approval of a
      business combination, we will furnish our stockholders with proxy solicitation
      materials prepared in accordance with the Securities Exchange Act of 1934,
      which, among other matters, will include a description of the operations of
      the
      target business and audited historical financial statements of the business.





In
      connection with the vote required for a business combination, all of our
      officers and directors have agreed to vote their respective shares of common
      stock owned by them immediately prior to the initial public offering in
      accordance with the majority of the shares of common stock voted by the public
      stockholders. This voting arrangement does not apply to shares included in
      units
      purchased in the offering or in the open market; however, our officers and
      directors will vote such shares in favor of a business combination they present
      to the stockholders. We will proceed with the business combination only if
      a
      majority of the shares of common stock voted by the public stockholders are
      voted in favor of the business combination and public stockholders owning less
      than 20% of the shares sold in the public offering exercise their redemption
      rights.





***Redemption
      rights***





At
      the
      time we seek stockholder approval of our initial business combination, we will
      offer each public stockholder the right to have such stockholder’s shares of
      common stock redeemed for cash if the stockholder votes against the business
      combination and the business combination is approved and completed. The actual
      per-share redemption price will be equal to the amount in the trust account
      (calculated as of two business days prior to the consummation of the proposed
      business combination), inclusive of any interest, net of taxes payable, divided
      by the number of shares sold in the public offering. Without taking into any
      account interest earned on the trust account, the initial per-share redemption
      price would be $5.54, or $0.46 less than the per-unit offering price of $6.00.
      An eligible stockholder may request redemption at any time after the mailing
      to
      our stockholders of the proxy statement and prior to the vote taken with respect
      to a proposed initial business combination at a meeting held for that purpose,
      but the request will not be granted unless the stockholder votes against the
      business combination and the business combination is approved and completed.
      If
      a stockholder votes against the business combination but fails to properly
      exercise its redemption rights, such stockholder will not have its shares of
      common stock redeemed for its pro rata distribution of the trust fund. Any
      request for redemption, once made, may be withdrawn at any time up to the date
      of the meeting. It is anticipated that the funds to be distributed to
      stockholders entitled to redeem their shares who elect redemption will be
      distributed promptly after completion of our initial business combination.
      Public stockholders who redeem their stock for their share of the trust account
      still have the right to exercise the warrants that they received as part of
      the
      units. We will not complete a business combination if public stockholders owning
      20% or more of the shares sold in our public offering exercise their redemption
      rights.





***Liquidation
      if no business combination***





If
      we do
      not complete a business combination on or prior to February 19, 2007, or August
      19, 2007 if the extension criteria described below have been satisfied, we
      will
      be dissolved and distribute to all of our public stockholders, in proportion
      to
      their respective equity interests, an aggregate sum equal to the amount in
      the
      trust account, inclusive of any interest (net of taxes payable), plus any
      remaining net assets. Messrs. Stone, Kaplan, Chapman, Furer and Rahman have
      waived their rights to participate in any liquidation distribution with respect
      to shares of common stock owned by them immediately prior to the public
      offering. In the event of such liquidation, there will be no distribution from
      the trust account with respect to our warrants (or any other warrants), which
      will all expire worthless.





7


If
      we
      were to expend all of the net proceeds of the offering, other than the proceeds
      deposited in the trust account, and without taking into account interest, if
      any, earned on the trust account, the initial per-share liquidation price would
      be $5.54, or $0.46 less than the per-unit offering price of $6.00. The proceeds
      deposited in the trust account could, however, become subject to the claims
      of
      our creditors which could be prior to the claims of our public stockholders.
      Messrs. Stone, Kaplan, Chapman, Furer and Rahman have agreed pursuant to
      agreements with us and Morgan Joseph & Co. that, if we liquidate prior
      to the consummation of a business combination, they will be personally liable
      to
      pay debts and obligations to vendors that are owed money by us for services
      rendered or products sold to us in excess of the net proceeds of the public
      offering not held in the trust account at that time. We cannot assure you,
      however, that they would be able to satisfy those obligations. Further, they
      will not be personally liable to pay debts and obligations to prospective target
      businesses if a business combination is not consummated with such prospective
      target businesses, or for claims from any other entity other than vendors.
      Accordingly, we cannot assure you that the actual per-share liquidation price
      will not be less than $5.54, plus interest, due to claims of creditors. It
      is
      our intention that all vendors, prospective target businesses and other entities
      that we engage will execute agreements with us waiving any right to the monies
      held in the trust account. If any third party refused to execute an agreement
      waiving such claims, we would perform an analysis of the alternatives available
      to us and evaluate if such engagement would be in the best interest of our
      stockholders if such third party refused to waive such claims. Examples of
      possible instances where we may engage a third party that refused to execute
      a
      waiver include the engagement of a third party consultant whose particular
      expertise or skills are believed by management to be superior to those of other
      consultants that would agree to execute a waiver or in cases where management
      does not believe it would be able to find a provider of required services
      willing to provide the waiver.





If
      we
      enter into either a letter of intent, an agreement in principle or a definitive
      agreement to complete a business combination on or prior to February 19, 2007,
      but are unable to complete the business combination by such date, then we will
      have an additional six months in which to complete the business combination
      contemplated by the letter of intent, agreement in principle or definitive
      agreement. If we are unable to do so on or prior to August 19, 2007, we will
      then liquidate. Upon notice from us, the trustee of the trust account will
      commence liquidating the investments constituting the trust account and will
      turn over the proceeds to our transfer agent for distribution to our public
      stockholders.





Our
      public stockholders will be entitled to receive funds from the trust account
      only in the event of our liquidation or if the stockholders seek to redeem
      their
      respective shares for cash upon a business combination which the stockholder
      voted against and which is completed by us. In no other circumstances will
      a
      stockholder have any right or interest of any kind to or in the trust account.





**Competition**





In
      identifying, evaluating and selecting a target business, we may encounter
      intense competition from other entities having a business objective similar
      to
      ours. Many of these entities are well established and have extensive experience
      identifying and effecting business combinations directly or through affiliates.
      Many of these competitors possess greater technical, human and other resources
      than us. Further:





·
            our
                obligation to seek stockholder approval of a business combination
                may
                delay or threaten the completion of a transaction;


·
            our
                obligation to redeem for cash shares of common stock held by our
                public
                stockholders in certain instances may reduce the resources available
                to us
                for a business combination; and


·
            our
                outstanding warrants and option, and the future dilution they potentially
                represent, may not be viewed favorably by certain target businesses.





Any
      of
      these factors may place us at a competitive disadvantage in successfully
      negotiating a business combination. Our management believes, however, that
      to
      the extent that our target business is a privately held entity, our status
      as a
      well-financed public entity and the substantial industry experience of our
      officers may give us a competitive advantage over entities having a similar
      business objective as ours in acquiring a target business on favorable terms.





If
      we
      succeed in effecting a business combination, there will be, in all likelihood,
      intense competition from competitors of the target business. We cannot assure
      you that, subsequent to a business combination, we will have the resources
      or
      ability to compete effectively.





**Employees**





We
      have
      two executive officers. These individuals are not obligated to devote any
      minimum number of hours to our matters as the nature of identifying and
      negotiating with a target business may require extensive time commitments at
      certain stages and very little at others. However, these individuals intend
      to
      devote as much time as they deem necessary to our affairs. The amount of time
      they will devote in any time period will vary based on the availability of
      suitable target businesses to investigate as well as the stage of a potential
      business combination. We expect Messrs. Stone and Kaplan to devote an
      average of approximately 10 hours per week to our business during the target
      identification stage, and close to full time during due diligence and
      negotiation of a business combination. We do not intend to have any full time
      employees prior to the consummation of a business combination.





8


**Item
      1A. Risk factors**





***Risks
      associated with our business***





***We
      are a development stage company with limited operating history and, accordingly,
      our stockholders do not have any basis on which to evaluate our ability to
      achieve our business objective.***




We
      are a
      recently incorporated development stage company with limited operating results
      to date. During the year ended December 31, 2005, we incurred operating expenses
      in the aggregate amount of $221,100. We will not generate any revenues (other
      than interest income on the proceeds of our initial public offering) until,
      at
      the earliest, after the consummation of a business combination. Due to our
      limited operating history, our stockholders have no basis upon which to evaluate
      our ability to achieve our business objective, which is to acquire an operating
      business.





***If
      we are forced to liquidate before a business combination and distribute the
      trust account, our public stockholders will receive less than $6.00 per
      share upon distribution of the trust account and our warrants will expire
      worthless.***





If
      we are
      unable to complete a business combination within the required time frame and
      are
      forced to liquidate our assets, the per-share liquidation distribution will
      be
      less than $6.00 because of the expenses of the offering, our general and
      administrative expenses and the anticipated costs of seeking a business
      combination. Furthermore, there will be no distribution with respect to our
      outstanding warrants which will expire worthless if we liquidate before the
      completion of a business combination.





***If
      third parties bring claims against us, the proceeds held in trust could be
      reduced and the per-share liquidation price received by stockholders would
      be
      less than $5.54 per share.***





Our
      placing of funds in trust may not protect those funds from third party claims
      against us. Although we will seek to have all vendors, prospective target
      businesses or other entities that we engage execute agreements with us waiving
      any right, title, interest or claim of any kind in or to any monies held in
      the
      trust account for the benefit of our public stockholders, there is no guarantee
      that they will execute such agreements. If any third party refused to execute
      an
      agreement waiving such claims to the monies held in the trust account, we would
      perform an analysis of the alternatives available to us and evaluate if such
      engagement would be in the best interest of our stockholders if such third
      party
      refused to waive such claims. Examples of possible instances where we may engage
      a third party that refused to execute a waiver include the engagement of a
      third
      party consultant whose particular expertise or skills are believed by management
      to be superior to those of other consultants that would agree to execute a
      waiver or in cases where management does not believe it would be able to find
      a
      provider of required services willing to provide the waiver. In addition, there
      is no guarantee that such entities will agree to waive any claims they may
      have
      in the future as a result of, or arising out of, any negotiations, contracts
      or
      agreements with us and will not seek recourse against the trust account for
      any
      reason. If we liquidate before the completion of a business combination and
      distribute the proceeds held in trust to our public stockholders,
      Messrs. Stone, Kaplan, Chapman, Furer and Rahman, our officers and
      directors, severally, in accordance with their respective beneficial ownership
      interests in us will be personally liable to pay debts and obligations to
      vendors that are owed money by us for services rendered or products sold to
      us
      in excess of the net proceeds of the offering not held in the trust account
      at
      that time. However, we cannot assure you that these individuals will be able
      to
      satisfy those obligations. Further, they will not be personally liable to pay
      debts and obligations to prospective target businesses if a business combination
      is not consummated with such prospective target businesses, or for claims from
      any entity other than vendors. Accordingly, the proceeds held in trust could
      be
      subject to claims which could take priority over the claims of our public
      stockholders and the per-share liquidation price could be less than $5.54,
      plus
      interest (net of taxes payable), due to claims of such creditors.





***Since
      we have not yet selected a target business with which to complete a business
      combination, we are unable to currently ascertain the merits or risks of the
      business in which we may ultimately operate.***





There
      is
      no current basis for our stockholders to evaluate the possible merits or risks
      of the target business which we may ultimately acquire. To the extent we
      complete a business combination with a financially unstable company or an entity
      in its development stage, we may be affected by numerous risks inherent in
      the
      business operations of those entities. Although our management will endeavor
      to
      evaluate the risks inherent in a target business, we cannot assure you that
      we
      will properly ascertain or assess all of the significant risk
      factors.




9


***We
      may issue shares of our capital stock or debt securities to complete a business
      combination which would reduce the equity interest of our stockholders and
      could
      likely cause a change in control of our ownership.***





We
      may
      issue a substantial number of additional shares of our common stock or preferred
      stock, or a combination of common and preferred stock, to complete a business
      combination. The issuance of additional shares of our common stock or any number
      of shares of our preferred stock:





·
            may
                significantly reduce the equity interest of our officers and directors;


·
            could
                likely cause a change in control if a substantial number of our shares
                of
                common stock are issued, which may affect, among other things, our
                ability
                to use our net operating loss carry forwards, if any, and may also
                result
                in the resignation or removal of our present officers and
                directors; and


·
            may
                adversely affect prevailing market prices for our common stock.





Similarly,
      if we issue debt securities, it could result in:





·
            default
                and foreclosure on our assets if our operating income and other resources
                after a business combination were insufficient to pay our debt
                obligations;


·
            acceleration
                of our obligations to repay the indebtedness even if we have made
                all
                principal and interest payments when due if the debt security contains
                covenants that require the maintenance of certain financial ratios
                or
                reserves and any such covenant is breached without a waiver or
                renegotiation of that covenant;


·
            our
                immediate payment of all principal and accrued interest, if any,
                if the
                debt security is payable on demand; and


·
            our
                inability to obtain additional financing, if necessary, if the debt
                security contains covenants restricting our ability to obtain additional
                financing while such security is outstanding.





***The
      ability of our stockholders to exercise their conversion rights may not allow
      us
      to effectuate the most desirable business combination or optimize our capital
      structure.***





At
      the
      time we seek stockholder approval of the initial business combination, we will
      offer each public stockholder the right to have such stockholder’s shares of
      common stock redeemed for cash if the stockholder votes against the business
      combination and the business combination is approved and completed. Accordingly,
      if our business combination requires us to use substantially all of our cash
      to
      pay the purchase price, because we will not know how many stockholders may
      exercise such redemption rights, we may either need to reserve part of the
      trust
      fund for possible payment upon such redemption, or we may need to arrange third
      party financing to help fund our business combination in case a larger
      percentage of stockholders exercise their redemption rights than we expected.
      Therefore, we may not be able to consummate a business combination that requires
      us to use all of the funds held in the trust account as part of the purchase
      price, or we may end up having a leverage ratio that is not optimal for our
      business combination. This may limit our ability to effectuate the most
      attractive business combination available to us.





***Because
      of the significant competition for business combination opportunities, we may
      not be able to consummate an attractive business combination within the required
      time frame.***





We
      expect
      to encounter intense competition from other entities having a business objective
      similar to ours, including leveraged buyout funds, hedge funds and operating
      businesses competing for acquisitions. Many of these entities are well
      established and have extensive experience in identifying and effecting business
      combinations directly or through affiliates. Many of these competitors possess
      greater technical, human and other resources than we do. Further, the obligation
      we have to seek stockholder approval of a business combination may delay the
      consummation of a transaction, and our obligation to convert into cash the
      shares of common stock held by public stockholders in certain instances may
      reduce the resources available for a business combination. Additionally, our
      outstanding warrants, and the future dilution they potentially represent, may
      not be viewed favorably by certain target businesses. Any of these obligations
      may place us at a competitive disadvantage in successfully negotiating a
      business combination.





We
      are
      limited by the requirement that our initial business combination must be with
      a
      business with a fair market value of at least 80% of our net assets at the
      time
      of such acquisition. This requirement prevents us from initially targeting
      smaller companies, even if we believe they are attractive candidates for
      acquisition.





***We
      may be unable to obtain additional financing, if required, to complete a
      business combination or to fund the operations and growth of the target
      business, which could compel us to restructure the transaction or abandon a
      particular business combination.***





10


Although
      we believe that the net proceeds of our initial public offering will be
      sufficient to allow us to consummate a business combination, in as much as
      we
      have not yet identified any prospective target business, we cannot ascertain
      the
      capital requirements for any particular transaction. If the net proceeds of
      the
      offering prove to be insufficient, either because of the size of the business
      combination or because we become obligated to convert into cash a significant
      number of shares from dissenting stockholders, we may be required to seek
      additional financing. We cannot assure you that such financing would be
      available on acceptable terms, if at all. To the extent that additional
      financing proves to be unavailable when needed to consummate a particular
      business combination, we would be compelled to restructure the transaction
      or
      abandon that particular business combination and seek an alternative target
      business candidate. In addition, if we consummate a business combination, we
      may
      require additional financing to fund the operations or growth of the target
      business. The failure to secure additional financing could have a material
      adverse effect on the continued development or growth of the target business.
      None of our officers, directors or stockholders is required to provide any
      financing to us in connection with or after a business combination.





***Our
      officers and directors control a substantial interest in us and thus may
      influence certain actions requiring a stockholder vote.***





Our
      officers and directors own 22.0% of our issued and outstanding shares of common
      stock and may have considerable influence over the outcome of all matters
      requiring approval by our stockholders, including our initial business
      combination and the election of directors. In addition, our board of directors
      is divided into three classes, each of which will generally serve for a term
      of
      two years with only one class of directors being elected in each year. It is
      unlikely that there will be an annual meeting of stockholders to elect new
      directors prior to the consummation of a business combination, in which case
      all
      of the current directors will continue in office at least until the consummation
      of the business combination. If there is an annual meeting, as a consequence
      of
      our “staggered” board of directors, only a minority of the board of directors
      will be considered for election and our officers and directors, because of
      their
      ownership position, will have considerable influence regarding the outcome.
      Accordingly, our officers and directors will continue to exert control at least
      until the consummation of a business combination.





***Our
      current officers and directors may resign upon consummation of a business
      combination.***





Upon
      consummation of a business combination, the role of our key personnel in the
      target business cannot presently be ascertained. Although it is presently
      contemplated that our Chairman and Chief Executive Officer and our President
      will remain associated in various capacities with the target business following
      a business combination, it is possible that the management of the target
      business at the time of the business combination will remain in place.
      Alternatively, we may recruit new management team members to join the target
      business. Moreover, our current management will only be able to remain with
      the
      combined company after the consummation of a business combination if they are
      able to negotiate the same as part of any such combination. In making the
      determination as to whether current management should remain with us following
      the business combination, management will analyze the experience and skill
      set
      of the target business’ management and negotiate as part of the business
      combination that certain members of current management remain if it is believed
      that it is in the best interests of the combined company post-business
      combination. If management negotiates to be retained post-business combination
      as a condition to any potential business combination, management may look
      unfavorably upon or reject a business combination with a potential target
      business whose owners refuse to retain members of our management post-business
      combination, thereby resulting in a conflict of interest. Although we intend
      to
      closely scrutinize the management of a prospective target business in connection
      with evaluating the desirability of effecting a business combination, we cannot
      assure you that our assessment of management will prove to be correct.





***Our
      officers are parties to non-competition agreements that limits the types of
      companies we can target for a business combination and may make us a less
      attractive buyer to certain target companies.***





Roger
      Stone, our Chairman and Chief Executive Officer, and Matthew Kaplan, our
      President, are parties to non-competition agreements that were entered into
      in
      connection with the sale of their most recent business, Box USA Holdings,
      Inc., to International Paper Company. These agreements, which expire in July
      2007, prohibit our officers from participation in businesses engaged in the
      manufacture of corrugated packaging, containers or containerboard. This
      prohibition may limit our ability to consummate a business combination in
      certain sectors of the paper, packaging, forest products and related industries.
      To the extent that an entity we identify as a potential target manufactures
      corrugated packaging, containers or containerboard or has similar operations,
      such potential target may need to dispose of such operations as part of a
      business combination with us. If this occurs, it may make us a less attractive
      buyer for the entity and adversely impact our position among competing
      acquirors.




11


***Our
      officers and directors may allocate their time to other businesses thereby
      causing conflicts of interest in their determination as to how much time to
      devote to our affairs. This could have a negative impact on our ability to
      consummate a business combination.***





Our
      officers and directors are not required to commit their full time to our
      affairs, which may result in a conflict of interest in allocating their time
      between our operations and other businesses. We do not intend to have any full
      time employees prior to the consummation of a business combination. All of
      our
      executive officers are engaged in several other business endeavors and are
      not
      obligated to contribute any specific number of hours to our affairs. While
      it is
      our executive officers’ intention to devote substantial business time to
      identifying potential targets and consummating a business combination, the
      amount of time devoted will vary depending on the stage of a potential business
      combination (i.e. from approximately 10 hours per week during target
      identification to substantially full time during due diligence and negotiations)
      and their other business affairs could in the future require them to devote
      more
      substantial amounts of time to such affairs, thereby limiting their ability
      to
      devote sufficient time to our affairs. This could have a negative impact on
      our
      ability to consummate a business combination.





***Some
      of our officers and directors may in the future become affiliated with entities
      engaged in business activities similar to those intended to be conducted by
      us
      and, accordingly, may have conflicts of interest in determining to which entity
      a particular business opportunity should be presented.***





Some
      of
      our officers and directors may in the future become affiliated with entities,
      including other “blank check” companies, engaged in business activities similar
      to those intended to be conducted by us. Additionally, after we complete a
      business combination, our officers and directors may become aware of business
      opportunities which may be appropriate for presentation to us as well as the
      other entities to which they have fiduciary obligations. Accordingly, they
      may
      have conflicts of interest in determining to which entity a particular business
      opportunity should be presented.





***Because
      we have no “independent” directors, actions taken and expenses incurred by our
      officers and directors on our behalf will generally not be subject to
“independent” review.***





Each
      of
      our directors owns shares of our common stock and, although no compensation
      will
      be paid to them for services rendered prior to or in connection with a business
      combination, they may receive reimbursement for out-of-pocket expenses incurred
      by them in connection with activities on our behalf such as identifying
      potential target businesses and performing due diligence on suitable business
      combinations. There is no limit on the amount of these out-of-pocket expenses
      and there will be no review of the reasonableness of the expenses by anyone
      other than our board of directors, which includes persons who may seek
      reimbursement, or a court of competent jurisdiction if such reimbursement is
      challenged. To the extent that such expenses exceed the available proceeds
      not
      deposited in the trust fund, such out-of-pocket expenses would not be reimbursed
      by us unless we consummate a business combination. Because none of our directors
      will be deemed “independent,” we will generally not have the benefit of
      independent directors examining the propriety of expenses incurred on our behalf
      and subject to reimbursement. Although we believe that all actions taken by
      our
      directors on our behalf will be in our best interests, we cannot assure you
      that
      this will be the case. If actions are taken, or expenses are incurred that
      are
      not in our best interests, it could have a material adverse effect on our
      business and operations and the price of our stock held by the public
      stockholders.





***All
      of our officers and directors own shares of our common stock which will not
      participate in liquidation distributions and therefore they may have a conflict
      of interest in determining whether a particular target business is appropriate
      for a business combination.***





All
      of
      our officers and directors own stock in our company, but have waived their
      right
      to receive distributions (other than with respect to units they purchased in
      the
      initial public offering or common stock they purchase in the aftermarket) upon
      our liquidation prior to a business combination. Additionally, they
      own warrants that will expire worthless if we do not consummate a business
      combination. The personal and financial interests of our officers and directors
      may influence their motivation in identifying and selecting a target business
      and completing a business combination timely. Consequently, our officers’ and
      directors’ discretion in identifying and selecting a suitable target business
      may result in a conflict of interest when determining whether the terms,
      conditions and timing of a particular business combination are appropriate
      and
      in our stockholders’ best interest.





12


***Our
      officers and directors will not receive reimbursement for any out-of-pocket
      expenses incurred by them to the extent that such expenses exceed the amount
      not
      in the trust fund unless the business combination is consummated and therefore
      they may have a conflict of interest in determining whether a particular target
      business is appropriate for a business combination and in the public
      stockholders’ best interest.***





Our
      officers and directors will not receive reimbursement for any out-of-pocket
      expenses incurred by them to the extent that such expenses exceed the available
      proceeds not deposited in the trust fund unless the business combination is
      consummated. In such event, our officers and directors may, as part of any
      such
      combination, negotiate the repayment of some or all of any such expenses, with
      or without interest or other compensation, which if not agreed to by the target
      business’ owners, could cause our management to view such potential business
      combination unfavorably, thereby resulting in a conflict of interest. The
      financial interest of our officers and directors could influence their
      motivation in selecting a target business and thus, there may be a conflict
      of
      interest when determining whether a particular business combination is in the
      stockholders’ best interest.





***Risks
      associated with the paper, packaging, forest products and related industries***





***The
      paper, packaging, forest products and related industries are highly cyclical.
      Fluctuations in the prices of and the demand for a target company’s products
      could result in smaller profit margins and lower sales volumes.***





Historically,
      economic and market shifts, fluctuations in capacity and changes in foreign
      currency exchange rates have created cyclical changes in prices, sales volume
      and margins for products in the paper, packaging, forest products and related
      industries. The length and magnitude of industry cycles have varied over time
      and by product, but generally reflect changes in macroeconomic conditions and
      levels of industry capacity. Most paper products and many wood products used
      in
      the packaging industry are commodities that are widely available from many
      producers. Because commodity products have few distinguishing qualities from
      producer to producer, competition for these products is based primarily on
      price, which is determined by supply relative to demand. The overall levels
      of
      demand for these commodity products reflect fluctuations in levels of end-user
      demand, which depend in large part on general macroeconomic conditions in
      North America and regional economic conditions in our markets, as well as
      foreign currency exchange rates. The foregoing factors could materially and
      adversely impact sales and profitability of a target company with which we
      might
      seek a business combination.





***Difficulty
      obtaining timber at favorable prices, or at all, may negatively impact companies
      in the packaging industry.***





Wood
      fiber is the principal raw material in many parts of the packaging industry.
      Wood fiber is a commodity, and prices historically have been cyclical.
      Environmental litigation and regulatory developments have caused, and may cause
      in the future, significant reductions in the amount of timber available for
      commercial harvest in the United States. These reductions have caused the
      closure of plywood and lumber operations in some of the geographic areas in
      which a target company might operate. In addition, future domestic or foreign
      legislation and litigation concerning the use of timberlands, the protection
      of
      endangered species, the promotion of forest health and the response to and
      prevention of catastrophic wildfires could also affect timber supplies.
      Availability of harvested timber may further be limited by fire, insect
      infestation, disease, ice storms, wind storms, flooding and other natural and
      man made causes, thereby reducing supply and increasing prices.





Industry
      supply of commodity paper and wood products is also subject to fluctuation,
      as
      changing industry conditions can influence producers to idle or permanently
      close individual machines or entire mills. In addition, to avoid substantial
      cash costs in connection with idling or closing a mill, some producers will
      choose to continue to operate at a loss, sometimes even a cash loss, which
      could
      prolong weak pricing environments due to oversupply. Oversupply in these markets
      can also result from producers introducing new capacity in response to favorable
      short-term pricing trends. Industry supply of commodity papers and wood products
      is also influenced by overseas production capacity, which has grown in recent
      years and is expected to continue to grow. Wood fiber pricing is subject to
      regional market influences, and the cost of wood fiber may increase in
      particular regions due to market shifts in those regions. In addition, the
      ability to obtain wood fiber from foreign countries may be impacted by legal
      and
      political conditions in that country as well as transportation difficulties.





***An
      increase in the cost of purchased energy or chemicals would lead to higher
      manufacturing costs, thereby reducing margins.***





Energy
      is
      a significant raw material in the paper, packaging, forest products and related
      industries. Energy prices, particularly for electricity, natural gas and fuel
      oil, have been volatile in recent years and currently exceed historical
      averages. These fluctuations have historically impacted manufacturing costs
      of
      companies in these industries, often contributing to earnings volatility. Recent
      significant increases in energy prices can be expected to adversely impact
      businesses in these industries. In addition, a target company could be
      materially adversely impacted by supply disruptions.





13


***Paper,
      packaging and forest products companies face strong competition.***





The
      paper, packaging, forest products and related industries are highly fragmented,
      and a target company will face competition from numerous competitors, domestic
      as well as foreign. It is likely that some of a target company’s competitors
      will be large, vertically integrated companies that have greater financial
      and
      other resources, greater manufacturing economies of scale, greater energy
      self-sufficiency and/or lower operating costs than the target company.





***Certain
      paper and wood products are vulnerable to long-term declines in demand due
      to
      competing technologies or materials.***





Companies
      in the paper, packaging, forest products and related industries are subject
      to
      possible declines in demand for their products as the use of alternative
      materials and technologies grows and the prices of such alternatives become
      more
      competitive. Any substantial shift in demand from wood and paper products to
      competing technologies or materials could result in a material decrease in
      sales
      of a target company’s products. While we would seek to have a target company
      adapt its product offerings to changes in market demand, we cannot assure you
      that any efforts will be successful or sufficient.





***Packaging
      companies are subject to significant environmental regulation and environmental
      compliance expenditures, as well as other potential environmental liabilities.***





Companies
      in the packaging industry are subject to a wide range of general and
      industry-specific environmental laws and regulations, particularly with respect
      to air emissions, wastewater discharges, solid and hazardous waste management,
      site remediation, forestry operations and endangered species habitats. A target
      company will in all likelihood incur substantial expenditures to maintain
      compliance with applicable environmental laws and regulations. Failure to comply
      with applicable environmental laws and regulations, could expose a target
      company to civil or criminal fines or penalties or enforcement actions,
      including orders limiting operations or requiring corrective measures,
      installation of pollution control equipment or other remedial actions.





**Item
      2. Properties**





We
      maintain our executive offices at c/o Stone-Kaplan Investments, LLC, One
      Northfield Plaza, Suite 480, Northfield, IL 60093. Stone-Kaplan Investments
      has agreed to provide us with certain administrative, technology and secretarial
      services, as well as the use of certain limited office space at this location
      at
      a cost of $7,500 per month pursuant to a letter agreement between us and
      Stone-Kaplan Investments. Stone-Kaplan Investments uses a portion of the
      $7,500 monthly fee to pay Arcade Partners for overhead expenditures
      incurred on our behalf. We believe, based on rents and fees for similar services
      in the Chicago metropolitan area, that the $7,500 fee is at least as favorable
      as we could have obtained from an unaffiliated person. We consider our current
      office space adequate for our current operations.




**Item
      3. Legal Proceedings**





To
      the
      knowledge of management, there is no litigation currently pending or
      contemplated against us or any of our officers or directors in their capacity
      as
      such.




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





During
      the fourth quarter of our fiscal year ended December 31, 2005, there were no
      matters submitted to a vote of security holders.


14


**PART
      II**





**Item
      5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities**





The
      Company’s units, common stock and warrants have been traded on the
      Over-the-Counter Bulletin Board under the symbols “SCDEU,” “SCDE” and “SCDEW,”
respectively since August 16, 2005, September 14, 2005 and September 14, 2005,
      respectively. The following table sets forth the high and low bid information
      for the Company’s securities from the commencement of trading through December
      31, 2005 as reported by the Over-the-Counter Bulletin Board. The
      Over-the-Counter Bulletin Board quotations reflect inter-dealer prices, are
      without retail markup, markdowns or commissions, and may not represent actual
      transactions.




**Common
                Stock**
            **Warrants**
            **Units****High**
            
            
            **Low**
            
            
            **High**
            
            
            **Low**
            
            
            **High**
            
            
            **Low**First
                Quarter*
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --Second
                Quarter*
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --Third
                Quarter*(July
                1 - August 15)
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --Third
                Quarter (August 16 - September 30)
            
            $
            5.35
            
            $
            5.00
            
            $
            0.58
            
            $
            0.35
            
            $
            6.40
            
            $
            5.95Fourth
                Quarter
            
            $
            5.40
            
            $
            5.23
            
            $
            0.59
            
            $
            0.39
            
            $
            6.50
            
            $
            6.05





*
      No amounts are included as none of our securities commenced trading on the
      OTC Bulletin Board prior to August 16, 2004.





**Number
      of Holders of Common Stock.**





The
      number of holders of record of our common stock on March 16, 2006 was 6.
      However, the total number of beneficial holders is unknown as the majority
      of
      our common stock is held in street name through CEDE & Co.





**Dividends.**





There
      were no cash dividends or other cash distributions made by us during the fiscal
      year ended December 31, 2005. Future dividend policy will be determined by
      our
      Board of Directors based on our earnings, financial condition, capital
      requirements and other then existing conditions. It is anticipated that cash
      dividends will not be paid to the holders of our common stock in the foreseeable
      future.





**Recent
      Sales of Unregistered Securities.**





On
      April 16, 2005, we issued 5,000,000 shares of our common stock to the
      individuals set forth below for $25,000 in cash, at an average purchase price
      of
      $0.005 per share (giving retroactive effect to a 2-for-3 reverse stock
      split we effected in July 2005), as follows:




**Name**
            
            
            **Number
                of****Shares**
            
            
            **Relationship
                to us**Roger
                W. Stone
            
            
            1,375,000
            
            
            Chairman
                of the Board and Chief Executive OfficerMatthew
                Kaplan
            
            
            1,375,000
            
            
            President
                and DirectorJohn
                M. Chapman
            
            
            750,000
            
            
            DirectorJonathan
                R. Furer
            
            
            750,000
            
            
            DirectorMuhit
                U. Rahman
            
            
            750,000
            
            
            Director




Such
      shares were issued pursuant to the exemption from registration contained in
      Section 4(2) of the Securities Act as they were sold to sophisticated, wealthy
      individuals. No underwriting discounts or commissions were paid with respect
      to
      such sales.


15


**Use
      of Proceeds of our Initial Public Offering.**




On
      August
      19, 2005 ,
      we
      consummated our initial public offering of 20,000,000 units. Each unit consists
      of one share of common stock and two redeemable common stock purchase warrants.
      Each warrant entitles the holder to purchase from us one share of our common
      stock at an exercise price of $5.00. The units were sold at an offering price
      of
      $6.00 per unit, generating total gross proceeds of $120,000,000. Morgan Joseph
      & Co. Inc. acted as lead underwriter. The securities sold in the offering
      were registered under the Securities Act of 1933 on a registration statement
      on
      Form S-1 (No. 333-124601). The Securities and Exchange Commission declared
      the
      registration statement effective on August 15, 2005.




We
      paid a
      total of $6, 000 ,000
      in
      underwriting discounts and commissions, and approximately $764,000 was paid
      for
      costs and expenses related to the public offering.




After
      deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds
      to
      us from the offering were approximately $113,236,000, of which $110,854,000
      (or
      $5.54 per unit sold in the offering) was deposited into a trust account and
      the
      remaining proceeds are available to be used to provide for business, legal
      and
      accounting due diligence on prospective business combinations and continuing
      general and administrative expenses.




From
      August 15, 2005 through December
      31, 2005, we used approximately $221,000 of the net proceeds that were not
      deposited into the trust fund to pay operating expenses that consisted primarily of expenses related to pursuing a business combination,
      professional fees and the monthly administrative fee of $7,500 paid to
      Stone-Kaplan Investments. As
      of
      December 31, 2005, there was $111,965,034 including accrued interest receivable
      of $266,239, held in the trust fund.





In
      addition, in April 2005, Messrs. Stone, Kaplan, Chapman, Furer and Rahman
      advanced a total of $200,000 to us, on a non-interest bearing basis, for payment
      of offering expenses on our behalf. These loans were repaid on August 19, 2005
      following the consummation of the public offering from the proceeds of the
      offering.





The
      net
      proceeds of the offering in the amount of $110,854,000 deposited into the trust
      fund have been invested in short-term U.S. Government Securities, specifically
      Treasury Bills, having a maturity date of 180 days or less.





**Securities
      Authorized for Issuance Under Equity Compensation
      Plans.**





None.





**Repurchases
      of Equity Securities.**





None.





16


**Item
      6. Selected Financial Data**




The
      selected financial data presented below summarizes certain financial data which
      has been derived from and should be read in conjunction with our financial
      statements and notes thereto included in the section beginning on page F-1.
      See also “Item 7. Management’s Discussion and Analysis of Financial Condition
      and Results of Operations.”




**Period
                from April 15, 2005**
              **(Date
                of Inception) through**
              **December
                31, 2005****Statement
                of Operations Data:**Operating
                expenses
            
            $
            221,100Other
                income
            
            
            1,460,158Net
                income
            
            
            817,779Interest
                income attributable to common stock subject to possible redemption
                (net of
                taxes of $97,601)
            
            
            (189,462
            )Net
                income allocable to common stockholders not subject to possible
                redemption
            
            
            628,317Basic
                and diluted net income per share
            
            $
            0.05







**As of December 31,**
                **2005****Balance
                Sheet Data:**Cash
                and (including interest receivable of $266,239) short term
                investments held in trust fund
            
            $
            111,965,034Working
                capital
            
            
            114,024,661Total
                assets
            
            
            114,305,614Total
                stockholders’ equity
            
            
            91,729,578





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





**Overview.**





We
      were
      formed on April 15, 2005, to serve as a vehicle to effect a merger, capital
      stock exchange, asset acquisition or other similar business combination with
      an
      operating business in the paper, packaging, forest products and related
      industries. Our initial business combination must be with a target business
      or
      businesses whose fair market value is at least equal to 80% of our net assets
      at
      the time of such acquisition. We intend to utilize cash derived from the
      proceeds of our recently completed public offering, our capital stock, debt
      or a
      combination of cash, capital stock and debt, in effecting a business
      combination.





**Critical
      Accounting Policies.**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      expenses during the reporting period. Actual results could differ from those
      estimates.





Management
      does not believe that any recently issued, but not yet effective, accounting
      standards if currently adopted would have a material effect on the accompanying
      financial statements.





**Results
      of Operations for the Period from April 15, 2005 (Date of Inception) to December
      31, 2005.**





For
      the period ended December 31, 2005 we earned net income after taxes of
      $817,779 ($628,317 after the deduction of $189,462 of net income attributable
      to
      common stock subject to possible redemption). Since we did not have any
      operations, all of our income was derived from interest income, most of which
      was earned on funds held in the trust account. Our operating expenses during
      the
      period were $221,100 and consisted primarily of expenses related to pursuing
      a
      business combination, professional fees and the monthly administrative fee
      of
      $7,500 paid to Stone-Kaplan Investments. We also provided for $421,279 in income
      taxes.





17


**Liquidity
      and Capital Resources.**




On
      August
      19, 2005, we consummated our initial public offering of 20,000,000 units. Each
      unit consisted of one share of common stock and two redeemable common stock
      purchase warrants. Each warrant entitles the holder to purchase from us one
      share of our common stock at an exercise price of $5.00. Our common stock and
      warrants started trading separately as of September 14, 2005.




The
        net
        proceeds from the sale of our units, after deducting certain offering expenses
        of approximately $6,764,000, including underwriting discounts of approximately
        $6,000,000, were approximately $113,236,000. Of this amount, $110,854,000
        was
        placed in the trust account and the remaining proceeds of $2,382,000 is being
        held outside of the trust account. The remaining proceeds are available to
        be
        used by us to provide for business, legal and accounting due diligence on
        prospective acquisitions and continuing general and administrative expenses.
        The
        net proceeds deposited into the trust fund remain on deposit in the trust
        fund
        earning interest. As of December 31, 2005, there was approximately $111,965,034
        including interest received and accrued interest receivable of $266,239,
        held in
        the trust fund. While we will likely use substantially all of the net proceeds
        of the public offering to acquire a target business, including identifying
        and
        evaluating prospective acquisition candidates, selecting the target business,
        and structuring, negotiating and consummating the business combination, to
        the
        extent that our capital stock is used in whole or in part as consideration
        to
        effect a business combination, the proceeds held in the trust account as
        well as
        any other net proceeds not expended will be used to finance the operations
        of
        the target business.





Commencing
      on August 15, 2005, we began incurring a fee of $7,500 per month for office
      space and certain other additional services from Stone-Kaplan Investments,
      LLC,
      an affiliate of Roger Stone and Matthew Kaplan. A portion of this fee is being
      paid to Arcade Partners, LLC, an affiliate of Messrs. Chapman, Furer and Rahman,
      for overhead expenses incurred in connection with our business. In addition,
      in
      April 2005, Stone, Kaplan, Chapman, Furer and Rahman advanced a total of
      $200,000 to us, on a non-interest bearing basis, for payment of offering
      expenses on our behalf. These loans were repaid following our initial public
      offering from the proceeds of the offering.




We
      have
      engaged Morgan Joseph & Co. to act as our investment banker in connection
      with our business combination and will pay Morgan Joseph & Co. a cash fee at
      the closing of our business combination for assisting us in structuring and
      negotiating the terms of the transaction of $1.2 million.





At
      the
      time we seek stockholder approval of our initial business combination, we will
      offer each public stockholder the right to have such stockholder’s shares of
      common stock redeemed for cash if the stockholder votes against the business
      combination and the business combination is approved and completed. The actual
      per-share redemption price will be equal to the amount in the trust account
      (calculated as of two business days prior to the consummation of the proposed
      business combination), inclusive of any interest, net of taxes payable, divided
      by the number of shares sold in the public offering. We may effect a business
      combination if public stockholders owning up to approximately 19.99% of the
      shares sold in the offering vote against the business combination and exercise
      their redemption rights. In accordance with the Terms of the Offering 3,998,000
      shares of common stock are subject to possible redemption. Accordingly, at
      December 31, 2005, $22,349,177 of the net proceeds from the offering,
      inclusive of interest, but net of taxes have been classified as common
      stock subject to possible redemption in the Company's balance
      sheet.


We
      believe we will have sufficient available funds outside of the trust account
      to
      operate through August 19, 2007, assuming that a business combination is not
      consummated during that time. We do not believe we will need to raise additional
      funds in order to meet the expenditures required for operating our business.
      However, we may need to raise additional funds through a private offering of
      debt or equity securities if such funds are required to consummate a business
      combination that is presented to us. We would only consummate such a financing
      simultaneously with the consummation of a business combination.





**Off-Balance
      Sheet Arrangements.**





We
      have
      never entered into any off-balance sheet financing arrangements and have never
      established any special purpose entities. We have not guaranteed any debt or
      commitments of other entities or entered into any options on non-financial
      assets.





**Contractual
      Obligations.**





We
      do not
      have any long term debt, capital lease obligations, operating lease obligations,
      purchase obligations or other long term liabilities.


18


**Forward
      Looking Statements.**





This
      Annual Report on Form 10-K includes 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. We have based these
      forward-looking statements on our current expectations and projections about
      future events. These forward-looking statements are subject to known and unknown
      risks, uncertainties and assumptions about us that may cause our actual results,
      levels of activity, performance or achievements to be materially different
      from
      any future results, levels of activity, performance or achievements expressed
      or
      implied by such forward-looking statements. In some cases, you can identify
      forward-looking statements by terminology such as “may,” “should,” “could,”
“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or
      the negative of such terms or other similar expressions. Factors that might
      cause or contribute to such a discrepancy include, but are not limited to,
      those
      described in our other Securities and Exchange Commission filings. The following
      discussion should be read in conjunction with our Financial Statements and
      related Notes thereto included elsewhere in this report.





**Item
      7A. Quantitative and Qualitative Disclosures About Market Risk**





Market
      risk is the sensitivity of income to changes in interest rates, foreign
      exchanges, commodity prices, equity prices, and other market-driven rates or
      prices. We are not presently engaged in and, if a suitable business target
      is
      not identified by us prior to the prescribed liquidation date of the trust
      fund,
      we may not engage in, any substantive commercial business. Accordingly, we
      are
      not and, until such time as we consummate a business combination, we will not
      be, exposed to risks associated with foreign exchange rates, commodity prices,
      equity prices or other market-driven rates or prices. The net proceeds of our
      initial public offering held in the trust fund have been invested only in money
      market funds meeting certain conditions under Rule 2a-7 promulgated under the
      Investment Company Act of 1940. Given our limited risk in our exposure to money
      market funds, we do not view the interest rate risk to be significant.





**Item
      8. Financial Statements and Supplementary Data**





Financial
      statements are attached hereto following beginning on Page F-1.





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





None.





**Item
      9A. Controls and Procedures**





An
      evaluation of the effectiveness of our disclosure controls and procedures as
      of
      December 31, 2005 was made under the supervision and with the participation
      of
      our management, including our Chief Executive Officer who also serves as our
      principal financial officer. Based on that evaluation, he concluded that our
      disclosure controls and procedures are effective as of the end of the period
      covered by this report to ensure that information required to be disclosed
      by us
      in reports that we file or submit under the Securities Exchange Act of 1934
      is
      recorded, processed, summarized and reported within the time periods specified
      in Securities and Exchange Commission rules and forms. During the most recently
      completed fiscal quarter, there has been no significant change in our internal
      control over financial reporting that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial reporting.





**Compliance
      with Section 404 of the Sarbanes-Oxley Act of 2002**





Pursuant
      to Section 404 of the Sarbanes-Oxley Act of 2002 (the Act), beginning with
      our
      Annual Report on Form 10-K for the fiscal year ending December 31, 2007, we
      will
      be required to furnish a report by our management on our internal control over
      financial reporting. This report will contain, among other matters, an
      assessment of the effectiveness of our internal control over financial reporting
      as of the end of our fiscal year, including a statement as to whether or not
      our
      internal control over financial reporting is effective. This assessment must
      include disclosure of any material weaknesses in our internal control over
      financial reporting identified by management. If we identify one or more
      material weaknesses in our internal control over financial reporting, we will
      be
      unable to assert our internal control over financial reporting is effective.
      This report will also contain a statement that our independent registered public
      accountants have issued an attestation report on management's assessment of
      such
      internal controls and conclusion on the operating effectiveness of those
      controls.





Management
      acknowledges its responsibility for internal controls over financial reporting
      and seeks to continually improve those controls. In order to achieve compliance
      with Section 404 of the Act within the prescribed period, we are currently
      performing the system and process documentation and evaluation needed to comply
      with Section 404, which is both costly and challenging. We believe our process,
      which will begin in 2006 and continue in 2007 for documenting, evaluating and
      monitoring our internal control over financial reporting is consistent with
      the
      objectives of Section 404 of the Act.





19


**Item
      9B. Other Information**





None
      .





**PART
      III**





**Item
      10. Directors and Executive Officers of the Company**





Our
      current directors and executive officers are as follows:









**Name**
            **Age**
            
            
            **Position**Roger
                W. Stone
            71
            
            
            Chairman
                of the Board and Chief Executive OfficerMatthew
                Kaplan
            49
            
            
            President,
                Secretary and DirectorJohn
                M. Chapman
            45
            
            
            DirectorJonathan
                R. Furer
            49
            
            
            DirectorMuhit
                U. Rahman
            49
            
            
            Director





***Roger
      W. Stone*** ** has
      been
      our Chairman of the Board since our inception. Mr. Stone has been Manager
      of Stone-Kaplan Investments, LLC, a private investment company, since July
      2004.
      He was Chairman and Chief Executive Officer of Box USA Holdings, Inc., a
      corrugated box manufacturer, from July 2000 until the sale of that company
      in
      July 2004. Mr. Stone was Chairman, President and Chief Executive Officer of
      Stone Container Corporation, a multinational paper company primarily producing
      and selling pulp, paper and packaging products, from March 1987 to November
      1998
      when Stone Container Corporation merged with Jefferson Smurfit Corporation,
      at
      which time he became President and Chief Executive Officer of Smurfit-Stone
      Container Corporation until March 1999. Mr. Stone has served on the board
      of directors of McDonald’s Corporation since 1989. Mr. Stone received a
      B.S. in Economics from the Wharton School at the University of Pennsylvania.
      Mr. Stone is the father-in-law of Matthew Kaplan.





***Matthew
      Kaplan*** ** has
      been
      our President and a member of our board of directors since our inception.
      Mr. Kaplan has been Manager of Stone-Kaplan Investments, LLC, a private
      investment company, since July 2004. He was President, Chief Operating
      Officer and a director of Box USA Holdings, Inc., a corrugated box
      manufacturer, from July 2000 until the sale of the company in July 2004.
      Mr. Kaplan began his career at Stone Container Corporation in 1979 and was
      serving as its Senior Vice President and General Manager of North American
      Operations when Stone Container Corporation merged with Jefferson Smurfit
      Corporation in November 1998. He was Vice President/ General Manager Container
      Division with Smurfit-Stone Container Corporation until March 1999.
      Mr. Kaplan received a B.A. in Economics from the University of Pennsylvania
      and an M.B.A. from the University of Chicago. Mr. Kaplan is the son-in-law
      of Roger W. Stone.





***John
      M. Chapman*** ** has
      been
      a member of our board of directors since our inception. Mr. Chapman is a
      co-founder and has been a managing member of Arcade Partners LLC, a private
      equity firm since November 2003. Since January 2004, he has been a Managing
      Director of Washington & Congress Managers, a private equity firm. From
      March 1990 through December 2003, he was employed by Triumph Capital Group,
      Inc,
      a private equity firm, last serving as a Managing Director. Mr. Chapman
      received a B.A. from Bates College and an M.B.A. from the Tuck School of
      Business at Dartmouth College.





***Jonathan
      R. Furer*** ** has
      been
      a member of our board of directors since our inception. Mr. Furer is a
      co-founder and has been a managing member of Arcade Partners LLC since November
      2003. Since January 2004, he has been a Managing Director of
      Washington & Congress Managers. From March 2000 through December 2003,
      he was a Managing Director of Triumph Capital Group, Inc. From December 1998
      until February 2000, he was a Managing Director of MG Group, LLC, a private
      equity firm he co-founded. Mr. Furer received a B.B.A. from George
      Washington University.





***Muhit
      U. Rahman*** ** has
      been
      a member of our board of directors since our inception. Mr. Rahman is a
      co-founder and has been a managing member of Arcade Partners LLC since November
      2003. Since January 2004, he has been a Managing Director of
      Washington & Congress Managers. From November 1993 through December
      2003, he was a Managing Director of Triumph Capital Group. Mr. Rahman
      received a B.S. from Yale University and an M.B.A. from the Anderson School
      of
      Management at UCLA.





20


Our
      board
      of directors is divided into three classes with only one class of directors
      being elected in each year and each class serving a three-year term. The term
      of
      office of the first class of directors, consisting of Muhit Rahman, will expire
      at our first annual meeting of stockholders. The term of office of the second
      class of directors, consisting of Matthew Kaplan and John Chapman, will expire
      at the second annual meeting. The term of office of the third class of
      directors, consisting of Roger Stone and Jonathan Furer, will expire at the
      third annual meeting. These individuals will play a key role in identifying
      and
      evaluating prospective acquisition candidates, selecting the target business,
      and structuring, negotiating and consummating its acquisition.





**Section
      16(a) Beneficial Ownership Reporting Compliance.**




Section
      16(a) of the Securities Exchange Act requires our directors, executive officers
      and persons who own more than 10% of our common stock to file reports of
      ownership and changes in ownership of our common stock with the Securities
      and
      Exchange Commission. Directors, executive officers and persons who own more
      than
      10% of our common stock are required by Securities and Exchange Commission
      regulations to furnish to us copies of all Section 16(a) forms they file. To
      our
      knowledge, based solely upon review of the copies of such reports received
      or
      written representations from the reporting persons, we believe that during
      the
      year ended December 31, 2005, our directors, executive officers and persons
      who
      own more than 10% of our common stock complied with all Section 16(a) filing
      requirements.





**Code
      of Ethics** **.** ****





We
      currently do not have a formal code of ethics. Upon consummation of a business
      combination, we intend to adopt a code of ethics that applies to our principal
      executive officer, principal financial officer, principal accounting officer
      or
      controller or persons performing similar functions.





**Board
      Committees.**





We
      are
      currently listed on the OTC Bulletin Board and are not required to have an
      audit
      committee, nominating committee or a compensation committee. The board of
      directors intends to establish an audit committee upon the consummation of
      a
      business combination and will evaluate establishing other committees at such
      time.





**Item
      11. Executive Compensation**





No
      executive officer received any cash compensation for services rendered during
      the year ended December 31, 2005. Until the acquisition of a target business,
      we
      will pay Stone-Kaplan Investments LLC, an affiliate of Roger Stone and Matthew
      Kaplan, a fee of $7,500 per month for providing us with certain
      administrative, technology and secretarial services, as well as the use of
      certain limited office space in Northfield, IL. A portion of this fee will
      be
      paid to Arcade Partners LLC, an affiliate of John Chapman, Jonathan Furer and
      Muhit Rahman, for overhead costs incurred on our behalf. Other than this $7,500
      per-month fee, no compensation of any kind, including finder’s and consulting
      fees, will be paid to any of our officers or directors, or any of their
      respective affiliates, for services rendered prior to or in connection with
      a
      business combination.





However,
      our officers and directors will be reimbursed for any out-of-pocket expenses
      incurred in connection with activities on our behalf such as identifying
      potential target businesses and performing due diligence on suitable business
      combinations. There is no limit on the amount of these out-of-pocket expenses
      and there will be no review of the reasonableness of the expenses by anyone
      other than our board of directors, which includes persons who may seek
      reimbursement, or a court of competent jurisdiction if such reimbursement is
      challenged.





Since
      our
      formation, we have not granted any stock options or stock appreciation rights
      or
      any awards under long-term incentive plans.


21


**Item
      12. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters**





The
      following table sets forth, as of March 21, 2006, certain information regarding
      beneficial ownership of our common stock by each person who is known by us
      to
      beneficially own more than 5% of our common stock. The table also identifies
      the
      stock ownership of each of our directors, each of our officers, and all
      directors and officers as a group. Except as otherwise indicated, the
      stockholders listed in the table have sole voting and investment powers with
      respect to the shares indicated.





Shares
      of
      common stock which an individual or group has a right to acquire within 60
      days
      pursuant to the exercise or conversion of options, warrants or other similar
      convertible or derivative securities are deemed to be outstanding for the
      purpose of computing the percentage ownership of such individual or group,
      but
      are not deemed to be outstanding for the purpose of computing the percentage
      ownership of any other person shown in the table.





**Name
                and Address******
              **of
                Beneficial Owner**
            **Amount
                and Nature of**
              **Beneficial
                Ownership***
            **Percentage
                of**
              **Outstanding**
              **Common
                Stock**Roger
                W. Stone (1)
            1,875,000
            7.5%Matthew
                Kaplan (1)
            1,375,000
            5.5%John
                M. Chapman (2)
            750,000
            3.0%Jonathan
                R. Furer (3)
            750,000
            3.0%Muhit
                U. Rahman (4)
            750,000
            3.0%Amaranth
                LLC (5)
            2,089,800
            8.4%Amaranth
                Advisors L.L.C.(5)
            2,089,800
            8.4%Nicholas
                M. Maounis (5)
            2,089,800
            8.4%Sapling,
                LLC (6)
            1,437,726
            5.8%Fir
                Tree Recovery Master Fund, L.P. (6)
            708,774
            2.8%Elm
                Ridge Capital Management LLC (7)
            1,980,000
            7.9%Ronald
                Gutfleish (7)
            1,980,000
            7.9%All
                directors and executive officers as a group (5
                individuals)
            5,500,000
            22.0%


*
      Does
      not include shares of common stock issuable upon exercise of warrants that
      are
      not exercisable in the next 60 days.





(1)
      The
      business address of each of such individuals is c/o Stone Kaplan Investments,
      LLC, One Northfield Plaza, Suite 480, Northfield, IL 60093.


(2)
      The
      business address of such individual is c/o Arcade Partners LLC, 62 LaSalle
      Road,
      Suite 304, West Hartford, CT 06107.


(3)
      The
      business address of such individual is 45 Park St., Tenafly, NJ
      07670.


(4)
      The
      business address of such individual is 8550 Willow Run Court, Cincinnati, OH
      45243


(5)
      Derived from a Schedule 13G/A filed on February 10, 2006 by Amaranth LLC,
      Amaranth Advisors LLC and Nicholas M. Maounis (the “Reporting Persons”),
      supplementing and amending a jointly filed Schedule 13G on September 19, 2005.
      As reported in the Schedule 13G/A, the Reporting Persons share voting and
      dispositive power over the shares of Common Stock. Amaranth Advisors LLC is
      the
      trading advisor for Amaranth LLC and has been granted investment discretion
      over
      portfolio investments, including shares of the Company’s common stock held by
      it. Mr. Maounis is managing member of Amaranth Advisors and may, by virtue
      of
      his position, be deemed to have power to direct the vote and disposition of
      the
      common stock held by Amaranth.


(6)
      Derived from a jointly filed Schedule 13G on August 25, 2005 by Sapling, LLC
      and
      Fir Tree Recovery Master fund, L.P. Fir
      Tree,
      Inc., a New York corporation, is the investment manager of both Sapling and
      Fir
      Tree Recovery.


(7) Derived
      from a Schedule 13G filed on August 26, 2005 by Elm Ridge Capital Management
      LLC
      and Ronald Gutfleish. As reported in the Schedule 13G, Elm Ridge and Mr.
      Gutfleish share voting and dispositive power over the shares of Common Stock.
      As
      reported in the Schedule 13G, Mr. Gutfleish is the managing member of two
      limited liability companies which each manage one or more private investment
      funds that hold the Company’s shares of common stock. Mr. Gutfleish disclaims
      beneficial ownership in the common stock, except to the extent of his pecuniary
      interest therein.





22


**Securities
      Authorized for Issuance Under Equity Compensation
      Plans**





None.





**Item
      13. Certain Relationships and Related Transactions**





On
      April 16, 2005, we issued 5,000,000 shares of our common stock to the
      individuals set forth below for $25,000 in cash, at an average purchase price
      of
      $0.005 per share (giving retroactive effect to a 2-for-3 reverse stock
      split we effected in July 2005), as follows:




**Name**
            
            
            **Number
                of**
              **Shares**
            
            
            **Relationship
                to us**Roger
                W. Stone
            
            
            1,375,000
            
            
            Chairman
                of the Board and Chief Executive OfficerMatthew
                Kaplan
            
            
            1,375,000
            
            
            President
                and DirectorJohn
                M. Chapman
            
            
            750,000
            
            
            DirectorJonathan
                R. Furer
            
            
            750,000
            
            
            DirectorMuhit
                U. Rahman
            
            
            750,000
            
            
            Director





The
      holders of the majority of these shares are entitled to make up to two demands
      that we register these shares. The holders of the majority of these shares
      may
      elect to exercise these registration rights at any time after the date on which
      these shares of common stock are released from escrow. In addition, these
      stockholders have certain “piggy-back” registration rights on registration
      statements filed subsequent to the date on which these shares of common stock
      are released from escrow. We will bear the expenses incurred in connection
      with
      the filing of any such registration statements.





Stone-Kaplan
      Investments, LLC, an affiliate of Roger Stone and Matthew Kaplan makes available
      to us certain administrative, technology and secretarial services, as well
      as
      the use of certain limited office space in Northfield, Illinois, as we may
      require from time to time. We pay Stone-Kaplan Investments, LLC
      $7,500 per month for these services, a portion of which is to be paid to
      Arcade Partners LLC, an affiliate of John Chapman, Jonathan Furer and Muhit
      Rahman. These individuals are each managing members of their respective entities
      and, as a result, will benefit from the transaction to the extent of their
      interest this entity. However, this arrangement is solely for our benefit and
      is
      not intended to provide these individuals compensation in lieu of a salary.





In
      April
      2005, Messrs. Stone, Kaplan, Chapman, Furer and Rahman advanced a total of
      $200,000 to us to cover expenses related to our initial public offering. The
      loans were repaid without interest upon completion of our initial public
      offering.





We
      will
      reimburse our officers and directors for any reasonable out-of-pocket business
      expenses incurred by them in connection with certain activities on our behalf
      such as identifying and investigating possible target businesses and business
      combinations. There is no limit on the amount of accountable out-of-pocket
      expenses reimbursable by us, which will be reviewed only by our board or a
      court
      of competent jurisdiction if such reimbursement is challenged.





All
      ongoing and future transactions between us and any of our officers and directors
      or their respective affiliates, including loans by our officers and directors,
      will be on terms believed by us to be no less favorable than are available
      from
      unaffiliated third parties and such transactions or loans, including any
      forgiveness of loans, will require prior approval in each instance by a majority
      of our uninterested “independent” directors (to the extent we have any) or the
      members of our board who do not have an interest in the transaction, in either
      case, who had access, at our expense, to our attorneys or independent legal
      counsel.





**Item
      14. Principal Accountant Fees and Services**





During
      the fiscal year ended December 31, 2005, our principal independent auditor
      was
      Eisner LLP, the services of which were provided in the following categories
      and
      amount:





**Audit
      Fees.**





The
      aggregate fees billed by Eisner LLP for professional services rendered for
      the
      audit of the Company's balance sheet at August 19, 2005 included in our Current
      Report on Form 8-K, for the review of the financial statements included in
      our Quarterly Report on Form 10-Q for the quarters ended June 30, 2005 and
      September 30, 2005 and for services performed in connection with the Company's
      registration statement on Form S-1 filed in 2005, were $40,500.





23


**Audit
      Related Fees.**





Other
      than the fees described under the caption "Audit Fees" above, Eisner LLP did
      not
      bill any fees for services rendered to us during fiscal year 2005 for assurance
      and related services in connection with the audit or review of our financial
      statements.





**Tax
      Fees.**





There
      were no fees billed by Eisner LLP for professional services rendered during
      the
      fiscal year ended December 31, 2005 for tax compliance, tax advice, and tax
      planning.





**All
      Other Fees.**





There
      were no fees billed by Eisner LLP for other professional services rendered
      during the fiscal year ended December 31, 2005.





**Pre-Approval
      of Services.**





We
      do not
      have an audit committee and as a result our board of directors performs the
      duties of an audit committee. Our board of directors evaluates and approves
      in
      advance the scope and cost of the engagement of an auditor before the auditor
      renders audit and non-audit services. We do not rely on pre-approval policies
      and procedures.








**Item
      15. Exhibits and Financial Statement Schedules**





(a)(1) **Financial
      Statements.**





An
      index
      to Consolidated Financial Statements appears on page F-1.





(b) **Exhibits.**





The
      following Exhibits are filed as part of this report





**Exhibit
                No.**
            
            **Description**3.1
            
            Amended
                and Restated Certificate of Incorporation, as amended.
                (1)3.2
            
            By-laws.(1)4.1
            
            Specimen
                Unit Certificate.(1)4.2
            
            Specimen
                Common Stock Certificate.(1)4.3
            
            Specimen
                Warrant Certificate.(1)4.4
            
            Form
                of Unit Purchase Option to be granted to Representative.
                (1)4.5
            
            Form
                of Warrant Agreement between Continental Stock Transfer & Trust
                Company and the Registrant. (1)10.1
            
            Form
                of Letter Agreement among the Registrant, Morgan Joseph & Co.
                Inc. and each of the Initial Stockholders. (1)10.2
            
            Form
                of Promissory Note issued to each of Roger Stone, Matthew Kaplan,
                John
                Chapman, Jonathan Furer and Muhit Rahman. (1)10.3
            
            Form
                of Investment Management Trust Agreement between Continental Stock
                Transfer & Trust Company and the Registrant.
                (1)10.4
            
            Form
                of Stock Escrow Agreement between the Registrant, Continental Stock
                Transfer & Trust Company and the Initial Stockholders.
                (1)




24


10.5
            
            Form
                of Letter Agreement between Stone-Kaplan Investments LLC and Registrant
                regarding administrative support. (1)10.6
            
            Form
                of Registration Rights Agreement among the Registrant and the Initial
                Stockholders. (1)10.7
            Form
                of Warrant Purchase Agreement among each of the Initial Stockholders
                and
                Morgan Joseph & Co. Inc. (1)31
            
            Certification
                of the Chief Executive Officer and Principal Financial Officer pursuant
                toRule 13a-14(a) of
                the Securities Exchange Act, as amended32
            
            Certification
                of the Chief Executive Officer and Principal Financial Officer pursuant
                to18
                U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002 .





(1)
      Incorporated by reference to the Registrant’s Registration Statement on Form S-1
      (File No. 333-124601).




25


**SIGNATURES**





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





STONE
                ARCADE ACQUISITION CORPORATIONMarch
                23, 2006
            By:/s/Roger
                StoneRoger
                Stone, Chairman of the Board and Chief Executive
                Officer








Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.





March
                23, 2006
            By:/s/Roger
                StoneRoger
                Stone, Chairman of the Board and Chief Executive
                OfficerMarch
                23, 2006
            By:/s/Matthew
                KaplanMatthew
                Kaplan, President, Secretary and DirectorMarch
                23, 2006
            By:/s/John
                M. ChapmanJohn
                M. Chapman, DirectorMarch
                23, 2006
            By:/s/Jonathan
                R.FurerJonathan
                R. Furer, DirectorMarch
                23, 2006
            By:/s/Muhit
                U. RahmanMuhit
                U. Rahman, Director





26




**STONE
      ARCADE ACQUISITION CORP.**


(a
      development state company)


INDEX
      TO FINANCIAL
      STATEMENTS




**Page****Financial
              Statements**Report
                of Independent Registered Public Accounting Firm
            F-2Balance sheet as of December 31,
              2005
            F-3Statement of operations for the period
              from
              April 15, 2005 (date of inception) through December 31,
              2005
            F-4Statement of changes in stockholders’ equity
              for the period from April 15, 2005 (date of inception) through
              December 31, 2005
            F-5Statement of cash flows for the period
              from
              April 15, 2005 (date of inception) through December 31,
              2005
            F-6Notes to financial statements
            F-7















F-1




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





Board
      of
      Directors and Stockholders


Stone
      Arcade Acquisition Corporation





We
      have
      audited the accompanying balance sheet of Stone Arcade Acquisition Corporation
      (a development stage company) (the “Company”) as of December 31, 2005 and
      the related statements of operations, changes in stockholders’ equity and cash
      flows for the period from April 15, 2005 (date of inception) through
      December 31, 2005. These financial statements are the responsibility of the
      Company’s management. Our responsibility is to express an opinion on these
      financial statements based on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audit provides a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of Stone Arcade Acquisition
      Corporation as of December 31, 2005 and the results of its operations and
      its cash flows for the period from April 15, 2005 (date of inception) through
      December 31, 2005 in conformity with U.S. generally accepted accounting
      principles.








/s/
      Eisner LLP


Eisner
      LLP





New
      York,
      New York


March 9,
      2006








F-2




**STONE
        ARCADE ACQUISITION CORPORATION**
 (a
        development stage company)


**Balance
      Sheet**


**December 31,
      2005**





**ASSETS**Current
                assets:Cash
            
            **$**
            **2,157,611**Short-term
                investments held in trust fund (including interest receivable of
                $266,239)
                (fair value $112,001,836)
            
            
            **111,965,034**Prepaid
                insurance
            
            
            **122,500**Other
                prepaid expenses
            
            
            **6,375**Total
                current assets
            
            
            **114,251,520**Deferred
                income tax benefits
            
            
            **54,094**Total
                assets
            
            **$**
            **114,305,614****LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accrued
                expenses
            
            **$**
            **76,486**Income
                tax payable - current
            
            
            **59,852**Deferred
                income tax
            
            
            **90,521**Total
                current liabilities
            
            
            **226,859**Common
                stock, subject to possible redemption - 3,998,000 shares
            
            
            **22,159,715**Interest
                income attributable to common stock subject to possible
                redemption(net
                of taxes of $97,601)
            
            
            **189,462**Total
                common stock, subject to possible redemption
            
            
            **22,349,177**Commitments
                and contingencies (Note G)Stockholders’
                equity:Preferred
                stock - $.0001 par value; 1,000,000 shares authorized; 0 shares issued
                and
                outstandingCommon
                stock - $.0001 par value; 175,000,000 shares authorized; 25,000,000
                sharesissued
                and outstanding (including 3,998,000 shares subject to possible
                redemption)
            
            
            **2,500**Additional
                paid-in capital
            
            
            **91,098,761**Income
                accumulated during the development stage
            
            
            **628,317**Total
                stockholders' equity
            
            
            **91,729,578****$**
            **114,305,614**






*See notes to financial
              statements*
            F-3





**STONE
      ARCADE ACQUISITION CORPORATION**


(a
      development stage company)


**Statement
      of Operations**


**For
      the Period From April 15, 2005 (Date of Inception) Through December 31,
      2005**





Expenses:Operating
                costs
            
            **$**
            **221,100**Other
                income:Bank
                interest
            
            
            **24,124**Interest
                on cash and short term investments held in trust
            
            
            **1,436,034**Total
                other income
            
            
            **1,460,158****Income
                before provision for income taxes**
            
            
            **1,239,058**Provision
                for income taxes:Current
            
            
            **(384,852**
            **)**Deferred
            
            
            **(36,427**
            **)****Net
                income for the period**
            
            
            **817,779**Interest
                  income attributable to common stock subject topossible redemption
                  (net of taxes of $97,601)
            
            
            **(189,462**
            **)****Net
                income allocable to common stockholders not subject to possible
                redemption**
            
            **$**
            **628,317****Weighted
                average number of shares outstanding:****Basic**
            
            
            **15,307,692****Diluted**
            
            
            **16,547,715****Net
                income per share:****Basic**
            
            **$**
            **.05****Diluted**
            
            **$**
            **.05****Weighted
                average number of shares outstanding exclusive of shares subject
                to****possible
                redemption:****Basic**
            
            
            **13,247,185****Diluted**
            
            
            **14,487,208****Net
                income per share subject to possible redemption:****Basic**
            
            **$**
            **.05****Diluted**
            
            **$**
            **.04**




*See notes to financial
                statements*
              F-4


**STONE
      ARCADE ACQUISITION CORPORATION**


(a
      development stage company)


**Statement
      of Changes in Stockholders' Equity**


**For
      the Period From April 15, 2005 (Date of Inception) Through December 31,
      2005**




**Income****Accumulated****Additional**
            
            **During
                the****Common
                Stock**
            
            **Paid-In**
            
            **Development****Shares**
            
            **Amount**
            
            **Capital**
            
            **Stage**
            
            **Total****Balance
                - April 15, 2005 (date of inception)**
            
            
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0Initial
                capital from founding stockholders
            
            
            5,000,000
            
            
            500
            
            
            24,500
            
            
            
            
            
            25,000Sale
                of 20,000,000 units and underwriter'soption
                      (including 3,998,000 shares of common stock subject to
                      possible redemption), net of underwriter’s  discount and offering
                      expenses
            
            
            20,000,000
            
            
            2,000
            
            
            113,233,976
            
            
            
            
            
            113,235,976Reclassification
                as a result of 3,998,000shares
                of common stock being subjectto
                possible redemption
            
            
            
            
            
            
            
            
            (22,159,715
            )
            
            
            
            
            (22,159,715
            )Accretion
                of trust fund relating to commonstock
                subject to possible redemption
            
            
            
            
            
            
            
            
            
            
            $
            (189,462
            )
            
            (189,462
            )Net
                income for the period
            
            
            
            
            
            
            
            
            
            
            
            817,779
            
            
            817,779**Balance
                - December 31, 2005**
            
            
            **25,000,000**
            
            **$**
            **2,500**
            
            **$**
            **91,098,761**
            
            **$**
            **628,317**
            
            **$**
            **91,729,578**





*See notes to financial
                  statements*
                F-5


**STONE
      ARCADE ACQUISITION CORPORATION**


(a
      development stage company)


**Statement
      of Cash Flows**


**For
      the Period From April 15, 2005 (Date of Inception) Through December 31,
      2005**





**Cash
                flows used in operating activities:**Net
                income
            
            **$**
            **817,779**Changes
                in:Prepaid
                insurance
            
            
            **(122,500**
            **)**Interest
                receivable on short-term investments
            
            
            **(266,239**
            **)**Other
                prepaid expenses
            
            
            **(6,375**
            **)**Accrued
                expenses
            
            
            **76,486**Income
                taxes payable - current
            
            
            **59,852**Income
                taxes payable - deferred
            
            
            **36,427**Net
                cash provided by operating activities
            
            
            **595,430****Cash
                flows used in investing activities:**Purchase
                of U.S. Government Securities held in Trust Fund
            
            
            **(556,765,009**
            **)**Maturities
                of U.S. Government Securities held in Trust Fund
            
            
            **445,066,214**Net
                cash used in investing activities
            
            
            **(111,698,795**
            **)****Cash
                flows provided by financing activities:**Proceeds
                from public offering, net of expenses
            
            
            **113,235,876**Proceeds
                from sale of common stock to founding stockholders
            
            
            **25,000**Proceeds
                from notes payable to stockholders
            
            
            **200,000**Repayment
                of notes to stockholders
            
            
            **(200,000**
            **)**Proceeds
                from issuance of underwriter’s option
            
            
            **100**Net
                cash provided by financing activities
            
            
            **113,260,976****Net
                increase in cash**
            
            
            **2,157,611**Cash
                - beginning of period
            
            
            **0****Cash
                - end of period**
            
            **$**
            **2,157,611****Supplemental
                disclosure of noncash activities:**Reclassification
                of common stock subject to possible redemption
            
            **$**
            **22,159,715**Accretion
                of trust fund relating to common stock subject to possible
                redemption
            
            
            **189,462****Cash
                paid during the period:**Federal
                income taxes
            
            **$**
            **325,000**


*See notes to financial
                  statements*
                F-6


**STONE
      ARCADE ACQUISITION CORPORATION**


(a
      development stage company)




**Notes
        to Financial Statements**
 **December 31,
        2005**


**Note
      A - Organization, Business Operations and Subsequent
      Events**





Stone
      Arcade Acquisition Corporation (the "Company') was incorporated in Delaware
      on
      April 15, 2005. The Company was formed to serve as a vehicle for the
      acquisition through a merger, capital stock exchange, asset acquisition, or
      other similar business combination ("Business Combination") of an operating
      business in the paper, packaging, forest products and related industries. The
      Company has neither engaged in any operations nor generated operating revenue.
      The Company is considered to be in the development stage and is subject to
      the
      risks associated with activities of development stage companies. The Company
      has
      selected December 31 as its fiscal year end.


The
        registration statement for the Company's initial public offering (the
        "Offering") was declared effective on August 15, 2005. The Company
        consummated the Offering on August 19, 2005 and received net proceeds of
        approximately $113,236,000. The Company's management has broad discretion
        with
        respect to the specific application of the net proceeds of the Offering (as
        described in Note C), although substantially all of the net proceeds of the
        Offering are intended to be generally applied toward a Business Combination.
        Furthermore, there is no assurance that the Company will be able to successfully
        effect a Business Combination. Of the net proceeds, $111,965,034 including
        interest received and accrued less estimated tax payments of $325,000 is
        being held in a trust account ("Trust Fund") and invested in government
        securities until the earlier of (i) the consummation of the first Business
        Combination or (ii) the distribution of the Trust Fund as described below.
        The interest income is subject to additional taxes incurred, but not yet
        paid,
        as of December 31, 2005. The remaining proceeds may be used to pay for business,
        legal and accounting due diligence on prospective business combinations and
        continuing general and administrative expenses. The Company, after signing
        a
        definitive agreement for the acquisition of a target business, will submit
        such
        transaction for stockholder approval. In the event that holders of
        20 percent or more of the shares issued in the Offering vote against the
        Business Combination and elect to redeem their shares, the Business Combination
        will not be consummated. If holders of less than 20 percent of the shares
        issued in the Offering vote against the Business Combination and elect to
        have
        their shares redeemed, the Business Combination will be consummated and the
        shares of such holders will be redeemed at the net offering price, $5.54,
        plus
        interest income allocable to such shares, net of income taxes. The number
        of
        shares subject to possible redemption is 3,998,000. At December 31, 2005,
        the Company has classified $22,349,177 of the net proceeds from the Offering
        plus interest, but net of taxes, as common stock subject to possible redemption
        in the accompanying balance sheet.
  In
      the
      event that the Company does not consummate a Business Combination within
      18 months from the date of the consummation of the Offering, or
      24 months from the consummation of the Offering if certain extension
      criteria have been satisfied (the "Acquisition period"), the proceeds held
      in
      the Trust Fund will be distributed to the Company's public stockholders,
      excluding the persons who were stockholders prior to the Offering (the "Founding
      Stockholders") to the extent of their initial stock holdings. However, the
      Founding Stockholders will participate in any liquidation distribution with
      respect to any shares of common stock they acquired in connection with or
      following the Offering. In the event of such distribution, it is likely that
      the
      per share value of the residual assets remaining available for distribution
      (including Trust Fund assets) will be less than the initial public offering
      price per share in the Offering (assuming no value is attributed to the Warrants
      contained in the Units in the Offering discussed in Note C).





**Note
      B - Summary of Significant Accounting Policies**





**[1]**
            **Cash
                and cash equivalents:**





All
                highly liquid investments with original maturities of three months
                or less
                are considered to be cash
                equivalents.




**[2]**
            **Earnings
                per common share:**





Basic
                income per share is based on the weighted average number of common
                shares
                outstanding during the period. Diluted income per share reflects
                the
                potential dilution assuming common shares were issued upon the exercise
                of
                outstanding in-the-money warrants and the proceeds thereof were used
                to
                purchase common shares at the average market price during the
                period.




F-7
 
 **STONE
        ARCADE ACQUISITION CORPORATION**
 (a
        development stage company)
  **Notes
          to Financial Statements**
 **December 31,
          2005**


**Note
      B - Summary of Significant Accounting Policies (continued)**





**[3]**
            **Use
                of estimates:**





The****preparation
                of financial statements in conformity with accounting principles
                generally
                accepted in the United States of America requires management to make
                estimates and assumptions that affect the amounts in the financial
                statements and accompanying notes. Actual results could differ from
                those
                estimates.





**[4]**
            **Income
                taxes:**





Deferred income taxes are provided for the differences
              between the bases of assets and liabilities for financial reporting
              and
              income tax purposes. Deferred tax assets and liabilities are measured
              using tax rates in effect for the year in which those temporary
              differences are expected to be recovered or settled. A valuation allowance
              is established when necessary to reduce deferred tax assets to the
              amount
              expected to be realized.





**Note
      C - Initial Public Offering**





On
      August 19, 2005, the Company sold 20,000,000 units ("Units"). Each Unit
      consisted of one share of the Company's common stock, $.0001 par value, and
      two
      warrants ("Warrants"). Each Warrant entities the holder to purchase from the
      Company one share of common stock at an exercise price of $5.00. Each warrant
      is
      exercisable on the later of (a) the completion of a Business Combination or
      (b) August 15, 2006, and expires on August 15, 2009. The Warrants
      are redeemable at a price of $.01 per Warrant upon 30 days notice after the
      Warrants become exercisable, only in the event that the last sale price of
      the
      common stock is at least $8.50 per share for any 20 trading days within a
      30 trading day period ending on the third day prior to the date on which
      notice of redemption is given.





In
      connection with the Offering, the Company paid the underwriters an underwriting
      discount of 5 percent of the gross proceeds of the Offering. The Company
      also issued for $100 an option to the representative of the underwriters to
      purchase up to a total of 1,000,000 units at a price of $7.50 per unit. The
      units issuable upon the exercise of this option are identical to those offered
      in the prospectus, except that the exercise price of the warrants included
      in
      the underwriters' purchase option is $6.25. This option is exercisable
      commencing on the later of the consummation of a business combination or one
      year from the date of the Offering, expires five years from the date of the
      Offering, and may be exercised on a cashless basis. The option may not be sold,
      transferred, assigned, pledged or hypothecated until August 16, 2006.
      However, the option may be transferred to any underwriter and selected dealer
      participating in the Offering and their bona fide officers or
      partners.





The
      holders of the option have demand and piggy-back registration rights under
      the
      Securities Act for periods of five and seven years, respectively, from the
      date
      of the Offering with respect to registration of the securities directly and
      indirectly issuable upon exercise of the option. The exercise price and number
      of units issuable upon exercise of the option may be adjusted in certain
      circumstances, including issuances of a stock dividend, recapitalization,
      reorganization, merger or consolidation. However, the option will not be
      adjusted for issuances at a price below its exercise price.





F-8
 
 **STONE
        ARCADE ACQUISITION CORPORATION**
 (a
        development stage company)
  **Notes
          to Financial Statements**
 **December 31,
          2005**




**Note
      C - Initial Public Offering (continued)**





The
      Company has estimated, based upon a Black Scholes model, that the fair value
      of
      the purchase option on the date of sale was approximately $980,000, using an
      expected life of four years, volatility of 23.9 percent, and a risk-free
      rate of 3.93 percent. However, because the Units did not have a trading
      history, the volatility assumption was based on information available to
      management. The volatility estimate was derived using five-year historical
      stock
      prices for the nine companies in the Standard and Poor's Supercomposite Paper
      Packaging Index. The Company believes the volatility estimate calculated from
      this index is a reasonable benchmark to use in estimating the expected
      volatility of the units; however, the use of an index to estimate volatility
      may
      not necessarily be representative of the volatility of the underlying
      securities. Although an expected life of four years was used in this
      calculation, if the Company does not consummate a Business Combination within
      the prescribed time period and liquidates, the option will become
      worthless.





The
      Company accounted for this purchase option, inclusive of the receipt of the
      $100
      cash payment, as an expense of the Offering resulting in a charge directly
      to
      stockholders' equity. Accordingly there was no impact in the Company's financial
      position or results of operations except for the recording of the $100 proceeds
      from the sale.





In
      accordance with a commitment entered into in connection with the Offering,
      the
      Founding Stockholders have purchased 3,500,000 warrants in the public
      marketplace. They have further agreed that warrants purchased by them or their
      affiliates will not be sold or transferred until the completion of a Business
      Combination.





**Note
      D - Income Taxes**





The
      provision for income taxes for the period ended December 31, 2005 consists
      of the following:





Current
            
            $
            384,852Deferred
            
            
            36,427Total
            
            $
            421,279





Deferred
      tax assets and liabilities at December 31, 2005 consist of the
      following:





Deferred
                tax assets - start up costs
            
            $
            54,094Deferred
                tax liability - accrued interest receivable
            
            
            (90,521
            )Net
                deferred tax liability
            
            $
            (36,427
            )





**Note
      E - Notes Payable to Stockholders**





The
      Company issued non-interest bearing unsecured promissory notes to the Founding
      Stockholders of the Company totaling $200,000 on April 16 and
      April 25, 2005. The Notes were repaid in accordance with their terms on
      August 19, 2005 from the proceeds of the Offering.







F-9





**STONE
      ARCADE ACQUISITION CORPORATION**


(a
      development stage company)




**Notes
        to Financial Statements**
 **December 31,
        2005**


**Note
      F - Related-Party Transactions**





The
      Company has agreed to pay Stone-Kaplan Investments, LLC, an entity where certain
      of the Founding Stockholders serve in executive capacities, an administrative
      fee of $7,500 per month for office space and general and administrative services
      from August 15, 2005 through the acquisition date of a target business.
      Stone-Kaplan Investments LLC has agreed to pay a portion of the aforementioned
      administration fee to Arcade Partners LLC, a company where certain of the
      Founding Stockholders serve in executive capacities. From time to time the
      Company retains the services of White Oak Aviation, a company solely owned
      by
      certain Founding Stockholders. For the period from inception to
      December 31, 2005, the amount paid to this entity was $11,829.





The
      Founding Stockholders have agreed with the Company and the underwriters that
      if
      the Company liquidates prior to the consummation of a Business Combination,
      they
      will be personally liable to pay debts and obligations to vendors that are
      owed
      money by the Company for services rendered or products sold to us in excess
      of
      the net proceeds not held in the trust account at that time.





**Note
      G - Commitments**





The
      Company has engaged the representative of the underwriters to act as its
      investment banker in connection with a Business Combination. The Company has
      agreed to pay the representative a cash fee of $1,200,000 at the closing of
      the
      Business Combination for assisting the Company in structuring and negotiating
      the terms of the transaction.





**Note
      H - Common Stock Reserved for Issuance**





At
      December 31, 2005, 43,000,000 shares of common stock were reserved for
      issuance upon exercise of warrants and the underwriter's option.





**EXHIBIT
      INDEX**




**Exhibit
                No.**
            
            **Description**3
            .1
            
            Amended
                and Restated Certificate of Incorporation, as amended.
                (1)3
            .2
            
            By-laws.(1)4
            .1
            
            Specimen
                Unit Certificate.(1)4
            .2
            
            Specimen
                Common Stock Certificate.(1)4
            .3
            
            Specimen
                Warrant Certificate.(1)4
            .4
            
            Form
                of Unit Purchase Option to be granted to Representative.
                (1)4
            .5
            
            Form
                of Warrant Agreement between Continental Stock Transfer & Trust
                Company and the Registrant. (1)10
            .1
            
            Form
                of Letter Agreement among the Registrant, Morgan Joseph & Co.
                Inc. and each of the Initial Stockholders. (1)10
            .2
            
            Form
                of Promissory Note issued to each of Roger Stone, Matthew Kaplan,
                John
                Chapman, Jonathan Furer and Muhit Rahman. (1)10
            .3
            
            Form
                of Investment Management Trust Agreement between Continental Stock
                Transfer & Trust Company and the Registrant.
                (1)




F-10
 
 **STONE
        ARCADE ACQUISITION CORPORATION**
 (a
        development stage company)
  **Notes
          to Financial Statements**
 **December 31,
          2005**




10
            .4
            
            Form
                of Stock Escrow Agreement between the Registrant, Continental Stock
                Transfer & Trust Company and the Initial Stockholders.
                (1)10
            .5
            
            Form
                of Letter Agreement between Stone-Kaplan Investments LLC and Registrant
                regarding administrative support. (1)10
            .6
            
            Form
                of Registration Rights Agreement among the Registrant and the Initial
                Stockholders. (1)10
            .7
            
            Form
                of Warrant Purchase Agreement among each of the Initial Stockholders
                and
                Morgan Joseph & Co. Inc. (1)31
            
            
            Certification
                of the Chief Executive Officer and Principal Financial Officer pursuant
                toRule 13a-14(a) of
                the Securities Exchange Act, as amended32
            
            
            Certification
                of the Chief Executive Officer and Principal Financial Officer pursuant
                to18
                U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002 .





(1)
      Incorporated by reference to Registration Statement on Form S-1 (File No.
      333-124601)




F-11