** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

**FORM 10-Q/A**

** **

**AmendmentNo. 1**

 

x        Quarterly Report Pursuant to Section 13or 15(d) of the Securities Exchange Act of 1934

** **

**For the quarterly periodended June 30, 2006.**

** **

**or**

** **

o        Report Pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934

** **

**For the transition periodfrom                         to                         .**

** **

**Commission File Number:000-51444**

** **

**Stone Arcade Acquisition Corporation**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                                                  | **20-2699372**       |
|-----------------------------------------------------------------------------------------------|----------------------|
| (State or Other  Jurisdiction of                                                              | (I.R.S. Employer     |
| Incorporation or  Organization)                                                               | Identification  No.) |
|                                                                                          |                 |
| **c/o  Stone-Kaplan Investments, LLC, One Northfield Plaza, Suite 480  Northfield, IL 60093** |
| (Address of  Principal Executive Offices including zip code)                                  |
|                                                                                          |
| **(847)  441-0929**                                                                           |
| (Registrant’s  Telephone Number, Including Area Code)                                    |

 

Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the ExchangeAct during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes xNo o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated fileror a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
| Large Accelerated Filer o | Accelerated  Filer o | Non-Accelerated Filer x |
|---------------------------|----------------------|-------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act). Yes xNo o

There were 25,000,000 shares of the Registrant’sCommon Stock issued and outstanding on August 11, 2006.

 

 

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**EXPLANATORYNOTE**

 

This Amendment No. 1on Form 10-Q/A (“Form 10-Q/A”) to the Company’s Quarterly Report onForm 10-Q for the period ended June 30, 2006, initially filed with theSecurities and Exchange Commission on August 14, 2006 (the “Original Filing”),reflects changes to the notes to the financial statements relating to theexercise provisions of the Company’s warrants and a change to Note G to reflecta restatement to the financial statements of the Kraft Paper Business divisionof International Paper Company. This Form 10-Q/A amends and restates (i)Item 1. Financial Statements; and (ii) Item 6. Exhibits. In addition, theOriginal Filing has been amended to contain currently dated certifications fromthe Company’s Chief Executive Officer and Chief Financial Officer, as requiredby Sections 302 and 906 of the Sarbanes-Oxley Act (See Exhibits 31and 32).

 

Except to the extentmodified or updated, the foregoing items have not been amended to reflect otherevents occurring after the Original Filing or to modify or update thosedisclosures affected by subsequent events. Other events occurring after thefiling of the Original Filing or other disclosures necessary to reflectsubsequent events have been addressed in the Company’s reports filed with theSecurities and Exchange Commission subsequent to the filing of the OriginalFiling. 

 

**Stone ArcadeAcquisition Corporation Index to Form 10-Q/A**

**TABLE OF CONTENTS**
| PART I. — FINANCIAL  INFORMATION           |
|-------------------------------------------------|
|                                            |
| Item 1. — FINANCIAL STATEMENTS (UNAUDITED) |
|                                            |
| PART II. — OTHER INFORMATION               |
|                                            |
| Item 6. — EXHIBITS                         |
|                                            |
| SIGNATURES                                      |

 

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**Stone ArcadeAcquisition Corporation(a development stage company)Condensed Consolidated Balance Sheet**
| ** **                                                                                                                                                                | ** ** | **June 30,  2006** | ** **  | **December 31,  2005** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|-------------|-----------------------------|------------|
| ** **                                                                                                                                                                | ** ** | **(unaudited)**         | ** **  | ** **                  | ** ** |
| **Assets**                                                                                                                                                                | ** ** | ** **              | ** **  | ** **                  | ** ** |
| Current assets:                                                                                                                                                           |       |                    |        |                        |       |
| Cash                                                                                                                                                                      |       | $                       | 1,427,509   |                        | $          | 2,157,611 |   |
| Cash and investments, held in trust                                                                                                                                       |       | 113,608,480             |        | 111,965,034                 |       |
| Prepaid expenses                                                                                                                                                          |       | 24,500                  |        | 128,875                     |       |
| Total current  assets                                                                                                                                                     |       | 115,060,489             |        | 114,251,520                 |       |
| Acquisition cost                                                                                                                                                          |       | 1,046,450               |        | —                      |       |
| Deferred income  taxes                                                                                                                                                    |       | 222,288                 |        | 54,094                      |       |
| Total assets                                                                                                                                                              |       | $                       | 116,329,227 |                        | $          | 114,305,614 |   |
|                                                                                                                                                                      |       |                    |        |                        |       |
| **Liabilities and Stockholders’  Equity**                                                                                                                            | ** ** | ** **              | ** **  | ** **                  | ** ** |
| Current liabilities:                                                                                                                                                      |       |                    |        |                        |       |
| Accrued expenses                                                                                                                                                          |       | $                       | 876,668     |                        | $          | 136,338 |   |
| Deferred income taxes                                                                                                                                                     |       | 42,058                  |        | 90,521                      |       |
| Total current  liabilities                                                                                                                                                |       | 918,726                 |        | 226,859                     |       |
|                                                                                                                                                                      |       |                    |        |                        |       |
| Common stock,  subject to possible redemption-3,998,000 shares                                                                                                            |       | 22,159,715              |        | 22,159,715                  |       |
| Interest income  attributable to common stock subject to possible redemption (net of taxes of  $266,050 and $97,061 at June 30, 2006 and December 31, 2005, respectively) |       | 516,451                 |        | 189,462                     |       |
|                                                                                                                                                                      |       | 22,676,166              |        | 22,349,177                  |       |
| Commitments and  contingencies (Note E)                                                                                                                                   |       |                    |        |                        |       |
|                                                                                                                                                                      |       |                    |        |                        |       |
| Stockholders’ equity                                                                                                                                                 |       |                    |        |                        |       |
| Preferred stock $.0001 par value; 1,000,000 shares  authorized; 0 shares issued and outstanding                                                                           |       | —                  |        | —                      |       |
| Common stock $.0001 par value, 175,000,000 shares  authorized; 25,000,000 shares issued and outstanding (including 3,998,000  shares subject to possible redemption)      |       | 2,500                   |        | 2,500                       |       |
|                                                                                                                                                                      |       |                    |        |                        |       |
| Additional paid-in capital                                                                                                                                                |       | 91,098,761              |        | 91,098,761                  |       |
| Income accumulated during the development stage                                                                                                                           |       | 1,633,074               |        | 628,317                     |       |
| Total stockholders’  equity                                                                                                                                          |       | 92,734,335              |        | 91,729,578                  |       |
| Total liabilities and  stockholders’ equity                                                                                                                          |       | $                       | 116,329,227 |                        | $          | 114,305,614 |   |

 

See notes tocondensed unaudited financial statements.

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**Stone ArcadeAcquisition Corporation(a development stage company)Condensed Consolidated Statement of Operations(unaudited)**
| ** **                                                                                          | ** ** | ** **                  | ** ** | ** **                  | ** ** | **Inception**                 | ** ** | **Accumulated**             | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|-------------------------------|------------|-----------------------------|------------|
| ** **                                                                                          | ** ** | **Three Months**       | ** ** | **Six Months**         | ** ** | **(April 15, 2005** | ** ** | **Inception**               | ** ** |
| ** **                                                                                          | ** ** | **Ended**                   | ** ** | **Ended**                   | ** ** | **Through**                   | ** ** | **Through**                 | ** ** |
| ** **                                                                                          | ** ** | **June 30, 2006** | ** ** | **June 30, 2006** | ** ** | **June 30, 2005)**  | ** ** | **June 30, 2006** | ** ** |
| Cost and expenses:                                                                                  |       |                        |       |                        |       |                          |       |                        |       |
| Operating  expenses                                                                                 |       | $                           | 363,711    |                        | $          | 518,168                       |       | $                           | 1,000      |   | $ | 739,268 |   |
|                                                                                                |       |                        |       |                        |       |                          |       |                        |       |
| Other income:                                                                                       |       |                        |       |                        |       |                          |       |                        |       |
| Bank interest                                                                                       |       | 21,128                      |       | 48,363                      |       | —                        |       | 72,503                      |       |
| Interest on cash  and cash equivalents held in trust                                                |       | 1,298,603                   |       | 2,478,433                   |       | —                        |       | 3,914,451                   |       |
| Total other income                                                                                  |       | 1,319,731                   |       | 2,526,796                   |       | —                        |       | 3,986,954                   |       |
| Income (loss) before  provision for income taxes:                                                   |       | 956,020                     |       | 2,008,628                   |       | (1,000                        | )          | 3,247,686                   |       |
| Provision for income  taxes:                                                                        |       |                        |       |                        |       |                          |       |                        |       |
| Current                                                                                             |       | 378,601                     |       | 873,472                     |       | —                        |       | 1,258,324                   |       |
| Deferred                                                                                            |       | (62,905                     | )          | (196,590                    | )          | —                        |       | (160,163                    | )          |
| Total provision for  income taxes                                                                   |       | 315,696                     |       | 676,882                     |       | —                        |       | 1,098,161                   |       |
| Net income (loss)                                                                                   |       | 640,324                     |       | 1,331,746                   |       | (1,000                        | )          | 2,149,525                   |       |
| Deferred interest, net  of taxes, attributable to common stock subject to possible redemption       |       | (171,330                    | )          | (326,989                    | )          | —                        |       | (516,451                    | )          |
|                                                                                                |       |                        |       |                        |       |                          |       |                        |       |
| Net income (loss)  allocable to holders of nonredeemable common stock                               |       | $                           | 468,994    |                        | $          | 1,004,757                     |       | $                           | (1,000     | ) | $ | 1,633,074 |   |
| Weighted-average number  of shares outstanding:                                                     |       |                        |       |                        |       |                          |       |                        |       |
| Basic                                                                                               |       | 25,000,000                  |       | 25,000,000                  |       | 5,000,000                     |       | 19,285,714                  |       |
| Diluted                                                                                             |       | 29,221,825                  |       | 29,028,777                  |       | 5,000,000                     |       | 21,788,321                  |       |
| Earnings per share:                                                                                 |       |                        |       |                        |       |                          |       |                        |       |
| Basic                                                                                               |       | $                           | 0.03       |                        | $          | 0.05                          |       | $                           | —     |   | $ | 0.11 |   |
| Diluted                                                                                             |       | $                           | 0.02       |                        | $          | 0.05                          |       | $                           | —     |   | $ | 0.10 |   |
| Weighted-average number  of shares outstanding exclusive of shares subject to possible redemption:  |       |                        |       |                        |       |                          |       |                        |       |
| Basic                                                                                               |       | 21,002,000                  |       | 21,002,000                  |       |                          |       | 16,430,000                  |       |
| Diluted                                                                                             |       | 25,223,825                  |       | 25,030,777                  |       |                          |       | 18,932,607                  |       |
| Earnings per share  exclusive shares and related deferred interest subject to possible  redemption: |       |                        |       |                        |       |                          |       |                        |       |
| Basic                                                                                               |       | $                           | 0.02       |                        | $          | 0.05                          |       |                        |       | $ | 0.10 |   |
| Diluted                                                                                             |       | $                           | 0.02       |                        | $          | 0.04                          |       |                        |       | $ | 0.09 |   |

 

See notes tocondensed unaudited financial statements.

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**Stone ArcadeAcquisition Corporation(a development stage company)Condensed Consolidated Statement of Cash Flows(unaudited)**
| ** **                                                   | ** ** | ** **                  | ** ** | **Inception**                 | ** ** | **Accumulated**             | ** ** |
|--------------------------------------------------------------|------------|-----------------------------|------------|-------------------------------|------------|-----------------------------|------------|
| ** **                                                   | ** ** | **Six Months**         | ** ** | **(April 15, 2005** | ** ** | **(Inception)**             | ** ** |
| ** **                                                   | ** ** | **Ended**                   | ** ** | **Through**                   | ** ** | **Through**                 | ** ** |
| ** **                                                   | ** ** | **June 30, 2006** | ** ** | **June 30, 2005)**  | ** ** | **June 30, 2006** | ** ** |
| **Operating activities:**                                    |       |                        |       |                          |       |                        |       |
| Net income (loss)                                            |       | $                           | 1,331,746  |                          | $          | (1,000                      | )          | $ | 2,149,525 |   |
| Changes in                                                   |       |                        |       |                          |       |                        |       |
| Interest  receivable on short term investments               |       | 142,540                     |       | —                        |       | (123,699                    | )          |
| Prepaid expenses                                             |       | 104,375                     |       | —                        |       | (24,500                     | )          |
| Accrued expenses                                             |       | 686,792                     |       | 1,000                         |       | 763,277                     |       |
| Accrued income  taxes                                        |       | 53,539                      |       | —                        |       | 113,391                     |       |
| Deferred income  taxes                                       |       | (216,657                    | )          | —                        |       | (180,230                    | )          |
| Net cash provided by  operating activities                   |       | 2,102,335                   |       | —                        |       | 2,697,764                   |       |
|                                                         |       |                        |       |                          |       |                        |       |
| **Investing activities:**                                    |       |                        |       |                          |       |                        |       |
| Acquisition cost                                             |       | (1,046,450                  | )          | —                        |       | (1,046,450                  | )          |
| Purchase of U.S.  government securities held in trust        |       | (792,063,023                | )          | —                        |       | (1,348,828,031              | )          |
| Maturities of U.S.  government securities held in trust      |       | 790,277,036                 |       | —                        |       | 1,235,343,250               |       |
| Net cash used in  investing activities                       |       | (2,832,437                  | )          | —                        |       | (114,531,231                | )          |
|                                                         |       |                        |       |                          |       |                        |       |
| **Financing activities:**                                    |       |                        |       |                          |       |                        |       |
| Proceeds from public  offering, net of expenses              |       | —                      |       | —                        |       | 113,235,876                 |       |
| Proceeds from sale of  common stock to founding stockholders |       | —                      |       | 25,000                        |       | 25,000                      |       |
| Proceeds from notes  payable to stockholders                 |       | —                      |       | 200,000                       |       | 200,000                     |       |
| Repayment of notes to  stockholders                          |       | —                      |       | —                        |       | (200,000                    | )          |
| Payments of deferred  offering costs                         |       | —                      |       | (186,976                      | )          | —                      |       |
| Proceeds from issuance  of underwriters’ option         |       | —                      |       | —                        |       | 100                         |       |
| Net cash provided by  financing activities                   |       | —                      |       | 38,024                        |       | 113,260,976                 |       |
|                                                         |       |                        |       |                          |       |                        |       |
| Net (decrease) increase  in cash                             |       | (730,102                    | )          | 38,024                        |       | 1,427,509                   |       |
| Cash-beginning of  period                                    |       | 2,157,611                   |       | —                        |       | —                      |       |
| Cash-end of period                                           |       | $                           | 1,427,509  |                          | $          | 38,024                      |       | $ | 1,427,509 |   |

 

See notes tocondensed unaudited financial statements.

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**Stone ArcadeAcquisition Corporation(a development stage company)Notes to Condensed Consolidated Unaudited Financial Statements**

**Note A. Basis ofPresentation, Principles of Consolidation, Use of Estimates andReclassifications**

The accompanying unaudited financial statements havebeen prepared in accordance with U.S. generally accepted accounting principlesfor interim financial information and with the instructions to Form 10-Q andArticle 10 of Regulation S-X. Accordingly, they do not include all of the informationand footnotes required by generally accepted accounting principles for completefinancial statements. In the opinion of management, all normal recurringadjustments considered necessary for a fair presentation have been included. Theconsolidated financial statements include the accounts of the Company and itswholly-owned subsidiary and are prepared in conformity with U.S. generallyaccepted accounting principles. The results of operations for the six monthperiod ended June 30, 2006 are not necessarily indicative of the results to beexpected for the year ending December 31, 2006.

The condensed balance sheet at December 31, 2005 hasbeen derived from the audited financial statements at that date, but does notinclude all of the information and footnotes required by generally acceptedaccounting principles for complete financial statements.

For further information, refer to the financialstatements and footnotes thereto included in Stone Arcade AcquisitionCorporation’s annual report on Form 10-K for the period ended December 31,2005.

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

**Note B. Organizationand Business Operations**

Stone Arcade Acquisition Corporation (the “Company”)was incorporated in Delaware on April 15, 2005. On May 25, 2006, theCompany formed a wholly-owned subsidiary, KapStone Kraft Paper Corporation, orKapStone Kraft. The Company was formed to serve as a vehicle for theacquisition through a merger, capital stock exchange, asset acquisition, orother similar business combination (“Business Combination”) of an operatingbusiness in the paper, packaging, forest products and related industries. TheCompany has neither engaged in any operations nor generated operating revenue. TheCompany is considered to be in the development stage and is subject to therisks associated with activities of development stage companies. The Companyhas selected December 31 as its fiscal year end.

The registration statement for the Company’s initialpublic offering (the “Offering”) was declared effective on August 15, 2005. TheCompany consummated the Offering on August 19, 2005 and received net proceedsof approximately $113,236,000. The Company’s management has broad discretionwith 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 theOffering are intended to be generally applied toward a Business Combination. Furthermore,there is no assurance that the Company will be able to successfully effect aBusiness Combination. As of June 30, 2006, of the net proceeds, $113,608,480,including interest earned of $3,914,451, net of taxes, is being held in a trustaccount (“Trust Fund”) and invested in U.S. Government securities until theearlier of (i) the consummation of the first Business Combination or (ii) thedistribution of the Trust Fund as described below.

The interest income is subject to additional taxes incurred,but not yet paid as of June 30, 2006. The remaining proceeds may be used to payfor business, legal and accounting due diligence on prospective businesscombinations 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 thatholders of 20 percent or more of the shares issued in the Offering vote againstthe Business Combination and seek to have their shares redeemed, the BusinessCombination will not be consummated. If a majority of the shares voted at themeeting by public stockholders are voted in favor of the Business Combinationand holders of less than 20 percent of the shares issued in the offering voteagainst the Business Combination and elect to have their shares redeemed, theBusiness Combination will be consummated and the shares of such holders will beredeemed for approximately $5.54 per share, plus interest allocable to suchshares, net of income taxes. The number of shares subject to possibleredemption is approximately 3,998,000. At June 30, 2006, the Company hasclassified $22,676,166 of the net proceeds from the Offering, inclusive ofinterest but net of taxes, as common stock subject to possible redemption inthe accompanying balance sheet.

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In the event that the Company does not consummate aBusiness Combination within 18 months from the effective date of the Offering,or 24 months from the effective date of the Offering if certain extensioncriteria have been satisfied (the “Acquisition Period”), the proceeds held inthe Trust Fund will be distributed to the Company’s public stockholders (i.e.excluding the persons who were stockholders prior to the Offering (the “FoundingStockholders”) to the extent of their initial stock holdings.) However, theFounding Stockholders will participate in any liquidation distribution withrespect to any shares of common stock they acquired in connection with orfollowing the Offering. In the event of such distribution, it is likely thatthe per share value of the residual assets remaining available for distribution(including Trust Fund assets) will be less than the initial public offeringprice per share in the Offering (assuming no value is attributed to theWarrants contained in the Units in the Offering discussed in Note C).

**Note C. InitialPublic Offering**

On August 19, 2005, the Company sold 20,000,000 units(“Units”) for a gross price of $6.00 per Unit. Each Unit consists of one shareof the Company’s common stock, $.0001 par value, and two warrants (“Warrants”).Each Warrant entitles the holder to purchase from the Company one share ofcommon stock at an exercise price of $5.00. Each warrant is exercisable on thelater 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 $.01per Warrant upon 30 days notice after the Warrants become exercisable, only inthe event that the last sale price of the common stock is at least $8.50 pershare for any 20 trading days within a 30 trading day period ending on thethird day prior to the date on which notice of redemption is given.

In connection with the Offering, the Company paid theunderwriters an underwriting discount of five percent of the gross proceeds ofthe Offering. The Company also issued for $100 an option to the representativeof 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 areidentical to those offered in the prospectus, except that the exercise price ofthe warrants included in the underwriters’ purchase option is $6.25. Thisoption is exercisable commencing on the later of the consummation of a BusinessCombination or one year from the date of the Offering, expires five years fromthe date of the Offering, and may be exercised on a cashless basis. The optionmay not be sold, transferred, assigned, pledged or hypothecated until August 16,2006. However, the option may be transferred to any underwriter or selecteddealer participating in the Offering and their bona fide officers or partners.

Theunderwriters’ purchase option and the Warrants (including the warrantsunderlying the underwriters’ option) will be exercisable only if at the time ofexercise a current registration statement covering the underlying securities iseffective or, in the opinion of counsel, not required, and if the securities arequalified for sale or exempt from qualification under the applicable statesecurities laws of the exercising holder. The Company is obligated to use its best efforts to maintain aneffective registration statement during the term of the option and the Warrants;however, it may be unable to do so.  Holders of the option and the Warrants are notentitled to receive a net cash settlement or other settlement in lieu ofphysical settlement if the common stock underlying the Warrants, or securitiesunderlying the option, as applicable, are not covered by an effectiveregistration statement.  Accordingly, theWarrants, which do not have a cashless exercise provision, may expireunexercised and worthless if a current registration statement covering thecommon stock is not effective.  

The holders of the option have demand and piggy-backregistration rights under the Securities Act for periods of five and sevenyears, respectively, from the date of the prospectus with respect toregistration of the securities directly and indirectly issuable upon exerciseof the option. The exercise price and number of units issuable upon exercise ofthe option may be adjusted in certain circumstances, including issuances of astock dividend, recapitalization, reorganization, merger or consolidation. However,the option will not be adjusted for issuances at a price below its exerciseprice.

The Company has estimated, based upon a Black Scholesmodel, that the fair value of the purchase option on the date of sale wasapproximately $980,000. The Company accounted for this purchase option,inclusive of the receipt of the $100 cash payment, as an expense of theOffering resulting in a charge directly to stockholders’ equity. Accordinglythere was no impact in the Company’s financial position or results ofoperations except for the recording of the $100 proceeds from the sale.

In accordance with a commitment entered into inconnection with the Offering, the Founding Stockholders have purchased3,500,000 warrants in the public marketplace. They have further agreed that suchwarrants will not be sold or transferred until the completion of a BusinessCombination.

**Note D. Related-PartyTransactions**

The Company has agreed to pay Stone-KaplanInvestments, LLC, a company where certain of the Founding Stockholders serve inexecutive capacities, an administrative fee of $7,500 per month for officespace and general 

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and administrative services from August 15, 2005through the acquisition date of a target business. Stone-KaplanInvestments LLC has agreed to pay a portion of the aforementionedadministration fee to Arcade Partners LLC, a company where certain of theFounding Stockholders serve in executive capacities. From time to time theCompany retains the services of White Oak Aviation, an aviation servicescompany solely owned by certain Founding Stockholders. For the three and sixmonths ended June 30, 2006, the amount paid to this entity was $18,295 and$38,579, respectively.

The Founding Stockholders have agreed with the Companyand the underwriters that if the Company liquidates prior to the consummationof a Business Combination, they will be personally liable to pay debts andobligations to vendors that are owed money by the Company for services renderedor products sold to us in excess of the net proceeds not held in the Trust Fundat that time.

**Note E. Commitmentsand Contingencies**

The Company has engaged the representative of theunderwriters to act as its investment banker in connection with a BusinessCombination. 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 Companyin structuring and negotiating the terms of the transaction.

**Note F. CommonStock Reserved for Issuance**

At June 30, 2006, 43,000,000 shares of common stockwere reserved for issuance upon exercise of warrants and the underwriter’soption.

**Note G. PurchaseAgreement for Proposed Business Combination**

On June 23, 2006, Stone, KapStone Kraft, andInternational Paper Company, or IP, entered into a Purchase Agreement. ThePurchase Agreement provides for the acquisition of substantially all of theassets and the assumption of certain liabilities of the Kraft Papers Business,or KPB, a division of IP, consisting of an unbleached kraft paper manufacturingfacility in Roanoke Rapids, North Carolina and Ride Rite® Converting, aninflatable dunnage bag manufacturer located in Fordyce, Arkansas, for a cashpurchase price of $155 million plus two contingent earn-out payments of up to$35 million and $25 million, based on KPB’s annual earnings before interest,income taxes, depreciation and amortization, or EBITDA, during the five yearsimmediately following the acquisition. The purchase price payable on theclosing date will be adjusted dollar-for-dollar to the extent IP’s workingcapital as of such date is greater or less than $42,637,709.

KPB generated approximately $63.8 million in sales and$6.6 million in operating income for the three months ended March 31, 2006 andapproximately $220.0 million in sales and $9.5 million in operating income forthe year ended December 31, 2005.

The Company intends to use its proceeds of its initialpublic offering, which includes $113,608,480, including interest earned,currently held in the Trust Fund, together with borrowings from a $95,000,000senior secured credit facility to be obtained in connection with theacquisition to acquire the KPB assets, to pay transaction expenses, and to payholders of IPO shares who exercise their redemption rights.

The proposed acquisition is subject to, among otherthings, the approval of the transaction by the Company’s stockholders. Therecan be no assurance that the transaction will be consummated.

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**PART II.—OTHER INFORMATION**

Item 6. —                                             EXHIBITS

**(b)**            Exhibits

4.6                                 Amendedand Restated Warrant Clarification Agreement, by and between Stone ArcadeAcquisition Corp. and Continental Stock Transfer & Trust Company

31                                    Rule13a-14(a) Certification of Principal Executive Officer and Principal FinancialOfficer.

32                                    18U.S.C Section 1350 Certification.

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**SIGNATURES**

In accordance with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.
|                    | STONE ARCADE ACQUISITION CORPORATION |
|--------------------|--------------------------------------|
|               |                                 |
| December 12,  2006 | By:                                  | /s/ Roger Stone |
|               |                                 | Roger Stone |
|               |                                 | Chairman of the Board and Chief Executive Officer |

 

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