**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C.  20549**

 

**FORM 10-Q**

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

 
| ** ** | **For the quarterly period ended March 31, 2008.** |
|------------|---------------------------------------------------------|

 

**or**

 
| **o** | **Transition  Report Pursuant to Section 13 or 15(d) of the Securities Exchange  Act of 1934** |
|-------|----------------------------------------------------------------------------------------------------------|

 
| ** ** | **For the transition period  from                                to                                .** |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**CommissionFile Number: 000-51444**

 

**Arcade Acquisition Corp.**

(Exact name of registrant as specified in itscharter)

 

| **Delaware**                                                     | **20-8348580**                        |
|------------------------------------------------------------------|---------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) | (I.R.S. Employer  Identification No.) |

 

**62 La SalleRoad, Suite 304**

**WestHartford, CT 06107**

(Address of Principal Executive Officesincluding zip code)

 

**(860)236-6320**

(Registrant’s Telephone Number, IncludingArea Code)

 

Indicateby check mark whether the Registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Exchange Act during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes x   No o

 

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

 

| Large  accelerated filer o                     |   | Accelerated  filer o         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company x |
| (Do  not check if a smaller reporting company) |   |                              |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes x   No o

 

Therewere 10,500,000 shares of the Registrant’s Common Stock issued and outstandingon May 14, 2008.

 

 

----

 

**ArcadeAcquisition Corp.**

**(acorporation in the development stage)**

 

**Index to Form 10-Q**

 
| ** **        | ** **                                                                                          | **Page**   |
|-------------------|-----------------------------------------------------------------------------------------------------|------------|
| ** **        | ** **                                                                                          | ** ** |
| **Part I.**  | **Financial  Information**                                                                          | 3          |
| ** **        | ** **                                                                                          | ** ** |
|              | Item 1. Financial Statements  (unaudited)                                                           | 3          |
|              |                                                                                                |       |
|              | Balance Sheets                                                                                      | 3          |
|              |                                                                                                |       |
|              | Statements of  Operations                                                                           | 4          |
|              |                                                                                                |       |
|              | Statement  of Stockholders’ Equity                                                             | 5          |
|              |                                                                                                |       |
|              | Statements of  Cash Flows                                                                           | 6          |
|              |                                                                                                |       |
|              | Notes  to Interim Financial Statements                                                              | 7          |
|              |                                                                                                |       |
|              | Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 14         |
|              |                                                                                                |       |
|              | Item 3. Quantitative and Qualitative Disclosures About  Market Risk                                 | 16         |
|              |                                                                                                |       |
|              | Item 4. Controls and Procedures                                                                     | 16         |
|              |                                                                                                |       |
| **Part II.** | **Other  Information**                                                                              | 17         |
| ** **        | ** **                                                                                          | ** ** |
|              | Item  1. Legal Proceedings                                                                          | 17         |
|              |                                                                                                |       |
|              | Item  1A. Risk Factors                                                                              | 17         |
|              |                                                                                                |       |
|              | Item 2. Unregistered Sales of Equity Securities and  Use of Proceeds                                | 17         |
|              |                                                                                                |       |
|              | Item 3. Defaults Upon Senior Securities                                                             | 17         |
|              |                                                                                                |       |
|              | Item 4. Submission of Matters to a Vote of Security  Holders                                        | 17         |
|              |                                                                                                |       |
|              | Item  5. Other Information                                                                          | 17         |
|              |                                                                                                |       |
|              | Item 6.  Exhibits                                                                                   | 18         |
|              |                                                                                                |       |
| SIGNATURES        | 18                                                                                                  |

 

2

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**PART I -FINANCIAL INFORMATION**

** **

**Item 1 — FINANCIAL STATEMENTS**

 

**ARCADE ACQUISITION CORP.**

(a corporation in the development stage)

 

**BALANCESHEETS**

 
| ** **                                                                                                                                                           | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                           | ** ** | **(unaudited)**          | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                           | ** ** | ** **               | ** ** | ** **                  | ** ** |
| ** **                                                                                                                                                           | ** ** | ** **               | ** ** | ** **                  | ** ** |
| **Current assets**                                                                                                                                                   | ** ** | ** **               | ** ** | ** **                  | ** ** |
|                                                                                                                                                                 |       |                     |       |                        |       |
| Cash                                                                                                                                                                 |       | $                        | 1,642,585  |                        | $          | 1,487,025 |   |
| Prepaid expense                                                                                                                                                      |       | 10,092                   |       | 25,494                      |       |
|                                                                                                                                                                 |       |                     |       |                        |       |
| Total current assets                                                                                                                                                 |       | 1,652,677                |       | 1,512,519                   |       |
|                                                                                                                                                                 |       |                     |       |                        |       |
| **Other assets**                                                                                                                                                     | ** ** | ** **               | ** ** | ** **                  | ** ** |
| ** **                                                                                                                                                           | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Investment in Trust Account                                                                                                                                          |       | 68,005,880               |       | 67,931,770                  |       |
| Deferred tax asset                                                                                                                                                   |       | 199,005                  |       | 67,828                      |       |
|                                                                                                                                                                 |       |                     |       |                        |       |
| Total other assets                                                                                                                                                   |       | 68,204,885               |       | 67,999,598                  |       |
|                                                                                                                                                                 |       |                     |       |                        |       |
|                                                                                                                                                                 |       | $                        | 69,857,562 |                        | $          | 69,512,117 |   |
|                                                                                                                                                                 |       |                     |       |                        |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                       | ** ** | ** **               | ** ** | ** **                  | ** ** |
| ** **                                                                                                                                                           | ** ** | ** **               | ** ** | ** **                  | ** ** |
| **Current liabilities**                                                                                                                                              | ** ** | ** **               | ** ** | ** **                  | ** ** |
|                                                                                                                                                                 |       |                     |       |                        |       |   |   |
| Accrued expenses                                                                                                                                                     |       | $                        | 259,631    |                        | $          | 52,860 |   |
| Income taxes payable                                                                                                                                                 |       | 179,864                  |       | 217,755                     |       |
|                                                                                                                                                                 |       |                     |       |                        |       |
| Total current liabilities                                                                                                                                            |       | 439,495                  |       | 270,615                     |       |
|                                                                                                                                                                 |       |                     |       |                        |       |
| **Long-term liabilities,**deferred  underwriters’ fee                                                                                                           |       | 1,690,500                |       | 1,690,500                   |       |
|                                                                                                                                                                 |       |                     |       |                        |       |
| **Common stock subject to redemption,**2,587,499  shares at redemption value                                                                                         |       | 20,350,492               |       | 20,350,492                  |       |
|                                                                                                                                                                 |       |                     |       |                        |       |
| **Commitments and contingencies**                                                                                                                                    | ** ** | ** **               | ** ** | ** **                  | ** ** |
| ** **                                                                                                                                                           | ** ** | ** **               | ** ** | ** **                  | ** ** |
| **Stockholders’ equity**                                                                                                                                        | ** ** | ** **               | ** ** | ** **                  | ** ** |
| Preferred stock, $.0001 par value;  1,000,000 shares authorized; none issued                                                                                         |       |                     |       |                        |       |
|                                                                                                                                                                 |       |                     |       |                        |       |
| Common stock, $.0001 par value, authorized  39,000,000 shares; 10,500,000 shares issued and outstanding (including  2,587,499 shares subject to possible redemption) |       | 1,051                    |       | 1,051                       |       |
| Additional paid-in capital                                                                                                                                           |       | 46,033,882               |       | 46,033,882                  |       |
| Retained earnings accumulated during the  development stage                                                                                                          |       | 1,342,142                |       | 1,165,577                   |       |
|                                                                                                                                                                 |       |                     |       |                        |       |
| Total stockholders’ equity                                                                                                                                      |       | 47,377,075               |       | 47,200,510                  |       |
|                                                                                                                                                                 |       |                     |       |                        |       |
|                                                                                                                                                                 |       | $                        | 69,857,562 |                        | $          | 69,512,117 |   |

 

See accompanying notes to interim financial statements.

 

3

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**ARCADE ACQUISITION CORP.**

(a corporation in the development stage)

 

**STATEMENTSOF OPERATIONS**

 
| ** **                                                             | ** ** | **Three Months  Ended March 31,  2008** | ** ** | **January 30, 2007  (date of inception)  to March 31, 2007** | ** ** | **January 30, 2007  (date of inception)   to March 31, 2008** | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **                                                             | ** ** | **(unaudited)**                              | ** ** | **(unaudited)**                                                        | ** ** | **(unaudited)**                                                         | ** ** |
|                                                                   |       |                                         |       |                                                                   |       |                                                                    |       |
| Revenue                                                                |       | $                                            | —     |                                                                   | $          | —                                                                  |       | $ | — |   |
|                                                                   |       |                                         |       |                                                                   |       |                                                                    |       |
| Formation and operating costs                                          |       | 353,409                                      |       | 3,289                                                                  |       | 581,175                                                                 |       |
|                                                                   |       |                                         |       |                                                                   |       |                                                                    |       |
| Loss from operations                                                   |       | (353,409                                     | )          | (3,289                                                                 | )          | (581,175                                                                | )          |
|                                                                   |       |                                         |       |                                                                   |       |                                                                    |       |
| Other income (expense)                                                 |       |                                         |       |                                                                   |       |                                                                    |       |
| Interest and dividend income                                           |       | 609,491                                      |       | 204                                                                    |       | 2,634,972                                                               |       |
| Interest expense                                                       |       | —                                       |       | (642                                                                   | )          | (2,211                                                                  | )          |
|                                                                   |       |                                         |       |                                                                   |       |                                                                    |       |
| Income before provision for income taxes                               |       | 256,082                                      |       | (3,727                                                                 | )          | 2,051,586                                                               |       |
|                                                                   |       |                                         |       |                                                                   |       |                                                                    |       |
| Provision for income taxes                                             |       | 79,517                                       |       | —                                                                 |       | 709,444                                                                 |       |
|                                                                   |       |                                         |       |                                                                   |       |                                                                    |       |
| Net income applicable to common  stockholders                          |       | $                                            | 176,565    |                                                                   | $          | (3,727                                                                  | )          | $ | 1,342,142 |   |
|                                                                   |       |                                         |       |                                                                   |       |                                                                    |       |
| Common shares outstanding subject to  possible redemption              |       | 2,587,499                                    |       | —                                                                 |       | 2,587,499                                                               |       |
|                                                                   |       |                                         |       |                                                                   |       |                                                                    |       |
| Net income per common share for shares  subject to possible redemption |       | $                                            | —     |                                                                   | $          | —                                                                  |       | $ | — |   |
|                                                                   |       |                                         |       |                                                                   |       |                                                                    |       |
| Weighted average number of common shares  outstanding:                 |       |                                         |       |                                                                   |       |                                                                    |       |
| Basic                                                                  |       | 10,500,000                                   |       | 1,875,000                                                              |       | 8,134,000                                                               |       |
| Diluted                                                                |       | 12,392,000                                   |       | 1,875,000                                                              |       | 9,936,000                                                               |       |
|                                                                   |       |                                         |       |                                                                   |       |                                                                    |       |
| Net income per common share:                                           |       |                                         |       |                                                                   |       |                                                                    |       |
| Basic                                                                  |       | $                                            | 0.02       |                                                                   | $          | (0.00                                                                   | )          | $ | 0.17 |   |
| Diluted                                                                |       | $                                            | 0.01       |                                                                   | $          | (0.00                                                                   | )          | $ | 0.14 |   |

 

See accompanying notes to interim financialstatements.

 

4

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**ARCADE ACQUISITION CORP.**

(a corporation in the development stage)

 

**STATEMENTOF STOCKHOLDERS’ EQUITY**

For the period January 30, 2007 (date of inception) to March 31,2008

 
|                                                                                                                                                                             |   | ** **        |   | ** **  |   |            |   | **Retained**           |   | ** **  |      |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|--------|-------------|--------|-----------------|--------|------------------------|--------|-------------|-----------|
|                                                                                                                                                                             |   | ** **        |   | ** **  |   |            |   | **Earnings**           |   | ** **  |      |
|                                                                                                                                                                             |   | ** **        |   | ** **  |   |            |   | **Accumulated**        |   | ** **  |      |
|                                                                                                                                                                             |   | ** **        |   | ** **  |   | **Additional**  |   | **During the**         |   | **Total**   |      |
|                                                                                                                                                                             |   | **Common  Stock** |   | **Paid in** |   | **Development** |   | **Stockholders’** |   |
|                                                                                                                                                                             |   | **Shares**        |   | **Amount**  |   | **Capital**     |   | **Stage**              |   | **Equity**  |      |
| Common shares issued to initial  stockholders on February 13, 2007 at $0.013 per share                                                                                      |   | 1,875,000         |   | $           | 188    |            | $      | 24,812                 |   | $           | —    |   | $ | 25,000 |   |
|                                                                                                                                                                             |   |              |   |        |   |            |   |                   |   |        |      |
| Proceeds from issuance of 2,000,000  warrants at $1 per warrant on May 23, 2007                                                                                             |   |              |   |        |   | 2,000,000       |   |                   |   | 2,000,000   |      |
|                                                                                                                                                                             |   |              |   |        |   |            |   |                   |   |        |      |
| Proceeds from issuance of an option to the  underwriters on May 25, 2007                                                                                                    |   |              |   |        |   | 100             |   |                   |   | 100         |      |
|                                                                                                                                                                             |   |              |   |        |   |            |   |                   |   |        |      |
| Sale of 7,500,000 units on May 25,  2007 at a price of $8 per unit, (including 2,249,999 shares subject to  possible redemption)                                            |   | 7,500,000         |   | 750         |   | 59,999,250      |   |                   |   | 60,000,000  |      |
|                                                                                                                                                                             |   |              |   |        |   |            |   |                   |   |        |      |
| Sale of 1,125,000 on June 7, 2007 at a  price of $8 per unit, (including 337,500 shares subject to possible  redemption)                                                    |   | 1,125,000         |   | 113         |   | 8,999,887       |   |                   |   | 9,000,000   |      |
|                                                                                                                                                                             |   |              |   |        |   |            |   |                   |   |        |      |
| Underwriters’s discount and offering costs  related to the May 25, 2007 and June 7, 2007 sale of units  (includes $1,690,500 payable upon a business combination) |   |              |   |        |   | (4,639,675      | )      |                   |   | (4,639,675  | )         |
|                                                                                                                                                                             |   |              |   |        |   |            |   |                   |   |        |      |
| Common stock issued in the sale of units on  May 25, 2007 and June 7, 2007 subject to possible redemption,  2,587,499 shares                                           |   |              |   |        |   | (20,350,492     | )      |                   |   | (20,350,492 | )         |
|                                                                                                                                                                             |   |              |   |        |   |            |   |                   |   |        |      |
| Net income                                                                                                                                                                       |   |              |   |        |   |            |   | 1,342,142              |   | 1,342,142   |      |
|                                                                                                                                                                             |   |              |   |        |   |            |   |                   |   |        |      |
| Balances, at March 31, 2008  (unaudited)                                                                                                                                    |   | 10,500,000        |   | $           | 1,051  |            | $      | 46,033,882             |   | $           | 1,342,142 |   | $ | 47,377,075 |   |

 

See accompanying notes to interim financialstatements.

 

5

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**ARCADE ACQUISITION CORP**

(a corporation in development stage)

 

**STATEMENTSOF CASH FLOWS**

 
| ** **                                                                               | ** ** | **Three Months  Ended March  31, 2008** | ** ** | **Period from  January 30, 2007  (date of inception)  to March 31, 2007** | ** ** | **Period from January  30, 2007 (inception)  to March 31, 2008** | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|-------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                                               | ** ** | **(unaudited)**                         | ** ** | **(unaudited)**                                                                     | ** ** | **(unaudited)**                                                       | ** ** |
| **Cash flows from operating activities**                                                 | ** ** | ** **                              | ** ** | ** **                                                                          | ** ** | ** **                                                            | ** ** |
| Net income                                                                               |       | $                                       | 176,565    |                                                                                | $          | (3,727                                                                | )          | $ | 1,342,142 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities        |       |                                    |       |                                                                                |       |                                                                  |       |
| Deferred tax benefit                                                                     |       | (131,177                                | )          | —                                                                              |       | (199,005                                                              | )          |
| Increase (decrease) in cash attributable to  changes in operating assets and liabilities |       |                                    |       |                                                                                |       |                                                                  |       |
| Prepaid expenses                                                                         |       | 15,402                                  |       | (10,000                                                                             | )          | (10,092                                                               | )          |
| Accrued expenses                                                                         |       | 206,771                                 |       | 151,842                                                                             |       | 259,631                                                               |       |
| Income taxes payable                                                                     |       | (37,891                                 | )          | —                                                                              |       | 179,864                                                               |       |
| **Net cash provided by operating activities**                                            |       | 229,670                                 |       | 138,115                                                                             |       | 1,572,540                                                             |       |
|                                                                                     |       |                                    |       |                                                                                |       |                                                                  |       |
| **Net cash used in investing activites**                                                 | ** ** | ** **                              | ** ** | ** **                                                                          | ** ** | ** **                                                            | ** ** |
| Investment in Trust Account                                                              |       | (74,110                                 | )          | —                                                                              |       | (68,005,880                                                           | )          |
|                                                                                     |       |                                    |       |                                                                                |       |                                                                  |       |
| **Cash provided by financing activities**                                                | ** ** | ** **                              | ** ** | ** **                                                                          | ** ** | ** **                                                            | ** ** |
| Proceeds from issuance of common stock to  initial stockholders                          |       | —                                  |       | 25,000                                                                              |       | 25,000                                                                |       |
| Proceeds from issuance of private placement  warrants                                    |       | —                                  |       | —                                                                              |       | 2,000,000                                                             |       |
| Proceeds from the public offering                                                        |       | —                                  |       | —                                                                              |       | 69,000,000                                                            |       |
| Proceeds from notes payable, stockholders                                                |       | —                                  |       | 150,000                                                                             |       | 225,000                                                               |       |
| Repayment of notes payable, stockholders                                                 |       | —                                  |       | —                                                                              |       | (225,000                                                              | )          |
| Payments of underwriters’ discount and  offering costs                              |       | —                                  |       | (310,262                                                                            | )          | (2,949,175                                                            | )          |
| Proceeds from issuance of option                                                         |       | —                                  |       | —                                                                              |       | 100                                                                   |       |
| **Net cash provided by financing activities**                                            |       | —                                  |       | (135,262                                                                            | )          | 68,075,925                                                            |       |
|                                                                                     |       |                                    |       |                                                                                |       |                                                                  |       |
| **Net increase in cash**                                                                 |       | 155,560                                 |       | 2,853                                                                               |       | 1,642,585                                                             |       |
|                                                                                     |       |                                    |       |                                                                                |       |                                                                  |       |
| **Cash****,**beginning of period                                                         |       | 1,487,025                               |       | —                                                                              |       | —                                                                |       |
| **Cash****,**end of period                                                               |       | $                                       | 1,642,585  |                                                                                | $          | 2,853                                                                 |       | $ | 1,642,585 |   |
|                                                                                     |       |                                    |       |                                                                                |       |                                                                  |       |
| **Supplemental cash flow information**                                                   | ** ** | ** **                              | ** ** | ** **                                                                          | ** ** | ** **                                                            | ** ** |
|                                                                                     |       |                                    |       |                                                                                |       |                                                                  |       |
| Cash paid for:                                                                           |       |                                    |       |                                                                                |       |                                                                  |       |
| Interest                                                                                 |       | $                                       | —     |                                                                                | $          | —                                                                |       | $ | 2,211 |   |
| Taxes                                                                                    |       | $                                       | 448,285    |                                                                                | $          | —                                                                |       | $ | 480,000 |   |
|                                                                                     |       |                                    |       |                                                                                |       |                                                                  |       |
| **Supplemental disclosure of non-cash  financing activity**                              | ** ** | ** **                              | ** ** | ** **                                                                          | ** ** | ** **                                                            | ** ** |
| ** **                                                                               | ** ** | ** **                              | ** ** | ** **                                                                          | ** ** | ** **                                                            | ** ** |
| Deferred underwriters’ fees                                                         |       | $                                       | —     |                                                                                | $          | —                                                                |       | $ | 1,690,500 |   |

 

See accompanying notes to interim financial statements.

 

6

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**ARCADEACQUISITION CORP.**

(a corporation in the development stage)

 

**Notes toInterim Financial Statements**

 

**NOTE A—BASIS OF PRESENTATION**

 

The accompanying unaudited condensed financial statements as of March 31,2008, and for the period January 30, 2007 (date of inception) to March 31,2008, have been prepared in accordance with accounting principles generallyaccepted in the United States of America for interim financial information andwith the instructions to Form 10-Q and Article 10 of Regulation S-X,and should be read in conjunction with the Company’s audited financialstatements and footnotes thereto for the period January 30, 2007 (date ofinception) to December 31, 2007 included in the Company’s Annual Report onForm 10-K filed with the SEC on March 5, 2008.  Accordingly, they do not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States of America (GAAP) for complete financial statements. Inthe opinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included.Operating results for the interim period presented are not necessarilyindicative of the results to be expected for any other interim period or forthe full year.

 

**NOTE B—DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS**

 

Arcade Acquisition Corp. (a corporation in thedevelopment stage) (the “Company”) was incorporated in Delaware on January 30,2007. The Company was formed to acquire, through a merger, asset acquisition,stock exchange or other similar business combination, an operating business (“BusinessCombination”). The Company is considered to be in the development stage asdefined in Statement of Financial Accounting Standards (“SFAS”) No. 7, “Accountingand Reporting By Development Stage Enterprises”, and is subject to the risksassociated with activities of development stage companies.

 

At March 31, 2008, the Company has not commencedoperations or generated any revenue.  All activity from inception through March 31,2008 relates to the Company’s formation, capital raising, the initial publicoffering described below, and activities associated with identifying a BusinessCombination.  The Company will not generate any operating revenues untilafter completion of the Business Combination, at the earliest.  TheCompany has selected December 31 as its fiscal year-end.

 

The registration statement for the Company’s initialpublic offering was declared effective on May 21, 2007.  The publicoffering was consummated on May 25, 2007 and the Company received grossproceeds of $60,000,000 from the sale of 7,500,000 units. Additionally, on June 7,2007, the Company received gross proceeds of $9,000,000 from the sale of1,125,000 units in conjunction with the exercise of the underwriters’over-allotment option (collectively, the “Public Offering”).  Precedingthe consummation of the Public Offering, on May 23, 2007, an affiliate ofthe Company’s officers purchased in a private placement from the Company (the “PrivatePlacement”) 2,000,000 warrants for aggregate proceeds of $2,000,000.

 

The Company’s management has broad discretion withrespect to the specific application of the net proceeds of the PrivatePlacement and the Public Offering although substantially all of the netproceeds of the Public Offering are intended to be generally applied towardconsummating a Business Combination. Furthermore, there is no assurance thatthe Company will be able to successfully effect a Business Combination. Uponthe closing of the Public Offering, an amount equal to approximately98.3% of the gross proceeds of the Public Offering (98.6% prior to theexercise of the underwriters’ over-allotment option) has been placed in a trustaccount (the “Trust Account”). The Trust Account is invested in U.S. “governmentsecurities,” defined as any Treasury Bill issued by the United Statesgovernment having a maturity of one hundred and eighty (180) days or less ormoney market funds meeting the conditions specified in Rule 2a-7 under theInvestment Company Act of 1940, until the earlier of (i) the consummationof a Business Combination or (ii) the distribution of the Trust Account asdescribed below. The remaining net proceeds, plus up to $2,000,000 of incomeearned on funds in the Trust Account, net of taxes, may be used to pay forbusiness, legal and accounting due diligence on prospective acquisitions andcontinuing general and administrative expenses.

 

7

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The Company, after signing a definitive agreement forthe acquisition of a target business, will submit such transaction forstockholder approval. In the event that 30% or more of the outstanding stock(excluding, for this purpose, those shares of common stock issued prior to thePublic Offering) vote against the Business Combination and elect to exercisetheir redemption rights, the Business Combination will not be consummated. Inthe event a Business Combination is consummated, public stockholders votingagainst a Business Combination will be entitled to redeem their stock for a prorata share of the aggregate amount of cash then on deposit in the TrustAccount, including their pro rata portion of the deferred underwriting discountand any interest earned on the Trust Account, net of income taxes payable onsuch interest income. However, voting against the Business Combination alonewill not constitute an election to exercise a stockholder’s redemption rights.All of the Company’s  stockholders prior to the Public Offering, includingall of the directors and officers of the Company, have agreed to vote all ofthe shares of common stock acquired by them prior to the Public Offering inaccordance with the vote of the majority in interest of all other stockholdersof the Company.

 

In the event that holders of more than 20% but lessthan 30% of the shares of common stock sold in the Public Offering elect toredeem their shares, the Company’s initial stockholders have agreed to forfeit,on a pro rata basis and return to the Company for cancellation, that number ofshares (up to a maximum of 234,375) that will result in them owningcollectively no more than 23.81% of the Company’s outstanding common stockimmediately prior to the consummation of such Business Combination after givingeffect to the redemption (without taking into account any shares that they mayhave acquired in the aftermarket). If any such shares are forfeited, thefinancial statements subsequent to such forfeiture would reflect a decrease intotal shares outstanding.

 

In the event that the Company does not consummate aBusiness Combination by May 21, 2009, the Company’s corporate existencewill cease and the proceeds held in the Trust Account will be distributed tothe Company’s public stockholders, excluding the initial stockholders to theextent of their initial stock holdings.

 

**NOTE C—SUMMARY OF SELECT SIGNIFICANT ACCOUNTING POLICIES**

 

Development stage company:

 

The Company complies with the reporting requirements of Statement ofFinancial Accounting Standards (“SFAS”) No. 7, “Accounting and Reportingby Development Stage Enterprises.”

 

Common stock:

 

On May 15, 2007, the Company effected a1.2-for-one stock split in the form of a stock dividend, which resulted in theissuance of an additional 312,500 shares to the Company’s initial stockholders. The Company’s financial statements give retroactive effect to the stock split.

 

Financial instruments:

 

The fair value of the Company’s assets andliabilities, which qualify as financial instruments under SFAS No. 107, “DisclosureAbout Fair Value of Financial Instruments,” approximates the carrying amountsrepresented in the accompanying balance sheet.

 

Investment in Trust Account:

 

Investment in Trust Account as of March 31, 2008consisted primarily of U.S. government securities with maturities of 180 daysor less and money market funds purchased without maturity.  The Companyrecognizes Investment in Trust Account as a non-current asset in theaccompanying balance sheets, and totaled $68,005,880 as of March 31, 2008.Interest income is recorded on an accrual basis.

 

Earnings per common share:

 

(a)  The Company complies with SFAS No. 128 “EarningsPer Share” which requires dual presentation of basic and diluted earnings pershare on the face of the statement of operations.  Basic earnings per common share is computedby dividing the net income applicable to common stockholders by the weightedaverage number of common shares outstanding for the period. Diluted income percommon share reflects the potential dilution assuming common shares were 

 

8

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issued upon the exercise of outstanding “in the money”warrants and the proceeds thereof were used to purchase common shares at theaverage market price during the period.

 

(b)  The Company’s statement of operationsincludes a presentation of earning per share for common stock subject topossible redemption in a manner similar to the two-class method of earnings pershare in accordance with Emerging Issues Task Force, Topic No. D-98 “Classificationand Measurement of Redeemable Securities” (“EITF D-98”). The basic and dilutednet income per common share amount for the maximum number of shares subject topossible redemption is calculated by dividing interest income attributable tocommon shares subject to redemption (nil for the three months ended March 31,2008 and for the period January 30, 2007 (date of inception) to March 31,2008) by the weighted average number of shares subject to possible redemption.The basic and diluted net income per common share amount for the sharesoutstanding not subject to possible redemption is calculated by dividing theincome exclusive of the net interest income attributable to common sharessubject to redemption by the weighted average number of shares not subject topossible redemption.

 

At March 31, 2008, the Company had outstandingwarrants to purchase 10,625,000 shares of common stock.

 

Redeemable common stock:

 

The Company accounts for redeemable common stock inaccordance with EITF D-98.  Securities that are redeemable for cash orother assets are classified outside of permanent equity if they are redeemableat the option of the holder. The Company recognizes changes in the redemptionvalue immediately as they occur and adjusts the carrying value of theredeemable common stock to equal its redemption value at the end of eachreporting period.

 

As discussed in Note B, if the Company does notconsummate a Business Combination by May 21, 2009, the Company’s corporateexistence will cease and in the event that 30% or more of the outstanding stock(excluding, for this purpose, those shares of common stock issued prior to thePublic Offering) vote against the Business Combination and elect to exercisetheir redemption rights, the Business Combination will not beconsummated.  In accordance with EITF D-98, redeemable shares are notclassified outside of permanent equity if the redemption causes a liquidationevent.  Accordingly, 2,587,499 shares (30% of the shares sold in thePublic Offering, minus 1 share) have been classified outside of permanentequity at redemption value. At March 31, 2008, the per share redemptionvalue was approximately $7.86.

 

Concentration of credit risk:

 

Financial instruments that potentially subject theCompany to concentrations of credit risk consist of cash accounts in afinancial institution, which at times may, exceed the Federal depositoryinsurance coverage. The Company has not experienced losses on these accountsand management believes the Company is not exposed to significant risks on suchaccounts.

 

Use of estimates:

 

The preparation of interim 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 and disclosure of contingentassets and liabilities at the date of the interim financial statements and thereported amounts of revenues and expenses during the reporting period. Actualresults could differ from those estimates.

 

Recently issued accounting standards:

 

In September 2006, the FASB issued SFAS No. 157, “Fair ValueMeasurements.” The objective of SFAS 157 is to increase consistency andcomparability in fair value measurements and to expand disclosures about fairvalue measurements.  SFAS 157 definesfair value, establishes a framework for measuring fair value in generallyaccepted accounting principles, and expands disclosures about fair valuemeasurements.  SFAS 157 applies underother accounting pronouncements that require or permit fair value measurementsand does not require any new fair value measurements. The provisions of SFAS No. 157are effective for fair value measurements made in fiscal years beginning after November 15,2007.

 

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in ConsolidatedFinancial Statements – an amendment of ARB No. 51.**SFAS 160 requires that ownershipinterests in subsidiaries held by parties other than the parent, and the amountof consolidated net income, be clearly identified, labeled and presented in theconsolidated financial

 

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statements. It also requires once a subsidiary is deconsolidated, anyretained noncontrolling equity investment in the former subsidiary be initiallymeasured at fair value. Sufficient disclosures are required to clearly identifyand distinguish between the interests of the parent and the interests of thenoncontrolling owners. It is effective for fiscal years beginning after December 15,2008, and requires retroactive adoption of the presentation and disclosurerequirements for existing minority interests. All other requirements areapplied prospectively.  Upon thesuccessful completion of a Business Combination, the Company will evaluate thepotential application of  SFAS 160.

 

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

 

Income taxes:

 

The Company complies with SFAS 109, “Accounting forIncome Taxes,” which requires an asset and liability approach to financial accountingand reporting for income taxes. Deferred income tax assets and liabilities arecomputed for differences between the financial statement and tax bases ofassets and liabilities that will result in future taxable or deductibleamounts, based on enacted tax laws and rates applicable to the periods in whichthe differences are expected to affect taxable income. Valuation allowances areestablished, when necessary, to reduce deferred tax assets to the amountexpected to be realized.

 

The Company also complies with Financial Accounting Standards Board (“FASB”)Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” aninterpretation of FASB Statement No. 109 (“FIN 48”), which providescriteria for the recognition, measurement, presentation, and disclosure ofuncertain tax positions. A tax benefit from an uncertain position may berecognized only if it is “more likely than not” that the position issustainable based on its technical merits.

 

**NOTE D—INITIAL PUBLIC OFFERING**

 

On May 25, 2007, the Company consummated the saleof 7,500,000 units (“Units”) at a price of $8.00 per Unit in the PublicOffering. On June 7, 2007, the underwriters exercised their over-allotmentoption and purchased an additional 1,125,000 Units at the offering price of $8.00per Unit.  Each Unit consists of one share of the Company’s common stock,$0.0001 par value, and one redeemable common stock purchase warrant (“Warrants”).Each Warrant entitles the holder to purchase from the Company one share ofcommon stock at an exercise price of $6.00 commencing on the later of (i) May 21,2008 or (ii) the completion of a Business Combination, and expires on May 21,2011. The Warrants are redeemable at a price of $0.01 per Warrant upon 30 days’prior notice after the Warrants become exercisable, only in the event that thelast sale price of the common stock is at least $11.50 per share for any 20trading days within a 30 trading day period ending on the third business dayprior to the date on which notice of redemption is given. If the Company isunable to deliver registered shares of common stock to the holder upon exerciseof Warrants during the exercise period, there will be no cash settlement of theWarrants and the Warrants will expire worthless.

 

**NOTE E—ACCRUED EXPENSES**

 

Accrued expenses at March 31, 2008 totaled $259,631.  These expenses related to due diligencecosts, franchise taxes, legal, accounting and printing costs, and trustee andtransfer agent fees.

 

**NOTE F—RELATED PARTY TRANSACTIONS**

 

On February 5, 2007 and April 4, 2007, theCompany issued two unsecured promissory notes to an affiliate of the Company’sofficers and directors, Arcade Partners, LLC, in the aggregate amount of$225,000. The notes, which bore interest at 4% per annum, were repaid on May 25,2007.

 

On February 13, 2007, the Company issued1,875,000 shares of common stock (the “Initial Shares”) for proceeds of $25,000to the officers and directors of the Company and an affiliate of the Company’sofficers and directors.

 

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The Company has a service agreement with ArcadePartners, LLC, an affiliate of the Company’s officers and directors, wherebythe Company pays a monthly service fee of $7,500. Such fee is to cover generaland administrative services provided by the affiliate, including office spaceand utilities.  For the three months ended March 31, 2008 and for theperiod January 20, 2007 (date of inception) to March 31, 2008,approximately $22,500 and $77,500, respectively, has been paid under this arrangement.

 

On May 23, 2007, Arcade Acquisition Investors,LLC, an affiliate of the Company’s officers and directors, purchased, in thePrivate Placement, 2,000,000 warrants at $1.00 per warrant (the “InsiderWarrants”). The aggregate proceeds of the Private Placement of $2,000,000 arebeing held in the Trust Account described in Note B. Arcade AcquisitionInvestors, LLC has agreed that it will not sell or otherwise transfer theInsider Warrants until after the Company consummates a Business Combinationother than to its members in proportion to their membership interests, whichmembers are subject to the same restriction on transferability, except incertain limited circumstances.

 

**NOTE G—COMMITMENTS AND CONTINGENCIES**

 

The Company paid an underwriting discount of 3.5% ofthe gross offering proceeds to the underwriters at the closing of the PublicOffering, with an additional fee of 3.5% of the gross offering proceeds payableupon the Company’s consummation of a Business Combination. The deferredunderwriting discount of $2,415,000 will be forfeited in its entirety in theevent there is no Business Combination, and $724,500 of the deferredunderwriting discount is subject to forfeiture on a pro rata basis to theextent of shares that are redeemed upon approval of a Business Combination. Theunderwriters will not be entitled to any interest accrued on the deferreddiscount.

 

The Company sold to the underwriters, for $100, anoption to purchase up to a total of 750,000 units at a per-unit price of $10.00that expires on May 21, 2012. The units issuable upon exercise of thisoption are identical to those sold in the Public Offering except that warrantsincluded in the option have an exercise price of $7.00. The Company hasaccounted for the fair value of the option, inclusive of the receipt of the$100 cash payment, as an expense of the Public Offering resulting in a chargedirectly to stockholder’s equity.

 

The Company determined, based upon a Black-Scholesmodel, that the fair value of the option on the date of sale was approximately$2.35 per unit, or approximately $1,760,000 in total, using an expectedlife of five years, volatility of 32.9% and a risk-free interest rate of 4.81%. The volatility calculation of 32.9% was basedon the most recent trading day average volatility of a representative sample of21 blank check companies that completed a business combination and had asufficient subsequent trading history (the “Sample Companies”). Because theCompany did not have a trading history, the Company needed to estimate thepotential volatility of its common stock price, which depends on a number offactors that could not be ascertained at that time. The Company referred to theaverage volatility of the Sample Companies because management believes that theaverage volatility of such companies is a reasonable benchmark to use inestimating the expected volatility of the Company’s common stock post-businesscombination. Although an expected life of five years was taken into account forpurposes of assigning a fair value to the option, if the Company does notconsummate a Business Combination within the prescribed time period andliquidates, the option would become worthless.

 

**NOTE H—INCOME TAXES**

 

For the three months ended March 31, 2008 and the period January 30,2007 (inception) to March 31, 2008, the components of the provision forincome taxes are as follows:

 

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| ** ** | ** ** | **For the three months** | ** ** | **For the period  January 30, 2007** | ** ** |
|------------|------------|--------------------------|------------|-------------------------------------------|------------|
| ** ** | ** ** | **ended**                | ** ** | **(inception) to**                        | ** ** |
| ** ** | ** ** | **March 31,  2008** | ** ** | **March 31,  2008**                  | ** ** |
|       |       |                     |       |                                      |       |
| Current:   |       |                     |       |                                      |       |
| Federal    |       | $                        | 197,000    |                                      | $          | 851,000 |   |
| State      |       | 14,000                   |       | 57,000                                    |       |
| Deferred:  |       |                     |       |                                      |       |
| Federal    |       | (131,000                 | )          | (199,000                                  | )          |
|       |       |                     |       |                                      |       |
|       |       | $                        | 80,000     |                                      | $          | 709,000 |   |

 

The Company has not begun its trade or business forU.S. tax purposes.  Accordingly, it could not yet recognize losses forstart-up expenditures. As a result, a deferred tax asset of approximately$199,000 and $131,000 at March 31, 2008 and December 31, 2007,respectively, was established for these start-up expenditures.

 

**NOTE I—PREFERRED STOCK**

 

The Company is authorized to issue 1,000,000 shares ofpreferred stock with such designations, voting and other rights and preferencesas may be determined from time to time by the Board of Directors.

 

**NOTE J—REGISTRATION RIGHTS**

 

The holders of the Initial Shares and the InsiderWarrants (and underlying securities), are entitled to certain registrationrights.  The holders of the majority of the Initial Shares will beentitled to make up to two demands that the Company register such securities atany time after their release from escrow.  The holders of a majorityof the Insider Warrants (or underlying securities) are entitled to one demandthat the Company register such securities at any time after the Companyconsummates a business combination.  In addition, such holders will havecertain “piggy-back” registration rights on registration statements filedsubsequent to the date on which such securities are released from escrow. Onthe date of the Public Offering, all of our initial stockholders placed theirInitial Shares and Insider Warrants into an escrow account maintained byContinental Stock Transfer & Trust Company, acting as escrowagent.  The Initial Shares will not be released from escrow until one yearafter the consummation of a Business Combination, or earlier if, following aBusiness Combination, we engage in a subsequent transaction resulting in ourstockholders having the right to exchange their shares for cash or othersecurities or if we liquidate and dissolve.  The Insider Warrants will notbe released from escrow until 30 days after the completion of a BusinessCombination.  The Company will bear the expenses incurred in connectionwith the filing of any such registration statements.

 

**NOTE K—FAIR VALUE MEASUREMENTS**

 

Effective January 1, 2008, the Company implemented SFAS No. 157,Fair Value Measurement (“SFAS157”), for its financial assets and liabilities that are re-measured andreported at fair value at each reporting period, and non-financial assets andliabilities that are re-measured and reported at fair value at least annually.In accordance with the provisions of FSP No. FAS 157-2, Effective Date of FASB Statement No. 157*,*the Company has elected to deferimplementation of SFAS 157 as it relates to its non-financial assets and non-financial liabilities that are recognized anddisclosed at fair value in the financial statements on a nonrecurring basisuntil January 1, 2009. The Company is evaluating the impact, if any, thisstandard will have on its non-financial assets and its non-financialliabilities.

 

The adoption of SFAS 157 to the Company’s financial assets andliabilities and non-financial assets and liabilities that are re-measured and reported at fair value at least annually did not have an impacton the Company’s financial results.

 

The following table presents information about the Company’s assets andliabilities that are measured at fair value on a recurring basis as of March 31,2008, and indicates the fair value hierarchy of the valuation techniques theCompany utilized to determine such fair value. In general, fair valuesdetermined by Level 1 inputs utilize quoted prices (unadjusted) 

 

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inactive markets for identical assets or liabilities. Fair values determined by Level2 inputs utilize data points that are observable such as quoted prices,interest rates and yield curves. Fair values determined by Level 3 inputs areunobservable data points for the asset or liability, and includes situationswhere there is little, if any, market activity for the asset or liability:

 
| **Description**              | ** ** | **March 31,  2008** | ** ** | **Quoted Prices in  Active Markets  (Level 1)** | ** ** | **Significant Other  Observable  Input (Level 2)** | ** ** | **Significant  Unobservable  Inputs (Level 3)** | ** ** |
|------------------------------|------------|--------------------------|------------|-------------------------------------------------|------------|----------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                   | ** ** | ** **               | ** ** | ** **                                      | ** ** | ** **                                         | ** ** | ** **                                      | ** ** |
| Assets:                      |       |                     |       |                                            |       |                                               |       |                                            |       |
|                         |       |                     |       |                                            |       |                                               |       |                                            |       |
| Investment  in Trust Account |       | 68,005,880               |       | 68,005,880                                      |       | —                                             |       | —                                          |       |
|                         |       |                     |       |                                            |       |                                               |       |                                            |       |
| Total                        |       | $                        | 68,005,880 |                                            | $          | 68,005,880                                         |       | $                                               | —     |   | $ | — |   |
|                              |            |                          |            |                                                 |            |                                                    |            |                                                 |            |  |  |  |  |

 

The fair values of the Company’s Investment in TrustAccount are determined through market, observable and corroborated sources.

 

The carrying amounts reflected in the balance sheetsfor other current assets and accrued expenses approximate fair value due totheir short-term maturities.

 

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Item 2**-MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

 

**Forward Looking Statements**

 

This Quarterly Report on Form 10-Q includes forward-lookingstatements within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended.  We have based these forward-looking statements on our currentexpectations and projections about future events. These forward-lookingstatements are subject to known and unknown risks, uncertainties andassumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from anyfuture results, levels of activity, performance or achievements expressed orimplied by such forward-looking statements.  In some cases, you canidentify forward-looking statements by terminology such as “may,” “should,” “could,”“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” orthe negative of such terms or other similar expressions.  Factors thatmight cause or contribute to such a discrepancy include, but are not limitedto, those described in our other Securities and Exchange Commission filings.The following discussion should be read in conjunction with our FinancialStatements and related Notes thereto included elsewhere in this report.

 

**Overview**

 

We were formed on January 30, 2007 to serve as a vehicle to effecta merger, capital stock exchange, asset acquisition or other similar businesscombination with an operating business.  Our initial business combinationmust be with a target business or businesses whose fair market value is atleast equal to 80% of our net assets at the time of such acquisition. Since our offering, we have been actively searching for a suitable businesscombination candidate. We currently have not entered into any definitiveagreement with any potential target businesses. We are not presently engagedin, and will not engage in, any substantive commercial business until weconsummate an initial transaction. We intend to utilize cash derived from theproceeds of our recently completed private placement and public offering, ourcapital stock, debt or a combination of cash, capital stock and debt, ineffecting a business combination.

 

We cannot assure investors that we will effect a suitable businesscombination in the allotted time.

 

**Liquidity and Capital Resources**

 

On May 25, 2007, we consummated our public offering of 7,500,000units.  Each unit consists of one share of common stock and one redeemablecommon stock purchase warrant.  Immediately prior to the consummation ofour public offering, we sold 2,000,000 warrants to an affiliate of our officersand directors for $1.00 per warrant.  Each warrant entitles the holder topurchase from us one share of our common stock at an exercise price of$6.00.  On June 7, 2007, the underwriters exercised theirover-allotment option and purchased an additional 1,125,000 Units.  Ourcommon stock and warrants started trading separately as of June 14, 2007.

 

The net proceeds from the sale of our units (including the underwriters’over-allotment option) and the insider warrants, after deducting certainoffering expenses of approximately $2,949,000, including underwriting discountsof approximately $2,415,000, were approximately $68,051,000. Of this amount,$67,835,000 was placed in the trust account and the remaining proceeds arebeing held outside of the trust account. The remaining proceeds, along with upto $2,000,000 in interest earned on the funds in the trust account, net oftaxes, are available to be used by us to provide for business, legal andaccounting due diligence on prospective acquisitions and continuing general andadministrative expenses. We will use substantially all of the net proceeds ofthe offering to acquire a target business, including identifying and evaluatingprospective acquisition candidates, selecting the target business, andstructuring, negotiating and consummating a business combination. To the extentthat our capital stock is used in whole or in part as consideration to effect abusiness combination, the proceeds held in the trust account, as well as anyother net proceeds not expended, will be used to finance the operations of thetarget business. Including the $2,000,000 in interest available to us, webelieve we will have sufficient available funds outside of the trust account tooperate through May 21, 2009, assuming that a business combination is notconsummated during that time.

 

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From now until the earlier of May 21, 2009 or the date when wecomplete a business combination, we currently anticipate incurring expenses forthe following purposes:

 

·                  legal, accounting and other expensesattendant to due diligence investigations, structuring and negotiation of abusiness combination;

 

·                  due diligence of prospective targetbusinesses;

 

·                  legal and accounting fees relating to ourSecurities and Exchange Commission reporting obligations and general corporatematters;

 

·                  administrative fees (up to $7,500 per month);

 

·                  working capital, director and officerliability insurance premiums and reserves (including potential deposits, downpayments or funding of a “no-shop” provision in connection with a particularbusiness combination and dissolution obligations and reserves, if any).

 

We may use all or substantially all of the proceeds held in trust otherthan the deferred portion of the underwriter’s fee to acquire one or moretarget businesses.  We may not use all of the proceeds held in the trustaccount in connection with a business combination, either because theconsideration for the business combination is less than the proceeds in trustor because we finance a portion of the consideration with capital stock or debtsecurities that we can issue. In that event, the proceeds held in the trustaccount as well as any other net proceeds not expended will be used to financethe operations of the target business or businesses.  The operatingbusinesses that we acquire in such business combination must have, individuallyor collectively, a fair market value equal to at least 80% of our net assets atthe time of such acquisition.  If we consummate multiple business combinationsthat collectively have a fair market value of 80% of our net assets, then wewould require that such transactions are consummated simultaneously.

 

If we are unable to find a suitable target business by May 21,2009, we will be forced to liquidate. If we are forced to liquidate, the pershare liquidation amount may be less than the initial per unit offering pricebecause of the underwriting commissions and expenses related to our offeringand because of the value of the warrants in the per unit offering price.Additionally, if third parties make claims against us, the offering proceedsheld in the trust account could be subject to those claims, resulting in afurther reduction to the per share liquidation price. Under Delaware law, ourstockholders who have received distributions from us may be heldliable for claims by third parties to the extent such claims are not beenpaid by us. Furthermore, our warrants will expire worthless if we liquidatebefore the completion of a business combination.

 

**Results of Operations for the period January 30,2007 (date of inception) to March 31, 2008, and for the three months endedMarch 31, 2008**

 

For the period from January 30, 2007 (date of inception) through March 31,2008, we had net income of $1,342,142, derived from interest and dividendincome less formation and operating expenses.

 

For the quarter ended March 31, 2008, we had net income of$176,565, derived from interest and dividend income less formation andoperating expenses.

 

Commencing on May 21, 2007 and ending upon the acquisition of atarget business, we began incurring a fee of $7,500 per month for office spaceand certain other additional services from Arcade Partners, LLC, an affiliateof our executive officers and directors.  In addition, on February 5,2007 and April 4, 2007, pursuant to two promissory notes, we borrowed anaggregate amount of $225,000 from Arcade Partners, LLC. The notes, which boreinterest at 4% per annum, were repaid on May 25, 2007.

 

**Off Balance-Sheet Arrangements**

 

Warrants issued in conjunction with our initial public offering areequity-linked derivatives and, accordingly, represent off-balance sheetarrangements.  The Warrants meet the scope exception in paragraph 11(a) inSFAS No. 133 “Accounting for Derivative Instruments and HedgingActivities” and, accordingly, are not accounted for as equity.

 

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**Contractual Obligations**

 

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

 

Item 3**.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-drivenrates or prices. We are not presently engaged in and, if a suitable businesstarget is not identified by us prior to the prescribed liquidation date of theTrust Account, we may not engage in, any substantive commercial business.Accordingly, we are not and, until such time as we consummate a BusinessCombination, we will not be, exposed to risks associated with foreign exchangerates, commodity prices, equity prices or other market-driven rates or prices.The net proceeds of the Offering held in the Trust Account have been investedonly in money market funds meeting certain conditions under Rule 2a-7promulgated under the Investment Company Act of 1940. Given our limited risk inour exposure to money market funds, we do not view the interest rate risk to besignificant.

 

Item 4.**CONTROLSAND PROCEDURES**

 

An evaluation of the effectiveness of our disclosure controls andprocedures as of March 31, 2008 was made under the supervision and withthe participation of our management, including our chief executive officer andour principal financial officer. Based on that evaluation, management concludedthat our disclosure controls and procedures are effective as of the end of theperiod covered by this report to ensure that information required to bedisclosed by us in reports that we file or submit under the Securities ExchangeAct of 1934 is recorded, processed, summarized and reported within the timeperiods specified in Securities and Exchange Commission rules and forms.

 

During the most recently completed fiscal quarter, there has been nosignificant change in our internal control over financial reporting that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

Thisquarterly report does not include a report of management’s assessment regardinginternal control over financial reporting or an attestation report of ourregistered public accounting firm due to a transition period established by therules of the Securities and Exchange Commission for newly publiccompanies.

 

Pursuantto Section 404 of the Sarbanes-Oxley Act of 2002 (the Act), beginning withour Annual Report on Form 10-K for the fiscal year ending December 31,2008, we will be required to furnish a report by our management on our internalcontrol over financial reporting. This report will contain, among othermatters, an assessment of the effectiveness of our internal control overfinancial reporting as of the end of our fiscal year, including a statement asto whether or not our internal control over financial reporting is effective.This assessment must include disclosure of any material weaknesses in ourinternal control over financial reporting identified by management. If weidentify one or more material weaknesses in our internal control over financialreporting, we will be unable to assert our internal control over financialreporting is effective. This report will also contain a statement that ourindependent registered public accountants have issued an attestation report onmanagement’s assessment of such internal controls and conclusion on theoperating effectiveness of those controls.

 

Management acknowledges its responsibility for internal controls overfinancial reporting and seeks to continually improve those controls. In orderto achieve compliance with Section 404 of the Act within the prescribedperiod, we are currently performing the system and process documentation andevaluation needed to comply with Section 404, which is both costly andchallenging. We believe our process, which began in 2007 and continues in 2008for documenting, evaluating and monitoring our internal control over financialreporting is consistent with the objectives of Section 404 of the Act.

 

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**PART II- OTHER INFORMATION**

 

Item 1.**LEGALPROCEEDINGS**

 

None.

 

Item 1A.** RISKFACTORS**

 

We are not required to respond to this item because weare a smaller reporting company.

 

Item 2.**UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

**RecentSales of Unregistered Securities**

 

Wedid not engage in the sale of any unregistered securities during the threemonths ended March 31, 2008.

 

**Use ofProceeds**

 

For information regarding our use ofthe proceeds from our initial public offering, see “Item 2. Management’sDiscussion and Analysis of Financial Condition and Results of Operations” in Part Iof this report.

 

**Repurchasesof Equity Securities**

 

None

 

Item 3.**DEFAULTSUPON SENIOR SECURITIES**

 

None

 

Item 4.**SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

None

 

Item 5**. OTHERINFORMATION**

 

None

 

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Item 6**.  EXHIBITS**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                           |
| 31.1                 |       | Certification  of the Chief Executive Officer (Principal Executive Officer) pursuant to  Rule 13a-14(a) of the Securities Exchange Act, as amended.                                                                                  |
|                 |       |                                                                                                                                                                                                                                           |
| 31.2                 |       | Certification  of the Chief Financial Officer and (Principal Financial Officer) pursuant to  Rule 13a-14(a) of the Securities Exchange Act, as amended.                                                                              |
|                 |       |                                                                                                                                                                                                                                           |
| 32.1                 |       | Certification  of the Chief Executive Officer (Principal Executive Officer) and Chief  Financial Officer (Principal Financial Officer) pursuant to 18 U.S.C. 1350,  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

 

**SIGNATURES**

 

In accordance with the requirements of the Exchange Act, the registrantcaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 

 
|               | ARCADE  ACQUISITION CORP. |
|--------------------|---------------------------|
|               |                      |
| May 14,  2008 | By:                       | /s/   Jonathan Furer |
|               |                      | Jonathan  Furer |
|               |                      | Chief  Executive Officer |

 

18

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