Table of Contents

 

 

 

**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 September 30, 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                                .** |

 

**Commission File Number: 000-51444**

 

**Arcade Acquisition Corp.**

(Exact name of registrant as specified in its charter)

 

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

 

**62 La Salle Road, Suite 304**

**West Hartford, CT 06107**

(Address of Principal Executive Offices including zip code)

 

**(860) 236-6320**

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Exchange Act during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

Yes x   No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2of the Exchange Act. (Check one):

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

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes x   No o

 

There were 10,500,000shares of the Registrant’s Common Stock issued and outstanding on November 12,2008.

 

 

 

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Table of Contents

 

**Arcade Acquisition Corp.**

**(a corporation in the developmentstage)**

 

**Index toForm 10-Q**

 
| ** **        | ** **                                                                                          | **Page**   |
|-------------------|-----------------------------------------------------------------------------------------------------|------------|
| **Part I.**  | **Financial Information**                                                                           | 3          |
| ** **        | ** **                                                                                          | ** ** |
|              | Item  1. Condensed Consolidated Financial Statements                                                | 3          |
|              |                                                                                                |       |
|              | Balance  Sheets                                                                                     | 3          |
|              |                                                                                                |       |
|              | Statements  of Operations                                                                           | 4          |
|              |                                                                                                |       |
|              | Statements  of Changes in 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                                 | 17         |
|              |                                                                                                |       |
|              | Item 4. Controls and Procedures                                                                     | 17         |
|              |                                                                                                |       |
| **Part II.** | **Other Information**                                                                               | 18         |
| ** **        | ** **                                                                                          | ** ** |
|              | Item  1. Legal Proceedings                                                                          | 18         |
|              |                                                                                                |       |
|              | Item 2. Unregistered Sales of Equity Securities and  Use of Proceeds                                | 18         |
|              |                                                                                                |       |
|              | Item 3. Defaults Upon Senior Securities                                                             | 18         |
|              |                                                                                                |       |
|              | Item 4. Submission of Matters to a Vote of Security  Holders                                        | 18         |
|              |                                                                                                |       |
|              | Item  5. Other Information                                                                          | 18         |
|              |                                                                                                |       |
|              | Item 6.  Exhibits                                                                                   | 18         |
|              |                                                                                                |       |
| SIGNATURES        | 19                                                                                                  |

 

2

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Table of Contents

 

**PART I - FINANCIAL INFORMATION**

 

Item1.**  CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

** **

**ARCADEACQUISITION CORP.**

(a corporation inthe development stage)

** **

**CONDENSED CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                                                           | ** ** | **September  30, 2008** | ** ** | **December  31, 2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                                                                                           | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| **ASSETS**                                                                                                                                                           | ** ** | ** **              | ** ** | ** **             | ** ** |
|                                                                                                                                                                 |       |                    |       |                   |       |
| **Current assets**                                                                                                                                                   |       |                    |       |                   |       |
| Cash                                                                                                                                                                 |       | $                       | 713,393    |                   | $          | 1,487,025 |   |
| Prepaid expense                                                                                                                                                      |       | 21,209                  |       | 25,494                 |       |
|                                                                                                                                                                 |       |                    |       |                   |       |
| Total current assets                                                                                                                                                 |       | 734,602                 |       | 1,512,519              |       |
|                                                                                                                                                                 |       |                    |       |                   |       |
| **Other assets**                                                                                                                                                     |       |                    |       |                   |       |
| Investment in Trust Account                                                                                                                                          |       | 67,993,024              |       | 67,931,770             |       |
| Deferred income tax asset                                                                                                                                            |       | 780,584                 |       | 67,828                 |       |
|                                                                                                                                                                 |       |                    |       |                   |       |
| Total other assets                                                                                                                                                   |       | 68,773,608              |       | 67,999,598             |       |
|                                                                                                                                                                 |       |                    |       |                   |       |
|                                                                                                                                                                 |       | $                       | 69,508,210 |                   | $          | 69,512,117 |   |
| ** **                                                                                                                                                           |       |                    |       |                   |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                       |       |                    |       |                   |       |
|                                                                                                                                                                 |       |                    |       |                   |       |
| **Current liabilities**                                                                                                                                              |       |                    |       |                   |       |
| Accrued expenses                                                                                                                                                     |       | $                       | 540,679    |                   | $          | 52,860 |   |
| Income taxes payable                                                                                                                                                 |       | —                  |       | 217,755                |       |
|                                                                                                                                                                 |       |                    |       |                   |       |
| Total current liabilities                                                                                                                                            |       | 540,679                 |       | 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, approximately $7.88 and 7.86, respectively                                             |       | 20,389,492              |       | 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                                                                                                                                           |       | 45,994,882              |       | 46,033,882             |       |
| Retained earnings accumulated during the development stage                                                                                                           |       | 891,606                 |       | 1,165,577              |       |
|                                                                                                                                                                 |       |                    |       |                   |       |
| Total stockholders’ equity                                                                                                                                      |       | 46,887,539              |       | 47,200,510             |       |
|                                                                                                                                                                 |       | $                       | 69,508,210 |                   | $          | 69,512,117 |   |

 

See accompanying notes to interim condensed consolidated financialstatements.

 

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Table of Contents

 

**ARCADEACQUISITION CORP.**

(a corporation in thedevelopment stage)

 

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 
| ** **                                                                                                               | ** ** | **Three Months  Ended September  30, 2008** | ** ** | **Three Months  Ended September  30, 2007** | ** ** | **Nine Months  Ended September  30, 2008** | ** ** | **January 30, 2007  (date of inception)  to September 30,  2007** | ** ** | **January 30, 2007  (date of inception)  to September 30,  2008** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                               | ** ** | **(unaudited)**                                            | ** ** | **(unaudited)**                                            | ** ** | **(unaudited)**                                           | ** ** | **(unaudited)**                                                                                 | ** ** | **(unaudited)**                                                                                 | ** ** |
| ** **                                                                                                               | ** ** | ** **                                                 | ** ** | ** **                                                 | ** ** | ** **                                                | ** ** | ** **                                                                                      | ** ** | ** **                                                                                      | ** ** |
| Revenue                                                                                                                  |       | $                                                          | —     |                                                       | $          | —                                                    |       | $                                                                                               | —     |                                                                                            | $          | — |   | $ | — |   |
|                                                                                                                     |       |                                                       |       |                                                       |       |                                                      |       |                                                                                            |       |                                                                                            |       |
| Formation and operating costs                                                                                            |       | 845,603                                                    |       | 102,735                                                    |       | 1,879,800                                                 |       | 126,920                                                                                         |       | 2,107,567                                                                                       |       |
|                                                                                                                     |       |                                                       |       |                                                       |       |                                                      |       |                                                                                            |       |                                                                                            |       |
| Loss from operations                                                                                                     |       | (845,603                                                   | )          | (102,735                                                   | )          | (1,879,800                                                | )          | (126,920                                                                                        | )          | (2,107,567                                                                                      | )          |
|                                                                                                                     |       |                                                       |       |                                                       |       |                                                      |       |                                                                                            |       |                                                                                            |       |
| Other income (expense)                                                                                                   |       |                                                       |       |                                                       |       |                                                      |       |                                                                                            |       |                                                                                            |       |
| Interest and dividend income                                                                                             |       | 351,463                                                    |       | 860,652                                                    |       | 1,355,747                                                 |       | 1,215,095                                                                                       |       | 3,381,229                                                                                       |       |
| Interest expense                                                                                                         |       | —                                                     |       | —                                                     |       | —                                                    |       | (2,211                                                                                          | )          | (2,211                                                                                          | )          |
|                                                                                                                     |       |                                                       |       |                                                       |       |                                                      |       |                                                                                            |       |                                                                                            |       |
| Income (loss) before provision for (benefit from) income taxes                                                           |       | (494,140                                                   | )          | 757,917                                                    |       | (524,053                                                  | )          | 1,085,964                                                                                       |       | 1,271,451                                                                                       |       |
|                                                                                                                     |       |                                                       |       |                                                       |       |                                                      |       |                                                                                            |       |                                                                                            |       |
| Provision for (benefit from) income taxes                                                                                |       | (204,570                                                   | )          | 267,367                                                    |       | (250,082                                                  | )          | 391,240                                                                                         |       | 379,845                                                                                         |       |
|                                                                                                                     |       |                                                       |       |                                                       |       |                                                      |       |                                                                                            |       |                                                                                            |       |
| Net income (loss) for the period                                                                                         |       | (289,570                                                   | )          | 490,550                                                    |       | (273,971                                                  | )          | 694,724                                                                                         |       | 891,606                                                                                         |       |
|                                                                                                                     |       |                                                       |       |                                                       |       |                                                      |       |                                                                                            |       |                                                                                            |       |
| Interest and dividend income earned from the Trust Account, attributable  to common stock subject to possible redemption |       | (47,407                                                    | )          | —                                                     |       | (47,407                                                   | )          | —                                                                                          |       | (47,407                                                                                         | )          |
|                                                                                                                     |       |                                                       |       |                                                       |       |                                                      |       |                                                                                            |       |                                                                                            |       |
| Net income (loss) applicable to common stockholders                                                                      |       | $                                                          | (336,977   | )                                                          | $          | 490,550                                                   |       | $                                                                                               | (321,378   | )                                                                                               | $          | 694,724 |   | $ | 844,203 |   |
|                                                                                                                     |       |                                                       |       |                                                       |       |                                                      |       |                                                                                            |       |                                                                                            |       |
| Weighted average common shares outstanding subject to possible  redemption                                               |       | 2,587,499                                                  |       | 2,587,499                                                  |       | 2,587,499                                                 |       | 1,344,907                                                                                       |       | 2,091,686                                                                                       |       |
|                                                                                                                     |       |                                                       |       |                                                       |       |                                                      |       |                                                                                            |       |                                                                                            |       |
| Net income (loss) per common share for shares subject to possible  redemption                                            |       | $                                                          | 0.02       |                                                       | $          | —                                                    |       | $                                                                                               | 0.02       |                                                                                            | $          | — |   | $ | 0.02 |   |
|                                                                                                                     |       |                                                       |       |                                                       |       |                                                      |       |                                                                                            |       |                                                                                            |       |
| Weighted average number of common shares outstanding, excluding shares  subject to possible redemption:                  |       |                                                       |       |                                                       |       |                                                      |       |                                                                                            |       |                                                                                            |       |
| Basic                                                                                                                    |       | 7,912,501                                                  |       | 7,912,501                                                  |       | 7,912,501                                                 |       | 5,013,118                                                                                       |       | 6,749,257                                                                                       |       |
| Diluted                                                                                                                  |       | 7,912,501                                                  |       | 9,852,215                                                  |       | 7,912,501                                                 |       | 6,026,878                                                                                       |       | 8,632,704                                                                                       |       |
|                                                                                                                     |       |                                                       |       |                                                       |       |                                                      |       |                                                                                            |       |                                                                                            |       |
| Net income (loss) per common share:                                                                                      |       |                                                       |       |                                                       |       |                                                      |       |                                                                                            |       |                                                                                            |       |
| Basic                                                                                                                    |       | $                                                          | (0.04      | )                                                          | $          | 0.06                                                      |       | $                                                                                               | (0.04      | )                                                                                               | $          | 0.14 |   | $ | 0.13 |   |
| Diluted                                                                                                                  |       | $                                                          | (0.04      | )                                                          | $          | 0.05                                                      |       | $                                                                                               | (0.04      | )                                                                                               | $          | 0.12 |   | $ | 0.10 |   |

 

See accompanying notes to interim condensed consolidated financialstatements.

 

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**ARCADEACQUISITION CORP.**

(a corporation inthe development stage)

 

**CONDENSED CONSOLIDATED STATEMENTS OFCHANGES IN STOCKHOLDERS’ EQUITY**

For the period January 30,2007 (date of inception) to September 30, 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 in a private placement                                                                      |       |                  |       |             |       | 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 for the period                                                                                                                                                        |       |                  |       |             |       |            |       | 1,165,577              |       | 1,165,577   |       |
|                                                                                                                                                                             |       |                  |       |             |       |            |       |                   |       |        |       |
| Balances, at December 31, 2007                                                                                                                                              |       | 10,500,000            |       | 1,051            |       | 46,033,882      |       | 1,165,577              |       | 47,200,510  |       |
|                                                                                                                                                                             |       |                  |       |             |       |            |       |                   |       |        |       |
| Accretion of common stock subject to redemption, attributable to  interest and dividend income earned in Trust Account                                                           |       |                  |       |             |       | (39,000         | )          |                   |       | (39,000     | )          |
|                                                                                                                                                                             |       |                  |       |             |       |            |       |                   |       |        |       |
| Net loss for the period (unaudited)                                                                                                                                              |       |                  |       |             |       |            |       | (273,971               | )          | (273,971    | )          |
|                                                                                                                                                                             |       |                  |       |             |       |            |       |                   |       |        |       |
| Balances, at September 30, 2008 (unaudited)                                                                                                                                 |       | 10,500,000            |       | $                | 1,051      |            | $          | 45,994,882             |       | $           | 891,606    |   | $ | 46,887,539 |   |

 

See accompanying notes to interim condensed consolidated financialstatements.

 

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**ARCADEACQUISITION CORP**

(a corporation indevelopment stage)

 

**CONDENSED CONSOLIDATED STATEMENTS OFCASH FLOWS**

 
| ** **                                                                                         | ** ** | **Nine Months  Ended  September 30,  2008** | ** ** | **Period from  January 30, 2007  (date of inception) to  September 30, 2007** | ** ** | **Period from January  30, 2007 (inception)  to September 30,  2008** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                         | ** ** | **(unaudited)**                                       | ** ** | **(unaudited)**                                                                                                       | ** ** | **(unaudited)**                                                                                     | ** ** |
| **Cash flows from operating activities**                                                           |       |                                                  |       |                                                                                                                  |       |                                                                                                |       |
| Net income (loss)                                                                                  |       | $                                                     | (273,971   | )                                                                                                                     | $          | 694,724                                                                                             |       | $ | 891,606 |   |
|                                                                                               |       |                                                  |       |                                                                                                                  |       |                                                                                                |       |   |   |   |
| Adjustments to reconcile net income (loss) to net cash provided by  (used in) operating activities |       |                                                  |       |                                                                                                                  |       |                                                                                                |       |
| Deferred tax benefit                                                                               |       | (712,756                                              | )          | (38,000                                                                                                               | )          | (780,584                                                                                            | )          |
| Increase (decrease) in cash attributable to changes in operating  assets and liabilities           |       |                                                  |       |                                                                                                                  |       |                                                                                                |       |
| Prepaid expenses                                                                                   |       | 4,285                                                 |       | (39,362                                                                                                               | )          | (21,209                                                                                             | )          |
| Accrued expenses                                                                                   |       | 487,819                                               |       | 32,304                                                                                                                |       | 540,681                                                                                             |       |
| Income taxes payable                                                                               |       | (217,755                                              | )          | 394,240                                                                                                               |       | —                                                                                              |       |
| **Net cash provided by (used in) operating  activities**                                           |       | (712,378                                              | )          | 1,043,906                                                                                                             |       | 630,494                                                                                             |       |
|                                                                                               |       |                                                  |       |                                                                                                                  |       |                                                                                                |       |
| **Net cash used in investing activites**                                                           |       |                                                  |       |                                                                                                                  |       |                                                                                                |       |
| Change in Investment in Trust Account                                                              |       | (61,254                                               | )          | (68,080,540                                                                                                           | )          | (67,993,024                                                                                         | )          |
|                                                                                               |       |                                                  |       |                                                                                                                  |       |                                                                                                |       |
| **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                                                                                                             |       | 2,000,000                                                                                           |       |
| Proceeds from the public offering                                                                  |       | —                                                |       | 69,000,000                                                                                                            |       | 69,000,000                                                                                          |       |
| Proceeds from notes payable, stockholders                                                          |       | —                                                |       | 225,000                                                                                                               |       | 225,000                                                                                             |       |
| Repayment of notes payable, stockholders                                                           |       | —                                                |       | (225,000                                                                                                              | )          | (225,000                                                                                            | )          |
| Payments of underwriters’ discount and offering costs                                         |       | —                                                |       | (2,949,177                                                                                                            | )          | (2,949,177                                                                                          | )          |
| Proceeds from issuance of option                                                                   |       | —                                                |       | 100                                                                                                                   |       | 100                                                                                                 |       |
| **Net cash provided by financing activities**                                                      |       | —                                                |       | 68,075,923                                                                                                            |       | 68,075,923                                                                                          |       |
|                                                                                               |       |                                                  |       |                                                                                                                  |       |                                                                                                |       |
| **Net increase (decrease) in cash**                                                                |       | (773,632                                              | )          | 1,039,289                                                                                                             |       | 713,393                                                                                             |       |
|                                                                                               |       |                                                  |       |                                                                                                                  |       |                                                                                                |       |
| **Cash****,** beginning of  period                                                                 |       | 1,487,025                                             |       | —                                                                                                                |       | —                                                                                              |       |
| **Cash****,**end of period                                                                         |       | $                                                     | 713,393    |                                                                                                                  | $          | 1,039,289                                                                                           |       | $ | 713,393 |   |
|                                                                                               |       |                                                  |       |                                                                                                                  |       |                                                                                                |       |
| **Supplemental cash flow information**                                                             |       |                                                  |       |                                                                                                                  |       |                                                                                                |       |
|                                                                                               |       |                                                  |       |                                                                                                                  |       |                                                                                                |       |
| Cash paid for:                                                                                     |       |                                                  |       |                                                                                                                  |       |                                                                                                |       |
| Interest                                                                                           |       | $                                                     | —     |                                                                                                                  | $          | 2,211                                                                                               |       | $ | 2,211 |   |
| Income taxes                                                                                       |       | $                                                     | 696,285    |                                                                                                                  | $          | 35,000                                                                                              |       | $ | 1,176,285 |   |
|                                                                                               |       |                                                  |       |                                                                                                                  |       |                                                                                                |       |
| **Supplemental disclosure of non-cash financing  activity**                                        |       |                                                  |       |                                                                                                                  |       |                                                                                                |       |
|                                                                                               |       |                                                  |       |                                                                                                                  |       |                                                                                                |       |
| Deferred underwriters’ fees                                                                   |       | $                                                     | —     |                                                                                                                  | $          | 1,690,500                                                                                           |       | $ | 1,690,500 |   |
|                                                                                               |       |                                                  |       |                                                                                                                  |       |                                                                                                |       |
| Accretion of common stock subject to possible redemption                                           |       | $                                                     | 39,000     |                                                                                                                  | $          | —                                                                                              |       | $ | 39,000 |   |

 

See accompanying notes to interim condensed consolidated financialstatements.

 

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**ARCADE ACQUISITION CORP.**

(a corporation in the development stage)

 

**Notes to Interim CondensedConsolidated Financial Statements**

**(UNAUDITED)**

 

**NOTEA—BASIS OF PRESENTATION**

 

The accompanyingunaudited condensed consolidated financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesof America (“US GAAP”) for interim financial information and with the instructionsto Form 10-Q and Article 8 of Regulation S-X of the Securities andExchange Commission (“SEC”), and should be read in conjunction with the Company’saudited financial statements and footnotes thereto for the period ended December 31,2007 included in the Company’s Annual Report on Form 10-K filed with theSEC.  Accordingly, these unaudited condensed consolidated financialstatements do not include all of the information and disclosures required by USGAAP for complete financial statements. In the opinion of management, alladjustments (consisting of normal recurring adjustments) considered necessaryfor a fair presentation have been included. All material intercompany balancesand transactions have been eliminated in consolidation.  Operating results for the interim periodpresented are not necessarily indicative of the results to be expected for anyother interim period or for the full year.

 

**NOTEB—DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS**

 

Arcade AcquisitionCorp. (a corporation in the development stage) (the “Company”) was incorporatedin Delaware on January 30, 2007. The Company was formed to acquire,through a merger, asset acquisition, stock exchange or other similar businesscombination, an operating business (“Business Combination”). The Company isconsidered to be in the development stage as defined in Statement of FinancialAccounting Standards (“SFAS”) No. 7, “Accounting and Reporting ByDevelopment Stage Enterprises”, and is subject to the risks associated withactivities of development stage companies. The condensed consolidated financial statements include the accounts ofthe Company and its wholly-owned subsidiary, Conbulk Corporation, see Note L.

 

At September 30,2008, the Company has not commenced operations or generated any revenue. All activity from inception through September 30, 2008 relates to theCompany’s formation, capital raising, the initial public offering describedbelow, and activities associated with identifying a Business Combination. The Company will not generate any operating revenues until after completion ofthe Business Combination, at the earliest. The Company currently generatesnon-operating income from interest and dividend income on investments held inan escrow account (the “Trust Account”), from the proceeds derived from theoffering.

 

The registrationstatement for the Company’s initial public offering was declared effective on May 21,2007.  The public offering was consummated on May 25, 2007 and theCompany received gross proceeds of $60,000,000 from the sale of 7,500,000units. Additionally, on June 7, 2007, the Company received gross proceedsof $9,000,000 from the sale of 1,125,000 units in conjunction with the exerciseof the underwriters’ over-allotment option (collectively, the “Public Offering”). Preceding the consummation of the Public Offering, on May 23, 2007, anaffiliate of the Company’s officers purchased in a private placement from theCompany (the “Private Placement”) 2,000,000 warrants for aggregate proceeds of $2,000,000.

 

The Company’smanagement has broad discretion with respect to the specific application of thenet proceeds of the Private Placement and the Public Offering althoughsubstantially all of the net proceeds of the Public Offering are intended to begenerally applied toward consummating a Business Combination. Furthermore,there is no assurance that the Company will be able to successfully effect aBusiness Combination. Upon the closing of the Public Offering, an amount equalto approximately 98.3% of the gross proceeds of the Public Offering (98.6%prior to the exercise of the underwriters’ over-allotment option) has beenplaced in a trust account (the “Trust Account”). The Trust Account is investedin U.S. “government securities,” defined as any Treasury Bill issued by theUnited States government having a maturity of one hundred and eighty (180) daysor less or money market funds meeting the conditions specified in Rule 2a-7under the Investment Company Act of 1940, until the earlier of (i) theconsummation of a Business Combination or (ii) the distribution of theTrust Account as described below. The remaining net proceeds, plus up to$2,000,000 of income earned on funds in the Trust Account, net of taxes, may beused to pay for business, legal and accounting due diligence on prospectiveacquisitions and continuing general and administrative expenses.

 

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The Company signeda definitive agreement for the acquisition of a target business on September 19,2008 (please see Note L) and intends to submit the transaction to itsstockholders for their approval. In the event that 30% or more of theoutstanding stock (excluding, for this purpose, those shares of common stockissued prior to the Public Offering) vote against the Business Combination andelect to exercise their redemption rights, the Business Combination will not beconsummated. In the event a Business Combination is consummated, publicstockholders voting against a Business Combination will be entitled to redeemtheir stock for a pro rata share of the aggregate amount of cash then ondeposit in the Trust Account, including their pro rata portion of the deferredunderwriting discount and any interest earned on the Trust Account, net ofincome taxes payable on such interest income. However, voting against theBusiness Combination alone will not constitute an election to exercise astockholder’s redemption rights. All of the Company’s stockholders prior to thePublic Offering, including all of the directors and officers of the Company,have agreed to vote all of the shares of common stock acquired by them prior tothe Public Offering in accordance with the vote of the majority in interest ofall other stockholders of the Company.

 

In the event thatholders of more than 20% but less than 30% of the shares of common stock soldin the Public Offering elect to redeem their shares, the Company’s initialstockholders have agreed to forfeit, on a pro rata basis and return to theCompany for cancellation, that number of shares (up to a maximum of 234,375)that will result in them owning collectively no more than 23.81% of the Company’soutstanding common stock immediately prior to the consummation of such BusinessCombination after giving effect to the redemption (without taking into accountany shares that they may have acquired in the aftermarket). If any such sharesare forfeited, the financial statements subsequent to such forfeiture wouldreflect a decrease in total common shares outstanding.

 

In the event thatthe Company does not consummate a Business Combination by May 21, 2009,the Company’s corporate existence will cease and the proceeds held in the TrustAccount will be distributed to the Company’s public stockholders, excluding theinitial stockholders to the extent of their initial common stock holdings.

 

**NOTEC—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

Development stagecompany:

 

The Companycomplies with the reporting requirements of Statement of Financial AccountingStandards (“SFAS”) No. 7, “Accounting and Reporting by Development StageEnterprises.”

 

Common stock:

 

On May 15,2007, the Company effected a 1.2-for-one stock split in the form of a stockdividend, which resulted in the issuance of an additional 312,500 shares to theCompany’s initial stockholders.  The Company’s condensed consolidatedfinancial statements give retroactive effect to the stock split.

 

Fair value offinancial instruments:

 

The fair value ofthe Company’s assets and liabilities, which qualify as financial instrumentsunder SFAS No. 107, “Disclosure About Fair Value of Financial Instruments,”approximates the carrying amounts represented in the accompanying condensedconsolidated balance sheets.

 

Investment inTrust Account:

 

Investment inTrust Account as of September 30, 2008 consisted primarily of U.S.government securities with maturities of 180 days or less and money marketfunds purchased without maturity.  The Company recognizes Investment in TrustAccount as a non-current asset in the accompanying condensed consolidatedbalance sheets, and such assets totaled $67,993,024 as of September 30,2008. Interest income is recorded on an accrual basis.

 

Earnings pershare:

 

(a)  TheCompany complies with SFAS No. 128 “Earnings Per Share” which requiresdual presentation of basic and diluted earnings per share on the face of thestatement of operations.  Basic earnings per common share is computed bydividing 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 issuedupon the exercise of outstanding “in the money” warrants and the proceeds thereofwere used to purchase common shares at the average market price during theperiod.

 

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(b)  TheCompany’s statement of operations includes a presentation of earning per sharefor common stock subject to possible redemption in a manner similar to thetwo-class method of earnings per share in accordance with Emerging Issues TaskForce, Topic No. D-98 “Classification and Measurement of RedeemableSecurities” (“EITF D-98”). The basic and diluted net income per common shareamount for the maximum number of shares subject to possible redemption iscalculated by dividing interest income attributable to common shares subject toredemption by the weighted average number of shares subject to possibleredemption. The basic and diluted net income per common share amount for theshares outstanding not subject to possible redemption is calculated by dividingthe income exclusive of the net interest income attributable to common sharessubject to redemption by the weighted average number of shares not subject topossible redemption.

 

The effect of the10,625,000 warrants outstanding (including 2,000,000 warrants issued inconnection with the Private Placement) have been considered in the calculationof fully diluted income per share under the treasury stock method.  The 750,000 Units issued to the underwriters(see Note G) have been excluded from the calculation of fully diluted income,as the effect would be anti-dilutive.

 

Redeemable commonstock:

 

The Companyaccounts for redeemable common stock in accordance with EITF D-98. Securities that are redeemable for cash or other assets are classified outsideof permanent equity if they are redeemable at the option of the holder. TheCompany recognizes changes in the redemption value immediately as they occurand adjusts the carrying value of the redeemable common stock to equal itsredemption value at the end of each reporting period.

 

As discussed inNote B, if the Company does not consummate a Business Combination by May 21,2009, the Company’s corporate existence will cease and in the event that 30% ormore of the outstanding stock (excluding, for this purpose, those shares ofcommon stock issued prior to the Public Offering) vote against the BusinessCombination and elect to exercise their redemption rights, the BusinessCombination will not be consummated.  In accordance with EITF D-98,redeemable shares are not classified outside of permanent equity if theredemption causes a liquidation event.  Accordingly, 2,587,499 shares (30%of the shares sold in the Public Offering, minus 1 share) have been classifiedoutside of permanent equity at redemption value. At September 30, 2008,the per share redemption value was approximately $7.88.

 

Concentration ofcredit risk:

 

Financialinstruments that potentially subject the Company to concentrations of creditrisk consist of cash accounts in a financial institution, which at times may,exceed the Federal depository insurance coverage. The Company has notexperienced losses on these accounts and management believes the Company is notexposed to significant risks on such accounts.

 

Use of estimates:

 

The preparation ofinterim condensed consolidated financial statements in conformity with US GAAPrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the interim condensed consolidated financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

 

Recently issuedaccounting standards:

 

In December 2007,the Financial Accounting Standards Board( “FASB”) issued SFAS 160, “NoncontrollingInterests in Consolidated Financial 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 statements. It also requires once a subsidiary isdeconsolidated, any retained noncontrolling equity investment in the formersubsidiary be initially measured at fair value. Sufficient disclosures arerequired to clearly identify and distinguish between the interests of theparent and the interests of the noncontrolling owners. It is effective forfiscal years beginning after December 15, 2008, and requires retroactiveadoption of the presentation and disclosure requirements for existing minorityinterests. All other requirements are applied prospectively.  Upon thesuccessful completion of a Business Combination, the Company will evaluate thepotential application of SFAS 160.

 

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Management doesnot believe that any other recently issued, but not yet effective, accountingstandards if currently adopted would have a material effect on the accompanyingfinancial statements.

 

Income taxes:

 

The Companycomplies with SFAS 109, “Accounting for Income Taxes,” which requires an assetand liability approach to financial accounting and reporting for income taxes.Deferred income tax assets and liabilities are computed for differences betweenthe financial statement and tax bases of assets and liabilities that willresult in future taxable or deductible amounts, based on enacted tax laws andrates applicable to the periods in which the differences are expected to affecttaxable income. Valuation allowances are established, when necessary, to reducedeferred tax assets to the amount expected to be realized.

 

The Company alsocomplies with FASB Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes,” an interpretation of FASB Statement No. 109 (“FIN 48”),which provides criteria for the recognition, measurement, presentation, anddisclosure of uncertain tax positions. A tax benefit from an uncertain positionmay be recognized only if it is “more likely than not” that the position issustainable based on its technical merits.

 

**NOTED—INITIAL PUBLIC OFFERING**

 

On May 25,2007, the Company consummated the sale of 7,500,000 units (“Units”) at a priceof $8.00 per Unit in the Public Offering. On June 7, 2007, theunderwriters exercised their over-allotment option and purchased an additional1,125,000 Units at the offering price of $8.00 per Unit.  Each Unitconsists of one share of the Company’s common stock, $0.0001 par value, and oneredeemable common stock purchase warrant (“Warrants”). Each Warrant entitlesthe holder to purchase from the Company one share of common stock at anexercise price of $6.00 commencing on the later of (i) May 21, 2008or (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.

 

**NOTEE—ACCRUED EXPENSES**

 

Accrued expensesat September 30, 2008 totaled $540,679.  These expenses related todue diligence costs, franchise taxes, legal, accounting and printing costs, andtrustee and transfer agent fees.

 

**NOTEF—RELATED PARTY TRANSACTIONS**

 

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

 

On February 13,2007, the Company issued 1,875,000 shares of common stock (the “Initial Shares”)for proceeds of $25,000 to the officers and directors of the Company and anaffiliate of the Company’s officers and directors.

 

The Company has aservice agreement with Arcade Partners, LLC, an affiliate of the Company’sofficers and directors, whereby the Company pays a monthly service fee of$7,500. Such fee is to cover general and administrative services provided bythe affiliate, including office space and utilities.  For the nine monthsended September 30, 2008 and for the period January 30, 2007 (date ofinception) to September 30, 2008, approximately $67,500  and $145,000, respectively, has been paidunder this arrangement.

 

On May 23,2007, Arcade Acquisition Investors, LLC, an affiliate of the Company’s officersand directors, purchased, in the Private Placement, 2,000,000 warrants at $1.00per warrant (the “Insider Warrants”). The aggregate proceeds of the PrivatePlacement of $2,000,000 are being held in the Trust Account described in NoteB. Arcade Acquisition Investors, LLC has agreed that it will not sell orotherwise transfer the Insider Warrants until after the Company consummates aBusiness Combination other than to its members in proportion to theirmembership interests, which members are subject to the same restriction ontransferability, except in certain limited circumstances.

 

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**NOTEG—COMMITMENTS AND CONTINGENCIES**

 

The Company paidan underwriting discount of 3.5% of the gross offering proceeds to theunderwriters at the closing of the Public Offering, with an additional fee of3.5% of the gross offering proceeds payable upon the Company’s consummation ofa Business Combination. The deferred underwriting discount of $2,415,000 willbe forfeited in its entirety in the event there is no Business Combination, and$724,500 of the deferred underwriting discount is subject to forfeiture on apro rata basis to the extent of shares that are redeemed upon approval of aBusiness Combination. The underwriters will not be entitled to any interestaccrued on the deferred discount.

 

The Company soldto the underwriters, for $100, an option to purchase up to a total of 750,000units at a per-unit price of $10.00 that expires on May 21, 2012. Theunits issuable upon exercise of this option are identical to those sold in thePublic Offering except that warrants included in the option have an exerciseprice of $7.00. The Company has accounted for the fair value of the option,inclusive of the receipt of the $100 cash payment, as an expense of the PublicOffering resulting in a charge directly to stockholder’s equity.

 

The Companydetermined, based upon a Black-Scholes model, that the fair value of the optionon the date of sale was approximately $2.35 per unit, or approximately$1,760,000 in total, using an expected life of five years, volatility of 32.9%and a risk-free interest rate of 4.81%. The volatility calculation of 32.9% wasbased on the most recent trading day average volatility of a representativesample of 21 blank check companies that completed a business combination andhad a sufficient subsequent trading history (the “Sample Companies”). Becausethe Company 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.

 

**NOTEH—INCOME TAXES (BENEFIT)**

 

For the ninemonths ended September 30, 2008 and the period January 30, 2007(inception) to September 30, 2008, the components of the provision forincome taxes (benefit) are as follows:

 
| ** ** | ** ** | **For the nine months** | ** ** | **For the period  January 30, 2007** | ** ** |
|------------|------------|----------------------------------------|------------|----------------------------------------------------------|------------|
| ** ** | ** ** | **ended**                              | ** ** | **(inception) to**                                  | ** ** |
| ** ** | ** ** | **September 30, 2008**       | ** ** | **September 30, 2008**                         | ** ** |
|       |       |                                   |       |                                                     |       |
| Current:   |       |                                   |       |                                                     |       |
| Federal    |       | $                                      | 434,000    |                                                     | $          | 1,088,000 |   |
| State      |       | 29,000                                 |       | 73,000                                                   |       |
| Deferred:  |       |                                   |       |                                                     |       |
| Federal    |       | (713,000                               | )          | (781,000                                                 | )          |
|       |       |                                   |       |                                                     |       |
|       |       | $                                      | (250,000   | )                                                        | $          | 380,000 |   |

 

The Company hasnot begun its trade or business for U.S. tax purposes.  Accordingly, itcould not yet recognize losses for start-up expenditures. As a result, deferredtax assets of approximately $712,000 and $781,000 at September 30, 2008and for the period January 30,2007 (inception) to September 30, 2008,respectively, were established for these start-up expenditures.

 

**NOTEI—PREFERRED STOCK**

 

The Company isauthorized to issue 1,000,000 shares of preferred stock with such designations,voting and other rights and preferences as may be determined from time to timeby the Board of Directors.  As of September 30,2008, the Company has not issued shares of its preferred stock.

 

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**NOTEJ—REGISTRATION RIGHTS**

 

The holders of theInitial Shares and the Insider Warrants (and underlying securities), areentitled to certain registration rights.  The holders of the majority ofthe Initial Shares will be entitled to make up to two demands that the Companyregister such securities at any time after their release from escrow. The holders of a majority of the Insider Warrants (or underlyingsecurities) are entitled to one demand that the Company register suchsecurities at any time after the Company consummates a businesscombination.  In addition, such holders will have certain “piggy-back”registrationrights on registration statements filed subsequent to the date on whichsuch securities are released from escrow. On the date of the Public Offering,all of our initial stockholders placed their Initial Shares and InsiderWarrants into an escrow account maintained by Continental Stock Transfer &Trust Company, acting as escrow agent.  The Initial Shares will not bereleased from escrow until one year after the consummation of a BusinessCombination, or earlier if, following a Business Combination, we engage in asubsequent transaction resulting in our stockholders having the right toexchange their shares for cash or other securities or if we liquidate anddissolve.  The Insider Warrants will not be released from escrow until 30days after the completion of a Business Combination.  The Company willbear the expenses incurred in connection with the filing of any such registrationstatements.

 

**NOTEK—FAIR VALUE MEASUREMENTS**

 

Effective January 1,2008, the Company adopted SFAS No. 157, Fair Value Measurements” (“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 ofFASB Statement No. 157*,*theCompany has elected to defer implementation of SFAS 157 as it relates to itsnon-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 ofSFAS 157 to the Company’s financial assets and liabilities and non-financialassets and liabilities that are re-measured and reported at fair value at leastannually did not have an impact on the Company’s condensed consolidatedfinancial results.

 

The followingtable presents information about the Company’s assets and liabilities that aremeasured at fair value on a recurring basis as of September 30, 2008, andindicates the fair value hierarchy of the valuation techniques the Companyutilized to determine such fair value. In general, fair values determined byLevel 1 inputs utilize quoted prices (unadjusted) in active markets foridentical assets or liabilities. Fair values determined by Level 2 inputsutilize data points that are observable such as quoted prices, interest ratesand yield curves. Fair values determined by Level 3 inputs are unobservabledata points for the asset or liability, and includes situations where there islittle, if any, market activity for the asset or liability:

 
| **Assets Measured at Fair Value** | ** ** | **September 30,  2008** | ** ** | **Quoted Prices in  Active Markets  (Level 1)** | ** ** | **Significant Other  Observable  Input (Level 2)** | ** ** | **Significant  Unobservable  Inputs (Level 3)** | ** ** |
|-------------------------------------------------------|------------|------------------------------|------------|---------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
|                                                  |       |                         |       |                                                                |       |                                                              |       |                                                      |       |
| Assets:                                               |       |                         |       |                                                                |       |                                                              |       |                                                      |       |
|                                                  |       |                         |       |                                                                |       |                                                              |       |                                                      |       |
| Investment in Trust Account                           |       | $                            | 67,993,024 |                                                                | $          | 67,993,024                                                        |       | —                                                    |       | — |   |
|                                                  |       |                         |       |                                                                |       |                                                              |       |                                                      |       |
| Total                                                 |       | $                            | 67,993,024 |                                                                | $          | 67,993,024                                                        |       | $                                                         | —     |   | $ | — |   |
|                                                       |            |                              |            |                                                                     |            |                                                                   |            |                                                           |            |  |  |  |  |

 

Thefair values of the Company’s Investment in Trust Account are determined throughmarket, observable and corroborated sources.

 

Thecarrying amounts reflected in the condensed consolidated balance sheets forother current assets and accrued expenses approximate fair value due to theirshort-term maturities.

 

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**NOTEL—PROPOSED BUSINESS COMBINATION**

 

On September 19,2008, the Company entered into a Membership Interest Purchase and SaleAgreement and several related agreements (collectively, the “AcquisitionAgreements”) pursuant to which it has agreed to purchase, through anewly-formed, wholly-owned, Marshall Islands subsidiary, Conbulk Corporation, (“Conbulk”),10 containerships through the acquisition of 10 special purpose vehicles (eachan “SPV”, and collectively, the “SPVs”) owned by a wholly-owned subsidiary ofPalmosa Shipping Corporation, a global shipping company with managementheadquarters in Greece (“Palmosa”).  Each SPV is an offshore limitedliability company owning a memorandum of agreement (each an “MOA”, andcollectively, the “MOAs”) to acquire one container vessel.  Six of theMOAs are for the purchase of vessels from Palmosa and its affiliates and fourof the MOAs are for the purchase of vessels from affiliates of Tsakos Shipping &Trading S.A., or Tsakos, a large global shipping company.  We refer tothis acquisition of the SPV membership interests as the “Interest Acquisition”and the Interest Acquisition, together with the SPVs’ acquisition of thevessels pursuant to the MOAs, as the “Acquisition.”  In order toeffectuate the Acquisition, Arcade and Conbulk will enter into an agreement andplan of merger (the “Merger Agreement”) on the date of the initial closing ofthe Acquisition, pursuant to which Arcade will merge with and into Conbulkimmediately prior to the initial closing of the Acquisition, with Conbulk beingthe surviving entity (the “Redomiciliation Merger”).

 

The Acquisition isexpected to be completed pursuant to several closings.  On the effectivedate of the Redomiciliation Merger and the Interest Acquisition, Conbulk,through the applicable SPVs, will close on MOAs to acquire at least two of thePalmosa vessels and accept delivery thereof.  The agreements provide thatthis initial closing must occur on or prior to January 30, 2009. Conbulk expects to close on the other MOAs held by the SPVs and take deliveryof the remaining vessels within several weeks after the initial closing of theAcquisition.

 

The aggregatepurchase price for the Acquisition is $261,677,521, consisting of approximately$185,544,000 in cash and 9,661,614 common shares of Conbulk. The Palmosaprincipals have agreed to accept only stock for their equity interest in thePalmosa vessels.  The breakdown between cash and stock is an estimatebased on an assumed December 31, 2008 closing for all of the Palmosavessels and the associated debt balances.  To the extent closings occurafter such date, the outstanding debt on the Palmosa vessels may be reduced byregularly scheduled principal amortization.  This will result in loweringthe cash portion of the purchase price and correspondingly increasing the stockportion.  Any change in allocation between cash and stock will be calculatedat $7.88 per share of Conbulk stock. Conbulk may issue up to an additional3,500,000 common shares, subject to its achievement of certain annual earningtargets during the fiscal years ending December 31, 2010 and 2011.

 

As required underits Amended and Restated Certificate of Incorporation, the Company will hold aspecial meeting of its stockholders to vote on the Redomiciliation Merger andthe Acquisition (collectively, the “Business Combination”).  The Companycannot complete the Business Combination unless a majority of the shares ofcommon stock voted by the holders of shares issued in connection with theCompany’s initial public offering are voted in favor of the BusinessCombination and public stockholders owning less than 30% of the total number ofshares sold in the initial public offering properly exercise their redemptionrights.  Approval of the Redomiciliation Merger will require theaffirmative vote of a majority of the outstanding shares of the Company. Approval of the Acquisition will require the affirmative vote of amajority of the shares issued in Arcade’s initial public offering that arevoted at the meeting.  The Company will not consummate the RedomiciliationMerger unless the Acquisition is also approved.  Similarly, the Companywill not consummate the Acquisition unless the Redomiciliation Merger is alsoapproved. Each of the Redomiciliation Merger and Acquisition will be voted onseparately, but both must be approved for the Business Combination to becompleted.

 

The Companyintends to account for the Merger in accordance with the provisions ofStatement of Financial Acountng No. 141R, “Business Combination.”  The Merger will be accounted for as a reversemerger.

 

The Merger andrelated transactions have been unanimously approved by the Company’s board ofdirectors and the board of Palmosa but are subject, among other things, to theapproval of the Company’s stockholders, including a majority of the shares ofcommon stock issued in its IPO.  Inaddition, the Merger may not be completed if holders of 30% or more of theshares sold in the IPO vote against the Merger and properly exercise theirredemption rights.  There can be noassurance that the Merger will be consummated.  In connection with the Business Combination, the Company has filed apreliminary proxy statement with the Securities and Exchange Commission.

 

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Item 2**.****   ****MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**ForwardLooking Statements**

 

This QuarterlyReport on Form 10-Q includes forward-looking statements within the meaningof Section 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended.  We have based theseforward-looking statements on our current expectations and projections aboutfuture events. These forward-looking statements are subject to known andunknown risks, uncertainties and assumptions about us that may cause our actualresults, levels of activity, performance or achievements to be materiallydifferent from any future results, levels of activity, performance orachievements expressed or implied by such forward-looking statements.  Insome cases, you can identify forward-looking statements by terminology such as “may,”“should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,”“continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but arenot limited to, those described in our other Securities and Exchange Commissionfilings. The following discussion should be read in conjunction with ourFinancial Statements and related Notes thereto included elsewhere in thisreport.

 

**Overview**

 

We were formed on January 30,2007 to serve as a vehicle to effect a merger, capital stock exchange, assetacquisition or other similar business combination with an operatingbusiness.  Our initial business combination must be with a target businessor businesses whose fair market value is at least equal to 80% of our net assetsat the time of such acquisition.  Since our offering, we have beenactively searching for a suitable business combination candidate. We currentlyhave not entered into any definitive agreement with any potential targetbusinesses. We are not presently engaged in, and will not engage in, anysubstantive commercial business until we consummate an initial transaction. Weintend to utilize cash derived from the proceeds of our recently completedprivate placement and public offering, our capital stock, debt or a combinationof cash, capital stock and debt, in effecting a business combination.

 

We cannot assureinvestors that we will effect a suitable business combination in the allottedtime.

 

**BusinessCombination**

 

On September 19,2008, Arcade Acquisition Corp. (OTCBB: ACDQ), a Delaware corporation (“Arcade”or the “Company”), entered into a Membership Interest Purchase and SaleAgreement and several related agreements (collectively, the “AcquisitionAgreements”) pursuant to which it has agreed to purchase, through anewly-formed, wholly-owned, Marshall Islands subsidiary, Conbulk Corporation, (“Conbulk”),10 containerships through the acquisition of 10 special purpose vehicles (eachan “SPV”, and collectively, the “SPVs”) owned by a wholly-owned subsidiary ofPalmosa Shipping Corporation, a global shipping company with managementheadquarters in Greece (“Palmosa”).  Each SPV is an offshore limitedliability company owning a memorandum of agreement (each an “MOA”, andcollectively, the “MOAs”) to acquire one container vessel.  Six of theMOAs are for the purchase of vessels from Palmosa and its affiliates and fourof the MOAs are for the purchase of vessels from affiliates of Tsakos Shipping &Trading S.A., or Tsakos, a large global shipping company.  We refer tothis acquisition of the SPV membership interests as the “Interest Acquisition”and the Interest Acquisition, together with the SPVs’ acquisition of thevessels pursuant to the MOAs, as the “Acquisition.”  In order toeffectuate the Acquisition, Arcade and Conbulk will enter into an agreement andplan of merger (the “Merger Agreement”) on the date of the initial closing ofthe Acquisition, pursuant to which Arcade will merge with and into Conbulkimmediately prior to the initial closing of the Acquisition, with Conbulk beingthe surviving entity (the “Redomiciliation Merger”).

 

The aggregatepurchase price for the Acquisition is $261,677,521, consisting of approximately$185,544,000 in cash and 9,661,614 common shares of Conbulk. The Palmosaprincipals have agreed to accept only stock for their equity interest in thePalmosa vessels.  The breakdown between cash and stock is an estimatebased on an assumed December 31, 2008 closing for all of the Palmosavessels and the associated debt balances.  To the extent closings occurafter such date, the outstanding debt on the Palmosa vessels may be reduced byregularly scheduled principal amortization.  This will result in loweringthe cash portion of the purchase price and correspondingly increasing the stockportion.  Any change in allocation between cash and stock will becalculated at $7.88 per share of Conbulk stock. Conbulk may issue up to anadditional 3,500,000 common shares, subject to its achievement of certainannual earning targets during the fiscals years ending December 31, 2010and 2011, all as more particularly described in the joint proxystatement/prospectus.

 

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The Acquisition isexpected to be completed pursuant to several closings.  On the effectivedate of the Redomiciliation Merger and the Interest Acquisition, Conbulk,through the applicable SPVs, will close on MOAs to acquire at least two of thePalmosa vessels and accept delivery thereof.  The agreements provide thatthis initial closing must occur on or prior to January 30, 2009. Conbulk expects to close on the other MOAs held by the SPVs and take deliveryof the remaining vessels within several weeks after the initial closing of theAcquisition.

 

As required underArcade’s Amended and Restated Certificate of Incorporation, the Company willhold a special meeting of its stockholders to vote on the RedomiciliationMerger and the Acquisition (collectively, the “Business Combination”). The Company cannot complete the Business Combination unless a majority of theshares of common stock voted by the holders of shares issued in connection withthe Company’s initial public offering are voted in favor of the BusinessCombination and public stockholders owning less than 30% of the total number ofshares sold in the initial public offering properly exercise their redemptionrights.  Approval of the Redomiciliation Merger will require theaffirmative vote of a majority of the outstanding shares of the Company. Approval of the Acquisition will require the affirmative vote of amajority of the shares issued in Arcade’s initial public offering that arevoted at the meeting.  The Company will not consummate the RedomiciliationMerger unless the Acquisition is also approved.  Similarly, the Companywill not consummate the Acquisition unless the Redomiciliation Merger is alsoapproved. Each of the Redomiciliation Merger and Acquisition will be voted onseparately, but both must be approved for the Business Combination to becompleted.

 

The Companyintends to account for the Merger in accordance with the provisions ofStatement of Financial Acountng No. 141R, “Business Combination.”  The Merger will be accounted for as a reversemerger.  As such, Palmosa is deemed to bethe acquirer in the merger for accounting purposes and, consequently, theassets and liabilities and the historical operations that will be reflected inthe financial statements will be those of Palmosa, recorded at its historicalcost basis.

 

The Merger andrelated transactions have been unanimously approved by the Company’s board ofdirectors and the board of Palmosa but are subject, among other things, to theapproval of the Company’s stockholders, including a majority of the shares ofcommon stock issued in its IPO.  Inaddition, the Merger may not be completed if holders of 30% or more of theshares sold in the IPO vote against the Merger and properly exercise theirredemption rights.  There can be noassurance that the Merger will be consummated.  In connection with the Business Combination, the Company has filed apreliminary proxy statement with the Securities and Exchange Commission.

 

**Liquidityand Capital Resources**

 

On May 25,2007, we consummated our public offering of 7,500,000 units.  Each unitconsists of one share of common stock and one redeemable common stock purchasewarrant.  Immediately prior to the consummation of our public offering, wesold 2,000,000 warrants to an affiliate of our officers and directors for $1.00per warrant.  Each warrant entitles the holder to purchase from us oneshare of our common stock at an exercise price of $6.00.  On June 7,2007, the underwriters exercised their over-allotment option and purchased anadditional 1,125,000 Units.  Our common stock and warrants started tradingseparately as of June 14, 2007.

 

The net proceedsfrom the sale of our units (including the underwriters’ over-allotment option)and the insider warrants, after deducting certain offering expenses ofapproximately $2,949,000, including underwriting discounts of approximately$2,415,000, were approximately $68,051,000. Of this amount, $67,835,000 wasplaced in the trust account and the remaining proceeds are being held outsideof the trust account. The remaining proceeds, along with up to $2,000,000 ininterest earned on the funds in the trust account, net of taxes, are availableto be used by us to provide for business, legal and accounting due diligence onprospective acquisitions and continuing general and administrative expenses. Wewill use substantially all of the net proceeds of the offering to acquire atarget business, including identifying and evaluating prospective acquisitioncandidates, selecting the target business, and structuring, negotiating andconsummating a business combination. To the extent that our capital stock isused in whole or in part as consideration to effect a business combination, theproceeds held in the trust account, as well as any other net proceeds not expended,will be used to finance the operations of the target business. Including the$2,000,000 in interest available to us, we believe we will have sufficientavailable funds outside of the trust account to operate through May 21,2009, assuming that a business combination is not consummated during that time.

 

From now until theearlier of May 21, 2009 or the date when we complete a businesscombination, we currently anticipate incurring expenses for the followingpurposes:

 

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·                  legal, accounting and other expenses attendant to duediligence investigations, structuring and negotiation of a businesscombination;

 

·                  due diligence of prospective target businesses;

 

·                  legal and accounting fees relating to our Securitiesand Exchange Commission reporting obligations and general corporate matters;

 

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

 

·                  working capital, director and officer liabilityinsurance premiums and reserves (including potential deposits, down payments orfunding of a “no-shop” provision in connection with a particular businesscombination and dissolution obligations and reserves, if any).

 

We may use all orsubstantially all of the proceeds held in trust other than the deferred portionof the underwriter’s fee to acquire one or more target businesses.  We maynot use all of the proceeds held in the trust account in connection with abusiness combination, either because the consideration for the businesscombination is less than the proceeds in trust or because we finance a portionof the consideration with capital stock or debt securities that we can issue.In that event, the proceeds held in the trust account as well as any other netproceeds not expended will be used to finance the operations of the targetbusiness or businesses.  The operating businesses that we acquire in suchbusiness combination must have, individually or collectively, a fair market valueequal to at least 80% of our net assets at the time of such acquisition. If we consummate multiple business combinations that collectively have a fairmarket value of 80% of our net assets, then we would require that suchtransactions are consummated simultaneously.

 

We may need toobtain additional financing either to consummate our initial businesscombination or because we become obligated to redeem a significant number ofour public shares, in which case we may issue additional securities or incur debtin connection with such business combination. Following our initial business combination, if cash on hand isinsufficient, we may need additional funding to meet our working capital needsand satisfy our other obligations.

 

If we are unableto effect a business combination by May 21, 2009, we will be forced toliquidate. If we are forced to liquidate, the per share liquidation amount maybe less than the initial per unit offering price because of the underwritingcommissions and expenses related to our offering and because of the value ofthe warrants in the per unit offering price. Additionally, if third partiesmake claims against us, the offering proceeds held in the trust account couldbe subject to those claims, resulting in a further reduction to the per shareliquidation price. Under Delaware law, our stockholders who have receiveddistributions from us may be held liable for claims by third parties tothe extent such claims are not been paid by us. Furthermore, our warrants willexpire worthless if we liquidate before the completion of a businesscombination.

 

**Resultsof Operations for the period January 30, 2007 (date of inception) to September 30,2008, and for the three and nine months ended September 30, 2008**

 

For the periodfrom January 30, 2007 (date of inception) through September 30, 2008,we had net income of $891,606, derived from interest and dividend income lessformation and operating expenses.

 

For the quarterended September 30, 2008, we had a net loss of $289,570, derived frominterest and dividend income less formation and operating expenses.

 

For the ninemonths ended September 30, 2008, we had a net loss of $273,971, derivedfrom interest and dividend income less formation and operating expenses.

 

Commencing on May 21,2007 and ending upon the acquisition of a target business, we began incurring afee of $7,500 per month for office space and certain other additional servicesfrom Arcade Partners, LLC, an affiliate of our executive officers anddirectors.  In addition, on February 5, 2007 and April 4, 2007,pursuant to two promissory notes, we borrowed an aggregate amount of $225,000from Arcade Partners, LLC. The notes, which bore interest at 4% per annum, wererepaid on May 25, 2007.

 

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**OffBalance-Sheet Arrangements**

 

Warrants issued inconjunction with our initial public offering are equity-linked derivatives and,accordingly, represent off-balance sheet arrangements.  The Warrants meetthe scope exception in paragraph 11(a) in SFAS No. 133 “Accounting forDerivative Instruments and Hedging Activities” and, accordingly, are notaccounted for as equity.

 

**ContractualObligations**

 

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

 

Item 3**. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK**

 

Market risk is thesensitivity of income to changes in interest rates, foreign exchanges,commodity prices, equity prices, and other market-driven rates or prices. Weare not presently engaged in and, if a suitable business target is notidentified by us prior to the prescribed liquidation date of the Trust Account,we may not engage in, any substantive commercial business. Accordingly, we arenot and, until such time as we consummate a Business Combination, we will notbe, exposed to risks associated with foreign exchange rates, commodity prices,equity prices or other market-driven rates or prices. The net proceeds of theOffering held in the Trust Account have been invested only in money marketfunds meeting certain conditions under Rule 2a-7 promulgated under theInvestment Company Act of 1940. Given our limited risk in our exposure to moneymarket funds, we do not view the interest rate risk to be significant.

 

Item4.**CONTROLS AND PROCEDURES**

 

An evaluation ofthe effectiveness of our disclosure controls and procedures as of September 30,2008 was made under the supervision and with the participation of ourmanagement, including our chief executive officer and our principal financialofficer. Based on that evaluation, management concluded that our disclosurecontrols and procedures are effective as of the end of the period covered bythis report to ensure that information required to be disclosed by us inreports that we file or submit under the Securities Exchange Act of 1934 isrecorded, processed, summarized and reported within the time periods specifiedin Securities and Exchange Commission rules and forms.

 

During the mostrecently completed fiscal quarter, there has been no significant change in ourinternal control over financial reporting that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

 

This quarterlyreport does not include a report of management’s assessment regarding internalcontrol over financial reporting or an attestation report of our registeredpublic accounting firm due to a transition period established by the rules ofthe Securities and Exchange Commission for newly public companies.

 

Pursuant to Section 404of the Sarbanes-Oxley Act of 2002 (the Act), beginning with our Annual Reporton Form 10-K for the fiscal year ending December 31, 2008, we will berequired to furnish a report by our management on our internal control overfinancial reporting. This report will contain, among other matters, anassessment of the effectiveness of our internal control over financial reportingas of the end of our fiscal year, including a statement as to whether or notour internal control over financial reporting is effective. This assessmentmust include disclosure of any material weaknesses in our internal control overfinancial reporting identified by management. If we identify one or morematerial weaknesses in our internal control over financial reporting, we willbe unable to assert our internal control over financial reporting is effective.This report will also contain a statement that our independent registeredpublic accountants have issued an attestation report on management’s assessmentof such internal controls and conclusion on the operating effectiveness ofthose controls.

 

Managementacknowledges its responsibility for internal controls over financial reportingand seeks to continually improve those controls. In order to achieve compliancewith Section 404 of the Act within the prescribed period, we are currentlyperforming the system and process documentation and evaluation needed to complywith Section 404, which is both costly and challenging. We believe ourprocess, which began in 2007 and continues in 2008 for documenting, evaluatingand monitoring our internal control over financial reporting is consistent withthe objectives of Section 404 of the Act.

 

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**PART II - OTHER INFORMATION**

 

Item1.**LEGAL PROCEEDINGS**

 

None.

 

Item2.**UNREGISTERED SALES OF EQUITY SECURITIESAND USE OF PROCEEDS**

 

**RecentSales of Unregistered Securities**

 

We did not engagein the sale of any unregistered securities during the three months ended September 30,2008.

 

**Use ofProceeds**

 

For informationregarding our use of the proceeds from our initial public offering, see “Item2. Management’s Discussion and Analysis of Financial Condition and Results ofOperations” in Part I of this report.

 

**Repurchasesof Equity Securities**

 

None

 

Item3.**DEFAULTS UPON SENIOR SECURITIES**

 

None

 

Item4.**SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

None

 

Item 5**. OTHER INFORMATION**

 

None

 

Item 6**.  EXHIBITS**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                             |
|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                                                                        |
| 10.1                 |       | Membership Interest  Purchase Agreement dated September 19, 2008, by and among the Company, Palmosa  Shipping Corporation and TDB SPV LLC (Incorporated by reference from the  Registrant’s Current Report on Form 8-K, dated September 19, 2008)                                                                       |
|                 |       |                                                                                                                                                                                                                                                                                                                                        |
| 10.2                 |       | Supplemental Agreement  dated September 19, 2008, by and among the Company, Palmosa Shipping  Corporation, TDB SPV LLC and each of the Palmosa affiliates selling vessels  under certain memoranda of agreement (Incorporated by reference from the  Registrant’s Current Report on Form 8-K, dated September 19, 2008) |
|                 |       |                                                                                                                                                                                                                                                                                                                                        |
| 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.                                                                                              |

 

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**SIGNATURES**

 

In accordance withthe requirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

 

 
|                   | ARCADE ACQUISITION CORP. |
|------------------------|--------------------------|
|                   |                     |
| November 12, 2008 | By:                      | /s/  Jonathan Furer |
|                   |                     | Jonathan Furer |
|                   |                     | Chief Executive Officer |

 

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