** **

**SECURITIES AND EXCHANGECOMMISSION**

**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, 2007.** |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** |

 
| **or** |
|--------|

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

**Commission File Number:****000-51444**

**Arcade AcquisitionCorp.**

(Exact name ofregistrant 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**

(Addressof Principal Executive Offices including zip code)

 

**(860) 236-6320**

(Registrant’sTelephone Number, Including Area Code)

Indicate by check mark whether the Registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of theExchange Act during the preceding 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.Yes x   No o

Indicate by check mark whether the registrantis an accelerated filer (as defined on Rule 12b-2 of the Exchange Act). Yes o   No x

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

There were 10,500,000 shares of the Registrant’sCommon Stock issued and outstanding on November 10, 2007.

 

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**Arcade Acquisition Corp.**

**(a corporation in the development stage)**

**Index to Form 10-Q**
| ** **   | ** **                                                                                          | **Page**   |
|--------------|-----------------------------------------------------------------------------------------------------|------------|
| ** **   | ** **                                                                                          | ** ** |
| **Part I.**  | **Financial Information**                                                                           | 3          |
| ** **   | ** **                                                                                          |       |
|         | Item  1. Financial Statements (unaudited)                                                           | 3          |
|         |                                                                                                |       |
|         | Balance  Sheet                                                                                      | 3          |
|         |                                                                                                |       |
|         | Statements  of Operations                                                                           | 4          |
|         |                                                                                                |       |
|         | Statement of Stockholders’ Equity                                                              | 5          |
|         |                                                                                                |       |
|         | Statements  of Cash Flows                                                                           | 6          |
|         |                                                                                                |       |
|         | Notes to Interim Financial Statements                                                               | 7          |
|         |                                                                                                |       |
|         | Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 13         |
|         |                                                                                                |       |
|         | Item 3. Quantitative and Qualitative Disclosures About  Market Risk                                 | 14         |
|         |                                                                                                |       |
|         | Item 4. Controls and Procedures                                                                     | 15         |
|         |                                                                                                |       |
| **Part II.** | **Other Information**                                                                               | 15         |
| ** **   | ** **                                                                                          |       |
|         | Item 1. Legal Proceedings                                                                           | 15         |
|         |                                                                                                |       |
|         | Item 1A. Risk Factors                                                                               | 15         |
|         |                                                                                                |       |
|         | Item 2. Unregistered Sales of Equity Securities and  Use of Proceeds                                | 15         |
|         |                                                                                                |       |
|         | Item 3. Defaults Upon Senior Securities                                                             | 15         |
|         |                                                                                                |       |
|         | Item 4. Submission of Matters to a Vote of Security  Holders                                        | 15         |
|         |                                                                                                |       |
|         | Item  5. Other Information                                                                          | 15         |
|         |                                                                                                |       |
|         | Item 6.  Exhibits                                                                                   | 16         |
|         |                                                                                                |       |
| SIGNATURES   | 16                                                                                                  |

 

2

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**PARTI - FINANCIAL INFORMATION**

**Item 1 — FINANCIAL STATEMENTS**

** **

**ARCADE ACQUISITION CORP.**

**(a corporation in the developmentstage)**

** **

**BALANCESHEET**

(unaudited)

 
| ** **                                                                                                                                                            | ** ** | **September 30, 2007** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| **ASSETS**                                                                                                                                                            | ** ** | ** **             | ** ** |
| ** **                                                                                                                                                            | ** ** | ** **             | ** ** |
| **Current assets**                                                                                                                                                    | ** ** | ** **             | ** ** |
| Cash                                                                                                                                                                  |       | $                      | 1,039,289  |   |
| Prepaid expense                                                                                                                                                       |       | 39,362                 |       |
|                                                                                                                                                                  |       |                   |       |
| Total current assets                                                                                                                                                  |       | 1,078,651              |       |
|                                                                                                                                                                  |       |                   |       |
| **Other assets**                                                                                                                                                      |       |                   |       |
| Investment in Trust  Account                                                                                                                                          |       | 68,080,540             |       |
| Deferred tax asset                                                                                                                                                    |       | 38,000                 |       |
|                                                                                                                                                                  |       |                   |       |
| Total other assets                                                                                                                                                    |       | 68,118,540             |       |
|                                                                                                                                                                  |       |                   |       |   |
|                                                                                                                                                                  |       | $                      | 69,197,191 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                        | ** ** | ** **             | ** ** |
| ** **                                                                                                                                                            | ** ** | ** **             | ** ** |
| **Current liabilities**                                                                                                                                               | ** ** | ** **             | ** ** |
| Accrued expenses                                                                                                                                                      |       | $                      | 32,304     |   |
| Income taxes payable                                                                                                                                                  |       | 394,240                |       |
|                                                                                                                                                                  |       |                   |       |
| Total current liabilities                                                                                                                                             |       | 426,544                |       |
|                                                                                                                                                                  |       |                   |       |
| **Long-term liabilities,** deferred  underwriters’ fee                                                                                                           |       | 1,690,500              |       |
| ** **                                                                                                                                                            |       |                   |       |
| **Common stock, subject to  possible redemption, 2,587,499 shares at redemption value**                                                                               |       | 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                  |       |
| Additional paid-in capital                                                                                                                                            |       | 46,033,880             |       |
| Retained earnings                                                                                                                                                     |       | 694,724                |       |
|                                                                                                                                                                  |       |                   |       |
| Total stockholders’ equity                                                                                                                                       |       | 46,729,655             |       |
|                                                                                                                                                                  |       |                   |       |
|                                                                                                                                                                  |       | $                      | 69,197,191 |   |

*See accompanying notes to interim financial statements.*

 

3

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**ARCADEACQUISITION CORP.**

**(a corporation in the developmentstage)**

** **

**STATEMENTSOF OPERATIONS**

(unaudited)

 
| ** **                                                                   | ** ** | **For the three  months ended  September 30,  2007** | ** ** | **For the period  January 30, 2007  (inception) to  September 30, 2007** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| **Revenues**                                                                 |       | $                                                    | —     |                                                                     | $          | — |   |
|                                                                         |       |                                                 |       |                                                                     |       |
| **Formation, general and  adminstrative expenses**                           |       | 102,735                                              |       | 126,920                                                                  |       |
|                                                                         |       |                                                 |       |                                                                     |       |
| **Loss from operations**                                                     |       | (102,735                                             | )          | (126,920                                                                 | )          |
|                                                                         |       |                                                 |       |                                                                     |       |
| **Other income (expense)**                                                   |       |                                                 |       |                                                                     |       |
| Interest and dividend  income                                                |       | 860,652                                              |       | 1,215,095                                                                |       |
| Interest expense                                                             |       | —                                               |       | (2,211                                                                   | )          |
|                                                                         |       |                                                 |       |                                                                     |       |
| **Income before provision for  income taxes**                                |       | 757,917                                              |       | 1,085,964                                                                |       |
|                                                                         |       |                                                 |       |                                                                     |       |
| **Provision for income taxes**                                               |       | 267,367                                              |       | 391,240                                                                  |       |
|                                                                         |       |                                                 |       |                                                                     |       |
| **Net income**                                                               |       | $                                                    | 490,550    |                                                                     | $          | 694,724 |   |
|                                                                         |       |                                                 |       |                                                                     |       |
| **Weighted average number of  common shares outstanding, basic and diluted** |       | 10,500,000                                           |       | 6,500,516                                                                |       |
|                                                                         |       |                                                 |       |                                                                     |       |
| **Net income per common share,  basic and diluted**                          |       | $                                                    | 0.05       |                                                                     | $          | 0.11 |   |

*See accompanying notes to interim financial statements.*

 

 

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**ARCADE ACQUISITION CORP.**

**(a corporation in the developmentstage)**

** **

**STATEMENTOF STOCKHOLDERS’ EQUITY**

(unaudited)

 

**For the period January 30, 2007(inception) to September 30, 2007**

** **
| ** **                                                                                                                                                                             | ** ** | ** **        | ** ** | ** **  | ** ** | ** **              | ** ** | **Retained  Earnings** | ** ** | ** **  | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------|------------|-------------------------|------------|------------------------|------------|-------------|------------|
| ** **                                                                                                                                                                             | ** ** | ** **        | ** ** | ** **  | ** ** | **Additional**          | ** ** | **Accumulated**        | ** ** | **Total**   | ** ** |
| ** **                                                                                                                                                                             | ** ** | **Common  Stock** | ** ** | **Paid-in** | ** ** | **During  Development** | ** ** | **Stockholders’** | ** ** |
| ** **                                                                                                                                                                             | ** ** | **Shares**        | ** ** | **Amount**  | ** ** | **Capital**             | ** ** | **Stage**              | ** ** | **Equity**  | ** ** |
| Common shares issued to existing shareholders on  February 13, 2007 at $0.013 per share                                                                                                |       | 1,875,000         |       | $           | 188        |                    | $          | 24,812                 |       | $           | —     |   | $ | 25,000 |   |
|                                                                                                                                                                                   |       |              |       |        |       |                    |       |                   |       |        |       |
| Proceeds from issuance of 2,000,000 warrants at $1  per warrant on May 23, 2007                                                                                                        |       |              |       |        |       | 2,000,000               |       |                   |       | 2,000,000   |       |
|                                                                                                                                                                                   |       |              |       |        |       |                    |       |                   |       |        |       |
| Sale of 7,500,000 units on May 25, 2007 at a price of  $8 per unit, net of underwriters’ discount and offering costs (including  2,249,999 shares subject to possible redemption) |       | 7,500,000         |       | 750         |       | 55,919,024              |       |                   |       | 55,919,774  |       |
|                                                                                                                                                                                   |       |              |       |        |       |                    |       |                   |       |        |       |
| Common stock subject to possible redemption,  2,249,999 shares                                                                                                                         |       |              |       |        |       | (17,744,994             | )          |                   |       | (17,744,994 | )          |
|                                                                                                                                                                                   |       |              |       |        |       |                    |       |                   |       |        |       |
| Proceeds from issuance of an option to the  underwriters on May 25, 2008                                                                                                          |       |              |       |        |       | 100                     |       |                   |       | 100         |       |
|                                                                                                                                                                                   |       |              |       |        |       |                    |       |                   |       |        |       |
| Sale of 1,125,000 units on June 7, 2007 at a price of  $8 per unit, net of underwriters’ discount and offering costs (including  337,500 shares subject to possible redemption)   |       | 1,125,000         |       | 113         |       | 8,440,436               |       |                   |       | 8,440,549   |       |
|                                                                                                                                                                                   |       |              |       |        |       |                    |       |                   |       |        |       |
| Common stock subject to possible redemption, 337,500  shares                                                                                                                           |       |              |       |        |       | (2,605,498              | )          |                   |       | (2,605,498  | )          |
|                                                                                                                                                                                   |       |              |       |        |       |                    |       |                   |       |        |       |
| Net income                                                                                                                                                                             |       |              |       |        |       |                    |       | 694,724                |       | 694,724     |       |
|                                                                                                                                                                                   |       |              |       |        |       |                    |       |                   |       |        |       |
| **Balances, September 30, 2007**                                                                                                                                                       |       | 10,500,000        |       | $           | 1,051      |                    | $          | 46,033,880             |       | $           | 694,724    |   | $ | 46,729,655 |   |

*See accompanying notes to interim financial statements.*

 

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**ARCADE ACQUISITION CORP.**

**(a corporation in the developmentstage)**

** **

**STATEMENTSOF CASH FLOWS**

(unaudited)

 
| ** **                                                                                | ** ** | **For the period  January 30, 2007  (inception) to  September 30, 2007** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
|                                                                                      |       |                                                                     |       |
| **Cash flows from operating  activities**                                                 | ** ** | ** **                                                               | ** ** |
| Net income                                                                                |       | $                                                                        | 694,724    |   |
| Adjustments to reconcile  net income to net cash provided by operating activities:        |       |                                                                     |       |
| Deferred tax asset                                                                        |       | (38,000                                                                  | )          |
| Increase (decrease) in  cash attributable to changes in operating assets and liabilities: |       |                                                                     |       |
| Prepaid expense                                                                           |       | (39,362                                                                  | )          |
| Accrued expenses                                                                          |       | 32,304                                                                   |       |
| Income taxes payable                                                                      |       | 394,240                                                                  |       |
|                                                                                      |       |                                                                     |       |
| **Net cash provided by operating  activities**                                            |       | 1,043,906                                                                |       |
|                                                                                      |       |                                                                     |       |
| **Cash used in investing  activities,**investment in Trust Account                        |       | (68,080,540                                                              | )          |
|                                                                                      |       |                                                                     |       |
| **Cash flows from financing  activities**                                                 | ** ** | ** **                                                               | ** ** |
| Proceeds from notes  payable, stockholders                                                |       | 225,000                                                                  |       |
| Repayment of notes  payable, stockholders                                                 |       | (225,000                                                                 | )          |
| Proceeds from issuance of  common stock                                                   |       | 25,000                                                                   |       |
| Proceeds from issuance of  warrants                                                       |       | 2,000,000                                                                |       |
| Gross proceeds from public  offering                                                      |       | 69,000,000                                                               |       |
| Payments for underwriters’  discount and offering cost                               |       | (2,949,177                                                               | )          |
| Proceeds from issuance of  option                                                         |       | 100                                                                      |       |
|                                                                                      |       |                                                                     |       |
| **Net cash provided by financing  activities**                                            |       | 68,075,923                                                               |       |
|                                                                                      |       |                                                                     |       |
| **Net increase in cash**                                                                  |       | 1,039,289                                                                |       |
|                                                                                      |       |                                                                     |       |
| **Cash,** beginning of  period                                                            |       | —                                                                   |       |
|                                                                                      |       |                                                                     |       |
| **Cash,** end of period                                                                   |       | $                                                                        | 1,039,289  |   |
|                                                                                      |       |                                                                     |       |
| **Supplemental disclosure of cash  flow information:**                                    | ** ** | ** **                                                               | ** ** |
|                                                                                      |       |                                                                     |       |
| Cash paid during the  period for:                                                         |       |                                                                     |       |
| Interest                                                                                  |       | $                                                                        | 2,211      |   |
|                                                                                      |       |                                                                     |       |
| Taxes                                                                                     |       | $                                                                        | 35,000     |   |
|                                                                                      |       |                                                                     |       |
| **Supplemental schedule of  non-cash financing activities:**                              | ** ** | ** **                                                               | ** ** |
|                                                                                      |       |                                                                     |       |
| Deferred underwriters’  fees                                                         |       | $                                                                        | 1,690,500  |   |

*See accompanying notes to interim financial statements.*

6

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**ARCADEACQUISITION CORP.**

(a corporation in the development stage)

**Notes toInterim Financial Statements**

**NOTE A—BASIS OF PRESENTATION**

The accompanying unaudited condensed financialstatements as of September 30, 2007, and for the period January 30, 2007 (dateof inception) to September 30, 2007, have been prepared in accordance withaccounting principles generally accepted in the United States of America forinterim financial information and with the instructions to Form 10-Q andArticle 10 of Regulation S-X. Accordingly, they do not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States of America (GAAP) for complete financial statements. Inthe opinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included.Operating results for the interim period presented are not necessarilyindicative of the results to be expected for any other interim period or forthe full year.

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

Arcade Acquisition Corp. (a corporation in the developmentstage) (the “Company”) was incorporated in Delaware on January 30, 2007. TheCompany was formed to acquire, through a merger, asset acquisition, stockexchange or other similar business combination, an operating business (“BusinessCombination”). As of September 30, 2007, the Company has neither acquired anentity nor engaged in any operations. The Company is considered to be in thedevelopment stage as defined in Statement of Financial Accounting Standards(SFAS) No. 7, “Accounting and Reporting By Development Stage Enterprises”, andis subject to the risks associated with activities of development stagecompanies. The Company has selected December 31 as its calendar year-end.

The registration statement for the Company’s initialpublic offering (the “Public Offering”) was declared effective on May 21,2007.  The Company completed a private placement (the “Private Placement”)on May 23, 2007 and received gross proceeds of $2,000,000.  The Companyconsummated the Public Offering on May 25, 2007 and received gross proceeds of$60,000,000. The Company’s management has broad discretion with respect to thespecific application of the net proceeds of the Private Placement and thePublic Offering of Units (as defined in Note D) (collectively, the “Offering”)although substantially all of the net proceeds of the Offering are intended tobe generally applied toward consummating a Business Combination. Furthermore,there is no assurance that the Company will be able to successfully effect aBusiness Combination. An amount equal to approximately 98.3%  of the grossproceeds of the Public Offering (98.6% prior to the exercise of theunderwriters’ over-allotment option) has been placed in a trust account (the “TrustAccount”). The Trust Account is invested in U.S. “government securities,”defined as any Treasury Bill issued by the United States government having amaturity of one hundred and eighty (180) days or less or money market fundsmeeting the conditions specified in Rule 2a-7 under the Investment Company Actof 1940, until the earlier of (i) the consummation of a Business Combination or(ii) the distribution of the Trust Account as described below. The remainingnet proceeds, plus up to $2 million of income earned on funds in the TrustAccount, may be used to pay for business, legal and accounting due diligence onprospective acquisitions and continuing general and administrative expenses.

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

 

7

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voteall of the shares of common stock acquired by them prior to the Public Offeringin accordance with the vote of the majority in interest of all otherstockholders of the Company.

In the event that holders of more than 20% but lessthan 30% of the shares of common stock sold in the Public Offering elect toredeem their shares, the Company’s initial stockholders have agreed to forfeit,on a pro rata, basis and return to us for cancellation, that number of shares(up to a maximum of 234,375) that will result in them owning collectively nomore than 23.81% of the Company’s outstanding common stock immediately prior tothe consummation of such Business Combination after giving effect to theredemption (without taking into account any shares that they may have acquiredin the aftermarket). If any such shares are forfeited, the financial statementssubsequent to such forfeiture would reflect a decrease in total sharesoutstanding.

In the event that the Company does not consummate aBusiness Combination by May 21, 2009, our corporate existence will cease andthe proceeds held in the Trust Account will be distributed to the Company’spublic stockholders, excluding the initial stockholders to the extent of theirinitial stock holdings.

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

Developmentstage company:

The Company complies with the reporting requirementsof Statement of Financial Accounting Standards (“SFAS”) No. 7, “Accounting andReporting by Development Stage Enterprises.”

Commonstock:

On May 15, 2007, the Company effected a 1.2-for-onestock split in the form of a dividend, which resulted in the issuance of anadditional 312,500 shares to the Company’s stockholders. The Company’s interimfinancial statements give retroactive effect to the stock split.

Financialinstruments:

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

Earningsper share:

The Company complies with accounting and disclosurerequirements of SFAS No. 128, “Earnings Per Share.”  Net income per commonshare is computed by dividing net income by the weighted average number ofcommon shares outstanding for the period, except where the result would beantidilutive. Net income per share of common stock, assuming dilution, reflectsthe maximum potential dilution that could occur if securities or other contractsto issue common stock were exercised or converted into common stock and wouldthen share in the net income of the Company.  At September 30, 2007, theeffect of the 11,375,000 warrants (including 2,000,000 outstanding warrantsissued in connection with the Private Placement) have not been considered inthe diluted net income per share since the warrants are contingentlyexercisable.

Concentrationof credit risk:

Financial instruments that potentially subject theCompany to concentrations of credit risk consist of cash accounts in afinancial institution, which at times, exceeds the Federal depository insurancecoverage. The Company has not experienced losses on these accounts andmanagement believes the Company is not exposed to significant risks on such accounts.

 

8

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Use ofestimates:

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

Deferredoffering costs:

The Company complies with the requirements of the SECStaff Accounting Bulletin (SAB) Topic 5A—“Expenses of Offering.” Deferredoffering costs of approximately $534,000 consist principally of legal,accounting, and printing fees incurred through the date of the Public Offering(see Note D).  These costs, together with the underwriter discount, were charged to capital upon the completion of the Public Offering.

Preferredstock:

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

Adoptionof new accounting standard:

In July 2006, the Financial Accounting Standards Board(“FASB”) issued Financial Accounting Standards Interpretation No. 48,Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 prescribes arecognition threshold and measurement process for recording in the financialstatements uncertain tax positions taken or expected to be taken in a taxreturn. FIN 48 also provides guidance on derecognition, classification,interest and penalties, accounting in interim periods, disclosures andtransitions. The Company adopted FIN 48 and has determined that the adoptiondoes not have a material impact on the Company’s financial position or resultsof operations.

Impactof recently issued accounting standard:

In September 2006, the FASBissued SFAS No. 157 “Fair Value Measurements” (SFAS No. 157). SFAS No. 157provides guidance for, among other things, the definition of fair value and themethods used to measure fair value. The provisions of SFAS No. 157 areeffective for fiscal years beginning after November 15, 2007. The Company doesnot expect the adoption of this new standard to have a material impact on thefinancial position, operating results and cash flows of the Company.

In February 2007, the FASB issuedSFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities— including an amendment of FASB Statement No. 115” (SFAS No. 159).  SFAS No. 159 permits entities to choose tomeasure many financial instruments and certain other items at fair value. Theprovisions of SFAS No. 159 are effective for fiscal years beginning afterNovember 15, 2007. The Company does not expect the adoption of this newstandard to have a material impact on the financial position, operating resultsand cash flows of the Company.

Incometaxes:

The Company complies with SFAS 109, “Accounting forIncome Taxes,” which requires an asset and liability approach to financialaccounting and reporting for income taxes. Deferred income tax assets andliabilities are computed for differences between the financial statement andtax bases of assets and liabilities that will result in future taxable ordeductible amounts, based on enacted tax laws and rates applicable to theperiods in which the differences are expected to affect taxable income.Valuation allowances are established, when necessary, to reduce deferred taxassets to the amount expected to be realized.

 

9

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**NOTE D—PUBLIC OFFERING**

On May 25, 2007, the Company consummated the sale of7,500,000 units (“Units”) at a price of $8.00 per Unit in the Public Offering .On June 7, 2007, the underwriters exercised their over-allotment option andpurchased an additional 1,125,000 Units at the offering price of $8.00 perUnit.  Each Unit consists of one share of the Company’s common stock,$0.0001 par value, and one redeemable common stock purchase warrant (“Warrants”).Each Warrant entitles the holder to purchase from the Company one share ofcommon stock at an exercise price of $6.00 commencing on the later of (i) May21, 2008 or (ii) the completion of a Business Combination, and expires on May21, 2011. The Warrants are redeemable at a price of $0.01 per Warrant upon 30days’ prior notice after the Warrants become exercisable, only in the eventthat the last sale price of the common stock is at least $11.50 per share forany 20 trading days within a 30 trading day period ending on the third businessday prior to the date on which notice of redemption is given. If the Company isunable to deliver registered shares of common stock to the holder upon exerciseof Warrants during the exercise period, there will be no cash settlement of theWarrants and the Warrants will expire worthless.

**NOTE E—ACCRUED EXPENSES**

Accrued expenses at September 30, 2007 consist ofapproximately $3,300 related to professional fees and approximately $29,000related to franchise tax fees.

**NOTE F—RELATED PARTY TRANSACTIONS**

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

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

The Company has a service agreement with ArcadePartners, LLC, an affiliate of the Company’s officers and directors, wherebythe Company pays a monthly service fee of $7,500. Such fee is to cover generaland administrative services provided by the affiliate, including office spaceand utilities.

On May 23, 2007, Arcade Acquisition Investors, LLC, anaffiliate of the Company’s officers and directors, purchased, in the PrivatePlacement, 2,000,000 warrants at $1.00 per warrant (the “Insider Warrants”).The aggregate proceeds of the Private Placement of $2,000,000 are being held inthe Trust Account described in Note A. Arcade Acquisition Investors, LLC hasagreed that it will not sell or otherwise transfer the Insider Warrants untilafter the Company consummates a Business Combination other than to its membersin proportion to their membership interests, which members are subject to thesame restriction on transferability, except in certain limited circumstances.

**NOTE G—COMMITMENTS AND CONTINGENCIES**

The Company paid an underwriting discount of 3.5% ofthe gross offering proceeds to the underwriters at the closing of the PublicOffering, with an additional fee of 3.5% of the gross offering proceeds payableupon the Company’s consummation of a Business Combination. The deferredunderwriting discount of $2,415,000 will be forfeited in its entirety in theevent there is no Business Combination, and is net of $724,500 that is subjectto forfeiture in the event the maximum possible number of shares entitled toredemption concurrently with the approval of a Business Transaction areactually redeemed. The underwriters will not be entitled to any interestaccrued on the deferred discount.

The Company sold to the underwriters, for $100, anoption to purchase up to a total of 750,000 units at a per-unit price of $10.00that expires on May 21, 2012. The units issuable upon exercise of this optionare identical to those sold in the Public Offering except that warrantsincluded in the option have an exercise price of $7.00. The 

 

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Companyhas accounted for the fair value of the option, inclusive of the receipt of the$100 cash payment, as an expense of the Public Offering resulting in a chargedirectly to stockholder’s equity.

The Company has determined, based upon a Black-Scholesmodel, that the fair value of the option on the date of sale was approximately$2.35 per unit, or approximately $1,760,000 in total, using an expectedlife of five years, volatility of 32.9% and a risk-free interest rate of 4.81%.The volatility calculation of 32.9% was based on the most recent trading dayaverage volatility of a representative sample of 21 blank check companies thatcompleted a business combination and had a sufficient subsequent tradinghistory (the “Sample Companies”). Because the Company did not have a tradinghistory, the Company needed to estimate the potential volatility of its commonstock price, which depends on a number of factors that could not be ascertainedat that time. The Company referred to the average volatility of the SampleCompanies because management believes that the average volatility of suchcompanies is a reasonable benchmark to use in estimating the expectedvolatility of the Company’s common stock post-business combination. Although anexpected life of five years was taken into account for purposes of assigning afair value to the option, if the Company does not consummate a Business Combinationwithin the prescribed time period and liquidates, the option would becomeworthless.

**NOTE H—INCOME TAXES**

For the three months ended September 30, 2007 and the period January30, 2007 (inception) to September 30, 2007, the components of the provision forincome taxes are as follows: 

 

| ** ** | ** ** | ** **               | ** ** | **For the period**     | ** ** |
|------------|------------|--------------------------|------------|------------------------|------------|
| ** ** | ** ** | **For the three months** | ** ** | **January 30, 2007**   | ** ** |
| ** ** | ** ** | **ended**                | ** ** | **(inception to)**     | ** ** |
| ** ** | ** ** | **September 30, 2007**   | ** ** | **September 30, 2007** | ** ** |
|       |       |                     |       |                   |       |
| Current:   |       |                     |       |                   |       |
| Federal    |       | $                        | 286,056    |                   | $          | 402,077 |   |
| State      |       | 19,311                   |       | 27,163                 |       |
| Deferred:  |       |                     |       |                   |       |
| Federal    |       | (38,000                  | )          | (38,000                | )          |
|       |       |                     |       |                   |       |
|       |       | $                        | 267,367    |                   | $          | 391,240 |   |

 

The Company has not begun its trade or business forU.S. tax purposes.  Accordingly, it couldnot yet recognize losses for start-up expenditures. As a result, a deferred taxasset of approximately $38,000 at September 30, 2007 was established for thesestart-up expenditures.

The effective tax rate differs from the statutory ratefor the period presented due to the removal of the valuation allowance duringthe three months ended September 30, 2007.

**NOTEI—REGISTRATION RIGHTS**

The holders of the Initial Shares and the InsiderWarrants (and underlying securities), are entitled to certain registrationrights.  The holders of the majority of the Initial Shares will beentitled to make up to two demands that the Company register such securities atany time after their release from escrow.  The  holders of a majorityof the Insider Warrants (or underlying securities) are entitled to one demandthat the Company register such securities at any time after the Companyconsummates a business combination.  In addition, such holders will havecertain “piggy-back” registration rights on registration statements filedsubsequent to the date on which such securities are released from escrow. Onthe date of the Public Offering, all of our initial stockholders placed theirInitial Shares and Insider Warrants into an escrow account maintained byContinental Stock Transfer & Trust Company, acting as 

 

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escrowagent.  The Initial Shares will not be released from escrow until one yearafter the consummation of a Business Combination, or earlier if, following aBusiness Combination, we engage in a subsequent transaction resulting in ourstockholders having the right to exchange their shares for cash or othersecurities or if we liquidate and dissolve.  The Insider Warrants will notbe released from escrow until 30 days after the completion of a BusinessCombination.  The Company will bear the expenses incurred in connectionwith the filing of any such registration statements.

 

 

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Item 2**- MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

**Forward Looking Statements**

This Quarterly Report on Form 10-Q includesforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933, as amended, and Section 21E of the Securities Exchange Act of1934, as amended.  We have based these forward-looking statements on ourcurrent expectations and projections about future events. These forward-lookingstatements are subject to known and unknown risks, uncertainties andassumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from anyfuture results, levels of activity, performance or achievements expressed orimplied by such forward-looking statements.  In some cases, you canidentify forward-looking statements by terminology such as “may,” “should,” “could,”“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” orthe negative of such terms or other similar expressions.  Factors thatmight cause or contribute to such a discrepancy include, but are not limitedto, those described in our other Securities and Exchange Commission filings.The following discussion should be read in conjunction with our FinancialStatements and related Notes thereto included elsewhere in this report.

**Overview**

We were formed on January 30, 2007 to serve as avehicle to effect a merger, capital stock exchange, asset acquisition or othersimilar business combination with an operating business.  Our initialBusiness Combination must be with a target business or businesses whose fairmarket value is at least equal to 80% of our net assets at the time of suchacquisition.  We intend to utilize cash derived from the proceeds of ourrecently completed Private Placement and Public Offering, our capital stock,debt or a combination of cash, capital stock and debt, in effecting a BusinessCombination.

**CriticalAccounting Policies**

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities at the date of the financial statements andthe reported amounts of expenses during the reporting period. Actual resultscould differ from those estimates.

In June 2006, the FASB issued Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes-an Interpretation of SFAS No.109” (“FIN 48”).FIN 48 clarifies the accounting for uncertainty in tax positions recognized ina company’s financial statements in accordance with SFAS No. 109, “Accountingfor Income Taxes.” FIN 48 prescribes a recognition threshold and measurementattribute for the financial statement recognition and measurement of the taxposition taken or expected to be taken in a tax return. The Company adopted FIN48.  The adoption of FIN 48 did not have any impact on the accompanyingfinancial statements since we have not identified any uncertain tax positionsas defined by FIN 48.

Management does not believe that any other recentlyissued, but not yet effective, accounting standards if currently adopted wouldhave a material effect on the accompanying financial statements.

**Liquidity and Capital Resources**

On May 25, 2005, we consummated our Public Offering of7,500,000 units.  Each unit consists of one share of common stock and oneredeemable common stock purchase warrant.  On June 7, 2007, theunderwriters exercised their over-allotment option and purchased an additional1,125,000 Units.  Each Warrant entitles the holder to purchase from us oneshare of our common stock at an exercise price of $6.00.  Our common stockand warrants started trading separately as of June 14, 2007.

 

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The net proceeds from the sale of our Units (includingthe underwriters’ over-allotment option) and the Insider Warrants, afterdeducting certain offering expenses of approximately $2,949,000, includingunderwriting discounts of approximately $2,415,000, were approximately$68,085,000. Of this amount, $67,835,000 is being held in the Trust Account andthe remaining proceeds are being held outside of the Trust Account. Theremaining proceeds, along with up to $2,000,000 in interest earned on the fundsin the Trust Account, are available to be used by us to provide for business,legal and accounting due diligence on prospective acquisitions and continuinggeneral and administrative expenses. We will use substantially all of the netproceeds of the Offering to acquire a target business, including identifyingand evaluating prospective acquisition candidates, selecting the targetbusiness, and structuring, negotiating and consummating a Business Combination.To the extent that our capital stock is used in whole or in part asconsideration to effect a Business Combination, the proceeds held in the TrustAccount, as well as any other net proceeds not expended, will be used tofinance the operations of the target business. Including the $2,000,000 ininterest available to us, we believe we will have sufficient available fundsoutside of the Trust Account to operate through May 21, 2009, assuming that aBusiness Combination is not consummated during that time. We do not believe wewill need to raise additional funds in order to meet the expenditures requiredfor operating our business. However, we may need to raise additional fundsthrough a private offering of debt or equity securities if such funds arerequired to consummate a Business Combination that is presented to us. We wouldonly consummate such a financing simultaneously with the consummation of aBusiness Combination.

**Results of Operations for the periodJanuary 30, 2007 (date of inception) to****September****30, 2007**

For the period from January 30, 2007 (date ofinception) through September 30, 2007, we had net income of $694,724, derivedfrom interest income less operating expenses.

Commencing on May 21, 2007 and ending upon theacquisition of a target business, we began incurring a fee of $7,500 per monthfor office space and certain other additional services from Arcade Partners,LLC, an affiliate of our executive officers and directors.  In addition,on February 5, 2007 and April 4, 2007, pursuant to two promissory notes, we borrowedan aggregate amount of $225,000 from Arcade Partners, LLC. The notes, whichbore interest at 4% per annum, were repaid on May 25, 2007.

**Off Balance-Sheet Arrangements**

We have not entered into any off balance-sheetfinancial arrangements, and have not established any special purpose entities.

**Contractual Obligations**

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

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

Market risk is the sensitivity of income to changes ininterest rates, foreign exchanges, commodity prices, equity prices, and othermarket-driven rates or prices. We are not presently engaged in and, if asuitable business target is not identified by us prior to the prescribedliquidation date of the Trust Account, we may not engage in, any substantivecommercial business. Accordingly, we are not and, until such time as weconsummate a Business Combination, we will not be, exposed to risks associatedwith foreign exchange rates, commodity prices, equity prices or othermarket-driven rates or prices. The net proceeds of the Offering held in theTrust Account have been invested only in money market funds meeting certainconditions under Rule 2a-7 promulgated under the Investment 

 

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CompanyAct of 1940. Given our limited risk in our exposure to money market funds, wedo not view the interest rate risk to be significant.

Item 4.**CONTROLS AND PROCEDURES**

An evaluation of the effectiveness of our disclosurecontrols and procedures as of September 30, 2007 was made under the supervisionand with the participation of our management, including our chief executiveofficer and our principal financial officer. Based on that evaluation,management concluded that our disclosure controls and procedures are effectiveas of the end of the period covered by this report to ensure that informationrequired to be disclosed by us in reports that we file or submit under theSecurities Exchange Act of 1934 is recorded, processed, summarized and reportedwithin the time periods specified in Securities and Exchange Commission rulesand forms.

During the most recently completed fiscal quarter,there has been no significant change in our internal control over financialreporting that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

**PARTII - OTHER INFORMATION**

Item 1.**LEGAL PROCEEDINGS**

None.

Item 1A.** RISK FACTORS**

In addition to the other information set forth in thisreport, you should carefully consider the factors discussed in the sectiontitled ‘‘Risk Factors’’ in our Prospectus on Form 424(b)(3), filed on May22, 2007, which could materially affect our business, financial conditionor future results. The risks described in our Prospectus are not the only risksfacing our Company. Additional risks and uncertainties not currently known tous or that we currently deem to be immaterial also may materially adverselyaffect our business, financial condition and/or operating results.

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

In May 2007, we completed the Private Placement andthe Public Offering.  The total net proceeds of the Offering (includingthe subsequent exercise of the underwriters’ over-allotment option) wereapproximately $68,085,000, of which approximately $67,835,000 is being held inthe Trust Account.  Through September 30, 2007, approximately $127,000 ofnet proceeds were used for operating expenses, including the $7,500 monthly feeto Arcade Partners, LLC, franchise tax fees and D&O insurance.

Item 3.**DEFAULTS UPON SENIOR SECURITIES**

None

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

None

Item 5**. OTHER INFORMATION**

 

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None

Item 6**.  EXHIBITS**
| **Exhibit  No.** | ** ** | **Description**                                                                                                                                                                                                                           |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                                                                                                                                                      |
| 31.1             |       | Certification of the  Chief Executive Officer (Principal Executive Officer) pursuant to Rule  13a-14(a) of the Securities Exchange Act, as amended.                                                                                       |
|             |       |                                                                                                                                                                                                                                      |
| 31.2             |       | Certification of the  Chief Financial Officer and (Principal Financial Officer) pursuant to Rule  13a-14(a) of the Securities Exchange Act, as amended.                                                                                   |
|             |       |                                                                                                                                                                                                                                      |
| 32.1             |       | Certification of the  Chief Executive Officer (Principal Executive Officer) and Chief Financial  Officer (Principal Financial Officer) pursuant to 18 U.S.C. 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

**SIGNATURES**

In accordance with the requirements of theExchange Act, the registrant caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized. 

 
|              | ARCADE ACQUISITION CORP. |
|-------------------|--------------------------|
|              |                     |
| November 13, 2007 | By:                      | /s/   Jonathan Furer |
|              |                     | Jonathan Furer |
|              |                     | Chief Executive Officer |

 

 

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