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 June 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 August 12,2008.

 

 

 

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Tableof Contents

 

**Arcade Acquisition Corp.**

**(a corporation in the developmentstage)**

 

**Index toForm 10-Q**

 
| ** **        | ** ** | ** **                                                                                           | **Page**   |
|-------------------|------------|------------------------------------------------------------------------------------------------------|------------|
| **Part I.**  | ** ** | **Financial Information**                                                                            | ** ** |
| ** **        | ** ** | ** **                                                                                           |       |
|              |       | Item 1.  Financial Statements                                                                        | 3          |
|              |       |                                                                                                 |       |
|              |       | Balance Sheets                                                                                       | 3          |
|              |       |                                                                                                 |       |
|              |       | Statements of Operations                                                                             | 4          |
|              |       |                                                                                                 |       |
|              |       | Statements 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                                  | 15         |
|              |       |                                                                                                 |       |
|              |       | Item 4. Controls  and Procedures                                                                     | 15         |
|              |       |                                                                                                 |       |
| **Part II.** | ** ** | **Other Information**                                                                                |       |
| ** **        | ** ** | ** **                                                                                           |       |
|              |       | Item 1. Legal  Proceedings                                                                           | 16         |
|              |       |                                                                                                 |       |
|              |       | Item 1A. Risk Factors                                                                                | 16         |
|              |       |                                                                                                 |       |
|              |       | Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                 | 16         |
|              |       |                                                                                                 |       |
|              |       | Item 3.  Defaults Upon Senior Securities                                                             | 16         |
|              |       |                                                                                                 |       |
|              |       | Item 4.  Submission of Matters to a Vote of Security Holders                                         | 16         |
|              |       |                                                                                                 |       |
|              |       | Item 5. Other  Information                                                                           | 16         |
|              |       |                                                                                                 |       |
|              |       | Item 6. Exhibits                                                                                     | 17         |
|              |       |                                                                                                 |       |
| SIGNATURES        |       |

 

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**PART I - FINANCIAL INFORMATION**

 

Item 1.**  FINANCIAL STATEMENTS**

 

**ARCADEACQUISITION CORP.**

(a corporation inthe development stage)

 

**BALANCE SHEETS**

 
| ** **                                                                                                                                                           | ** ** | **June 30, 2008** | ** ** | **December  31, 2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------|------------|
| ** **                                                                                                                                                           | ** ** | **(unaudited)**             | ** ** | ** **             | ** ** |
| **ASSETS**                                                                                                                                                           | ** ** | ** **                  | ** ** | ** **             | ** ** |
|                                                                                                                                                                 |       |                        |       |                   |       |
| **Current assets**                                                                                                                                                   |       |                        |       |                   |       |
|                                                                                                                                                                 |       |                        |       |                   |       |
| Cash                                                                                                                                                                 |       | $                           | 1,592,104  |                   | $          | 1,487,025 |   |
| Prepaid expense                                                                                                                                                      |       | 75,702                      |       | 25,494                 |       |
| Total current assets                                                                                                                                                 |       | 1,667,806                   |       | 1,512,519              |       |
|                                                                                                                                                                 |       |                        |       |                   |       |
| **Other assets**                                                                                                                                                     |       |                        |       |                   |       |
|                                                                                                                                                                 |       |                        |       |                   |       |
| Investment in Trust Account                                                                                                                                          |       | 67,951,299                  |       | 67,931,770             |       |
| Deferred tax asset                                                                                                                                                   |       | 457,580                     |       | 67,828                 |       |
| Total other assets                                                                                                                                                   |       | 68,408,879                  |       | 67,999,598             |       |
|                                                                                                                                                                 |       |                        |       |                   |       |
|                                                                                                                                                                 |       | $                           | 70,076,685 |                   | $          | 69,512,117 |   |
|                                                                                                                                                                 |       |                        |       |                   |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                       |       |                        |       |                   |       |
|                                                                                                                                                                 |       |                        |       |                   |       |
| **Current liabilities**                                                                                                                                              |       |                        |       |                   |       |
| Accrued expenses                                                                                                                                                     |       | $                           | 819,584    |                   | $          | 52,860 |   |
| Income taxes payable                                                                                                                                                 |       | —                      |       | 217,755                |       |
| Total current liabilities                                                                                                                                            |       | 819,584                     |       | 270,615                |       |
|                                                                                                                                                                 |       |                        |       |                   |       |
| **Long-term liabilities,**deferred  underwriters’ fee                                                                                                           |       | 1,690,500                   |       | 1,690,500              |       |
|                                                                                                                                                                 |       |                        |       |                   |       |
| **Common stock subject to possible redemption,**2,587,499  shares at redemption value, approximately $7.86 per share                                                 |       | 20,350,492                  |       | 20,350,492             |       |
|                                                                                                                                                                 |       |                        |       |                   |       |
| **Commitments and contingencies**                                                                                                                                    |       |                        |       |                   |       |
|                                                                                                                                                                 |       |                        |       |                   |       |
| **Stockholders’ equity**                                                                                                                                        |       |                        |       |                   |       |
| Preferred stock, $.0001 par value; 1,000,000 shares authorized; none  issued                                                                                         |       |                        |       |                   |       |
|                                                                                                                                                                 |       |                        |       |                   |       |
| Common stock, $.0001 par value, authorized 39,000,000 shares; 10,500,000  shares issued and outstanding (including 2,587,499 shares subject to possible  redemption) |       | 1,051                       |       | 1,051                  |       |
| Additional paid-in capital                                                                                                                                           |       | 46,033,882                  |       | 46,033,882             |       |
| Retained earnings                                                                                                                                                    |       | 1,181,176                   |       | 1,165,577              |       |
| Total stockholders’ equity                                                                                                                                      |       | 47,216,109                  |       | 47,200,510             |       |
|                                                                                                                                                                 |       |                        |       |                   |       |
|                                                                                                                                                                 |       | $                           | 70,076,685 |                   | $          | 69,512,117 |   |

 

See accompanying notes to interim financial statements.

 

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**ARCADEACQUISITION CORP.**

(a corporation inthe development stage)

 

**STATEMENTS OF OPERATIONS**

**(Unaudited)**

 
| ** **                                                                    | ** ** | **Three Months  Ended June 30,  2008** | ** ** | **Three Months  Ended June 30,  2007** | ** ** | **Six Months Ended  June 30, 2008** | ** ** | **January 30, 2007  (date of inception)  to June 30, 2007** | ** ** | **January 30, 2007  (date of inception)  to June 30, 2008** | ** ** |
|-------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | ** **                                            | ** ** | ** **                                            | ** ** | ** **                                              | ** ** | ** **                                                                                     | ** ** | ** **                                                                                     | ** ** |
| Revenue                                                                       |       | $                                                     | —     |                                                  | $          | —                                                  |       | $                                                                                              | —     |                                                                                           | $          | — |   | $ | — |   |
|                                                                          |       |                                                  |       |                                                  |       |                                                    |       |                                                                                           |       |                                                                                           |       |
| Formation and operating costs                                                 |       | 680,488                                               |       | 20,896                                                |       | 1,034,198                                               |       | 24,185                                                                                         |       | 1,261,964                                                                                      |       |
|                                                                          |       |                                                  |       |                                                  |       |                                                    |       |                                                                                           |       |                                                                                           |       |
| Loss from operations                                                          |       | (680,488                                              | )          | (20,896                                               | )          | (1,034,198                                              | )          | (24,185                                                                                        | )          | (1,261,964                                                                                     | )          |
|                                                                          |       |                                                  |       |                                                  |       |                                                    |       |                                                                                           |       |                                                                                           |       |
| Other income (expense)                                                        |       |                                                  |       |                                                  |       |                                                    |       |                                                                                           |       |                                                                                           |       |
| Interest and dividend income                                                  |       | 394,793                                               |       | 354,238                                               |       | 1,004,285                                               |       | 354,443                                                                                        |       | 3,029,766                                                                                      |       |
| Interest expense                                                              |       | —                                                |       | (1,569                                                | )          | —                                                  |       | (2,211                                                                                         | )          | (2,211                                                                                         | )          |
|                                                                          |       |                                                  |       |                                                  |       |                                                    |       |                                                                                           |       |                                                                                           |       |
| Income (loss) before provision for (benefit from) income taxes                |       | (285,695                                              | )          | 331,773                                               |       | (29,913                                                 | )          | 328,047                                                                                        |       | 1,765,591                                                                                      |       |
|                                                                          |       |                                                  |       |                                                  |       |                                                    |       |                                                                                           |       |                                                                                           |       |
| Provision for (benefit from) income taxes                                     |       | (124,729                                              | )          | 123,873                                               |       | (45,512                                                 | )          | 123,873                                                                                        |       | 584,415                                                                                        |       |
|                                                                          |       |                                                  |       |                                                  |       |                                                    |       |                                                                                           |       |                                                                                           |       |
| Net income (loss) applicable to common stockholders                           |       | $                                                     | (160,966   | )                                                     | $          | 207,900                                                 |       | $                                                                                              | 15,599     |                                                                                           | $          | 204,174 |   | $ | 1,181,176 |   |
|                                                                          |       |                                                  |       |                                                  |       |                                                    |       |                                                                                           |       |                                                                                           |       |
| Common shares outstanding subject to possible redemption                      |       | 2,587,499                                             |       | 2,587,499                                             |       | 2,587,499                                               |       | 2,587,499                                                                                      |       | 2,587,499                                                                                      |       |
|                                                                          |       |                                                  |       |                                                  |       |                                                    |       |                                                                                           |       |                                                                                           |       |
| Net income (loss) per common share for shares subject to possible  redemption |       | $                                                     | —     |                                                  | $          | —                                                  |       | $                                                                                              | —     |                                                                                           | $          | — |   | $ | — |   |
|                                                                          |       |                                                  |       |                                                  |       |                                                    |       |                                                                                           |       |                                                                                           |       |
| Weighted average number of common shares outstanding:                         |       |                                                  |       |                                                  |       |                                                    |       |                                                                                           |       |                                                                                           |       |
| Basic                                                                         |       | 10,500,000                                            |       | 5,591,667                                             |       | 10,500,000                                              |       | 4,090,232                                                                                      |       | 8,548,000                                                                                      |       |
| Diluted                                                                       |       | 10,500,000                                            |       | 5,591,667                                             |       | 12,451,000                                              |       | 4,090,232                                                                                      |       | 10,390,000                                                                                     |       |
|                                                                          |       |                                                  |       |                                                  |       |                                                    |       |                                                                                           |       |                                                                                           |       |
| Net income (loss) per common share:                                           |       |                                                  |       |                                                  |       |                                                    |       |                                                                                           |       |                                                                                           |       |
| Basic                                                                         |       | $                                                     | (0.02      | )                                                     | $          | 0.04                                                    |       | $                                                                                              | 0.00       |                                                                                           | $          | 0.05 |   | $ | 0.14 |   |
| Diluted                                                                       |       | $                                                     | (0.02      | )                                                     | $          | 0.04                                                    |       | $                                                                                              | 0.00       |                                                                                           | $          | 0.05 |   | $ | 0.11 |   |

 

See accompanying notes tointerim financial statements.

 

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**ARCADEACQUISITION CORP.**

(a corporation inthe development stage)

** **

**STATEMENTS OF STOCKHOLDERS’ EQUITY**

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

 
| ** **                                                                                                                                                                                | ** ** | ** **            | ** ** | ** **       | ** ** | **Additional** | ** ** | ** **             | ** ** | **Total**   | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------|------------|----------------|------------|------------------------|------------|-------------|------------|
| ** **                                                                                                                                                                                | ** ** | **Common Stock** | ** ** | **Paid in** | ** ** | **Retained**   | ** ** | **Stockholders’** | ** ** |
| ** **                                                                                                                                                                                | ** ** | **Shares**            | ** ** | **Amount**       | ** ** | **Capital**    | ** ** | **Earnings**           | ** ** | **Equity**  | ** ** |
|                                                                                                                                                                                      |       |                  |       |             |       |           |       |                   |       |        |       |
| Common shares issued to initial stockholders on February 13,  2007 at approximately $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 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 units 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 at  redemption value, approximately $7.86 per share |       |                  |       |             |       | (20,350,492    | )          |                   |       | (20,350,492 | )          |
|                                                                                                                                                                                      |       |                  |       |             |       |           |       |                   |       |        |       |
| Net income                                                                                                                                                                                |       |                  |       |             |       |           |       | 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  |       |
|                                                                                                                                                                                      |       |                  |       |             |       |           |       |                   |       |        |       |
| Net income (unaudited)                                                                                                                                                                    |       |                  |       |             |       |           |       | 15,599                 |       | 15,599      |       |
|                                                                                                                                                                                      |       |                  |       |             |       |           |       |                   |       |        |       |
| Balances, at June 30, 2008 (unaudited)                                                                                                                                               |       | 10,500,000            |       | $                | 1,051      |           | $          | 46,033,882             |       | $           | 1,181,176  |   | $ | 47,216,109 |   |

 

See accompanyingnotes to interim financial statements.

 

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**ARCADEACQUISITION CORP**

(a corporation indevelopment stage)

 

**STATEMENTS OF CASH FLOWS**

 
| ** **                                                                               | ** ** | **Six Months  Ended June 30,  2008** | ** ** | **Period from  January 30, 2007  (date of inception) to  June 30, 2007** | ** ** | **Period from January  30, 2007 (inception)  to June 30, 2008** | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|
| ** **                                                                               | ** ** | **(unaudited)**                                     | ** ** | **(unaudited)**                                                                                             | ** ** | **(unaudited)**                                                                                    | ** ** |
| **Cash flows from operating activities**                             | ** ** | ** **                                          | ** ** | ** **                                                                                                  | ** ** | ** **                                                                                         | ** ** |
| Net income                                                                               |       | $                                                   | 15,599     |                                                                                                        | $          | 204,174                                                                                            |       | $ | 1,181,176 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities        |       |                                                |       |                                                                                                        |       |                                                                                               |       |
| Deferred tax benefit                                                                     |       | (389,752                                            | )          | —                                                                                                      |       | (457,580                                                                                           | )          |
| Increase (decrease) in cash attributable to changes in operating  assets and liabilities |       |                                                |       |                                                                                                        |       |                                                                                               |       |
| Prepaid expenses                                                                         |       | (50,208                                             | )          |                                                                                                        |       | 75,702                                                                                             |       |
| Accrued expenses                                                                         |       | 766,724                                             |       | 8,045                                                                                                       |       | 819,584                                                                                            |       |
| Income taxes payable                                                                     |       | (217,755                                            | )          | 123,873                                                                                                     |       | —                                                                                             |       |
| **Net cash provided by operating activities**                                            |       | 124,608                                             |       | 336,092                                                                                                     |       | 1,618,882                                                                                          |       |
|                                                                                     |       |                                                |       |                                                                                                        |       |                                                                                               |       |
| **Net cash used in investing activites**                                                 |       |                                                |       |                                                                                                        |       |                                                                                               |       |
| Change in Investment in Trust Account                                                    |       | (19,529                                             | )          | (68,188,436                                                                                                 | )          | (67,951,299                                                                                        | )          |
|                                                                                     |       |                                                |       |                                                                                                        |       |                                                                                               |       |
| **Cash flows from 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                               |       | —                                              |       | (2,905,945                                                                                                  | )          | (2,949,175                                                                                         | )          |
| Proceeds from issuance of option                                                         |       | —                                              |       | 100                                                                                                         |       | 100                                                                                                |       |
| **Net cash provided by financing activities**                                            |       | —                                              |       | 68,119,155                                                                                                  |       | 68,075,925                                                                                         |       |
|                                                                                     |       |                                                |       |                                                                                                        |       |                                                                                               |       |
| **Net increase in cash**                                                                 |       | 105,079                                             |       | 266,811                                                                                                     |       | 1,743,508                                                                                          |       |
|                                                                                     |       |                                                |       |                                                                                                        |       |                                                                                               |       |
| **Cash****,** beginning of  period                                                       |       | 1,487,025                                           |       | —                                                                                                      |       | —                                                                                             |       |
| **Cash****,**end of period                                                               |       | $                                                   | 1,592,104  |                                                                                                        | $          | 266,811                                                                                            |       | $ | 1,592,104 |   |
|                                                                                     |       |                                                |       |                                                                                                        |       |                                                                                               |       |
| **Supplemental cash flow information**                                                   |       |                                                |       |                                                                                                        |       |                                                                                               |       |
|                                                                                     |       |                                                |       |                                                                                                        |       |                                                                                               |       |
| Cash paid during the period for:                                                         |       |                                                |       |                                                                                                        |       |                                                                                               |       |
| Interest                                                                                 |       | $                                                   | —     |                                                                                                        | $          | —                                                                                             |       | $ | 2,211 |   |
| Income taxes                                                                             |       | $                                                   | 616,285    |                                                                                                        | $          | —                                                                                             |       | $ | 1,096,285 |   |
|                                                                                     |       |                                                |       |                                                                                                        |       |                                                                                               |       |
| **Supplemental disclosure of non-cash financing  activities**                            |       |                                                |       |                                                                                                        |       |                                                                                               |       |
|                                                                                     |       |                                                |       |                                                                                                        |       |                                                                                               |       |
| Deferred underwriters’ fees                                                         |       | $                                                   | 1,690,500  |                                                                                                        | $          | 1,690,500                                                                                          |       | $ | 1,690,500 |   |

 

See accompanying notes to interim financial statements.

 

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**ARCADEACQUISITION CORP.**

(a corporation in the development stage)

 

**Notes toInterim Financial Statements**

**(UNAUDITED)**

 

**NOTE A—BASIS OF PRESENTATION**

 

The accompanying unaudited condensed financial statements as of June 30,2008, and for the period January 30, 2007 (date of inception) to June 30,2008, have been prepared in accordance with accounting principles generallyaccepted in the United States of America for interim financial information andwith the instructions to Form 10-Q and Article 8 of Regulation S-X,and should be read in conjunction with the Company’s audited financialstatements and footnotes thereto for the period January 30, 2007 (date ofinception) to December 31, 2007 included in the Company’s Annual Report onForm 10-K filed with the SEC on March 5, 2008.  Accordingly,they do not include all of the information and disclosures required byaccounting principles generally accepted in the United States of America (GAAP)for complete financial statements. In the opinion of management, alladjustments (consisting of normal recurring accruals) considered necessary fora fair presentation have been included. Operating results for the interimperiod presented are not necessarily indicative of the results to be expectedfor any other interim period or for the full year.

 

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

 

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

 

At June 30, 2008, the Company has not commenced operations orgenerated any revenue.  All activity from inception through June 30,2008 relates to the Company’s formation, capital raising, the initial publicoffering described below, and activities associated with identifying a BusinessCombination.  The Company will not generate any operating revenues untilafter completion of the Business Combination, at the earliest.  TheCompany has selected December 31 as its fiscal year-end.

 

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

 

The Company’s management has broad discretion with respect to thespecific application of the net proceeds of the Private Placement and thePublic Offering although substantially all of the net proceeds of the PublicOffering are intended to be generally applied toward consummating a BusinessCombination. Furthermore, there is no assurance that the Company will be ableto successfully effect a Business Combination. Upon the closing of the PublicOffering, an amount equal to approximately 98.3% of the gross proceeds ofthe Public Offering (98.6% prior to the exercise of the underwriters’over-allotment option) has been placed in a trust account (the “Trust Account”).The Trust Account is invested in U.S. “government securities,” defined as anyTreasury Bill issued by the United States government having a maturity of onehundred and eighty (180) days or less or money market funds meeting theconditions specified in Rule 2a-7 under the Investment Company Act of1940, until the earlier of (i) the consummation of a Business Combinationor (ii) the distribution of the Trust Account as described below. Theremaining net proceeds, plus up to $2,000,000 of income earned on funds in theTrust Account, net of taxes, may be used to pay for business, legal andaccounting due diligence on prospective acquisitions and continuing general andadministrative expenses.

 

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The Company, after signing a definitive agreement for the acquisitionof a target business, will submit such transaction for stockholder approval. Inthe event that 30% or more of the outstanding stock (excluding, for thispurpose, those shares of common stock issued prior to the Public Offering) voteagainst the Business Combination and elect to exercise their redemption rights,the Business Combination will not be consummated. In the event a BusinessCombination is consummated, public stockholders voting against a BusinessCombination will be entitled to redeem their stock for a pro rata share of theaggregate amount of cash then on deposit in the Trust Account, including theirpro rata portion of the deferred underwriting discount and any interest earnedon the Trust Account, net of income taxes payable on such interest income.However, voting against the Business Combination alone will not constitute anelection to exercise a stockholder’s redemption rights. All of the Company’sstockholders prior to the Public Offering, including all of the directors andofficers of the Company, have agreed to vote all of the shares of common stockacquired by them prior to the Public Offering in accordance with the vote ofthe majority in interest of all other stockholders of the Company.

 

In the event that holders of more than 20% but less than 30% of theshares of common stock sold in the Public Offering elect to redeem theirshares, the Company’s initial stockholders have agreed to forfeit, on a prorata basis and return to the Company 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 common sharesoutstanding.

 

In the event that the Company does not consummate a Business Combinationby May 21, 2009, the Company’s corporate existence will cease and theproceeds held in the Trust Account will be distributed to the Company’s publicstockholders, excluding the initial stockholders to the extent of their initialcommon stock holdings.

 

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

 

Development stage company:

 

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

 

Common stock:

 

On May 15, 2007, the Company effected a 1.2-for-one stock split inthe form of a stock dividend, which resulted in the issuance of an additional312,500 shares to the Company’s initial stockholders.  The Company’sfinancial statements give retroactive effect to the stock split.

 

Financial instruments:

 

The fair value of the Company’s assets and liabilities, which qualifyas financial instruments under SFAS No. 107, “Disclosure About Fair Valueof Financial Instruments,” approximates the carrying amounts represented in theaccompanying balance sheet.

 

Investment in Trust Account:

 

Investment in Trust Account as of June 30, 2008 consistedprimarily of U.S. government securities with maturities of 180 days or less andmoney market funds purchased without maturity.  The Company recognizesInvestment in Trust Account as a non-current asset in the accompanying balancesheets, and such assets totaled $67,951,299 as of June 30, 2008. Interestincome is recorded on an accrual basis.

 

Earnings per share:

 

(a)  The Company complies with SFAS No. 128 “Earnings PerShare” which requires dual presentation of basic and diluted earnings per shareon the face of the statement of operations.  Basic earnings per commonshare is computed by dividing the net income applicable to common stockholdersby the weighted average number of common shares outstanding for the period.Diluted income per common share reflects the potential dilution assuming commonshares were issued upon the exercise of outstanding “in the money” warrants andthe proceeds thereof were used to purchase common shares at the average marketprice during the period.

 

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(b)  The Company’s statement of operations includes a presentationof earning per share for common stock subject to possible redemption in amanner similar to the two-class method of earnings per share in accordance withEmerging Issues Task Force, Topic No. D-98 “Classification and Measurementof Redeemable Securities” (“EITF D-98”). The basic and diluted net income percommon share amount for the maximum number of shares subject to possibleredemption is calculated by dividing interest income attributable to commonshares subject to redemption (nil for the six months ended June 30, 2008and for the period January 30, 2007 (date of inception) to June 30,2008) by the weighted average number of shares subject to possible redemption.The basic and diluted net income per common share amount for the sharesoutstanding not subject to possible redemption is calculated by dividing theincome exclusive of the net interest income attributable to common sharessubject to redemption by the weighted average number of shares not subject topossible redemption.

 

At June 30, 2008, the Company had outstanding warrants to purchase10,625,000 shares of common stock.

 

Redeemable common stock:

 

The Company accounts for redeemable common stock in accordance withEITF D-98.  Securities that are redeemable for cash or other assets areclassified outside of permanent equity if they are redeemable at the option ofthe holder. The Company recognizes changes in the redemption value immediatelyas they occur and adjusts the carrying value of the redeemable common stock toequal its redemption value at the end of each reporting period.

 

As discussed in Note B, if the Company does not consummate a BusinessCombination by May 21, 2009, the Company’s corporate existence will ceaseand in the event that 30% or more of the outstanding stock (excluding, for thispurpose, those shares of common stock issued prior to the Public Offering) voteagainst the Business Combination and elect to exercise their redemption rights,the Business Combination will not be consummated.  In accordance with EITFD-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 June 30, 2008, the pershare redemption value was approximately $7.86.

 

Concentration of credit risk:

 

Financial instruments that potentially subject the Company to concentrationsof credit risk consist of cash accounts in a financial institution, which attimes may, exceed the Federal depository insurance coverage. The Company hasnot experienced losses on these accounts and management believes the Company isnot exposed to significant risks on such accounts.

 

Use of estimates:

 

The preparation of interim financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires 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 financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual results coulddiffer from those estimates.

 

Recently issued accounting standards:

 

In December 2007, the 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.

 

Management does not believe that any other recently issued, but not yeteffective, accounting standards if currently adopted would have a materialeffect on the accompanying financial statements.

 

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Income taxes:

 

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

 

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

 

**NOTE D—INITIAL PUBLIC OFFERING**

 

On May 25, 2007, the Company consummated the sale of 7,500,000units (“Units”) at a price of $8.00 per Unit in the Public Offering. On June 7,2007, the underwriters exercised their over-allotment option and purchased anadditional 1,125,000 Units at the offering price of $8.00 per Unit.  EachUnit consists of one share of the Company’s common stock, $0.0001 par value,and one redeemable common stock purchase warrant (“Warrants”). Each Warrantentitles the holder to purchase from the Company one share of common stock atan exercise price of $6.00 commencing on the later of (i) May 21,2008 or (ii) the completion of a Business Combination, and expires on May 21,2011. The Warrants are redeemable at a price of $0.01 per Warrant upon 30 days’prior notice after the Warrants become exercisable, only in the event that thelast sale price of the common stock is at least $11.50 per share for any 20trading days within a 30 trading day period ending on the third business day priorto the date on which notice of redemption is given. If the Company is unable todeliver registered shares of common stock to the holder upon exercise ofWarrants 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 June 30, 2008 totaled $819,584.  Theseexpenses related to due diligence costs, franchise taxes, legal, accounting andprinting costs, and trustee and transfer agent fees.

 

**NOTE F—RELATED PARTY TRANSACTIONS**

 

On February 5, 2007 and April 4, 2007, the Company issued twounsecured promissory notes to an affiliate of the Company’s officers anddirectors, 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 1,875,000 shares ofcommon stock (the “Initial Shares”) for proceeds of $25,000 to the officers anddirectors of the Company and an affiliate of the Company’s officers anddirectors.

 

The Company has a service agreement with Arcade Partners, LLC, anaffiliate of the Company’s officers and directors, whereby the Company pays amonthly service fee of $7,500. Such fee is to cover general and administrativeservices provided by the affiliate, including office space and utilities. For the six months ended June 30, 2008 and for the period January 20,2007 (date of inception) to June 30, 2008, approximately $45,000 and $122,500,respectively, has been paid under this arrangement.

 

On May 23, 2007, Arcade Acquisition Investors, LLC, an affiliateof the Company’s officers and directors, purchased, in the Private Placement,2,000,000 warrants at $1.00 per warrant (the “Insider Warrants”). The aggregateproceeds of the Private Placement of $2,000,000 are being held in the TrustAccount described in Note B. Arcade Acquisition Investors, LLC has agreed thatit will not sell or otherwise transfer the Insider Warrants until after theCompany consummates a Business Combination other than to its members inproportion to their membership interests, which members are subject to the samerestriction on transferability, except in certain limited circumstances.

 

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**NOTE G—COMMITMENTS AND CONTINGENCIES**

 

The Company paid an underwriting discount of 3.5% of the gross offeringproceeds to the underwriters at the closing of the Public Offering, with an additionalfee of 3.5% of the gross offering proceeds payable upon the Company’sconsummation of a Business Combination. The deferred underwriting discount of$2,415,000 will be forfeited in its entirety in the event there is no BusinessCombination, and $724,500 of the deferred underwriting discount is subject toforfeiture on a pro rata basis to the extent of shares that are redeemed uponapproval of a Business Combination. The underwriters will not be entitled toany interest accrued on the deferred discount.

 

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

 

The Company determined, based upon a Black-Scholes model, that the fairvalue of the option on 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 volatilitycalculation of 32.9% was based on the most recent trading day averagevolatility 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 BusinessCombination within the prescribed time period and liquidates, the option wouldbecome worthless.

 

**NOTE H—INCOME TAXES (BENEFIT)**

 

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

 

| ** ** | ** ** | **For the six months** | ** ** | **For the period  January 30, 2007** | ** ** |
|------------|------------|---------------------------------------|------------|----------------------------------------------------------|------------|
| ** ** | ** ** | **ended**                             | ** ** | **(inception) to**                                  | ** ** |
| ** ** | ** ** | **June 30, 2008**           | ** ** | **June 30, 2008**                              | ** ** |
|       |       |                                  |       |                                                     |       |
| Current:   |       |                                  |       |                                                     |       |
| Federal    |       | $                                     | 323,000    |                                                     | $          | 977,000 |   |
| State      |       | 21,000                                |       | 65,000                                                   |       |
| Deferred:  |       |                                  |       |                                                     |       |
| Federal    |       | (390,000                              | )          | (458,000                                                 | )          |
|       |       |                                  |       |                                                     |       |
|       |       | $                                     | (46,000    | )                                                        | $          | 584,000 |   |

 

The Company has not begun its trade or business for U.S. taxpurposes.  Accordingly, it could not yet recognize losses for start-upexpenditures. As a result, a deferred tax asset of approximately $458,000 and$68,000 at June 30, 2008 and December 31, 2007, respectively, wasestablished for these start-up expenditures.

 

**NOTE I—PREFERRED STOCK**

 

The Company is authorized to issue 1,000,000 shares of preferred stockwith such designations, voting and other rights and preferences as may bedetermined from time to time by the Board of Directors.

 

**NOTE J—REGISTRATION RIGHTS**

 

The holders of the Initial Shares and the Insider Warrants (andunderlying securities), are entitled to certain registration rights.  Theholders of the majority of the Initial Shares will be entitled to make up totwo demands that the Company register such securities at any time after theirrelease from escrow.  The holders of a majority of the InsiderWarrants (or underlying securities) are entitled to one demand that the Companyregister such securities at any time after the Company consummates a businesscombination.  In addition, such holders will have certain “piggy-back”registration 

 

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rightson registration statements filed subsequent to the date on which suchsecurities are released from escrow. On the date of the Public Offering, all ofour initial stockholders placed their Initial Shares and Insider Warrants intoan escrow account maintained by Continental Stock Transfer & TrustCompany, acting as escrow agent.  The Initial Shares will not be releasedfrom escrow until one year after the consummation of a Business Combination, orearlier if, following a Business Combination, we engage in a subsequenttransaction resulting in our stockholders having the right to exchange theirshares for cash or other securities or if we liquidate and dissolve.  TheInsider Warrants will not be released from escrow until 30 days after thecompletion of a Business Combination.  The Company will bear the expensesincurred in connection with the filing of any such registration statements.

 

**NOTE K—FAIR VALUE MEASUREMENTS**

 

Effective January 1, 2008, the Company adopted SFAS No. 157,Fair Value Measurements (“SFAS 157”), for its financial assets and liabilitiesthat are re-measured and reported at fair value at each reporting period, andnon-financial assets and liabilities that are re-measured and reported at fairvalue at least annually. In accordance with the provisions of FSP No. FAS157-2, Effective Date of FASB Statement No. 157*,*the Company has elected to defer implementation of SFAS157 as it relates to its non-financial assets and non-financial liabilitiesthat are recognized and disclosed at fair value in the financial statements ona nonrecurring basis until January 1, 2009. The Company is evaluating theimpact, if any, this standard will have on its non-financial assets and itsnon-financial liabilities.

 

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

 

The following table presents information about the Company’s assets andliabilities that are measured at fair value on a recurring basis as of June 30,2008, and indicates the fair value hierarchy of the valuation techniques theCompany utilized to determine such fair value. In general, fair valuesdetermined by Level 1 inputs utilize quoted prices (unadjusted)

inactive markets for identical assets or liabilities. Fair values determined byLevel 2 inputs utilize data points that are observable such as quoted prices,interest rates and yield curves. Fair values determined by Level 3 inputs areunobservable data points for the asset or liability, and includes situationswhere there is little, if any, market activity for the asset or liability:

 
| **Assets Measured at Fair Value** | ** ** | **June 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                           |       | 67,951,299              |       | 67,951,299                                                          |       | —                                                            |       | —                                                    |       |
|                                                  |       |                    |       |                                                                |       |                                                              |       |                                                      |       |
| Total                                                 |       | $                       | 67,951,299 |                                                                | $          | 67,951,299                                                        |       | $                                                         | —     |   | $ | — |   |
|                                                       |            |                         |            |                                                                     |            |                                                                   |            |                                                           |            |  |  |  |  |

 

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

 

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

 

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Item 2**.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Forward Looking Statements**

 

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

 

**Overview**

 

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

 

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

 

**Liquidity and Capital Resources**

 

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

 

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

 

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

 

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

 

·                  due diligence of prospective targetbusinesses;

 

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

 

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

 

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

 

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

 

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

 

**Results of Operations for the period January 30,2007 (date of inception) to June 30, 2008, and for the three and sixmonths ended June 30, 2008**

 

For the period from January 30, 2007 (date of inception) through June 30,2008, we had net income of $1,181,176, derived from interest and dividendincome less formation and operating expenses.

 

For the quarter ended June 30, 2008, we had a net loss of$160,966, derived from interest and dividend income less formation andoperating expenses.

 

For the six months ended June 30, 2008, we had net income of$207,900, derived from interest and dividend income less formation andoperating expenses.

 

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

 

**Off Balance-Sheet Arrangements**

 

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

 

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**Contractual Obligations**

 

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

 

Item 3**.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

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

 

Item 4.**CONTROLSAND PROCEDURES**

 

An evaluation of the effectiveness of our disclosure controls andprocedures as of June 30, 2008 was made under the supervision and with theparticipation of our management, including our chief executive officer and ourprincipal financial officer. Based on that evaluation, management concludedthat our disclosure controls and procedures are effective as of the end of theperiod covered by this report to ensure that information required to bedisclosed by us in reports that we file or submit under the Securities ExchangeAct of 1934 is recorded, processed, summarized and reported within the timeperiods specified in Securities and Exchange Commission rules and forms.

 

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

 

This quarterly report does not include a report of management’sassessment regarding internal control over financial reporting or anattestation report of our registered public accounting firm due to a transitionperiod established by the rules of the Securities and Exchange Commissionfor newly public companies.

 

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (theAct), beginning with our Annual Report on Form 10-K for the fiscal yearending December 31, 2008, we will be required to furnish a report by ourmanagement on our internal control over financial reporting. This report willcontain, among other matters, an assessment of the effectiveness of ourinternal control over financial reporting as of the end of our fiscal year,including a statement as to whether or not our internal control over financialreporting is effective. This assessment must include disclosure of any materialweaknesses in our internal control over financial reporting identified bymanagement. If we identify one or more material weaknesses in our internalcontrol over financial reporting, we will be unable to assert our internalcontrol over financial reporting is effective. This report will also contain astatement that our independent registered public accountants have issued anattestation report on management’s assessment of such internal controls andconclusion on the operating effectiveness of those controls.

 

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

 

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**PART II- OTHER INFORMATION**

 

Item 1.**LEGALPROCEEDINGS**

 

None.

 

Item 1A.** RISKFACTORS**

 

We are not required to respond to this item because we are a smallerreporting company.

 

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

 

**Recent Sales of Unregistered Securities**

 

We did not engage in the sale of any unregistered securities during thethree months ended June 30, 2008.

 

**Use of Proceeds**

 

For information regarding our use of the proceeds from our initialpublic offering, see “Item 2. Management’s Discussion and Analysis of FinancialCondition and Results of Operations” in Part I of this report.

 

**Repurchases of Equity Securities**

 

None

 

Item 3.**DEFAULTSUPON SENIOR SECURITIES**

 

None

 

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

 

None

 

Item 5**. OTHERINFORMATION**

 

None

 

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Item 6**.  EXHIBITS**

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

 

**SIGNATURES**

 

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

 

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

 

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