** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**WASHINGTON, D.C. 20549

** **

**FORM 10-K**

** **

| x                                                                                                                                                                                                                                        | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934**     |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                               | ** **                                                                                                  |
| **For the fiscal year ended December 31, 2007**                                                                                                                                                                                     |
|                                                                                                                                                                                                                                     |                                                                                                        |
| **OR**                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                     |                                                                                                        |
| o                                                                                                                                                                                                                                        | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                               | ** **                                                                                                  |
| **For the transition period from                                    to** |

 

 

**Commission File No.: 000-52632**

 

**ArcadeAcquisition Corporation**

(Name of issuer as specified in its charter)

 

| **Delaware**                    | ** ** | **20-8348580**      |
|---------------------------------|------------|---------------------|
| (State or other jurisdiction of |       | (I.R.S. Employer    |
| incorporation or organization)  |       | Identification No.) |

 

**62 La Salle Road, Suite 304**

**West Hartford, CT 06107**(address of principal executive offices)    (Zip Code)

 

Registrant’s telephone number, including area code: **(860)236-6320**

 

**Securities registeredpursuant to Section 12(b) of the Act: None**

** **

**Securities registeredpursuant to Section 12(g) of the Act:**

 

| **Common  Stock, $.0001 par value** |
|-------------------------------------|
| (Title of Class)                    |
|                                |
| **Common  Stock Purchase Warrants** |
| (Title of Class)                    |

 

Indicate by check mark if the registrant is a well-known seasonedissuer, as defined in Rule 405 of the Securities Act.    Yes o  No x

 

Indicate by check mark if the registrant is not required to file reportspursuant to Section 13 or Section 15(d) of the Act. Yes o  No x

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.                                                                          Yes x  No o

 

Indicate by check mark if disclosure of delinquent filers pursuant toitem 405 of Regulation S-K is not contained herein, and will not be contained,to the best of the registrant’s knowledge in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K.  o

 

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

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

 

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

 

Statethe aggregate market value of the voting and non-voting stock held bynon-affiliates of the Issuer: $62,962,500 (based upon the closing price ofIssuer’s Common Stock, $.001 par value, as of March 3, 2008).

 

Indicatethe number of shares outstanding of each of the Registrant’s classes of commonstock, as of the latest practicable date: 10,500,000 at March 4, 2008.

 

**DOCUMENTS INCORPORATED BYREFERENCE: NONE**

 

 

----

 

**TABLE OF CONTENTS**

** **
| ITEM 1.     | BUSINESS                                                                                                            | 1      |
|-------------|---------------------------------------------------------------------------------------------------------------------|--------|
|        |                                                                                                                |   |
| ITEM 1A.    | RISK FACTORS                                                                                                        | 8      |
|        |                                                                                                                |   |
| ITEM 1B.    | UNRESOLVED STAFF  COMMENTS                                                                                          | 14     |
|        |                                                                                                                |   |
| ITEM 2.     | PROPERTIES                                                                                                          | 14     |
|        |                                                                                                                |   |
| ITEM 3.     | LEGAL PROCEEDINGS                                                                                                   | 14     |
|        |                                                                                                                |   |
| ITEM 4.     | SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS                                                                | 14     |
|        |                                                                                                                |   |
| ITEM 5.     | MARKET FOR  REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES  OF EQUITY SECURITIES | 15     |
|        |                                                                                                                |   |
| ITEM 6.     | SELECTED FINANCIAL  DATA                                                                                            | 16     |
|        |                                                                                                                |   |
| ITEM 7.     | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                         | 17     |
|        |                                                                                                                |   |
| ITEM 7A.    | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                         | 19     |
|        |                                                                                                                |   |
| ITEM 8.     | FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA                                                                        | 19     |
|        |                                                                                                                |   |
| ITEM 9.     | CHANGES IN AND  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                               | 20     |
|        |                                                                                                                |   |
| ITEM 9A(T). | CONTROLS AND  PROCEDURES                                                                                            | 20     |
|        |                                                                                                                |   |
| ITEM 9B.    | OTHER INFORMATION                                                                                                   | 20     |
|        |                                                                                                                |   |
| ITEM 10.    | DIRECTORS AND  EXECUTIVE OFFICERS OF THE COMPANY                                                                    | 20     |
|        |                                                                                                                |   |
| ITEM 11.    | EXECUTIVE  COMPENSATION                                                                                             | 22     |
|        |                                                                                                                |   |
| ITEM 12.    | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS                    | 22     |
|        |                                                                                                                |   |
| ITEM 13.    | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS                                                                     | 23     |
|        |                                                                                                                |   |
| ITEM 14.    | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                                             | 24     |
|        |                                                                                                                |   |
| ITEM 15.    | EXHIBITS AND  FINANCIAL STATEMENT SCHEDULES                                                                         | 25     |

 

 

 

----

 

***PART I***

# ** **

# **Item 1.**                                   Business

# ** **

**Introduction**

** **

We were formed on January 30, 2007 as a blankcheck company for the purpose of acquiring, through a merger, stock exchange,asset acquisition, reorganization or similar business combination, one or moreoperating businesses.

 

On May 25, 2007, we consummated our initialpublic offering of 7,500,000 units. Each unit consists of one share of common stock and one redeemable commonstock purchase warrant.  On June 7,2007, the underwriters exercised their over-allotment option and purchased anadditional 1,125,000 units. Each warrant entitles the holder to purchase fromus one share of our common stock at an exercise price of $6.00.  Our common stock and warrants started tradingseparately as of June 14, 2007. Immediately prior to the consummation of our initial public offering, onMay 23, 2007, we completed a private placement of 2,000,000 warrants to anaffiliate of our directors and executive officers and received gross proceedsof $2,000,000.

 

The net proceeds from the sale of our units (includingthe exercise by the underwriters of their over-allotment option) and theprivate placement of warrants, after deducting certain offering expenses ofapproximately $2,949,000, including underwriting discounts of approximately $2,415,000,were approximately $68,051,000. Of this amount, $67,835,000 (which includes$2,415,000 in deferred underwriting discounts) is being held in the trust accountestablished in connection with our initial public offering. The remainingproceeds, along with up to $2,000,000 in interest earned on the funds in the trustaccount, are available to be used by us to provide for business, legal andaccounting due diligence on prospective acquisitions and continuing general andadministrative expenses.

 

Our efforts in identifying a prospective targetbusiness will not be limited to any particular industry or geographic location.Instead, we intend to focus on industries and target businesses that mayprovide significant opportunities for growth.

 

Pursuant to our amended and restated certificate ofincorporation, the initial business combination must be a transaction with oneor more operating businesses in which the collective fair market value of thetarget business, at the time of the business combination, is at least 80% ofour net assets at the time of the business combination. Our initial businesscombination may involve the simultaneous acquisition or merger of more than onetarget business.

 

**Effecting a Business Combination**

** **

*General*

* *

We are not presently engaged in, and we will notengage in, any substantive commercial business for an indefinite period oftime. We intend to utilize cash derived from the proceeds of our publicoffering  and the private placement, our capitalstock, debt or a combination of these in effecting a business combination.Although substantially all of the net proceeds from our public offering and theprivate placement are intended to be generally applied toward effecting abusiness combination, the proceeds are not otherwise being designated for anymore specific purposes. We intend to seek a business combination from amongprivate businesses, corporate divestitures, and portfolio companies of privateequity funds. We believe that the background and track record of our managementteam positions us to identify target acquisitions and to effect a businesscombination. In seeking a business combination we will consider the followingsources:

 

*·*                  Private Companies.   Owners of privately-held companies seeking liquidity or financing foradditional growth opportunities are often interested in a sale to or a mergerwith a well-capitalized public company.

* *

----

* *

*·*                  Corporate Divestitures.   Corporate divestitures continue to represent anopportunity to acquire operating divisions or subsidiaries from companies thatembark on transformation plans and seek to divest non-core assets.

* *

*·*                  Portfolio Companies of Private Equity Fund.   Private equity funds generally have finite livesand must seek exit transactions for their portfolio companies in order toliquidate and/or distribute the fund assets to their limited partners followinga predetermined term (which may include extensions).

* *

*Our business strategy*

* *

Our management has substantially unrestrictedflexibility in identifying and selecting a prospective target business. Whilewe have not established specific attributes or criteria for prospective targetbusinesses we believe the following factors to be important in evaluatingprospects. However, we may decide to enter into a business combination with atarget business or businesses that do not meet some or all of these criteriaand guidelines.

 

*·*                  Positive and reliable cash flow.   We will generally seek to acquire established companieswith a history of positive and reliable cash flow (earnings before interest,taxes, depreciation and amortization). We generally intend to avoid businessstart-ups and companies that we perceive as having significant technology riskor speculative business profiles. We also intend to focus on companies wherethere are opportunities for substantial growth, either organically or throughacquisitions, and where such growth allows for enhanced profit margins througheconomies of scale.

* *

*·*                  Experiencedmanagement team.   Webelieve that experienced and seasoned management that has been tested andproven through one or more complete business cycles constitutes an importantdeterminant for success. Accordingly, we will weigh the quality and caliber ofmanagement as well as its depth as an important criterion in our evaluation of targetbusiness opportunities.

* *

*·*                  Competitiveposition in industry.   We will seek to evaluate the strengths and weaknesses of targetbusinesses, particularly with respect to their competitive position in themarketplace. In seeking to determine the competitive advantages of a business,we will consider product quality, customer loyalty, market share, brandstrength, switching costs (both for customers and suppliers), intellectualproperty protection and other intangible assets as well as the customary financialmeasures such as growth, profitability and capitalization. We will favorbusinesses that are market share leaders within their respective industries andthose that are positioned for growth. In addition, in evaluating competitiveadvantages, we will seek to ascertain and confirm their sustainability.

* *

*We are not limited to a specific target industry*

* *

Subject to the limitations that the initial businesscombination must be a transaction with one or more operating businesses and inwhich the collective fair market value of the target business or businesses isat least 80% of our net assets at the time of the business combination, asdescribed below in more detail, we will have virtually unrestricted flexibilityin identifying and selecting a prospective acquisition candidate.

 

We have not established any other specific attributesor criteria (financial or otherwise) for prospective target businesses. To theextent we effect a business combination with a financially unstable company oran entity in its early stage of development or growth, including entitieswithout established records of sales or earnings, we may be affected bynumerous risks inherent in the business and operations of financially unstableand early stage or potential emerging growth companies. Although our managementwill endeavor to evaluate the risks inherent in a particular target business,we cannot assure you that we will properly ascertain or assess all significantrisk factors.

 

*Sources of target businesses*

* *

We anticipate that target business candidates will bebrought to our attention from various unaffiliated sources, includinginvestment bankers, venture capital funds, private equity funds, leveragedbuyout funds, management buyout funds and other members of the financialcommunity, who may present solicited or unsolicited 

 

2

----

 

proposals. Our executiveofficers and directors, as well as their affiliates, may also bring to ourattention target business candidates. In no event, however, will we pay any ofour existing executive officers or directors or any entity with which they areaffiliated any finder’s fee or other compensation for services rendered to usprior to or in connection with the consummation of a business combination.

 

*Selection of a target business and structuring of abusiness combination*

* *

In evaluating a prospective target business, ourmanagement will consider, among other factors, the following:

 

*·*                  financial condition and results of operation;

* *

*·*                  growth potential;

* *

*·*                  experience and skill of management and availabilityof additional personnel;

* *

*·*                  capital requirements;

* *

*·*                  competitive position;

* *

*·*                  barriers to entry into other industries;

* *

*·*                  stage of development of the products, processes orservices;

* *

*·*                  degree of current or potential market acceptance ofthe products, processes or services;

* *

*·*                  proprietary features and degree of intellectualproperty or other protection of the products, processes or services;

* *

*·*                  regulatory environment of the industry; and

* *

*·*                  costs associated with effecting the businesscombination.

* *

These criteria are not intended to be exhaustive. Anyevaluation relating to the merits of a particular business combination will bebased, to the extent relevant, on the above factors as well as otherconsiderations deemed relevant by our management in effecting a businesscombination consistent with our business objective. In evaluating a prospectivetarget business, we will conduct an extensive due diligence review which willencompass, among other things, meetings with incumbent management, whereapplicable, and inspection of facilities, as well as review of financial andother information which will be made available to us. Nevertheless, upon thecompletion of such due diligence, we may consummate a business combination witha business target which does not possess the foregoing characteristics.

 

The time and costs required to select and evaluate atarget business and to structure and complete the business combination cannotpresently be ascertained with any degree of certainty. Any costs incurred withrespect to the identification and evaluation of a prospective target businesswith which a business combination is not ultimately completed will result in aloss to us and reduce the amount of capital available to otherwise complete abusiness combination. However, we will not pay any finders or consulting feesto our existing officers and directors, or any of their respective affiliates,for services rendered to or in connection with a business combination.

 

*Fair market value of business combination*

* *

Our management will have virtually unrestrictedflexibility in identifying and selecting a prospective target business, exceptthat our initial business combination must be a transaction in which the fairmarket value of the target business or businesses acquired simultaneously is atleast equal to 80% of our net assets at the time of the 

 

3

----

 

business combination. Inthe event we determine to simultaneously acquire several businesses and suchbusinesses are owned by different sellers and one or more the businesses donot, on a stand-alone basis meet the 80% test, we may need one or more of suchsellers to agree that our purchase of its business is contingent on the simultaneousclosings of one or more of the other acquisitions, which may make it moredifficult for us, and delay our ability to complete the business combination.With multiple acquisitions, we could also face additional risks, includingadditional burdens and costs with respect to possible multiple negotiations anddue diligence investigations (if there are multiple sellers) and the additionalrisks associated with the subsequent assimilation of the operations andservices or products of the acquired companies in a single operating business.We may further seek to acquire a target business that has a fair market valuein excess of 80% of our net assets by raising additional funds through the saleof our securities, through loans or a combination of both. The fair marketvalue of any such business or businesses will be determined by our board ofdirectors based upon standards generally accepted by the financial community,such as actual and potential sales, earnings and cash flow and book value. Ifour board is not able to independently determine that the target business has asufficient fair market value, we will obtain an opinion from an unaffiliatedindependent investment banking firm with respect to the satisfaction of suchcriteria.

 

*Possible lack of business diversification*

* *

While we may seek to effect business combinations withmore than one target business, our initial business combination must be with atarget business which satisfies the minimum valuation standard at the time ofsuch acquisition, as discussed above. Consequently, it is possible that we willhave the ability to effect only a single business combination. Accordingly, theprospects for our success may be dependent upon the future performance of asingle business. Unlike other entities which may have the resources to completeseveral business combinations of entities operating in multiple industries ormultiple areas of a single industry, it is probable that we will not have theresources to diversify our operations or benefit from the possible spreading ofrisks or offsetting of losses. If we are able to consummate only a singlebusiness combination, our lack of diversification may:

 

*·*      subject us to numerous economic, competitive and regulatorydevelopments, any or all of which may have a substantial adverse impact uponthe particular industry in which we may operate subsequent to a businesscombination; and

* *

*·*                  result in our dependency upon the development ormarket acceptance of a single or limited number of products, processes orservices.

* *

*Limited ability to evaluate the target business’management*

* *

Although we intend to closely scrutinize themanagement of a prospective target business when evaluating the desirability ofeffecting a business combination, we cannot assure you that our assessment ofthe target business’ management will prove to be correct. In addition, wecannot assure you that the future management will have the necessary skills,qualifications or abilities to manage a public company. Furthermore, the futurerole of our executive officers and directors, if any, in the target businesscannot presently be stated with any certainty. While it is possible that one ormore of our directors will remain associated in some capacity with us followinga business combination, it is unlikely that any of them will devote their fullefforts to our affairs subsequent to a business combination. Moreover, wecannot assure you that our executive officers and directors will havesignificant experience or knowledge relating to the operations of the particulartarget business.

 

Following a business combination, we may seek torecruit additional managers to supplement the incumbent management of thetarget business. We cannot assure you that we will have the ability to recruitadditional managers, or that additional managers will have the requisiteskills, knowledge or experience necessary to enhance the incumbent management.

 

*Opportunity for stockholder approval of businesscombination*

* *

Prior to the completion of a business combination, wewill submit the transaction to our stockholders for approval, even if thenature of the acquisition is such as would not ordinarily require stockholderapproval under applicable law. In connection with seeking stockholder approvalof a business combination, we will also submit to 

 

4

----

 

our stockholders forapproval a proposal to amend our amended and restated certificate ofincorporation to provide for our corporate life to continue perpetuallyfollowing the consummation of such business combination. Any vote to extend thecorporate life to continue perpetually following the consummation of a businesscombination will be taken only if the business combination is approved. We willonly consummate a business combination if stockholders vote both in favor ofsuch business combination and our amendment to extend our corporate life.

 

In connection with seeking stockholder approval of abusiness combination we will furnish our stockholders with proxy solicitationmaterials prepared in accordance with the Securities Exchange Act of 1934,which, among other matters, will include a description of the operations of thetarget business and certain audited historical financial statements of thebusiness.

 

In connection with the vote required for any businesscombination, all of our initial stockholders, including all of our executiveofficers and directors, have agreed to vote their respective shares of commonstock owned by them immediately prior to our initial public offering and theprivate placement in accordance with the majority of the shares of common stockvoted by the public stockholders. This voting arrangement shall not apply toshares of common stock included in units purchased by any of our initialstockholders in our initial public offering or following such offering, in theopen market. Our initial stockholders have agreed to vote any such shares theypurchase in favor of any business combination negotiated by our executiveofficers. We will proceed with the business combination only if a majority ofthe shares of common stock voted by the public stockholders are voted in favorof the business combination and public stockholders owning less than 30% of theshares of common stock sold in our initial public offering exercise their redemptionrights.  A 20% threshold has been moretypical for blank check companies. We have increased the threshold to reducethe risk of a small group of stockholders exercising undue influence on theapproval process and make it easier for us to receive stockholder approval fora business combination. Voting against the business combination alone will notresult in redemption of a stockholder’s shares into a pro rata share of thetrust account. To do so, a stockholder must have also exercised the redemptionrights described below. As a result of our higher redemption threshold, we mayhave less cash available to complete a business combination. Because we willnot know how many stockholders may exercise such redemption rights, we willneed to structure a business combination that requires less cash, or we mayneed to arrange third party financing to help fund the transaction in case alarger percentage of stockholders exercise their redemption rights than weexpect. Alternatively, to compensate for the potential shortfall in cash, wemay be required to structure the business combination, in whole or in part,using the issuance of our stock as consideration. Accordingly, this increase inthe customary redemption threshold may hinder our ability to consummate abusiness combination in the most efficient manner or to optimize our capitalstructure.

 

*Redemption rights*

* *

At the time we seek stockholder approval of anybusiness combination, we will offer each public stockholder the right to havesuch stockholder’s shares of common stock redeemed for cash if the stockholdervotes against the business combination and the business combination is approvedand completed. The actual per share redemption price will be equal to theaggregate amount then on deposit in the trust account, including a pro-ratashare of the deferred underwriting discount and any interest earned on thetrust account, net of income taxes payable on such interest and after releaseof up to $2,000,000 of interest income earned on the trust account, after tax,to fund working capital requirements (calculated as of two business days priorto the consummation of the proposed business combination), divided by thenumber of shares of common stock sold in our initial public offering. Withouttaking into account any interest earned on the trust account, the initial pershare redemption price was approximately $7.86, which includes $0.28 being heldin the trust account attributable to the deferred underwriting discount, or$0.14 less than the per unit offering price of $8.00. As of December 31,2007 the amount held in trust was $7.86 per share. An eligible stockholder mayrequest redemption at any time after the mailing to our stockholders of theproxy statement and prior to the vote taken with respect to a proposed businesscombination at a meeting held for that purpose, but the request will not begranted unless the stockholder votes against the business combination and thebusiness combination is approved and completed. Stockholders will not berequested to tender their shares of common stock before a business combinationis consummated. If a business combination is consummated, redeemingstockholders will be sent instructions on how to tender their shares of commonstock and when they should expect to receive the redemption amount.  If a stockholder votes against the businesscombination but fails to properly exercise his or her redemption rights, suchstockholder will not have his or her shares of common stock redeemed for his orher pro rata distribution of the trust account. Any request for redemption,once made, may be 

 

5

----

 

withdrawn at any time upto the date of the meeting. It is anticipated that the funds to be distributedto stockholders entitled to redeem their shares of common stock who electredemption will be distributed promptly after completion of a businesscombination. Public stockholders who redeem their shares of common stock fortheir share of the trust account still have the right to exercise the warrantsthat they received as part of the units. We will not complete any businesscombination if public stockholders owning 30% or more of the shares of commonstock sold in our initial public offering exercise their redemption rights. Ourinitial stockholders are not entitled to redeem any shares of common stock heldby them whether acquired by them prior to, as part of or after our initialpublic offering, for a pro rata share of the trust account in connection with abusiness combination.

 

*Liquidation if no business combination*

* *

Our amended and restated certificate of incorporationprovides that we will continue in existence only until May 21, 2009. Thisprovision may not be amended without the affirmative vote of 95% of the sharesissued in our initial public offering except in connection with theconsummation of a business combination. If we have not completed a businesscombination by May 21, 2009, our corporate existence will cease except forthe purposes of winding up our affairs and liquidating, pursuant to Section 278of the Delaware General Corporation Law. This has the same effect as if ourboard of directors and stockholders had formally voted to approve ourdissolution pursuant to Section 275 of the Delaware General CorporationLaw. Accordingly, limiting our corporate existence to a specified date aspermitted by Section 102(b)(5) of the Delaware General CorporationLaw removes the necessity to comply with the formal procedures set forth in Section 275(which would have required our board of directors and stockholders to formallyvote to approve our dissolution and liquidation and to have filed a certificateof dissolution with the Delaware Secretary of State). We view this provisionterminating our corporate life by May 21, 2009 as an obligation to ourstockholders and will not take any action to amend or waive this provision toallow us to survive for a longer period of time except in connection with theconsummation of a business combination.

 

If we are unable to complete a business combination byMay 21, 2009, we will distribute to all of our public stockholders, inproportion to their respective equity interests, an aggregate sum equal to theamount in the trust account, inclusive of any interest, net of taxes (up to$2,000,000 of interest, if any may be used to fund our working capitalrequirements), plus any remaining net assets (subject to our obligations underDelaware law to provide for claims of creditors as described below). Weanticipate notifying the trustee of the trust account to begin liquidating suchassets promptly after such date and anticipate it will take no more than 10business days to effectuate such distribution.

 

There will be no distribution from the trust accountor otherwise with respect to our warrants which will expire worthless. We willpay the costs of liquidation and dissolution (currently anticipated to be nomore than approximately $15,000) from our remaining assets outside of the trustaccount.

 

If we were to expend all of the funds available to usfor working capital, other than the proceeds deposited in the trust account,and without taking into account future interest, if any, earned on the trustaccount, the  per-share liquidation priceas of December 31, 2007 was $7.86, or $0.14 less than the per-unit offeringprice of $8.00. The proceeds deposited in the trust account could, however,become subject to the claims of our creditors (which could include vendors andservice providers we have engaged to assist us in any way in connection withour search for a target business and that are owed money by us, as well astarget businesses themselves) which could have higher priority than the claimsof our public stockholders. Our executive officers and directors have agreed toindemnify us, jointly and severally pro rata according to their beneficialinterest in our company immediately prior to our initial public offering, forour debts to vendors, or to any prospective target business, if we do notobtain a valid and enforceable waiver from that vendor or prospective targetbusiness of its rights or claims to the trust account and only to the extentnecessary to ensure that such claims do not reduce the amount in the trustaccount. However, we cannot assure you that they will be able to satisfy thoseobligations, if they are required to do so. As a result, we cannot assure youthat the per-share distribution from the trust account, if we liquidate, willnot be less than the $7.86, plus interest then held in the trust account.

 

Additionally, if we are forced to file a bankruptcycase or an involuntary bankruptcy case is filed against us which is notdismissed, the proceeds held in the trust account could be subject toapplicable bankruptcy law, and may be included in our bankruptcy estate andsubject to the claims of third parties with priority over the claims of 

 

6

----

 

our stockholders. To theextent any bankruptcy claims deplete the trust account, we cannot assure you wewill be able to return to our public stockholders at least $7.86 per share.

 

*Amended and restated certificate of incorporation*

* *

Our amended and restated certificate of incorporationrequires that we obtain the affirmative vote of holders of 95% of the sharesissued in our initial public offering to amend certain provisions of ouramended and restated certificate of incorporation. However, the validity ofsuch supermajority voting provisions under Delaware law has not been settled. Acourt could conclude that such supermajority voting consent requirement constitutesa practical prohibition on amendment in violation of the stockholders’ implicitrights to amend the corporate charter. In that case, certain provisions of theamended and restated certificate of incorporation would be amendable withoutsuch supermajority consent and any such amendment could reduce or eliminate theprotection afforded to our stockholders. However, we view the foregoingprovisions as obligations to our stockholders, and we will not take any actionto waive or amend any of these provisions.

 

**Competition**

** **

In identifying, evaluating and selecting a targetbusiness, we may encounter intense competition from other entities having abusiness objective similar to ours. Many of these entities are well establishedand have extensive experience identifying and effecting business combinationsdirectly or through affiliates. Many of these competitors possess greatertechnical, human and other resources than us and our financial resources willbe relatively limited when contrasted with those of many of these competitors.While we believe there are numerous potential target businesses that we couldacquire with the net proceeds of our initial public offering, our ability tocompete in acquiring certain sizable target businesses will be limited by ouravailable financial resources. This inherent competitive limitation givesothers an advantage in pursuing the acquisition of a target business. Further:

 

*·*                  our obligation to seek stockholder approval of abusiness combination or obtain the necessary financial information to beincluded in the proxy statement to be sent to stockholders in connection withsuch business combination may delay or prevent the completion of a transaction;

* *

*·*                  our obligation to redeem into cash shares of commonstock held by our public stockholders in certain instances may reduce theresources available to us for a business combination; and

* *

*·*                  our outstanding warrants and options, and thefuture dilution they potentially represent, may not be viewed favorably bycertain target businesses.

* *

Any of these factors may place us at a competitivedisadvantage in successfully negotiating a business combination. Our managementbelieves, however, that to the extent that our target business is a privatelyheld entity, our status as a public entity may give us a competitive advantageover privately-held entities having a similar business objective as ours inacquiring a target business with significant growth potential on favorableterms.

 

If we succeed in effecting a business combination,there will be, in all likelihood, intense competition from competitors of thetarget business. We cannot assure you that, subsequent to a businesscombination, we will have the resources or ability to compete effectively.

 

**Officers and Employees**

** **

We have three officers, all of whom serve as membersof our board of directors. Although these individuals are not obligated tocontribute any specific number of hours per week to our business, they willdevote such time as they deem necessary to our affairs.

 

7

----

## ** **

## **Item 1A.**                          Risk Factors

## ** **

**Risks associated with ourbusiness**

** **

***We are adevelopment stage company with no operating history and, accordingly, there islimited  basis on which to evaluate ourability to achieve our business objective.***

*** ***

We are a recently formed development stage companywith no operating results to date. Since we do not have an operating history,there is limited basis upon which to evaluate our ability to achieve ourbusiness objective, which is to acquire an operating business. We will notgenerate any operating revenues until, at the earliest, after the consummationof a business combination. We cannot assure you that an initial businesscombination will occur.

 

***If we are unableto complete a business combination and are forced to liquidate, our publicstockholders will receive less than $8.00 per share upon distribution of thetrust account and our warrants will expire worthless.***

*** ***

If we are unable to complete a business combinationprior to May 21, 2009, and are forced to liquidate our assets, the pershare liquidation may be less than $8.00 because of the expenses of our initialpublic offering, our general and administrative expenses and the anticipatedcosts of seeking a business combination. As of December 31, 2007 the pershare liquidation value would have been $7.86 per share.  While we will pay, or reserve for payment,from funds not held in trust, our liabilities and obligations, and ourexecutive officers and directors have agreed to indemnify us under certaincircumstances for such liabilities and obligations, we cannot assure you, whereit is subsequently determined that the reserve for liabilities is insufficient,that stockholders will not be liable for such amounts to creditors.Furthermore, there will be no distribution with respect to our outstandingwarrants and, accordingly, the warrants will expire worthless if we liquidatebefore the completion of a business combination.

 

***If third partiesbring claims against us, the proceeds held in trust could be reduced and theper share liquidation amount receivable by our public stockholders could beless than $7.86 per share.***

*** ***

Our placing of funds in the trust account may notprotect those funds from third party claims against us. Although we areobligated to have all significant vendors and service providers and allprospective target businesses waive any right, title, interest or claim of anykind in or to any monies held in the trust account for the benefit of ourpublic stockholders, they would not be prevented from bringing claims againstthe trust account including, but not limited to, fraudulent inducement, breachof fiduciary responsibility or other similar claims, as well as claimschallenging the enforceability of the waiver, in each case in order to gain anadvantage with a claim against our assets, including the funds held in thetrust account. Accordingly, the proceeds held in the trust account could besubject to claims that could take priority over the claims of our publicstockholders and due to claims of such creditors, the per share liquidationprice could be less than the initial $7.86 per share held in the trust account,plus interest (net of (1) any taxes due on such interest, which taxes, ifany, shall be paid from the trust account and (2) any amounts that mayhave been released to us to fund working capital requirements). If we areunable to complete a business combination and are forced to liquidate, each ofour executive officers and directors has jointly and severally agreed to reimburseus for our debts to vendors, or to any prospective target business, if we donot obtain a valid and enforceable waiver from that vendor or prospectivetarget business of its rights or claims to the trust account and only to theextent necessary to ensure that such claims do not reduce the amount in thetrust account. However, we cannot assure you that our executive officers anddirectors will be able to satisfy those obligations. In addition, our executiveofficers and directors have not agreed to reimburse us for any debts orobligations to vendors that do not represent service fees (and relateddisbursements) or product purchase prices but relate to a potential tort claim.In the event that our board recommends and our stockholders approve a plan of dissolutionand distribution and it is subsequently determined that our reserve for claimsand liabilities to third parties is insufficient, stockholders who receivedfunds from our trust account could be liable for up to such amounts tocreditors.

 

Additionally, if we are forced to file a bankruptcycase or an involuntary case is filed against us that is not dismissed, thefunds held in our trust account will be subject to applicable bankruptcy law,and may be included in our bankruptcy estate and subject to the claims of thirdparties with priority over the claims of our stockholders. To the extent anybankruptcy claims deplete the trust account the per share liquidationdistribution would be less than the initial $7.86 per share held in the trustaccount.

 

*** ***

***8***

----

*** ***

***The fact that wewill proceed with the business combination if public stockholders holding lessthan 30% of the shares sold in our initial public offering exercise theirredemption rights, rather than the 20% threshold of many other blank checkcompanies, may hinder our ability to consummate a business combination in themost efficient manner or to optimize our capital structure.***

*** ***

Unlike many other blank check companies which have a20% redemption threshold, we will proceed with the business combination ifpublic stockholders holding less than 30% of the shares sold in our initialpublic offering exercise their redemption rights, which may make it easier forus to receive stockholder approval for a business combination. As a result ofour higher redemption threshold, we may have less cash available to complete abusiness combination. Because we will not know how many stockholders mayexercise such redemption rights, we will need to structure a business combinationmeeting the 80% of our net assets test that requires less cash, or we may needto arrange third party financing to help fund the transaction in case a largerpercentage of stockholders exercise their redemption rights than we expect.Alternatively, to compensate for the potential shortfall in cash, we may berequired to structure the business combination, in whole or in part, using theissuance of our stock as consideration. Accordingly, this higher redemptionthreshold of 30% may hinder our ability to consummate a business combination inthe most efficient manner or to optimize our capital structure.

 

Since the net proceeds of our initial public offeringare intended to be used to complete a business combination with a targetbusiness that has not been identified, we may be deemed to be a “blank check”company under the U.S. securities laws. However, since we have net tangibleassets in excess of $5,000,000 and filed a Current Report on Form 8-K withthe Securities and Exchange Commission upon consummation of our initial publicoffering, including an audited balance sheet demonstrating this fact, we areexempt from rules promulgated by the Securities and Exchange Commission toprotect investors of blank check companies, such as Rule 419.

 

***Our stockholdersmay be held liable for claims of third parties against us to the extent ofdistributions received by them in connection with the liquidation of the trustaccount.***

*** ***

Our amended and restated certificate of incorporationprovides that we will continue in existence only until 24 months from the dateof our initial public offering. If we have not completed a business combinationby such date and amended this provision in connection therewith, pursuant tothe Delaware General Corporation Law, our corporate existence will cease exceptfor the purposes of winding up our affairs and liquidating. Under Sections 280through 282 of the Delaware General Corporation Law, stockholders may be heldliable for claims by third parties against a corporation to the extent ofdistributions received by them in a dissolution. If the corporation complieswith certain procedures intended to ensure that it makes reasonable provisionfor all claims against it, including a 60-day notice period during which anythird-party claims can be brought against the corporation, a 90-day periodduring which the corporation may reject any claims brought, and an additional150-day waiting period before any liquidating distributions are made tostockholders, any liability of stockholders with respect to a liquidatingdistribution is limited to the lesser of such stockholder’s pro rata share ofthe claim or the amount distributed to the stockholder, and any liability ofthe stockholder would be barred after the third anniversary of the dissolution.However, it is our intention to make liquidating distributions to ourstockholders within 10 business days after the 24 month period and, therefore,we do not intend to comply with those procedures. Because we will not becomplying with those procedures, we are required, pursuant to Section 281of the Delaware General Corporation Law, to adopt a plan that will provide forour payment, based on facts known to us at such time, of (i) all existingclaims, (ii) all pending claims and (iii) all claims that may bepotentially brought against us within the subsequent 10 years. Accordingly, wewould be required to provide for any creditors known to us at that time orthose that we believe could be potentially brought against us within thesubsequent 10 years prior to distributing the funds held in the trust tostockholders. We cannot assure you that we will properly assess all claims thatmay be potentially brought against us. As such, our stockholders couldpotentially be liable for any claims to the extent of distributions received bythem and any liability of our stockholders may extend well beyond the thirdanniversary of such dissolution. Accordingly, we cannot assure you that thirdparties will not seek to recover from our stockholders amounts owed to them byus.

 

Additionally, if we are forced to file a bankruptcycase or an involuntary bankruptcy case is filed against us which is notdismissed, any distributions received by stockholders could be viewed underapplicable debtor/creditor and/or bankruptcy laws as either a “preferentialtransfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amountsreceived by our stockholders in our dissolution. Furthermore, because we 

 

9

----

 

intend to distribute theproceeds held in the trust account to our public stockholders promptly after May 21,2009, this may be viewed or interpreted as giving preference to our publicstockholders over any potential creditors with respect to access to or distributionsfrom our assets. Additionally, our board may be viewed as having breached theirfiduciary duties to our creditors and/or may have acted in bad faith, andthereby exposing itself and our company to claims of punitive damages, bypaying public stockholders from the trust account prior to addressing theclaims of creditors. We cannot assure you that claims will not be broughtagainst us for these reasons.

 

***Since we are notlimited to a particular industry or prospective target business with which tocomplete a business combination, investors may be unable to currently ascertainthe merits or risks of the industry or target business in which we mayultimately operate.***

*** ***

We may consummate a business combination with acompany in any industry we choose and are not limited to any particularindustry or type of business. Accordingly, there is no current basis for you toevaluate the possible merits or risks of the particular industry in which wemay ultimately operate or the target business which we may ultimately acquire.To the extent we complete a business combination with a financially unstablecompany or an entity in its development stage, we may be affected by numerousrisks inherent in the business operations of those entities. If we complete abusiness combination with an entity in an industry characterized by a highlevel of risk, we may be affected by the currently unascertainable risks ofthat industry. For example, if we complete a business combination with abusiness in a regulated industry, we may be subject to various regulatory risksassociated with that industry. Although our management will endeavor toevaluate the risks inherent in a particular industry or target business, wecannot assure you that we will properly ascertain or assess all of thesignificant risk factors. We also cannot assure you that an investment in ourunits will not ultimately prove to be less favorable to investors in ourcompany than a direct investment, if an opportunity were available, in a targetbusiness.

 

***Because there arenumerous companies with a business plan similar to ours seeking to effectuate abusiness combination, it may be more difficult for us to do so.***

*** ***

As of February 26, 2008, based upon publiclyavailable information, we have identified approximately 153  blank check companies that have gone publicsince August 2003. Of these companies, only 47 have completed a businesscombination, while 8 have liquidated or will be liquidating. The remainingapproximately 98  blank check companieshave more than $16.0 billion in trust and are seeking to complete businessacquisitions. Of these companies, only 24 have announced that they have enteredinto definitive agreements or letters of intent with respect to potentialbusiness combinations but have not yet consummated business combinations. Inaddition, there are 74 blank check companies seeking to raise approximately$12.8 billion that have filed registration statements and will be seeking tocomplete business combinations. Furthermore, the fact that only 47 of suchcompanies have completed business combinations and only 24 other of suchcompanies have entered into definitive agreements or letters of intent forbusiness combinations, and 8 have liquidated or will be liquidating, may be anindication that there are only a limited number of attractive targets availableto such entities or that many targets are not inclined to enter into atransaction with a blank check company, and therefore we also may not be ableto consummate a business combination within the prescribed time period. If weare unable to consummate a business combination within the prescribed timeperiod, our purpose will be limited to dissolving, liquidating and winding up.

 

***We may issueshares of our capital stock or debt securities to complete a businesscombination, which would reduce the equity interest of our stockholders and maycause a change in control of our ownership.***

*** ***

We may issue a substantial number of additional sharesof common stock or preferred shares, or a combination of common stock andpreferred shares, to complete a business combination. The issuance ofadditional common stock or preferred shares:

 

·                  may significantly reduce the equityinterest of our existing stockholders;

 

·                  could cause a change in control if asubstantial number of our shares of common stock are issued and in the event ofa change of control most likely result in the resignation or removal of ourpresent officers and directors;

 

 

10

----

 

·                  may subordinate the rights of holders ofcommon stock if preferred stock is issued with rights senior to those affordedto our common stock; and

 

·                  may adversely affect prevailing marketprices for our securities.

 

Similarly, if we issued debt securities, it couldresult in:

 

·                  default and foreclosure on our assets ifour operating cash flow after a business combination were insufficient to payour debt obligations;

 

·                  acceleration of our obligations to repaythe indebtedness even if we have made all principal and interest payments whendue if the debt security contained covenants that required the maintenance ofcertain financial ratios or reserves and any such covenant were breachedwithout a waiver or renegotiation of that covenant;

 

·                  our immediate payment of all principaland accrued interest, if any, if the debt security was payable on demand;

 

·                  covenants that limit our ability toacquire capital assets or make additional acquisitions; and

 

·                  our inability to obtain additionalfinancing, if necessary, if the debt security contained covenants restrictingour ability to obtain additional financing while such security was outstanding.

 

***Our ability tosuccessfully effect a business combination and to be successful afterwards willbe dependent upon the efforts of our key personnel, some of whom may join usfollowing a business combination and whom we would have only a limited abilityto evaluate.***

*** ***

Our ability to successfully effect a businesscombination will be dependent upon the efforts of our key personnel. Inaddition, the future role of our key personnel and our directors following abusiness combination cannot presently be fully ascertained. It is likely thatwe may employ other personnel following the business combination. While weintend to closely scrutinize any additional individuals we engage after abusiness combination, we cannot assure you that our assessment of theseindividuals will prove to be correct. These individuals may be unfamiliar withthe requirements of operating a public company as well as U.S. securities lawswhich could cause us to have to expend time and resources helping them becomefamiliar with such laws. This could be expensive and time-consuming and couldlead to various regulatory issues which may adversely affect our operations.

 

***Our executiveofficers and directors may allocate their time to other businesses therebycausing conflicts of interest in their determination as to how much time todevote to our affairs, hampering our ability to consummate a businesscombination.***

*** ***

Our executive officers and directors are not requiredto commit their full time to our affairs, which may result in a conflict ofinterest in allocating their time between our operations and other businesses.All of our executive officers are engaged in several other business endeavorsand are not obligated to contribute any specific number of hours per week toour affairs. If our executive officers’ other business affairs require them todevote more substantial amounts of time to such affairs, it could limit theirability to devote time to our affairs and could have a negative impact on ourability to consummate a business combination. We cannot assure you that theseconflicts will be resolved in our favor.

 

***Our executiveofficers and directors may be involved or in the future may become affiliatedwith other businesses, including other blank check companies, which could causea conflict of interest as to which business they may present a viableacquisition opportunity.***

*** ***

Our executive officers and directors may be involvedor in the future may become affiliated with entities, including other blankcheck companies, engaged in business activities similar to those intended to beconducted by 

 

11

----

 

us. For example, Messrs. Furer,Chapman and Rahman are directors of KapStone Paper and Packaging Corporation(formerly Stone Arcade Acquisition Corporation, a blank check company) andprincipals of Arcade Partners, LLC, a private equity firm. Our executiveofficers and directors may become aware of business opportunities that may beappropriate for presentation to us as well as the other entities with whichthey may be affiliated. Accordingly, they may have conflicts of interest indetermining to which entity a particular business opportunity should bepresented. We cannot assure you that these conflicts will be resolved in ourfavor.

 

***All of ourexisting executive officers and directors, or their respective affiliates, ownshares of our common stock which will not participate in liquidationdistributions and therefore they may have a conflict of interest in determiningwhether a particular target business is appropriate for a business combination.***

*** ***

Our executive officers and directors, or theirrespective affiliates, as applicable, have waived the right to receivedistributions upon our liquidation upon our failure to complete a businesscombination with respect to shares of common stock they purchased prior to ourinitial public offering. Additionally, an entity affiliated with our officersand directors purchased certain warrants in a private placement immediatelyprior to our initial public offering. The shares of common stock owned by ourexecutive officers and directors and their affiliates prior to our public offeringand the warrants owned by an entity affiliated with our officers and directorswill be worthless if we do not consummate a business combination. The personaland financial interests of our executive officers and directors may influencetheir motivation in identifying and selecting a target business and completinga business combination on a timely basis. Consequently, our executive officers’and directors’ discretion in identifying and selecting a suitable targetbusiness may result in a conflict of interest when determining whether theterms, conditions and timing of a particular business combination areappropriate and in our stockholders’ best interest.

 

***Our initialstockholders’ interests in obtaining reimbursement for any out-of-pocketexpenses incurred by them may lead to a conflict of interest in determiningwhether a particular target business is appropriate for a business combinationand in the public stockholders’ best interest.***

*** ***

Our initial stockholders, which include all of ourexecutive officers and directors, will not receive reimbursement for anyout-of-pocket expenses incurred by them to the extent that such expenses exceedthe available proceeds not deposited in the trust account, including interestincome of $2,000,000, unless the business combination is consummated. Theamount of available proceeds is based on management estimates of the fundsneeded for operations and to consummate a business combination, and thoseestimates may prove to be inaccurate. The financial interest of our executiveofficers and directors could influence their motivation in selecting atarget business as certain business combinations may involve the repayment ofexpenses while others may not. For instance, our executive officers anddirectors may, as part of any such combination, negotiate the repayment of someor all of their out-of-pocket expenses in excess of the amount in the trustaccount, which if not agreed to by the target business’ owners, could cause ourexecutive officers and directors to view such potential business combinationunfavorably, thereby resulting in a conflict of interest. As a result, ourexecutive officers and directors may have a potential conflict of interest whendetermining whether or not a particular business combination is in the stockholders’best interest.

 

***It is likely thatwe will only be able to complete one business combination with the proceeds ofour initial public offering and the private placement, which will cause us tobe solely dependent on a single business.***

*** ***

Our management will have virtually unrestrictedflexibility in identifying and selecting a prospective target business, exceptthat our initial business combination must be a transaction in which the fairmarket value of the target business or businesses acquired simultaneously atthe time of the business combination is at least 80% of our net assets at thetime of the business combination. While we may be able to purchase more thanone target business using our equity securities as consideration for theacquisition or raising additional funds through the sale of our securities orthrough loan arrangements, we have no agreements or arrangements for suchadditional funding. We therefore believe that it is most likely that we willhave the ability to effect only a single business combination. However, shouldour management elect to pursue more than one acquisition of target businessessimultaneously, our management could encounter difficulties in consummating allor a portion of such acquisitions due to a lack of adequate resources,including the inability of management to devote sufficient time to the duediligence, negotiation and documentation of each acquisition. Furthermore, evenif we complete the acquisition of more than one target 

 

12

----

 

business at substantiallythe same time, there can be no assurance that we will be able to integrate theoperations of such target businesses.

 

Accordingly, the prospects for our ability to effectour business strategy may be:

 

·                  solely dependent upon the performance of asingle business; or

 

·                  dependent upon the development or marketacceptance of a single or limited number of products, processes or services.

 

In the event we acquire a single target business, wewill not be able to diversify our operations or benefit from the possiblespreading of risks or offsetting of losses, unlike other entities that may havethe resources to complete several business combinations.

 

***We will bedependent upon interest earned on the trust account to fund our search for atarget company and consummation of a business combination.***

*** ***

We will be dependent upon sufficient interest beingearned on the funds held in the trust account to provide us with the additionalworking capital we will need to search for a target company and consummate abusiness combination. As of December 31, 2007, we had $1,478,000 availableto us outside of the trust account to fund our working capital requirements tofund our business. While we are entitled to withdraw up to an additional$569,000 of the interest earned on the trust account, net of taxes, to fund ourbusiness, if interest rates were to decline substantially, we may not havesufficient funds available to complete a business combination. In such event,we would need to borrow funds from our insiders or others or be forced toliquidate.

 

***Because of ourlimited resources and the significant competition for business combinationopportunities, we may not be able to consummate an attractive businesscombination.***

*** ***

We expect to encounter intense competition from otherentities having a business objective similar to ours, including venture capitalfunds, leveraged buyout funds and operating businesses competing foracquisitions. Many of these entities are well established and have extensiveexperience in identifying and effecting business combinations directly orthrough affiliates. Many of these competitors possess greater technical, humanand other resources than we do and our financial resources will be relativelylimited when contrasted with those of many of these competitors. Our ability tocompete in acquiring certain sizable target businesses will be limited by ouravailable financial resources. This inherent competitive limitation givesothers an advantage in pursuing the acquisition of certain target businesses.Further, our obligation to seek stockholder approval of a business combinationmay delay the consummation of a transaction, and our obligation to redeem forcash the shares of common stock held by public stockholders in certaininstances may reduce the resources available for a business combination.Additionally, our outstanding warrants, and the future dilution theypotentially represent, may not be viewed favorably by certain targetbusinesses. Any of these obligations may place us at a competitive disadvantagein successfully negotiating a business combination.

 

***We may be unableto obtain additional financing, if required, to complete a business combinationor to fund the operations and growth of the target business, which could compelus to restructure the transaction or abandon a particular business combination.***

*** ***

Although we believe that the net proceeds of ourinitial public offering and the private placement will be sufficient to allowus to consummate a business combination, we cannot ascertain with certainty thecapital requirements for any particular transaction. If the net proceeds of ourinitial public offering and the private placement prove to be insufficient,either because of the size of the business combination or the depletion of theavailable net proceeds in search of a target business, or because we becomeobligated to redeem into cash a significant number of shares from dissentingstockholders (which in our case may be up to 30% of the shares held by publicstockholders, which may make it easier for us to receive stockholder approvalfor a business combination, rather than the 20% threshold of many other blankcheck companies), we will be required to seek additional financing. We cannotassure you that such financing would be available on acceptable terms, if atall. To the extent 

 

13

----

 

that additional financingproves to be unavailable when needed to consummate a particular businesscombination, we would be compelled to restructure the transaction or abandonthat particular business combination and seek an alternative target businesscandidate. If we were unable to secure additional financing, we would mostlikely fail to consummate a business combination in the allotted time and woulddissolve and liquidate the trust as part of our plan of dissolution andliquidation. In addition, if we consummate a business combination, we mayrequire additional financing to fund the operations or growth of the target business.The failure to secure additional financing could have a material adverse effecton the continued development or growth of the target business. None of ourexecutive officers, directors or stockholders is required to provide anyfinancing to us in connection with or after a business combination.

 

***Our initialstockholders consisting of our executive officers and directors, control asubstantial interest in us and thus may influence certain actions requiringstockholder vote.***

*** ***

Our executive officers and directors and theiraffiliates collectively own approximately 17.9% of our issued and outstandingshares of common stock and may have considerable influence over the outcome ofall matters requiring approval by our stockholders, including our initial businessconsideration and the election of directors.

 

In addition, our board of directors is divided intothree classes, each of which will generally serve for a term of three yearswith only one class of directors being elected in each year. It is unlikely thatthere will be an annual meeting of stockholders to elect new directors prior tothe consummation of a business combination, in which case all of the currentdirectors will continue in office at least until the consummation of thebusiness combination. If there is an annual meeting, as a consequence of our “staggered”board of directors, only a minority of the board of directors will beconsidered for election and our initial stockholders, because of theirownership position, will have considerable influence regarding the outcome.Accordingly, our initial stockholders will continue to exert control at leastuntil the consummation of a business combination.

 

## **Item 1B.**                          Unresolved Staff Comments

## ** **

Not Applicable.

 

# **Item 2.**                                   Properties

# ** **

We maintain our executive offices at 62 La Salle Road,Suite 304, West Hartford, Connecticut 06107 which is  provided by Arcade Partners, LLC, anaffiliate of Messrs. Furer, Chapman and Rahman. We pay Arcade Partners,LLC $7,500 per month pursuant to a letter agreement between Arcade Partners,LLC and us for providing administrative support and services. We believe thatbased on rents and fees for similar services in the West Hartford, Connecticutarea, the fee charged by Arcade Partners, LLC is at least as favorable as wecould have obtained from an unaffiliated person.  We consider our current office space adequatefor our current operations.

 

# **Item 3.**                                   Legal Proceedings

# ** **

To the knowledge of management, there is no litigationcurrently pending or contemplated against us or any of our officers ordirectors in their capacity as such.

 

# **Item 4.**                                   Submission of Matters to a Vote of Security Holders

# ** **

During the fourth quarter of our fiscal year ended December 31,2007, there were no matters submitted to a vote of security holders.

 

14

----

** **

**PART II**

** **

# **Item 5.**                                   Market for Registrant’s Common Equity, RelatedStockholder Matters and Issuer Purchases of Equity Securities

# ** **

Our units, common stock and warrants have been tradedon the Over-the-Counter Bulletin Board under the symbols “ACDQU,” “ACDQ” and “ACDQW,”respectively since May 22, 2007, June 14, 2007 and June 14,2007, respectively.  The following tablesets forth the high and low bid information for our securities from thecommencement of trading through December 31, 2007 as reported by theOver-the-Counter Bulletin Board. The Over-the-Counter Bulletin Board quotationsreflect inter-dealer prices, are without retail markup, markdowns orcommissions, and may not represent actual transactions.

 
|                                      |   | **Common Stock** |   | **Warrants** |   | **Units** |
|-------------------------------------------|--------|------------------|--------|--------------|--------|-----------|
|                                      |   |             |   |         |   |      |   |   |   |   |   |
|                                      |   | **High**         |   | **Low**      |   | **High**  |   | **Low** |   | **High** |   | **Low** |
| First Quarter*                            |   |             |   |         |   |      |   |   |   |   |   |   |
| Second Quarter* (April-May 21)       |   |             |   |         |   |      |   |   |   |   |   |   |
| Second Quarter (May 22-June 30) |   | $                | 7.50   |         | $      | 7.35      |   | $ | 0.95 |   | $ | 0.85 |   | $ | 8.32 |   | $ | 8.00 |
| Third Quarter                             |   | $                | 7.42   |         | $      | 7.23      |   | $ | 0.95 |   | $ | 0.60 |   | $ | 8.35 |   | $ | 7.83 |
| Fourth Quarter                            |   | $                | 7.39   |         | $      | 7.28      |   | $ | 0.70 |   | $ | 0.55 |   | $ | 8.05 |   | $ | 7.88 |

----

* No figures are includedas our units commenced trading on May 22, 2007, and our common stock andwarrants commenced trading on June 14, 2007.

 

**Number of Holders of Common Stock**

** **

The number of holders of record of our common stock onMarch 4, 2008 was 7, which does not include individual participants insecurity position listings.

 

**Dividends**

** **

There were no cash dividends or other cashdistributions made by us during the fiscal year ended December 31, 2007.Future dividend policy will be determined by our board of directors based onour earnings, financial condition, capital requirements and other then existingconditions. It is anticipated that cash dividends will not be paid to theholders of our common stock in the foreseeable future.

 

**Recent Sales of Unregistered Securities**

** **

We did not engage in the sale of any unregisteredsecurities during the three months ended December 31, 2007.

 

**Use of Proceeds from our Initial Public Offering**

** **

On May 25, 2007, we consummated our initialpublic offering of 7,500,000 units.  Eachunit consisted of one share of common stock, $.0001 par value per share, andone warrant to purchase one share of common stock. On June 7, 2007, theunderwriters of our initial public offering exercised their over-allotmentoption to sell an additional 1,125,000 units. We received aggregate gross proceeds of $69,000,000 from the sale of theunits.  The offering was registered underthe Securities Act of 1933, as amended, pursuant to a registration statement onForm S-1 (File No. 333-140814), which was declared effective by theSecurities and Exchange Commission on May 21, 2007.

 

The underwriters of the offering were Morgan Joseph &Co. Inc., Legend Merchant Group, Maxim Group LLC and GunnAllen Financial, Inc.  Each of our units commenced trading itscomponent share of common stock and warrant separately on June 14, 2007.

 

15

----

 

Immediately prior to the consummation of our publicoffering, we sold 2,000,000 warrants to an affiliate of our officers anddirectors for $1.00 per warrant for aggregate gross proceeds of $2,000,000.

 

The net proceeds from the sale of our units (includingthe underwriters’ over-allotment option) and the insider warrants, afterdeducting certain offering expenses of approximately $2,949,000, includingunderwriting discounts of approximately $2,415,000, were approximately$68,051,000. Of this amount, $67,835,000 is being held in the trust account andthe remaining proceeds are being held outside of the trust account. Theremaining proceeds, along with up to $2,000,000 in interest earned on the fundsin the trust account, are available to be used by us to provide for business,legal and accounting due diligence on prospective acquisitions and continuinggeneral and administrative expenses.

 

No expenses of the offering were paid to any of ourofficers and directors or any of their respective affiliates. We did, however,repay certain of our officers and directors for loans they made to us prior tothe consummation of the initial public offering. These loans had an annualinterest rate of 4%.  The aggregate amount of principal and interest onsuch loans that we repaid were $225,000 and $2,211, respectively. All the fundsheld in the trust account have been invested in either Treasury Bills or MoneyMarket Accounts.

 

**Repurchases of Equity Securities**

** **

                None

 

**Equity Compensation Plan Information**

** **

                None

 

# **Item 6.**                                   Selected Financial Data

# ** **

The selected financialdata presented below summarizes certain financial data which has been derivedfrom and should be read in conjunction with our financial statements and notesthereto included in the section beginning on page F-1. See also “Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations.”

 
| ** **                                                                      | ** ** | ****Period from January 30, 2007************(Date of Inception)   through************December 31, 2007**** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|
|                                                                            |       |                                                                                                                 |       |
| ****Statement of Operations Data:****                                           |       |                                                                                                                 |       |
| Formation and operating  costs                                                  |       | $                                                                                                                    | 227,766    |   |
| Other income (interest and  dividend income)                                    |       | $                                                                                                                    | 2,025,481  |   |
| Net income                                                                      |       | $                                                                                                                    | 1,165,577  |   |
| Net income allocable to  common stockholders not subject to possible redemption |       | —                                                                                                               |       |
| Basic net income per share                                                      |       | $                                                                                                                    | 0.16       |   |
| Diluted net income per  share                                                   |       | $                                                                                                                    | 0.13       |   |

 
|                            |   | ****As of December 31,********2007**** |       |
|---------------------------------|--------|-------------------------------------------------------|------------|
|                            |   |                                                  |       |
| ****Balance Sheet Data:****     |   |                                                  |       |
| Cash                            |   | $                                                     | 1,487,025  |   |
| Investments in Trust  Account   |   | $                                                     | 67,931,770 |   |
| Total assets                    |   | $                                                     | 69,512,117 |   |
| Total stockholders’ equity |   | $                                                     | 47,200,510 |   |

 

16

----

 

# **Item 7.**                                   Management’s Discussion and Analysis of FinancialCondition and Results of Operations

# ** **

**Forward Looking Statements**

** **

This Annual Report on Form 10-K includesforward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended.  We have based these forward-lookingstatements on our current expectations and projections about future events.These forward-looking statements are subject to known and unknown risks,uncertainties and assumptions about us that may cause our actual results,levels of activity, performance or achievements to be materially differentfrom any future results, levels of activity, performance or achievementsexpressed or implied by such forward-looking statements.  In some cases,you can identify forward-looking statements by terminology such as “may,” “should,”“could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,”or the negative of such terms or other similar expressions.  Factors thatmight cause or contribute to such a discrepancy include, but are not limitedto, those described in our other Securities and Exchange Commission filings.The following discussion should be read in conjunction with our FinancialStatements and related Notes thereto included elsewhere in this report.

 

**Overview**

** **

We were formed on January 30, 2007 to serve as avehicle to effect a merger, capital stock exchange, asset acquisition or othersimilar business combination with an operating business.  Our initial businesscombination must be with a target business or businesses whose fair marketvalue is at least equal to 80% of our net assets at the time of suchacquisition.  Since our offering, we have been actively searching for asuitable business combination candidate. We currently have not entered into anydefinitive agreement with any potential target businesses. We are not presentlyengaged in, and will not engage in, any substantive commercial business untilwe consummate an initial transaction. We intend to utilize cash derived fromthe proceeds of our recently completed private placement and public offering,our capital stock, debt or a combination of cash, capital stock and debt, ineffecting a business combination.

 

We cannot assure investors that we will find asuitable business combination in the allotted time.

 

**Critical Accounting Policies**

** **

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

 

In December 2007, the FASB issued Statement ofFinancial Accounting Standards No. 141 (revised 2007), “BusinessCombinations” (“FAS 141R”). FAS 141R replaces Statement of Financial AccountingStandards No. 141, “Business Combinations” (“FAS 141”), although itretains the fundamental requirement in FAS 141 that the acquisition method ofaccounting be used for all business combinations. FAS 141R establishesprinciples and requirements for how the acquirer in a business combination (a) recognizesand measures the assets acquired, liabilities assumed and any non-controllinginterest in the acquiree, (b) recognizes and measures the goodwillacquired in a business combination or a gain from a bargain purchase and (c) determineswhat information to disclose regarding the business combination. FAS 141Rapplies prospectively to business combinations for which the acquisition dateis on or after the beginning of our 2009 fiscal year. We are currentlyassessing the potential effect of FAS 141R on our financial statements.

 

In June 2006, the FASB issued Interpretation No. 48,“Accounting for Uncertainty in Income Taxes — An Interpretation of SFAS No.109”(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in tax positionsrecognized in a company’s financial statements in accordance with SFAS No. 109,“Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof the tax position taken or expected to be taken in a tax return. The Companyadopted FIN 48.  The adoption of FIN 48 did not have any impact on theaccompanying financial statements since we have not identified any uncertaintax positions as defined by FIN 48.

 

17

----

 

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

 

**Liquidity and Capital Resources**

** **

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

 

The net proceeds from the sale of our units (includingthe underwriters’ over-allotment option) and the insider warrants, afterdeducting certain offering expenses of approximately $2,949,000, includingunderwriting discounts of approximately $2,415,000, were approximately$68,051,000. Of this amount, $67,835,000 is being held in the trust account andthe remaining proceeds are being held outside of the trust account. The remainingproceeds, along with up to $2,000,000 in interest earned on the funds in thetrust account, are available to be used by us to provide for business, legaland accounting due diligence on prospective acquisitions and continuing generaland administrative expenses. We will use substantially all of the net proceedsof the offering to acquire a target business, including identifying andevaluating prospective acquisition candidates, selecting the target business,and structuring, negotiating and consummating a business combination. To theextent that our capital stock is used in whole or in part as consideration toeffect a business combination, the proceeds held in the trust account, as wellas any other net proceeds not expended, will be used to finance the operationsof the target business. Including the $2,000,000 in interest available to us,we believe we will have sufficient available funds outside of the trust accountto operate through May 21, 2009, assuming that a business combination isnot consummated during that time.

 

From now until the earlier of May 21, 2009 or thedate when we complete a business combination, we currently anticipate incurringexpenses for the following purposes:

 

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

 

·                  due diligence of prospective targetbusinesses;

 

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

 

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

 

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

 

We may use all or substantially all of the proceedsheld in trust other than the deferred portion of the underwriter’s fee toacquire one or more target businesses. We may not use all of the proceeds held in the trust account inconnection with a business combination, either because the consideration forthe business combination is less than the proceeds in trust or because wefinance a portion of the consideration with capital stock or debt securitiesthat we can issue. In that event, the proceeds held in the trust account aswell as any other net proceeds not expended will be used to finance theoperations of the target business or businesses.  The operating businesses that we acquire insuch business combination must have, individually or collectively, a fairmarket value equal to at least 80% of our net assets at the time of suchacquisition.  If we consummate multiplebusiness combinations that collectively have a fair market value of 80% of ournet assets, then we would require that such transactions are consummatedsimultaneously.

 

 

18

----

 

If we are unable to find a suitable target business byMay 21, 2009, we will be forced to liquidate. If we are forced toliquidate, the per share liquidation amount may be less than the initial perunit offering price because of the underwriting commissions and expensesrelated to our offering and because of the value of the warrants in the perunit offering price. Additionally, if third parties make claims against us, theoffering proceeds held in the trust account could be subject to those claims,resulting in a further reduction to the per share liquidation price. UnderDelaware law, our stockholders who have received distributions from us may beheld liable for claims by third parties to the extent such claims are notbeen paid by us. Furthermore, our warrants will expire worthless if weliquidate before the completion of a business combination.

 

**Results of Operations for the period January 30,2007 (date of inception) to December 31, 2007**

** **

For the period from January 30, 2007 (date ofinception) through December 31, 2007, we had net income of $1,165,577,derived from interest income less operating expenses.

 

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

 

For the year ended December 31, 2007, we incurredapproximately $33,000 of travel expenses, $35,000 for professional fees,$110,000 for other  formation andoperating costs, $50,000 of costs related to capital based taxes and interestexpense of approximately $2,200, offset by interest income of approximately$2,025,000.

 

**Off Balance-Sheet Arrangements**

** **

Warrants issued in conjunction with our initial publicoffering are equity-linked derivatives and, accordingly, represent off-balancesheet arrangements.  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.

 

**Contractual Obligations**

** **

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

 

## **Item 7A.**                          Quantitative and Qualitative Disclosures About MarketRisk

## ** **

Market risk is the sensitivity of income to changes ininterest rates, foreign exchanges, commodity prices, equity prices, and othermarket-driven rates or prices. We are not presently engaged in and, if asuitable business target is not identified by us prior to the prescribedliquidation date of the trust fund, we may not engage in, any substantive commercialbusiness. Accordingly, we are not and, until such time as we consummate abusiness combination, we will not be, exposed to risks associated with foreignexchange rates, commodity prices, equity prices or other market-driven rates orprices. The net proceeds of our initial public offering held in the trust fundhave been invested only in money market funds meeting certain conditions under Rule 2a-7promulgated under the Investment Company Act of 1940, as amended. Given ourlimited risk in our exposure to money market funds, we do not view the interestrate risk to be significant.

 

# **Item 8.**                                   Financial Statements and Supplementary Data

# ** **

The following financialstatements and the footnotes thereto are included in the section beginning on Page F-1:

 

1.               Report of Independent Registered PublicAccounting Firm.

2.               Balance Sheet as of December 31,2007.

3.               Statement of Operations for the period January 30,2007 (date of inception) to December 31, 2007.

 

19

----

 

4.               Statement of Stockholders’ Equity for theperiod January 30, 2007 (date of inception) to December 31, 2007.

5.               Statement of Cash Flows for the period January 30,2007 (date of inception) to December 31, 2007.

6.               Notes to Financial Statements.

 

# **Item 9.**                                   Changes in and Disagreements with Accountants onAccounting and Financial Disclosure

# ** **

None

 

## **Item 9A(T).**                                  Controls and Procedures

## ** **

An evaluation of the effectiveness of our disclosurecontrols and procedures as of December 31, 2007 was made under thesupervision and with the participation of our management, including our chiefexecutive officer and our principal financial officer. Based on thatevaluation, they concluded that our disclosure controls and procedures areeffective as of the end of the period covered by this report to ensure thatinformation required to be disclosed by us in reports that we file or submitunder the Securities Exchange Act of 1934 is recorded, processed, summarizedand reported within the time periods specified in Securities and Exchange Commissionrules and forms. During the most recently completed fiscal quarter, therehas been no significant change in our internal control over financial reportingthat has materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

**Compliance with Section 404 of the Sarbanes-OxleyAct of 2002**

** **

This annual report does not include a report ofmanagement’s assessment regarding internal control over financial reporting oran attestation report of our registered public accounting firm due to atransition period established by the rules of the Securities and Exchangefor newly public companies.

 

Pursuant to Section 404 of the Sarbanes-Oxley Actof 2002 (the “Act”), beginning with our Annual Report on Form 10-K for thefiscal year ending December 31, 2008, we will be required to furnish areport by our management on our internal control over financial reporting. Thisreport will contain, among other matters, an assessment of the effectiveness ofour internal 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 forinternal controls over financial reporting and seeks to continually improvethose controls. In order to achieve compliance with Section 404 of the Actwithin the prescribed period, we are currently performing the system andprocess documentation and evaluation needed to comply with Section 404,which is both costly and challenging. We believe our process, which began in2007 and continue in 2008 for documenting, evaluating and monitoring ourinternal control over financial reporting is consistent with the objectives of Section 404of the Act.

 

## **Item 9B.**                          Other Information

## ** **

None

 

**PART III**

** **

# **Item 10.**                            Directors and Executive Officers of the Company

# ** **

Our current directors and executive officers are asfollows:

 

 

20

----

 
| **Name**        | ** ** | **Age** | ** ** | **Position**                            |
|-----------------|------------|---------|------------|-----------------------------------------|
| Jonathan  Furer |       | 50      |       | Chief  Executive Officer and Director   |
| John  Chapman   |       | 47      |       | Chief  Financial Officer and Director   |
| Muhit  Rahman   |       | 51      |       | Vice  President, Secretary and Director |

 

***Jonathan Furer*** has been our Chief ExecutiveOfficer and a member of our board of directors since inception. Mr. Fureris a co-founder and has been a managing member of Arcade Partners, LLC, aprivate equity firm, since November 2003. Since January 2004, he hasbeen a Managing Director of Washington & Congress Managers, a privateequity firm. Since April 2005, he has served on the board of directors ofKapStone Paper and Packaging Corporation (formerly, Stone Arcade AcquisitionCorporation). From March 2000 through December 2003, he was aManaging Director of Triumph Capital Group, Inc., a private equity firm. Mr. Furerreceived a B.B.A. in International Business from The George WashingtonUniversity.

 

***John Chapman*** has been our Chief Financial Officer anda member of our board of directors since inception. Mr. Chapman is aco-founder and has been a managing member of Arcade Partners, LLC, since November 2003.Since January 2004, he has been a Managing Director of Washington &Congress Managers. Since April 2005, he has served on the board ofdirectors of KapStone Paper and Packaging Corporation (formerly, Stone ArcadeAcquisition Corporation). From March 1990 through December 2003, hewas employed by Triumph Capital Group, Inc, last serving as a ManagingDirector. Mr. Chapman received a B.A. from Bates College and an M.B.A.from the Tuck School of Business at Dartmouth College.

 

***Muhit Rahman*** has been our Vice President, Secretaryand a member of our board of directors since inception. Mr. Rahman is aco-founder and has been a managing member of Arcade Partners, LLC since November 2003.Since January 2004, he has been a Managing Director of Washington &Congress Managers. Since April 2005, he has served on the board ofdirectors of KapStone Paper and Packaging Corporation (formerly, Stone ArcadeAcquisition Corporation). Since July 2001, he has served on the board ofdirectors of CardioMEMS, Inc. a medical device company. From November 1993through December 2003, he was a Managing Director of Triumph CapitalGroup. Mr. Rahman received a B.S. from Yale University and an M.B.A. fromthe Anderson School of Management at UCLA.

 

Our board of directors is divided into three classeswith only one class of directors being elected in each year and each classserving a three-year term. The term of office of the first class of directors,consisting of Muhit Rahman, will expire at our first annual meeting ofstockholders. The term of office of the second class of directors, consistingof John Chapman, will expire at the second annual meeting. The term of officeof the third class of directors, consisting of Jonathan Furer, will expire atthe third annual meeting. These individuals will play a key role in identifyingand evaluating prospective acquisition candidates, selecting the targetbusiness, and structuring, negotiating and consummating its acquisition.

 

**Code of Ethics**

** **

We currently do not have a formalized code of ethics.Upon consummation of a business combination, we intend to adopt a code ofethics that would apply to our principal executive officer, principal financialofficer, principal accounting officer or controller or persons performingsimilar functions.

 

**Section 16(a) Beneficial Ownership ReportingCompliance**

** **

Section 16(a) of the Securities Exchange Actrequires our directors, executive officers and persons who own more than 10% ofour common stock to file reports of ownership and changes in ownership of ourcommon stock with the Securities and Exchange Commission. Directors, executiveofficers and persons who own more than 10% of our common stock are required bySecurities and Exchange Commission regulations to furnish to us copies of all Section 16(a) formsthey file. To our knowledge, based solely upon review of the copies of suchreports received or written representations from the reporting persons, webelieve that during the year ended December 31, 2007, our directors,executive officers and persons who own more than 10% of our common stockcomplied with all Section 16(a) filing requirements.

 

21

----

 

# **Item 11.**                            Executive Compensation

# ** **

No officer has received any cash compensation forservices rendered. Since May 21, 2007, we have paid Arcade Partners, LLC,an affiliate of Messrs. Furer, Chapman and Rahman, our executive officersand directors, $7,500 per month for certain administrative services.  We expect that we will continue to pay ArcadePartners, LLC $7,500 per month for such administrative services through theacquisition of a target business.  Otherthan this $7,500 per-month fee, no compensation of any kind, including finder’sand consulting fees, has been paid to any of our initial stockholders, ourofficers or directors, or any of their respective affiliates, for servicesrendered prior to or in connection with a business combination. However, ourofficers and directors have been reimbursed for any out-of-pocket expensesincurred in connection with activities on our behalf such as identifyingpotential target businesses and performing due diligence on suitable businesscombinations.  We expect that we willcontinue to reimburse our officers and directors for such expenses through theacquisition of a target business.  Thereis no limit on the amount of these out-of-pocket expenses and there will be noreview of the reasonableness of the expenses by anyone other than our board ofdirectors, which includes persons who may seek reimbursement, or a court ofcompetent jurisdiction if such reimbursement is challenged.

 

Since our formation, we have not granted any stockoptions or stock appreciation rights or any awards under long-term incentiveplans.

 

# **Item 12.**                            Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters

# ** **

The following table sets forth, as of March 4,2008, certain information regarding beneficial ownership of our common stock byeach person who is known by us to beneficially own more than 5% of our commonstock. The table also identifies the stock ownership of each of our directors,each of our officers, and all directors and officers as a group. Except asotherwise indicated, the stockholders listed in the table have sole voting andinvestment powers with respect to the shares indicated.

 

Shares of common stock which an individual or grouphas a right to acquire within 60 days pursuant to the exercise or conversion ofoptions, warrants or other similar convertible or derivative securities aredeemed to be outstanding for the purpose of computing the percentage ownershipof such individual or group, but are not deemed to be outstanding for thepurpose of computing the percentage ownership of any other person shown in thetable.

 
| **Name  and Address of Beneficial Owner**                         | ** ** | **Amount and   Nature of   Beneficial   Ownership** | ** ** | **Percentage of   Outstanding   Common Stock** |
|-------------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------------------------------------------|
| Arcade Acquisition  Investors, LLC (1)                            |       | 360,000                                             |       | 3.4%                                           |
| John M. Chapman (2)                                               |       | 505,000                                             |       | 4.8%                                           |
| Jonathan R. Furer (3)                                             |       | 505,000                                             |       | 4.8%                                           |
| Muhit U. Rahman (4)                                               |       | 505,000                                             |       | 4.8%                                           |
| Basso Capital  Management, L.P. (5)(6)                            |       | 630,300                                             |       | 6.0%                                           |
| Basso Multi-Strategy  Holding Fund Ltd. (7)                       |       | 560,101                                             |       | 5.3%                                           |
| Azimuth Opportunity  Fund, Ltd. (8)                               |       | 540,000                                             |       | 5.1%                                           |
| QVT Financial LP (9)                                              |       | 537,750                                             |       | 5.1%                                           |
| All directors and  executive officers as a group (3 persons) (10) |       | 1,875,000                                           |       | 17.9%                                          |

----

(1)          Excludes 2,000,000 shares of common stock that may beissued upon the exercise of warrants purchased by Arcade Acquisition Investors,LLC immediately prior to the consummation of our initial public offering thatare not exercisable within 60 days.  Messrs. Furer,Chapman and Rahman each own a 25% interest in this entity and, as Managers,share voting and dispositive control of these shares.  The business address of Arcade AcquisitionInvestors, LLC is c/o Muhit Rahman, 8550 Willow Run Court, Cincinnati, OH45243.

 

(2)          Excludes shares held by Arcade Acquisition Investors,LLC.  Mr. Chapman’s business addressis c/o Arcade Partners LLC, 62 La Salle Road, Suite 304,West Hartford, CT 06107.

 

22

----

 

(3)          Excludes shares held by Arcade Acquisition Investors,LLC.  Mr. Furer’s business addressis 45 Park St., Tenafly, NJ 07670.

 

(4)          Excludes shares held by Arcade Acquisition Investors,LLC.  Mr. Rahman’s business addressis 8550 Willow Run Court, Cincinnati, OH 45243.

 

(5)          Based on a Schedule 13G filed by Basso CapitalManagement L.P. on February 14, 2008. The business address of Basso Capital Management L.P. is 1266 East MainStreet, 4th Floor, Stamford, Connecticut 06902. Basso Capital Management, L.P. is the investment manager of Basso FundLtd., which beneficially owns 70,199 shares of our common stock, and BassoMulti-Strategy Holding Fund Ltd., which beneficially owns 560,101 shares of ourcommon stock.  Accordingly, Basso CapitalManagement L.P. may be deemed to be the beneficial owner of an aggregate amountof 630,300 shares of our common Stock, consisting of the shares owned by BassoFund Ltd. and and Basso Multi-Strategy Holding Fund Ltd.  Basso GP, LLC is the general partner of BassoCapital Management, L.P.  The controllingpersons of Basso GP, LLC are Howard Fischer, Philip Patek, John Lepore andDwight Nelson.

 

(6)          Includes 560,101 shares of common stock beneficiallyowned by Basso Multi-Strategy Fund Ltd.

 

(7)          Based on a Schedule 13G filed by Basso Multi-StrategyFund Ltd. on February 14, 2008.  Thebusiness address of Basso Multi-Strategy Fund Ltd. is c/o M&C CorporateServices Limited, PO Box 309GT, Ugland House, South Church Street, George Town,Grand Cayman, Grand Cayman Islands, British West Indies.  Basso Capital Management, L.P. is theinvestment manager of Basso Multi-Strategy Holding Fund Ltd.  Basso GP, LLC is the general partner of BassoCapital Management, L.P.  The controllingpersons of Basso GP, LLC are Howard Fischer, Philip Patek, John Lepore andDwight Nelson.

 

(8)          Based on a Schedule 13G filed by Azimuth OpportunityFund, Ltd. on July 11, 2007.  Thebusiness address of Azimuth Opportunity Fund, Ltd. is c/o Ogier, QwomarComplex, 4th Floor, PO Box 3170, Road Town, Tortola, British Virgin Islands.

 

(9)          Based on a Schedule 13G filed by QVT Financial LP on February 2,2008.  The business address of QVTFinancial LP is 1177 Avenue of the Americas, 9th Floor, New York, New York10036.  QVT Financial LP is theinvestment manager for QVT Fund LP, which beneficially owns 432,905 shares ofour common stock, and for Quintessence Fund L.P., which beneficially owns48,557 shares of our common stock. QVT Financial LP is also the investmentmanager for a separate discretionary account managed for Deutsche Bank AG,which holds 56,288 shares of Common Stock. QVT Financial LP has the power to direct the vote and disposition of theshares of our common stock held by QVT Fund LP, Quintessence Fund L.P. and theseparate account managed for Deutsche Bank AG. Accordingly, QVT Financial LPmay be deemed to be the beneficial owner of an aggregate amount of 537,750shares of our common Stock, consisting of the shares owned by QVT Fund LP,Quintessence Fund L.P. and the separate account managed for Deutsche Bank AG.

 

(10)    Includes shares held by Arcade Acquisition Investors,LLC.  See footnote (1) above.

 

# **Item 13.**                            Certain Relationships and Related Transactions

# ** **

On February 13, 2007, we issued to the followingdirectors and executive officers (or their affiliates) the number of shares ofcommon stock set forth opposite their respective names for consideration of$0.013 per share.

 
| **Name**                           | ** ** | **Number of   Shares** | ** ** | **Relationship to Us**                |
|------------------------------------|------------|------------------------|------------|---------------------------------------|
| Arcade  Acquisition Investors, LLC |       | 360,000                |       | Affiliated  Entity                    |
| Jonathan  Furer                    |       | 505,000                |       | Chief  Executive Officer and Director |
| John  Chapman                      |       | 505,000                |       | Chief  Financial Officer and Director |
| Muhit  Rahman                      |       | 505,000                |       | Secretary  and Director               |

 

Immediately prior to the completion of our initialpublic offering, on May 23, 2007, Arcade Acquisition Investors, LLC, anaffiliate of our officers and directors, purchased 2,000,000 warrants from usat $1.00 per warrant. The aggregate proceeds of the private placement are beingheld in the trust account.  ArcadeAcquisition Investors, LLC has agreed that it will not sell or otherwisetransfer these until after we consummate a business combination 

 

23

----

 

other than to its membersin proportion to their membership interests, which members are subject to thesame restriction on transferability, except in certain limited circumstances.

 

The holders of the majority of the aggregate of theseshares of common stock and the shares underlying the warrants sold in theprivate placement are entitled to make up to two demands that we register theseshares. They may elect to exercise these registration rights at any time afterthe date on which these shares of common stock are released from escrow, which,except in limited circumstances, is not before one year after the consummationof a business combination. In addition, these stockholders have certain “piggy-back”registration rights on registration statements filed subsequent to the date onwhich these shares of common stock are released from escrow. We will bear theexpenses incurred in connection with the filing of any such registrationstatements.

 

We have a service agreement with Arcade Partners, LLC,an affiliate of our officers and directors, whereby the Company pays a monthlyservice fee of $7,500. Such fee is to cover general and administrative servicesprovided by the affiliate, including office space and utilities.

 

On February 5, 2007 and April 4, 2007, weissued two unsecured promissory notes to an affiliate of our 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.

 

We will reimburse members of our management team forany reasonable out-of-pocket business expenses incurred by them in connectionwith certain activities on our behalf such as identifying and investigatingpossible target businesses and business combinations. Subject to availabilityof proceeds not placed in the trust account and interest income of up to $2.0million (subject to the tax holdback) on the balance in the trust account,there is no limit on the amount of accountable out-of-pocket expensesreimbursable by us, which will be reviewed only by our board or a court ofcompetent jurisdiction if such reimbursement is challenged.  To the extent such out-of-pocket expensesexceed the available proceeds not deposited in the trust account and the interestincome of up to $2.0 million on the balance of the trust account (subject tothe tax holdback), such out-of-pocket expenses would not be reimbursed by usunless we consummate a business combination.

 

All ongoing and future transactions between us and anymember of our management team or their respective affiliates, including loansby members of our management team, will be on terms believed by us at thattime, based upon other similar arrangements known to us, to be no lessfavorable than are available from unaffiliated third parties. Such transactionsor loans, including any forgiveness of loans, will require prior approval ineach instance by a majority of our uninterested “independent” directors, to theextent we have independent directors, or the members of our board who do nothave an interest in the transaction, in either case who had access, at ourexpense, to our attorneys or independent legal counsel.

 

**Director Independence**

** **

Our board of directors has determined that none of ourdirectors constitute “independent directors” as such term is defined in Rule 10A-3of the Exchange Act.

 

# **Item 14.**                            Principal Accountant Fees and Services

# ** **

During the fiscal year ended December 31, 2007,our principal independent auditor was Rothstein, Kass & Company, P.C.,the services of which were provided in the following categories and amount:

 

**Audit Fees**

** **

The aggregate fees billed by Rothstein, Kass &Company, P.C. for professional services rendered for the audit of the Company’sbalance sheet at May 25, 2007 included in our Current Report on Form 8-K,for the audit of our annual financial statements for the fiscal year ended December 31,2007, for the review of the financial statements included in our QuarterlyReports on Form 10-Q for the periods ended June 30, 2007 and September 30,2007 and for services performed in connection with our registration statementon Form S-1 filed in 2007, were $66,750.

 

24

----

 

**Audit Related Fees**

** **

Other than the fees described under the caption “AuditFees” above, Rothstein, Kass & Company, P.C. did not bill any fees forservices rendered to us during fiscal year 2007 for assurance and relatedservices in connection with the audit or review of our financial statements.

 

**Tax Fees**

** **

There were no fees billed by Rothstein, Kass &Company, P.C. for professional services rendered during the fiscal year ended December 31,2007 for tax compliance, tax advice, and tax planning.

 

**All Other Fees**

** **

There were no fees billed by Rothstein, Kass &Company, P.C. for other professional services rendered during the fiscal yearended December 31, 2007.

 

**Pre-Approval Of Services**

** **

We do not have an audit committee and as a result ourboard of directors performs the duties of an audit committee.  Our board of directors evaluates and approvesin advance the scope and cost of the engagement of an auditor before theauditor renders audit and non-audit services.

 

**PART IV**

 

# **Item 15.**                            Exhibits and Financial Statement Schedules

# ** **

(a)(1) FinancialStatements

 

The financial statements filed as part of this reportare listed in “Item 8 - Financial Statements and Supplementary Data.”

 

(b) Exhibits

 

The following Exhibitsare filed as part of this report

 
|   | 3.1  |   | Form of Amended and Restated Certificate of  Incorporation*                                                                                                                                                        |
|--------|------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 3.2  |   | By-laws*                                                                                                                                                                                                                |
|   | 4.1  |   | Specimen Unit  Certificate*                                                                                                                                                                                             |
|   | 4.2  |   | Specimen Common Stock  Certificate*                                                                                                                                                                                     |
|   | 4.3  |   | Specimen Warrant  Certificate*                                                                                                                                                                                          |
|   | 4.4  |   | Form of Warrant  Agreement between Continental Stock Transfer & Trust Company and  Arcade Acquisition Corp.*                                                                                              |
|   | 4.5  |   | Form of Unit  Purchase Option to be granted to Morgan Joseph & Co. Inc.*                                                                                                                                  |
|   | 10.1 |   | Form of Letter  Agreement among Arcade Acquisition Corp, Morgan Joseph & Co. Inc.  and Arcade Acquisition Investors, LLC, Jonathan Furer, John Chapman and Muhit  Rahman*                                 |
|   | 10.2 |   | Form of Investment  Management Trust Agreement between Continental Stock Transfer &  Trust Company and Arcade Acquisition Corp.*                                                                          |
|   | 10.3 |   | Form of Securities  Escrow Agreement between Arcade Acquisition Corp., Continental Stock  Transfer & Trust Company and Arcade Acquisition Investors, LLC,  Jonathan Furer, John Chapman and Muhit Rahman* |
|   | 10.4 |   | Form of Services  Agreement with Arcade Partners, LLC*                                                                                                                                                             |

 

25

----

 
|   | 10.5 |   | Form of  Registration Rights Agreement among Arcade Acquisition Corp. and Arcade  Acquisition Investors, LLC, Jonathan Furer, John Chapman and Muhit Rahman*                       |
|--------|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 10.6 |   | Warrant Purchase  Agreement between Arcade Acquisition Investors, LLC and the Arcade  Acquisition Corp.**                                                                               |
|   | 10.7 |   | Form of Promissory  Note issued to Arcade Partners, LLC*                                                                                                                           |
|   | 31.1 |   | Certification of the  Principal Executive Officer pursuant to Rule 13-14(a) of the  Securities Exchange of 1934                                                               |
|   | 31.2 |   | Certification of the  Principal Financial Officer pursuant to Rule 13-14(a) of the  Securities Exchange of 1934                                                               |
|   | 32   |   | Certificate of the  Principal Executive Officer and Principal Financial Officer pursuant to 18  U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 |

----

* Incorporated byreference to our Registration Statement on Form S-1 (File No. 333-140814).

 

** Incorporated byreference to our Current Report on Form 8-K filed on May 25, 2007.

 

26

----

 

SIGNATURES

 

In accordance with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|               |   | ARCADE ACQUISITION CORP. |
|--------------------|--------|--------------------------|
|               |   |                     |   |
| March 4, 2008 |   | By:                      | /s/  Jonathan Furer |
|               |   |                     | Jonathan Furer |
|               |   |                     | Chief Executive Officer (principal executive  officer) |
|                    |        |                          |  |  |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the datesindicated.

 
| Dated:  March 4, 2008 | By:    | /s/ Jonathan Furer                                                                                      |
|---------------------------------|--------|---------------------------------------------------------------------------------------------------------|
|                            |   | Name:  Jonathan  Furer                                                                             |
|                            |   | Title:   Chief  Executive Officer and Director                                                |
|                            |   |                                                                                                    |
| Dated: March 4, 2008       | By:    | /s/ John Chapman                                                                                        |
|                            |   | Name:  John  Chapman                                                                               |
|                            |   | Title:   Chief  Financial Officer (principal   financial and accounting officer) and Director |
|                            |   |                                                                                                    |
| Dated: March 4, 2008       | By:    | /s/ Muhit Rahman                                                                                        |
|                            |   | Name:  Muhit  Rahman                                                                               |
|                            |   | Title:    Director                                                                       |

 

27

----

 

**INDEX TO FINANCIAL STATEMENTS**

 
| Report of Independent Registered Public Accounting Firm.                                                                    |   | F-2 |
|-----------------------------------------------------------------------------------------------------------------------------|--------|-----|
| Balance Sheet as of December 31, 2007.                                                                                 |   | F-3 |
| Statement of Operations for the period January 30, 2007 (date of  inception) to December 31, 2007.                |   | F-4 |
| Statement of Stockholders’ Equity for the period January 30,  2007 (date of inception) to December 31, 2007. |   | F-5 |
| Statement of Cash Flows for the period January 30, 2007 (date of  inception) to December 31, 2007.                |   | F-6 |
| Notes to Financial Statements.                                                                                              |   | F-7 |

 

 

F-1

----

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

To the Board of Directors and StockholdersofArcade Acquisition Corp.

 

We have audited the accompanying balance sheet of Arcade Acquisition Corp.(a corporation in the development stage) (the “Company”) as of December 31,2007 and the related statements of operations, stockholders’ equity and cashflows for the period January 30, 2007 (date of inception) to December 31,2007. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audit.

 

We conducted our audit in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides areasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly,in all material respects, the financial position of Arcade Acquisition Corp. (acorporation in the development stage) as of December 31, 2007, and theresults of its operations and its cash flows for the period January 30,2007 (date of inception) to December 31, 2007, in conformity withaccounting principles generally accepted in the United States of America.

 
| ** **           | **/s/ ROTHSTEIN,  KASS & COMPANY, P.C.** |
|----------------------|---------------------------------------------------|
| Roseland, New Jersey |                                              |
| March 4, 2008   |                                              |

 

 

F-2

----

**ARCADEACQUISITION CORP.**

(a corporation inthe development stage)

 

**BALANCE SHEET**

December 31,2007

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

 

See accompanying notes to financial statements.

 

F-3

----

** **

**ARCADEACQUISITION CORP.**

(a corporation in thedevelopment stage)

 

**STATEMENT OF OPERATIONS**

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

 
| Revenue                                                                |   |   | $               |  —   |
|------------------------------------------------------------------------|--------|--------|-----------------|--------------------------|
|                                                                   |   |   |            |
| Formation and operating  costs                                         |   |   | 227,766         |
|                                                                   |   |   |            |
| Loss from operations                                                   |   |   |  (227,766) |
|                                                                   |   |   |            |
| Other income (expense)                                                 |   |   |            |
| Interest  and dividend  income                                    |   |   | 2,025,481       |
| Interest  expense                                                      |   |   | (2,211)         |
|                                                                   |   |   |            |
| Loss before income tax  provision                                      |   |   | 1,795,504       |
|                                                                   |   |   |            |
| Provision for income  taxes                                            |   |   | 629,927         |
|                                                                   |   |   |            |
| Net income applicable  to common stockholders                          |   |   | $               | 1,165,577                |
|                                                                   |   |   |            |
|                                                                   |   |   |            |
| Common shares  outstanding subject to possible redemption              |   |   | 2,587,499       |
|                                                                   |   |   |            |
| Net  income per common share for shares subject to possible redemption |   |   | $               | —         |
|                                                                   |   |   |            |
| Weighted average number  of common shares outstanding:                 |   |   |            |
| Basic                                                                  |   |   | 7,490,000       |
| Diluted                                                                |   |   | 9,252,000       |
|                                                                   |   |   |            |
| Net income per common  share, basic and diluted                        |   |   |            |
| Basic                                                                  |   |   | $               | 0.16                     |
| Diluted                                                                |   |   | $               | 0.13                     |

 

 

See accompanyingnotes to financial statements.

 

F-4

----

**ARCADE ACQUISITION CORP.**

(acorporation in the development stage)

 

**STATEMENT OF STOCKHOLDERS’ EQUITY**

For theperiod January 30, 2007 (date of inception) to December 31, 2007

 

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

 

See accompanying notes to financial statements.

 

F-5

----

 

**ARCADEACQUISITION CORP.**

(a corporation inthe development stage)

 

**STATEMENT OF CASH FLOWS**

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

 

 
| **Cash flows from operating  activities**                                                | ** ** | ** **  | ** ** |
|------------------------------------------------------------------------------------------|------------|-------------|------------|
| Net income                                                                               |       | $           | 1,165,577  |   |
| Adjustments to reconcile net income to net cash provided by operating  activities        |       |        |       |
| Deferred taxes                                                                           |       | (67,828     | )          |
| Increase (decrease) in cash attributable to changes in operating  assets and liabilities |       |        |       |
| Prepaid expenses                                                                         |       | (25,494     | )          |
| Accrued expenses                                                                         |       | 52,860      |       |
| Income taxes payable                                                                     |       | 217,755     |       |
| **Net cash provided by operating  activities**                                           |       | 1,342,870   |       |
|                                                                                     |       |        |       |
| **Net cash used in investing  activites**                                                | ** ** | ** **  | ** ** |
| Cash held in Trust Account                                                               |       | (67,931,770 | )          |
|                                                                                     |       |        |       |
| **Cash provided by financing  activities**                                               | ** ** | ** **  | ** ** |
| Proceeds from issuance of common stock to initial stockholders                           |       | 25,000      |       |
| Proceeds from issuance of private placement warrants                                     |       | 2,000,000   |       |
| Proceeds from the public offering                                                        |       | 69,000,000  |       |
| Payments of underwriters’ discount and offering costs                               |       | (2,949,175  | )          |
| Proceeds from issuance of option                                                         |       | 100         |       |
| **Net cash provided by financing  activities**                                           |       | 68,075,925  |       |
|                                                                                     |       |        |       |
| **Net increase in cash**                                                                 |       | 1,487,025   |       |
|                                                                                     |       |        |       |
| **Cash****,**beginning of  period                                                        |       | —      |       |
| **Cash****,**end of period                                                               |       | $           | 1,487,025  |   |
|                                                                                     |       |        |       |
| **Supplemental cash flow  information**                                                  | ** ** | ** **  | ** ** |
|                                                                                     |       |        |       |
| Cash paid for:                                                                           |       |        |       |
| Interest                                                                                 |       | $           | 2,211      |   |
| Taxes                                                                                    |       | $           | 480,000    |   |
|                                                                                     |       |        |       |
| **Supplemental disclosure of  non-cash financing activity**                              | ** ** | ** **  | ** ** |
| Deferred underwriters’ fees                                                         |       | $           | 1,690,500  |   |

 

Seeaccompanying notes to financial statements

 

F-6

----

 

**ARCADE ACQUISITION CORP.**(a corporation in the development stage)

 

**Notes to Financial Statements**

** **

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

** **

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

 

At December 31, 2007, the Company has notcommenced operations or generated any revenue. All activity from inception through December 31, 2007 relates tothe Company’s formation, capital raising, and the initial public offeringdescribed below.  The Company will notgenerate any operating revenues until after completion of the BusinessCombination, at the earliest.  TheCompany has selected December 31 as its fiscal year-end.

 

The registration statement for the Company’s initialpublic offering was declared effective on May 21, 2007.  The public offering was consummated on May 25,2007 and the Company received gross proceeds of $60,000,000 from the sale of7,500,000 units. Additionally, on June 7, 2007, the Company received grossproceeds of $9,000,000 from the sale of 1,125,000 units in conjunction with theexercise of the underwriters’ over-allotment option (collectively, the “PublicOffering”).  Preceding the consummationof the Public Offering, on May 23, 2007, an affiliate of the Company’sofficers purchased in a private placement from the Company (the “PrivatePlacement”) 2,000,000 warrants for aggregate proceeds of $2,000,000.

 

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

 

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

 

In the event that holders of more than 20% but lessthan 30% of the shares of common stock sold in the Public Offering elect toredeem their shares, the Company’s initial stockholders have agreed to forfeit,on a pro rata 

 

F-7

----

 

basis and return to theCompany for cancellation, that number of shares (up to a maximum of 234,375)that will result in them owning collectively no more than 23.81% of the Company’soutstanding common stock immediately prior to the consummation of such BusinessCombination after giving effect to the redemption (without taking into accountany shares that they may have acquired in the aftermarket). If any such sharesare forfeited, the financial statements subsequent to such forfeiture wouldreflect a decrease in total shares outstanding.

 

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

 

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

** **

Basis of presentation:

 

The accompanying financial statements are presented in U.S. dollars inconformity with accounting principles generally accepted in the United Statesof America, and pursuant to the accounting and disclosure rules andregulations of the Securities and Exchange Commission (the “SEC”).

 

Common stock:

 

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

 

Financial instruments:

 

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

 

Cash held in Trust Account:

 

Cash held in the Trust Account as of December 31,2007 consist primarily of U.S. government securities with maturity of 180 daysor less and money market funds purchased without maturity.  The Company recognizes cash held in the TrustAccount as a non-current asset in the accompanying balance sheet, and totaled$67,931,770 as of December 31, 2007. The carrying value of cash equivalents approximates fair value. Interestincome is recorded on an accrual basis.

 

Earnings per common share:

 

(a)  Basic earnings per common share is computed by dividing the netincome applicable to common stockholders by the weighted average number ofcommon shares outstanding for the period. Diluted income per common sharereflects the potential dilution assuming common shares were issued upon theexercise of outstanding “in the money” warrants and the proceeds thereof wereused to purchase common shares at the average market price during the period.

 

(b)  The Company’s statement of operations includes a presentation ofearning per share for common stock subject to possible redemption in a mannersimilar to the two-class method of earnings per share. The basic and dilutednet income per common share amount for the maximum number of shares subject topossible redemption is calculated by dividing interest income attributable tocommon shares subject to redemption (nil for the period ended December 31,2007) 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.

 

F-8

----

 

At December 31, 2007, 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 withEmerging Issue Task Force (“EITF”) D-98 “Classification and Measurement ofRedeemable Securities.”  Securities thatare redeemable for cash or other assets are classified outside of permanentequity if they are redeemable at the option of the holder. The Companyrecognizes changes in the redemption value immediately as they occur andadjusts the carrying value of the redeemable common stock to equal itsredemption value at the end of each reporting period.

 

As discussed in Note A, if the Company does not consummate a Business Combination by May 21,2009, the Company’s corporate existence will cease and in the event that 30% ormore of the outstanding stock (excluding, for this purpose, those shares ofcommon stock issued prior to the Public Offering) vote against the BusinessCombination and elect to exercise their redemption rights, the BusinessCombination will not be consummated.  Inaccordance with EITF D-98, redeemable shares are not classified outside ofpermanent equity if the redemption causes a liquidation event.  Accordingly, 2,587,499 shares (30% of theshares sold in the Public Offering, minus 1 share) have been classified outsideof permanent equity at redemption value. At December 31, 2007, the per share redemption value was approximately$7.86.

 

Concentration of credit risk:

 

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

 

Use of estimates:

 

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

 

Recently issued accounting standard:

 

In December 2007, the FASB issued SFAS No. 141R, “BusinessCombinations” (“SFAS 141R”). SFAS 141R replaces SFAS 141 andestablishes principles and requirements for how an acquirer recognizes andmeasures in its financial statements the identifiable assets acquired, theliabilities assumed, any non controlling interest in the acquiree and thegoodwill acquired. SFAS 141R also establishes disclosure requirementswhich will enable users to evaluate the nature and financial effects of thebusiness combination. This standard is effective for fiscal years beginningafter December 15, 2008, which will require the Company to adopt theseprovisions for business combinations occurring in fiscal 2009 andthereafter.  Early adoption of SFAS 141Ris not permitted.

 

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

 

Income taxes:

 

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

 

 

F-9

----

 

differences are expectedto affect taxable income. Valuation allowances are established, when necessary,to reduce deferred tax assets to the amount expected to be realized.

 

**NOTE C—INITIAL PUBLIC OFFERING**

** **

On May 25, 2007, the Company consummated the saleof 7,500,000 units (“Units”) at a price of $8.00 per Unit in the PublicOffering. On June 7, 2007, the underwriters exercised their over-allotmentoption and purchased an additional 1,125,000 Units at the offering price of$8.00 per Unit.  Each Unit consists ofone share of the Company’s common stock, $0.0001 par value, and one redeemablecommon stock purchase warrant (“Warrants”). Each Warrant entitles the holder topurchase from the Company one share of common stock at an exercise price of$6.00 commencing on the later of (i) May 21, 2008 or (ii) thecompletion of a Business Combination, and expires on May 21, 2011. TheWarrants are redeemable at a price of $0.01 per Warrant upon 30 days’ priornotice after the Warrants become exercisable, only in the event that the lastsale price of the common stock is at least $11.50 per share for any 20 tradingdays within a 30 trading day period ending on the third business day prior tothe 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 D—RELATED PARTY TRANSACTIONS**

** **

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

 

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

 

The Company has a service agreement with ArcadePartners, LLC, an affiliate of the Company’s officers and directors, wherebythe Company pays a monthly service fee of $7,500. Such fee is to cover generaland administrative services provided by the affiliate, including office spaceand utilities.  For the period ended December 31,2007, approximately $55,000 has been paid under this arrangement.

 

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

 

**NOTE E—INCOME TAXES**

** **

For the period January 30, 2007 (inception) to December 31,2007, the components of the provision for income taxes are as follows:

 
| ** ** | ** ** | **For the period**         | ** ** |
|------------|------------|----------------------------|------------|
| ** ** | ** ** | **January 30, 2007**  | ** ** |
| ** ** | ** ** | **(date of inception) to** | ** ** |
| ** ** | ** ** | **December 31, 2007** | ** ** |
|       |       |                       |       |
| Current:   |       |                       |       |
| Federal    |       | $                          | 655,000    |   |
| State      |       | 43,000                     |       |
| Deferred:  |       |                       |       |
| Federal    |       | (68,000                    | )          |
|       |       |                       |       |
|       |       | $                          | 630,000    |   |

 

F-10

----

 

The Company has not begun its trade or business forU.S. tax purposes.  Accordingly, it could not yet recognize losses forstart-up expenditures. As a result, a deferred tax asset of approximately$68,000 at December 31, 2007 was established for these start-upexpenditures.

 

The effective tax rate differs from the statutory ratefor the period presented due to the removal of the valuation allowance duringthe period.

 

The Company adopted the provisions of FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes, an Interpretation of FASB StatementNo. 109 (“FIN 48”). FIN 48 provides recognition criteria and a relatedmeasurement model for tax positions taken by companies. In accordance with FIN48, a tax position is a position in a previously filed tax return or a positionexpected to be taken in a future tax filing that is reflected in measuringcurrent or deferred income tax assets and liabilities. Tax positions shall berecognized only when it is more likely than not (likelihood of greater than50%), based on technical merits, that the position will be sustained uponexamination.

 

Tax positions that meet the more likely than not threshold should bemeasured using a probability weighted approach as the largest amount of taxbenefit that is greater than 50% likely of being realized upon settlement. TheCompany adopted FIN 48, which had no effect on the Company’s financialpositions and results of operations at this time given its limited operationsand activities.

 

**NOTE F—COMMITMENTS**

** **

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

 

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

 

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

 

** **

**F-11**

----

** **

**NOTE G—PREFERRED STOCK**

** **

The Company is authorized to issue 1,000,000 shares of preferred stock withsuch designations, voting and other rights and preferences as may be determinedfrom time to time by the Board of Directors.

 

**NOTE H—REGISTRATION RIGHTS**

** **

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

 

F-12

----