UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
one)


x Quarterly Report
Pursuant to Section 13 or 15(d) of


the
Securities Exchange Act of 1934





For the
quarterly period ended March 31, 2009





or





 ̈ Transition Report
Pursuant to Section 13 or 15(d) of


the
Securities Exchange Act of 1934





For the
transition period from _________ to _________





Commission
File Number: 001-33681





HIGHLANDS ACQUISITION
CORP.





(Exact
name of registrant as specified in its charter)





Delaware
            20-8924044(State
      or other jurisdiction of
            (I.R.S.
      Employerincorporation
      or organization)
            Identification
      Number)





One
Paragon Drive, Suite 125


Montvale, New Jersey
07645


(Address
of principal executive offices)


(Zip
code)





(201)
573-8400


(Registrant's
telephone number, including area code)





Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES x NO
 ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).  YES o NO  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. Large accelerated filer  ̈
Accelerated filer x  Non-accelerated
filer (Do not check if a smaller reporting company)  ̈
Smaller Reporting Company  ̈





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) YES x NO
 ̈





As of
April 28, 2009, there were outstanding 17,250,000 shares of Common Stock, par
value $0.0001.







TABLE
OF CONTENTS





Highlands
Acquisition Corp.


(a
corporation in the development stage)





PagePART
      I.  FINANCIAL INFORMATION:Item
      1 – Financial StatementsCondensed
      Balance Sheets as of March 31, 2009 (Unaudited) and December 31,
      2008
                1Condensed
      Statements of Operations (Unaudited) – Three months ended March 31, 2009
      and 2008 and for the period April 26, 2007 (inception) to March 31,
      2009
                2Condensed
      Statement of Stockholders’ Equity for the Period April 26, 2007
      (inception) to March 31, 2009 (Unaudited)
                3Condensed
      Statements of Cash Flows (Unaudited) – Three months ended March 31, 2009
      and 2008 and for the period April 26, 2007 (inception) to March 31,
      2009
                4Notes
      to Unaudited  Condensed Financial Statements
                5Item
      2 – Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
                13Item
      3 – Quantitative and Qualitative Disclosures About Market
    Risk
                18Item
      4 – Controls and Procedures
                19PART
      II.  OTHER INFORMATION
                20Item
      1A.  Risk Factors
                20Item
      6 – Exhibits
                21SIGNATURES
                22







PART
I. FINANCIAL INFORMATION




Item 1.
Financial Statements




Highlands
Acquisition Corp.


(a
corporation in the development stage)




CONDENSED
BALANCE SHEETS





March 31, 2009
              
              
              December 31, 2008(Unaudited)ASSETSCash
              
              $
              283,139
              
              
              $
              136,385Cash
      held in trust
              
              
              132,850,908
              
              
              
              133,161,231Cash
      held in trust from underwriter
              
              
              3,990,000
              
              
              
              3,990,000Prepaid
      expenses
              
              
              48,944
              
              
              
              44,078Total
      current assets
              
              
              137,172,991
              
              
              
              137,331,694Deferred
      tax asset
              
              
              403,095
              
              
              
              336,233Total
      assets
              
              $
              137,576,086
              
              
              $
              137,667,927LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              99,447
              
              
              $
              76,142Accrued
      expenses
              
              
              27,957
              
              
              
              49,182Income
      taxes payable
              
              
              32,082
              
              
              
              44,654Deferred
      trust interest
              
              
              180,995
              
              
              
              170,117Deferred
      underwriting fee
              
              
              3,990,000
              
              
              
              3,990,000Total
      liabilities
              
              
              4,330,481
              
              
              
              4,330,095Common
      Stock, subject to possible conversion of shares at conversion
      value
              
              
              40,448,990
              
              
              
              40,448,990Commitments
      (Note 5)Stockholders’
      equityPreferred
      stock, $.0001 par value Authorized 1,000,000 shares; none issued and
      outstanding
              
              
              -
              
              
              
              -Common
      stock, $.0001 par value;  50,000,000 shares authorized; Issued
      and outstanding 17,250,000 shares (which includes 4,139,999 shares subject
      to possible conversion)
              
              
              1,725
              
              
              
              1,725Additional
      paid-in capital
              
              
              90,847,090
              
              
              
              90,847,090Income
      accumulated during the development stage
              
              
              1,947,800
              
              
              
              2,040,027Total
      stockholders’ equity
              
              
              92,796,615
              
              
              
              92,888,842Total
      liabilities and stockholders’ equity
              
              $
              137,576,086
              
              
              $
              137,667,927





See
Notes to Unaudited Condensed Financial Statements


1


Highlands Acquisition Corp.


(a
corporation in the development stage)




CONDENSED
STATEMENTS OF OPERATIONS




(unaudited)




Three Months
                  Ended
                  March 31, 2009
                
                
                Three Months
                  Ended
                  March 31, 2008
                
                
                Cumulative Period
                  from April 26, 2007
                  (Date of inception)
                  Through March 31,
                  2009Interest
      income
                
                $
                107,084
                
                
                $
                1,215,833
                
                
                $
                4,718,357Deferred
      interest income
                
                
                (10,878
                )
                
                
                —
                
                
                
                (180,995
                )Net
      interest income
                
                
                96,206
                
                
                
                1,215,833
                
                
                
                4,537,362General
      and administrative expenses
                
                
                211,232
                
                
                
                189,968
                
                
                
                1,174,940(Loss)/income
      before provision for income taxes
                
                
                (115,026
                )
                
                
                1,025,865
                
                
                
                3,362,422(Benefit)/provision
      for income taxes
                
                
                (22,799
                )
                
                
                410,005
                
                
                
                1,414,622Net
      (loss)/income
                
                $
                (92,227
                )
                
                $
                615,860
                
                
                $
                1,947,800Net
      (loss)/income per common share – basic and diluted
                
                $
                (0.01
                )
                
                $
                0.04
                
                
                $
                0.14Weighted
      average common shares outstanding, basic and diluted
                
                
                17,250,000
                
                
                
                17,243,631
                
                
                
                13,983,264





See
Notes to Unaudited Condensed Financial Statements




2


Highlands Acquisition Corp.


(a
corporation in the development stage)




CONDENSED
STATEMENT OF STOCKHOLDERS’ EQUITY


For
the period April 26, 2007 (inception) to March 31, 2009




Common Stock
                      
                      
                      Additional
                          paid-in
                      
                      
                      Income
                          Accumulated
                          During
      the
                      
                      
                      Stockholders’Shares
                      
                      
                      Amount
                      
                      
                      capital
                      
                      
                      Development Stage
                      
                      
                      EquityIssuance
      of units to Founders on May 1, 2007 at approximately $0.007 per
      unit
                      
                      
                      3,450,000
                      
                      
                      $
                      345
                      
                      
                      $
                      24,655
                      
                      
                      $
                      -
                      
                      
                      $
                      25,000Sale
      of Private Placement Warrants on October 9, 2007
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      3,250,000
                      
                      
                      
                      
                      
                      
                      
                      3,250,000Sale
      of 13,800,000 units at $10 per unit through public offering (net of
      underwriter’s discount and offering expenses) including 4,139,999 shares
      subject to possible conversion on October 9, 2007.
                      
                      
                      13,800,000
                      
                      
                      
                      1,380
                      
                      
                      
                      128,021,425
                      
                      
                      
                      
                      
                      
                      
                      128,022,805Proceeds
      subject to possible conversion
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (40,448,990
                      )
                      
                      
                      
                      
                      
                      
                      (40,448,990
                      )Net
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      720,072
                      
                      
                      
                      720,072Balance
      at December 31, 2007
                      
                      
                      17,250,000
                      
                      
                      $
                      1,725
                      
                      
                      $
                      90,847,090
                      
                      
                      $
                      720,072
                      
                      
                      $
                      91,568,887Repurchase
      of 20,700 units at $0.007 per unit
                      
                      
                      (20,700
                      )
                      
                      
                      (2
                      )
                      
                      
                      (148
                      )
                      
                      
                      
                      
                      
                      
                      (150
                      )Issuance
      of 20,700 units at $0.007 per unit
                      
                      
                      20,700
                      
                      
                      
                      2
                      
                      
                      
                      148
                      
                      
                      
                      
                      
                      
                      
                      150Net
      income
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      1,319,955
                      
                      
                      
                      1,319,955Balance
      at December 31, 2008
                      
                      
                      17,250,000
                      
                      
                      $
                      1,725
                      
                      
                      $
                      90,847,090
                      
                      
                      $
                      2,040,027
                      
                      
                      $
                      92,888,842UnauditedNet
      loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (92,227
                      )
                      
                      
                      (92,227
                      )Balance
      at March 31, 2009
                      
                      
                      17,250,000
                      
                      
                      $
                      1,725
                      
                      
                      $
                      90,847,090
                      
                      
                      $
                      1,947,800
                      
                      
                      $
                      92,796,615





See
Notes to Unaudited Condensed Financial Statements


3


Highlands
Acquisition Corp.


(a
corporation in the development stage)




CONDENSED
STATEMENTS OF CASH FLOWS




(unaudited)




Three Months
                  Ended
                  March 31, 2009
                
                
                Three Months
                  Ended
                  March 31, 2008
                
                
                Cumulative
                  period from
                  April 26, 2007
                  (inception) to
                  March 31, 2009Cash
      flows from operating activitiesNet
      (loss)/income
                
                $
                (92,227
                )
                
                $
                615,860
                
                
                $
                1,947,800Adjustment
      to reconcile net (loss)/income to net cash used in  operating
      activities:Income
      earned on trust account
                
                
                (107,080
                )
                
                
                (1,215,824
                )
                
                
                (4,718,271
                )(Increase)/decrease
      in prepaid expenses
                
                
                (4,866
                )
                
                
                11,459
                
                
                
                (48,944
                )Increase
      in deferred taxes
                
                
                (66,862
                )
                
                
                (65,411
                )
                
                
                (403,095
                )Increase
      in deferred trust interest
                
                
                10,878
                
                
                
                -
                
                
                
                180,995Increase/(decrease)
      in accounts payable
                
                
                23,305
                
                
                
                (8,133
                )
                
                
                99,447(Decrease)/increase
      in accrued expenses
                
                
                (21,225
                )
                
                
                29,222
                
                
                
                27,957(Decrease)/increase
      in income taxes payable
                
                
                (12,572
                )
                
                
                (81,584
                )
                
                
                32,082Net
      cash used in operating activities
                
                
                (270,649
                )
                
                
                (714,411
                )
                
                
                (2,882,029
                )Cash
      flows from investing activitiesCash
      placed in trust account
                
                
                -
                
                
                
                -
                
                
                
                (134,830,000
                )Disbursements
      from trust for working capital
                
                
                300,000
                
                
                
                -
                
                
                
                750,000Disbursements
      from trust to pay taxes
                
                
                117,403
                
                
                
                611,203
                
                
                
                1,957,363Net
      cash provided by/(used in) investing activities
                
                
                417,403
                
                
                
                611,203
                
                
                
                (132,122,637
                )Cash
      flows from financing activitiesProceeds
      from sale of units to public
                
                
                -
                
                
                
                -
                
                
                
                138,000,000Proceeds
      from private placement of warrants
                
                
                -
                
                
                
                -
                
                
                
                3,250,000Proceeds
      from sale of units to Founders
                
                
                -
                
                
                
                -
                
                
                
                25,150Proceeds
      from borrowings under notes payable to affiliates
                
                
                -
                
                
                
                -
                
                
                
                100,000Payments
      of notes payable to affiliates
                
                
                -
                
                
                
                -
                
                
                
                (100,000
                )Payment
      of offering costs
                
                
                -
                
                
                
                (2,265
                )
                
                
                (5,987,195
                )Repurchase
      of founder’s units
                
                
                -
                
                
                
                (150
                )
                
                
                (150
                )Net
      cash (used in)/provided by financing activities
                
                
                -
                
                
                
                (2,415
                )
                
                
                135,287,805Net
      increase/(decrease) in cash
                
                
                146,754
                
                
                
                (105,623
                )
                
                
                283,139Cash
      at beginning of period
                
                
                136,385
                
                
                
                269,314
                
                
                
                —Cash
      at end of period
                
                $
                283,139
                
                
                $
                163,691
                
                
                $
                283,139Supplemental
      disclosure of noncash financing activities:Accrual
      of deferred underwriting fee
                
                $
                -
                
                
                $
                -
                
                
                $
                3,990,000Supplemental
      disclosure of cash flow information:Cash
      paid for income taxes
                
                $
                56,635
                
                
                $
                557,000
                
                
                $
                1,785,635





See Notes to Unaudited Condensed Financial
Statements


4


Highlands
Acquisition Corp.
 (a
corporation in the development stage)
  Notes
to Unaudited Condensed Financial Statements




1.   Organization
and Business Operations




Highlands
Acquisition Corp. (“the Company”) was incorporated in Delaware on April 26, 2007
for the purpose of effecting a merger, capital stock exchange, asset
acquisition, stock purchase, reorganization or other similar business
combination with one or more operating businesses (the “Business
Combination”).




At March
31, 2009, the Company’s operations have been limited to organizational
activities, activities relating to our initial public offering (“the Offering”),
as described in Note 2 below, and the identification of a target
business.  The Company has not engaged in any operations or generated
any revenues (other than interest income earned on the Company’s trust
account).




Interim
Financial Information




The
unaudited condensed interim financial statements at March 31, 2009, for the
three months ended March 31, 2009 and 2008 and for the period from April
26, 2007 (inception) through March 31, 2009, have been prepared by the Company
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to Form
10-Q.  Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements.  In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included.  Operation results for the interim period presented are not
necessarily indicative of the results to be expected for any other interim
period or for the full year.




These
unaudited condensed interim financial statements should be read in conjunction
with the audited financial statements and notes thereto for the period ended
December 31, 2008 included in the Company’s Annual Report on Form 10-K filed
with the U.S. Securities and Exchange Commission on March 12,
2009.  The December 31, 2008 balance sheet has been derived from these
audited financial statements.  The accounting policies used in
preparing these unaudited financial statements are consistent with those
described in the December 31, 2008 audited financial statements.




The
registration statement for the Offering as described in Note 2 below was
declared effective on October 3, 2007. The Company consummated the Offering on
October 9, 2007 and the underwriters exercised their over-allotment option on
October 10, 2007 and consummated it on October 15, 2007.  The Company
received net proceeds of approximately $131,273,000, including $3,250,000 of
proceeds from the private placement (the “Private Placement”) sale of 3,250,000
warrants (the “Sponsor Warrants”) to certain affiliates of the Company. The
Sponsor Warrants are identical to the 13,800,000 warrants sold in the Offering,
except (i) if the Company calls the Offering warrants for redemption, the
Sponsors’ Warrants will not be redeemable by the Company as long as they are
still held by the initial purchasers or their permitted transferees and (ii) the
initial purchasers have agreed that the Sponsors’ Warrants will not be sold or
transferred by them (subject to limited exceptions) until after the completion
of the Company’s initial Business Combination.




5


Highlands
Acquisition Corp.
 (a
corporation in the development stage)
  Notes
to Unaudited Condensed Financial Statements—(Continued)


The
Company’s management has broad discretion with respect to the specific
application of the net proceeds of the Offering and the Private Placement,
although substantially all of the net proceeds of the Offering are intended to
be generally applied toward consummating a Business Combination. There is no
assurance that the Company will be able to successfully affect a Business
Combination. Upon the closing of the Offering, (including the exercise of the
over-allotment option by the underwriters) and  the Private Placement,
an aggregate of $134,830,000, including $3,990,000 of the underwriters’
discounts and commissions as described in Note 2 below, was deposited in a trust
account (the “Trust Account”) and invested in United States “government
securities” within the meaning of Section 2(a)(16) of the Investment Company Act
of 1940 having a maturity of 180 days or less or in money market funds meeting
certain conditions under Rule 2a-7 promulgated under the Investment Company Act
of 1940 until the earlier of (i) the consummation of an initial Business
Combination or (ii) liquidation of the Company. At March 31, 2009, the Company’s
Trust Account balance of approximately $136,800,000 was invested in the Morgan
Stanley Institutional Liquidity Funds – Government Portfolio (stock symbol:
MVRXX).  Based upon information provided by Morgan
Stanley, (i) the Government Portfolio seeks to maintain a stable net asset value
of $1.00 per share by investing exclusively in obligations of the U.S.
Government and its agencies and instrumentalities and in repurchase agreements
collateralized by such securities; (ii) at March 31, 2009, 62.9% of the
portfolio was invested in U.S. Government Agency Securities and 37.1% of the
portfolio was invested in repurchase agreements collateralized by U.S.
Government and Agency securities; and (iii) as of April 23, 2009, the one day
yield was 0.18%, and the weighted average maturity was thirty-three
days.  The placing of funds in the Trust Account may not protect those
funds from third party claims against the Company. Although the Company will
seek to have all vendors, providers of financing, prospective target businesses
or other entities it engages, execute agreements with the Company waiving any
right, title, interest or claim of any kind in or to any monies held in the
Trust Account, there is no guarantee that they will execute such agreements. Two
of the Company’s affiliates have agreed that they will be liable under certain
circumstances to ensure that the proceeds in the Trust Account are not reduced
by the claims of target businesses or vendors, providers of financing, service
providers or other entities that are owed money by the Company for services
rendered to or contracted for or products sold to the Company. There can be no
assurance that they will be able to satisfy those obligations. The net proceeds
not held in the Trust Account may be used to pay for business, legal and
accounting due diligence on prospective acquisitions and continuing general and
administrative expenses. Additionally, up to an aggregate of $2,100,000 of
interest earned on the Trust Account balance may be released to the Company to
fund working capital requirements and additional funds may be released to fund
tax obligations.  As of March 31, 2009, $750,000 has been released for
working capital requirements and $1,957,363 has been released to fund tax
obligations.




The
Company, after signing a definitive agreement for a potential Business
Combination, is required to submit such transaction for stockholder approval. In
the event that stockholders owning 30% or more of the shares sold in the
Offering vote against the Business Combination and exercise their conversion
rights described below, the Business Combination will not be consummated. All of
the Company’s stockholders prior to the Offering (the “Founders”), have agreed
to vote their founding shares of common stock in accordance with the vote of the
majority of the shares voted by all other stockholders of the Company (the
“Public Stockholders”) with respect to any Business Combination and in favor of
an amendment to our certificate of incorporation to provide for the Company’s
perpetual existence.




With
respect to a Business Combination which is approved and consummated, any Public
Stockholder who voted against the Business Combination may demand that the
Company convert his or her shares. The per share  conversion price
will equal the amount in the Trust Account, calculated as of two business days
prior to the consummation of the proposed Business Combination, divided by the
number of shares of common stock held by Public Stockholders at the consummation
of the Offering. Accordingly, Public Stockholders holding 4,139,999 shares sold
in the Offering may seek conversion of their shares in the event of a Business
Combination. Accordingly, a portion of the net proceeds of the Offering has been
classified as common stock subject to possible conversion of shares on the
accompanying balance sheet.  Such Public Stockholders are entitled to
receive their per share interest in the Trust Account computed without regard to
the shares of common stock held by the Founders prior to the consummation of the
Offering.




The
Company’s Amended and Restated Certificate of Incorporation provides that the
Company will continue in existence only until 24 months from October 3, 2007. If
the Company has not completed a Business Combination by such date, its corporate
existence will cease and it will dissolve and liquidate for the purposes of
winding up its affairs, which raises a substantial doubt about the Company’s
ability to continue as a going concern.  The interim financial
statements do not include any adjustments taking into account the uncertainty as
to the Company’s ability to continue as a going concern.  In the event
of liquidation, it is likely that the per share value of the residual assets
remaining available for distribution (including Trust Account assets) will be
less than the initial public offering price per share in the Offering (assuming
no value is attributed to the Warrants contained in the Units sold in the
Offering).




Deferred Interest –A portion
(29.9999%) of the interest earned on the Trust Account (after permissible
reductions for working capital requirements and tax obligations) has been
deferred on the balance sheet as it represents interest attributable to the
Company’s common stock subject to possible conversion upon exercise of
outstanding warrants.




6


Highlands
Acquisition Corp.
 (a
corporation in the development stage)
  Notes
to Unaudited Condensed Financial Statements—(Continued)


Development Stage Company –The Company complies with the reporting requirements of SFAS No. 7,
“Accounting and Reporting by Development Stage Enterprises.”




Net Income/(Loss)  Per
Common Share –Income/(loss) per common share is based on the weighted
average number of common shares outstanding.  The Company complies
with Statement of Financial Accounting Standards No. 128, “Earnings Per Share,”
(“SFAS 128”) which requires dual presentation of basic and diluted earnings per
share on the face of the statement of operations.  Basic income/(loss)
per share excludes dilution and is computed by dividing income available to
holders of common stock by the weighted-average common shares outstanding for
the period.  Diluted income/(loss) per share reflects the potential
share dilution that could occur if warrants were to be exercised or otherwise
resulted in the issuance of common stock that then shared in the earnings of the
entity.




The
following table details the net income per share computations on a basic and
diluted basis for the three months ended March 31, 2009 and 2008 and the
cumulative period from April 26, 2007 (date of inception) through March 31,
2009:




For
      the Three
                Months
      Ended
                March
      31, 2009
              
              
              For
      the Three
                Months
      Ended
                March
      31, 2008
              
              
              Cumulative
                Period
      from April
                26,
      2007 (Date of
                inception)
                Through
      March
                31,
      2009Numerator
      for basic and diluted earnings per shareNet
      (loss)/income available to common shareholders
              
              $
              (92,227
              )
              
              $
              615,860
              
              
              $
              1,947,800Denominator:Basic
      earnings per share weighted-average shares outstanding
              
              
              17,250,000
              
              
              
              17,243,631
              
              
              
              13,983,264Effect
      of dilutive securities:
              
              
              -
              
              
              
              -
              
              
              
              -Diluted
      earnings per shareAdjusted
      weighted-average shares outstanding
              
              
              17,250,000
              
              
              
              17,243,631
              
              
              
              13,983,264Basic
      earnings per share
              
              $
              (0.01
              )
              
              $
              0.04
              
              
              $
              0.14Diluted
      earnings per share
              
              $
              (0.01
              )
              
              $
              0.04
              
              
              $
              0.14




Other contingent
shares:  The dilutive effect of shares issuable does not
include 13,800,000 Public Stockholders’ warrants that are not exercisable until
later of the Company’s initial Business Combination or January 3,
2009.  Furthermore, 3,450,000 Founders warrants and 3,250,000
Sponsors’ Warrants are also excluded from the dilutive effect since they are not
exercisable until the Public Stockholders’ warrants are exercisable and, in
addition with respect to the Founders’ warrants, the Company’s common stock
price equals or exceeds $14.25 per share for any 20 trading days within a
30-trading day period.




Fair Value of Financial
Instruments - The fair values of the Company’s assets and liabilities
that qualify as financial instruments under SFAS No. 107 “Disclosures about Fair
Value of Financial Instrument,” approximate their carrying amounts presented in
the balance sheet at March 31, 2009.




New Accounting Pronouncements
— In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS
162”).  This standard identifies sources of accounting principles and the
framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with U.S. generally accepted accounting principles.  The Company
does not believe SFAS 162 will change its current practices and thereby believes
it will not impact preparation of the financial statements.




7


Highlands
Acquisition Corp.
 (a
corporation in the development stage)
  Notes
to Unaudited Condensed Financial Statements—(Continued)


In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (“SFAS 161”), which amends SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities (“SFAS 133”) and requires enhanced
disclosures about how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for under SFAS 133
and its related interpretations, and how derivative instruments and related
hedge items affect an entity’s financial position, financial performance, and
cash flows.  SFAS 161 also requires the disclosure of the fair values of
derivative instruments and their gains and losses in a tabular format and
requires cross-referencing within the footnote of important information about
derivative instruments.  SFAS 161 is effective for financial statements
issued for fiscal years beginning on or after November 15, 2008.  The
Company does not believe SFAS 161 will change its current practices and thereby
believes it will not impact preparation of the consolidated financial
statements.




In
December 2007, the FASB released SFAS No. 141(R), Business Combinations (revised
2007) (“SFAS 141(R)”), which changes many well-established business combination
accounting practices and significantly affects how acquisition transactions are
reflected in the financial statements.  Additionally, SFAS 141(R) will
affect how companies negotiate and structure transactions, model financial
projections of acquisitions and communicate to stakeholders.  SFAS
141(R) must be applied prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  The adoption of this
pronouncement has had no impact on the Company’s financial statements, but will
affect the Company in the event an acquisition is completed by the
Company.




In
December 2007, the FASB released SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51 (“SFAS 160”), which
establishes accounting and reporting standards for the noncontrolling interests
in a subsidiary and for the deconsolidation of a subsidiary.  SFAS 160
requires consolidated net income to be reported at amounts that include the
amounts attributable to both the parent and the noncontrolling interests and
requires disclosure, on the face of the consolidated statement of income, of the
amounts of net income attributable to the parent and to the noncontrolling
interest.  Previously, net income attributable to the noncontrolling
interest was reported as an expense or other deduction in arriving at net
income.  SFAS 160 is effective for financial statements issued for
fiscal years beginning after December 15, 2008.  The adoption of this
pronouncement has had no impact on the Company’s financial
statements.




In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities –
Including an Amendment of FASB No. 115,” (“SFAS 159”).  SFAS 159
allows a company to irrevocably elect fair value as the initial and subsequent
measurement attribute for certain financial assets and financial liabilities on
a contract-by-contract basis, with changes in fair value recognized in
earnings.  SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007 and will be applied prospectively.  The adoption of
this pronouncement has had no impact on the Company’s financial
statements.




In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, “Fair Value Measurements”, which establishes a framework
for reporting fair value and expands disclosures about fair value measurements.
SFAS No. 157 was effective for the Company on January 1, 2008, with the
exception that the applicability of SFAS No. 157’s fair value measurement
requirements to nonfinancial assets and liabilities that are not required or
permitted to be recognized or disclosed at fair value on a recurring basis had
been delayed by the FASB for one year and was adopted January 1, 2009. The
adoption of this pronouncement had no impact on the Company’s financial
statements.  See Note 3 to the financial statements contained
elsewhere in this report for more information.





In June
2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument
(or Embedded Feature) is Indexed to an Entity’s Own Stock” (“EITF
07-5”).  EITF 07-5 provides guidance on how to determine if certain
instruments or embedded features are considered indexed to an entity’s own
stock.  EITF 07-5 requires companies to use a two-step approach to
evaluate an instrument’s contingent exercise provisions and settlement
provisions in determining whether the instrument is considered to be indexed to
its own.   EITF 07-5 is effective for fiscal years beginning after
December 15, 2008 and any interim periods therein with any outstanding
instrument at the date of adoption requiring a retrospective application of the
accounting through a cumulative effect adjustment to retained earnings upon
adoption.  The adoption of EITF 07-5 did not have a significant impact
on the Company’s financial statements.




8


Highlands
Acquisition Corp.
 (a
corporation in the development stage)
  Notes
to Unaudited Condensed Financial Statements—(Continued)


The
Company does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.




2.   Initial
Public Offering




On
October 9, 2007, the Company sold 12,000,000 units (“Units”) in the Offering at
a price of $10 per Unit. The Offering generated net proceeds of approximately
$114,600,000, which, together with $3,450,000 in deferred underwriters discounts
and commissions, was placed in the Trust Account.  On October 10,
2007, the underwriters exercised the full amount of their over-allotment option
for an additional 1,800,000 Units, which closed on October 15, 2007. The
exercise of the over-allotment generated additional net proceeds of
approximately $16,740,000, which, together with $540,000 in deferred
underwriters discounts and commissions, was placed in the Trust
Account.   After consummation of the Offering (including the
exercise of the over-allotment option by the underwriters) and the Private
Placement, an aggregate amount of $134,830,000 was deposited in the Trust
Account, which consisted of aggregate net proceeds of approximately $128,030,000
from the Offering and the over-allotment, plus $3,990,000 in deferred
underwriting discounts and commissions and $3,250,000 of proceeds from the
Private Placement, but net of the proceeds from the offering held outside the
Trust Account.  Each Unit consists of one share of the Company’s
common stock, par value $0.0001 per share (the “Common Stock”) and one warrant
to purchase one share of Common Stock (the “Warrants”). Each Warrant will
entitle the holder to purchase from the Company one share of Common Stock at an
exercise price of $7.50 commencing on the later of the completion of an initial
Business Combination and 15 months from the October 3, 2007 and expiring five
years from October 3, 2007. The Company may redeem all of the Warrants, at a
price of $.01 per Warrant upon 30 days’ notice while the Warrants are
exercisable, only in the event that the last sale price of the Common Stock is
at least $14.25 per share for any 20 trading days within a 30 trading day period
ending on the third day prior to the date on which notice of redemption is
given. In accordance with the warrant agreement relating to the Warrants sold
and issued in the Offering, the Company is only required to use its best efforts
to maintain the effectiveness of the registration statement covering the
Warrants. The Company will not be obligated to deliver securities, and there are
no contractual penalties for failure to deliver securities, if a registration
statement is not effective at the time of exercise. Additionally, in the event
that a registration is not effective at the time of exercise, the holder of a
Warrant shall not be entitled to exercise such Warrant and in no event (whether
in the case of a registration statement not being effective or otherwise) will
the Company be required to net cash settle the warrant exercise. Consequently,
the Warrants may expire unexercised and unredeemed.




In
connection with the Offering and over-allotment, the Company paid Citigroup
Global Markets Inc. and William Smith Securities, the underwriters of the
Offering, an underwriting discount of 7% of the gross proceeds of the Offering,
of which 3% of the gross proceeds ($3,990,000) is held in the Trust Account and
payable only upon the consummation of a Business Combination.  This
amount is included in deferred underwriting fee on the accompanying balance
sheet.  The underwriters have waived their right to receive such
payment upon the Company’s liquidation if it is unable to complete a Business
Combination. Additionally, Kanders & Company, an affiliate of Warren B.
Kanders, one of the Company’s directors, purchased 500,000 Units in the
Offering. The Company received the entire aggregate gross proceeds from this
purchase and the underwriters did not receive any underwriting discounts or
commissions on these Units.




Simultaneously
with the consummation of the Offering, certain of the Company’s affiliates
purchased the Sponsor’s Warrants at a purchase price of $1.00 per Sponsor
Warrant, in a private placement. The proceeds of $3,250,000 were placed in the
Trust Account.  The Sponsors’ Warrants are identical to the Warrants
underlying the Units sold in the Offering except that if the Company calls the
Warrants for redemption, the Sponsors’ Warrants will not be redeemable by the
Company as long as they are still held by the initial purchasers or their
permitted transferees. The purchasers have agreed that the Sponsors’ Warrants
will not be sold or transferred by them subject to (limited exceptions), until
after the completion of an initial Business Combination. The purchase price of
the Sponsors’ Warrants approximates the fair value of such
warrants.




9


Highlands
Acquisition Corp.
 (a
corporation in the development stage)
  Notes
to Unaudited Condensed Financial Statements—(Continued)


The
Founders and the holders of the Sponsors’ Warrants and Co-Investment Units (as
described in Note 4 below) will be entitled to registration rights with
respect to their securities pursuant to an agreement signed prior to the
effective date of the Offering. At any time and from time to time on or after
the date that is 30 days after the Company consummates a Business Combination,
the holders of a majority-in-interest of the Founders’ Units (and underlying
securities), the Sponsors’ Warrants (and underlying securities) or the
Co-Investment Units (and underlying securities) may make a written demand that
the Company register such securities under the Securities Act of 1933, as
amended.  The Company is not obligated to effect more than an
aggregate of two such demand registrations.  In addition, such holders
have certain “piggy back” registration rights on registration statements filed
subsequent to the Company’s consummation of a Business Combination. The Company
will bear the expenses incurred in connection with the filing of any such
registration statements.




3.   Investments
Held in Trust




Effective
January 1, 2008 the Company adopted SFAS No. 157, Fair Value
Measurements.  SFAS No. 157 applies to all assets and liabilities that
are being measured and reported on a fair value basis.  SFAS No. 157
requires new disclosure that establishes a framework for measuring fair value in
GAAP, and expands disclosure about fair value measurements.  This
statement enables the reader of the financial statements to assess the inputs
used to develop those measurements by establishing a hierarchy for ranking the
quality and reliability of the information used to determine fair
values.  The statement requires that assets and liabilities carried at
fair value will be classified and disclosed in one of the following three
categories:




Level
      1:
            Quoted
      market prices in active markets for identical assets or
      liabilities.




Level
      2:
            Observable
      market based inputs or unobservable inputs that are corroborated by market
      data.




Level
      3:
            Unobservable
      inputs that are not corroborated by market
data.




In
determining the appropriate levels, the Company performs a detailed analysis of
the assets and liabilities that are subject to SFAS No. 157.  At each
reporting period, all assets and liabilities for which the fair value
measurement is based on significant unobservable inputs are classified as Level
3.





The table
below presents the balances of assets and liabilities measured at fair value on
a recurring basis by level within the hierarchy.




March 31, 2009Total
                    
                    
                    Level 1
                    
                    
                    Level 2
                    
                    
                    Level 3Investments
      Held in Trust
                    
                    $
                    132,850,908
                    
                    
                    $
                    132,850,908
                    
                    
                    $
                    —
                    
                    
                    $
                    —Investment
      Held in Trust from Underwriter
                    
                    
                    3,990,000
                    
                    
                    
                    3,990,000
                    
                    
                    
                    —
                    
                    
                    
                    —Total
                    
                    $
                    136,840,908
                    
                    
                    $
                    136,840,908
                    
                    
                    $
                    —
                    
                    
                    $
                    —





The
Company’s investments held in trust include money market securities that are
considered to be highly liquid and easily tradable.




10




Highlands
Acquisition Corp.
 (a
corporation in the development stage)
  Notes
to Unaudited Condensed Financial Statements—(Continued)


The
reconciliation of investments held in trust (including the investments held in
trust from underwriters) is as follows:




For the Three
                  Months Ended
                  March 31, 2009
                
                
                For the Three
                  Months Ended
                  March 31, 2008
                
                
                Cumulative
                  Period from April
                  26, 2007 (Date of
                  inception)
                  Through March
                  31, 2009Investments
      held in trust – beginning of period
                
                $
                137,151,231
                
                
                $
                136,248,345
                
                
                $
                -Contribution
      to trust (which includes the deferred underwriting discount and commission
      of $3,990,000)
                
                
                -
                
                
                
                -
                
                
                
                134,830,000Interest
      income received
                
                
                107,080
                
                
                
                1,215,824
                
                
                
                4,718,271Withdrawals
      to fund operations (a)
                
                
                (300,000
                )
                
                
                -
                
                
                
                (750,000
                )Withdrawals
      to pay taxes
                
                
                (117,403
                )
                
                
                (611,203
                )
                
                
                (1,957,363
                )Total
      investments held in trust
                
                $
                136,840,908
                
                
                $
                136,852,966
                
                
                $
                136,840,908





(a)
Amount is limited to $2,100,000




4.   Commitments
and Related Party Transactions




The
Company presently occupies office space provided by affiliates of certain of the
Founders.  Such affiliates have agreed that, until the Company
consummates a Business Combination, they will make such office space, as well as
certain office, secretarial and administrative and general services, available
to the Company, as may be required by the Company from time to time. The Company
has agreed to pay such affiliates an aggregate amount of $10,000 per month for
such services commencing on the effective date of the Offering.  The
accompanying statement of income for the three months ended March 31, 2009 and
2008 and the period from April 26, 2007 (inception) to March 31, 2009 includes
$30,000, $30,000 and $180,000 respectively of expense related to this
agreement.




Pursuant
to letter agreements that the Founders entered into with the Company and the
underwriters, the Founders waived their right to receive distributions with
respect to the shares of common stock held by each of the Founders upon the
Company’s liquidation.




Certain
of the Company’s affiliates have agreed to purchase a total of 1,000,000 units
(the “Co-Investment Units”) at a price of $10 per unit (an aggregate price of
$10,000,000) from the Company in a private placement that will occur immediately
prior to the Company’s consummation of a Business Combination. These
Co-Investment Units will be identical to the Units sold in the Offering. The
purchasers have agreed that the Co-Investment Units will not be sold,
transferred, or assigned (subject to limited exceptions) until at least one year
after the completion of the Business Combination.




The
Founders and the holders of the Sponsors’ Warrants (or underlying securities)
and the holders of the Co-Investment Units (or underlying securities) will be
entitled to registration rights with respect to their securities pursuant to an
agreement signed prior to the effective date of the Offering.  For a
description of such registration rights agreement see Note 2 above.




5.  Preferred
Stock




The
Company is authorized to issue 1,000,000 shares of preferred stock with such
designations, voting and other rights and preferences as may be determined from
time to time by the Company’s Board of Directors.  The agreement with
the underwriters prohibits the Company, prior to a Business Combination, from
issuing preferred stock which participates in the proceeds of the Trust Account
or which votes as a class with the Common Stock on a Business
Combination.




11


Highlands
Acquisition Corp.
 (a
corporation in the development stage)
  Notes
to Unaudited Condensed Financial Statements—(Continued)


6.  Common
Stock




Effective
July 16, 2007, the Company’s Board of Directors authorized a unit dividend of
0.15 units for each outstanding unit. Effective October 3, 2007, the Company’s
Board of Directors authorized a unit dividend of 0.2 units for each outstanding
unit. All references in the accompanying financial statements to the number of
shares of Common Stock have been retroactively restated to reflect these
transactions.




On March
3, 2008, the Company repurchased 20,700 Founders Units from William V. Campbell
for the original purchase price of $150 and released Mr. Campbell from the
obligation of continuing to serve as a Director of the Company until the earlier
of a Business Combination or the liquidation of the Company. The purchased units
were subsequently cancelled.




On May
12, 2008, the Company issued 20,700 units with certain service and vesting
requirements to Ronnie P. Barnes for $150. In addition, the units sold to Ronnie
P. Barnes are subject to the same rights and restrictions as the Founders Units,
as described in Note 2 above.  Due to the rights and performance
restrictions of the Founders Units issued to Mr. Barnes, the Company will record
a $194,844 non-cash charge when a Business Combination is
consummated.




7.  Deferred
Trust Interest




With
respect to a Business Combination which is approved and consummated, any Public
Stockholder who voted against the Business Combination may demand that the
Company convert his or her shares. The per share  conversion price
will equal the amount in the Trust Account, calculated as of two business days
prior to the consummation of the proposed Business Combination, divided by the
number of shares of common stock held by Public Stockholders at the consummation
of the Offering. Accordingly, Public Stockholders holding 4,139,999 shares sold
in the Offering may seek conversion of their shares in the event of a Business
Combination. Accordingly, a portion of the net proceeds of the Offering has been
classified as common stock subject to possible conversion of shares on the
accompanying balance sheet.  Such Public Stockholders are entitled to
receive their per share interest in the Trust Account computed without regard to
the shares of common stock held by the Founders prior to the consummation of the
Offering.  This interest is reflected on the balance sheet as deferred
trust interest.  The deferred trust interest is calculated as
follows:





Deferred
      Trust Interest as of March 31, 2009Total
      interest income earned since inception
                  
                  $
                  4,718,272Total
      taxes paid since inception
                  
                  $
                  (1,957,363
                  )Accrued
      income/franchise taxes
                  
                  $
                  (57,588
                  )Working
      capital allowance
                  
                  $
                  (2,100,000
                  )Total
      base for deferral
                  
                  $
                  603,321Conversion
      %
                  
                  
                  29.9999
                  %Deferred
      trust interest
                  
                  $
                  180,995


12




Highlands
Acquisition Corp
 Item
2. Management’s Discussion And Analysis Of Financial Condition And Results Of
Operations




The
following discussion should be read in conjunction with our condensed financial
statements and the notes thereto contained in this report.




Forward
Looking Statements




All
statements other than statements of historical fact included in this Form 10-Q
including, without limitation, statements under “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” regarding our
financial position, business strategy and the plans and objectives of management
for future operations, are forward looking statements. When used in this Form
10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and
similar expressions, as they relate to us or our management, identify forward
looking statements. Such forward looking statements are based on the beliefs of
management, as well as assumptions made by, and information currently available
to, our management. Actual results could differ materially from those
contemplated by the forward looking statements as a result of certain factors
set forth in “Risk Factors” found in Part I, Item IA of our Annual Report on
Form 10K for the year ended December 31, 2008 and our other filings with the
Securities and Exchange Commission. All subsequent written or oral forward
looking statements attributable to us or persons acting on our behalf are
qualified in their entirety by this paragraph.




Overview




We were
formed on April 26, 2007 to serve as a vehicle to effect a Business
Combination.  Our efforts in identifying a prospective target business
are not limited to a particular industry.  Although we initially
focused our search for target businesses in the healthcare industry, we have
expanded our focus to include other industries as well, in addition to the
healthcare industry. The healthcare industry encompasses all healthcare service
companies, including, among others, managed care companies, hospitals,
healthcare system companies, physician groups, diagnostic service companies,
medical device companies and other healthcare-related entities. We intend to
utilize cash derived from the proceeds of our initial public offering, our
capital stock, debt or a combination of cash, capital stock and debt, in
effecting a Business Combination.





Critical
Accounting Policies and Use of Estimates




Deferred Income Taxes—
Deferred income taxes are provided for the differences between bases of assets
and liabilities for financial reporting and income tax purposes. A valuation
allowance is established when necessary to reduce deferred tax assets to the
amount expected to be realized.




Fair Value of Financial Instruments- The fair values of our company’s assets and liabilities that qualify as
financial instruments under SFAS No. 107 “Disclosures about Fair Value of
Financial Instrument,” approximate their carrying amounts presented in the
balance sheet at March 31, 2009.




Our
company accounts for derivative instruments, if any, in accordance with SFAS No.
133 “Accounting for Derivative Instruments and Hedging Activities” as amended
(“SFAS 133”), which establishes accounting and reporting standards for
derivative instruments.  We do not currently have any derivative
instruments.




Results
of Operations - Three month period ended March 31, 2009




Interest
Income





For the
three months ended March 31, 2009, we had gross interest income of $107,084
comprised of $107,081 from our trust account and $3 from our operating
account.  The average yield during this period was
0.31%.   Due to the recent decline in interest rates, we expect
our 2009 interest average yield to decline.  On April 23, 2009, our
yield on investments was 0.18%.


13




Highlands
Acquisition Corp.


Item
2. Management’s Discussion And Analysis Of Financial Condition And Results Of
Operations


Deferred
Trust Interest





For the
three months ended March 31, 2009, we deferred trust interest of $10,878
representing the increase in the amount that would be paid out to those
dissenting shareholders, who have elected to convert their shares (as described
in Note 7 to the financial statements contained elsewhere in this report), in
the event of a Business Combination (as described more fully in Note 1 to the
financial statements contained elsewhere in this report).  The total
deferred trust interest through March 31, 2009 is calculated as
follows:





Deferred
      Trust Interest as of March 31, 2009Total
      interest income earned since inception
                  
                  $
                  4,718,272Total
      taxes paid since inception
                  
                  $
                  (1,957,363
                  )Accrued
      income/franchise taxes
                  
                  $
                  (57,588
                  )Working
      capital allowance
                  
                  $
                  (2,100,000
                  )Total
      base for deferral
                  
                  $
                  603,321Conversion
      %
                  
                  
                  29.9999
                  %Deferred
      trust interest
                  
                  $
                  180,995




General
and Administrative Expenses





For the
three months ended March 31, 2009, we had general and administrative expenses of
$211,232, primarily consisting of accounting fees, legal expenses,
administrative services fee, Delaware franchise taxes, directors and officer’s
liability insurance and travel expenses.





Loss
Before Provision for Income Taxes





For the
three months ended March 31, 2009, loss before provision for income taxes was
$115,026 from interest income and general and administrative expenses discussed
above.





Income
Taxes





For the
three months ended March 31, 2009, income tax benefit is $22,799 (19.82%
effective benefit rate) consisting of approximately $46,000 in federal tax
benefit and $23,200 in state income tax provision.  This benefit
results from a deferred tax benefit in excess of current tax
expense.  Since it is not more likely than not that we will be able to
use all of our state deferred tax assets in the future, the state deferred tax
benefit recorded during the period was minimal, leading to an increased
effective tax rate.  The trustee of our trust account will distribute
funds to us to pay any taxes resulting from interest accrued on the funds held
in our trust account.





Net
Loss





For the
three months ended March 31, 2009, net loss was $92,227, due to the factors
discussed above.





Results
of Operations - Three month period ended March 31, 2008




Interest
Income





For the
three months ended March 31, 2008, we had interest income of approximately $1.2
million.  The average yield during this period was
3.57%.   Due to the recent decline in interest rates, we expect
our 2008 interest average yield to decline.  On May 1, 2008, our yield
on investments was 2.46%.





Deferred
Trust Interest





For the
three month period ended March 31, 2008, we had no deferred trust
interest.





14


Highlands
Acquisition Corp.
 Item
2. Management’s Discussion And Analysis Of Financial Condition And Results Of
Operations
 (Continued)


Operating
Expenses





For the
three months ended March 31, 2008, we had general and administrative expenses of
$189,968, primarily consisting of legal expenses, administrative services fee,
accounting fees, Delaware franchise taxes, travel expenses, and directors and
officer’s liability insurance.





Income
Before Provision for Income Taxes





For the
three months ended March 31, 2008, income before provision for income taxes was
$1,025,865 from interest income and general and administrative expenses
discussed above.





Income
Taxes





For the
three months ended March 31, 2008, income tax expense was $410,005, consisting
of $317,615 in federal taxes and $92,390 in state income taxes.  The
trustee of our trust account will distribute funds to us to pay any taxes
resulting from interest accrued on the funds held in our trust
account.





Net
Income





For the
three months ended March 31, 2008, net income was $615,860, due to the factors
discussed above.





Results
of Operations - April 26, 2007 (inception) to March 31, 2009





Interest
Income





For the
period from April 26, 2007 (inception) to March 31, 2009, we had gross interest
income of $4,718,357 comprised of $4,718,272 from our trust account and $85 from
our operating account.  The average yield during this period was
2.34%.





Deferred
Trust Interest





For the
period from April 26, 2007 (inception) to March 31, 2009, we had deferred trust
interest of $180,995 representing the amount that would be paid out to those
dissenting shareholders, who have elected to convert their shares (as described
in Note 7 to the financial statements contained elsewhere in this report), in
the event of a Business Combination (as described more fully in Note 1 to the
financial statements contained elsewhere in this report).  The
deferred trust interest is calculated as follows:





Deferred
      Trust Interest as of March 31, 2009Total
      interest income earned since inception
                  
                  $
                  4,718,272Total
      taxes paid since inception
                  
                  $
                  (1,957,363
                  )Accrued
      income/franchise taxes
                  
                  $
                  (57,588
                  )Working
      capital allowance
                  
                  $
                  (2,100,000
                  )Total
      base for deferral
                  
                  $
                  603,321Conversion
      %
                  
                  
                  29.9999
                  %Deferred
      trust interest
                  
                  $
                  180,995





General
and Administrative Expenses





For the
period from April 26, 2007 (inception) to March 31, 2009, we had general and
administrative expenses and formation expenses of $1,173,940 and $1,000,
respectively, primarily consisting of legal expenses, Delaware franchise taxes,
administrative services fee, accounting fees, directors and officer’s liability
insurance, travel expenses, listing and custody expenses.





15


Highlands
Acquisition Corp.
 Item
2. Management’s Discussion And Analysis Of Financial Condition And Results Of
Operations
 (Continued)


Income
Before Provision for Income Taxes





For the
period from April 26, 2007 (inception) to March 31, 2009, income before
provision for income taxes was $3,362,422 from interest income and general and
administrative expenses discussed above.





Income
Taxes





For the
period from April 26, 2007 (inception) to March 31, 2009, income tax expense was
$1,414,622 (42.07% effective rate), consisting of $991,711 in federal taxes and
$422,911 in state income taxes.  Since it is not more likely than not
that  we will be able to use our cumulative state tax losses in the
future, no state deferred tax asset was recorded leading to a higher than normal
effective tax rate.  The trustee of our trust account will distribute
funds to us to pay any taxes resulting from interest accrued on the funds held
in our trust account.





Net
Income





For the
period from April 26, 2007 (inception) to March 31, 2009, net income was
$1,947,800, due to the factors discussed above.





Financial
Condition and Liquidity




On
October 9, 2007 we consummated our initial public offering of 12,000,000 units
and the private placement of 3,250,000 warrants (the “Sponsors’ Warrants”) to
our founders and affiliates of our founders and on October 15, 2007 we closed on
the exercise of the underwriters’ over-allotment option for an additional
1,800,000 units, resulting in aggregate gross proceeds from our initial public
offering (including the over-allotment option) and the private placement of the
Sponsors’ Warrants of $141,250,000. We paid or incurred a total of $5,320,000 in
underwriting discounts and commissions (not including $3,990,000 which was
deferred by the underwriters until completion of a Business Combination) and
approximately $667,000 for other costs and expenses related to our initial
public offering. After deducting the underwriting discounts and commissions and
the offering expenses, the total net proceeds, including $3,250,000 from the
sale of the Sponsor’ Warrants to us, from the offering were approximately
$135,263,000 (including $3.99 million in deferred underwriters commission), and
an amount of $134,830,000 was deposited into our trust account at Morgan Stanley
with Continental Stock Transfer & Trust as trustee. We intend to use
substantially all of the net proceeds of our initial public offering and the
private placement of the Sponsors’ Warrants to seek to effect a Business
Combination, including identifying and evaluating prospective acquisition
candidates, selecting the target business, and structuring, negotiating and
consummating the Business Combination. To the extent that our capital stock is
used in whole or in part as consideration to effect a Business Combination, the
proceeds held in our trust account, as well as any other net proceeds not
expended, will be used to finance the operations of the target business. We
believe we will have sufficient available funds outside of our trust account to
operate through October 3, 2009, assuming that a Business Combination is not
consummated during that time.





We expect
our primary liquidity requirements, other than payment of income taxes for
interest income earned on our trust account, during this period to
include:




•
$950,000 of expenses for the search for target businesses and for the legal,
accounting and other third-party expenses attendant to the due diligence
investigations, structuring and negotiating of a Business
Combination;




•
$330,000 of expenses for the due diligence and investigation of a target
business by our officers, directors and existing stockholders;




•
$195,000 of expenses in legal and accounting fees relating to our Securities and
Exchange Commission reporting obligations;




16


Highlands
Acquisition Corp.
 Item
2. Management’s Discussion And Analysis Of Financial Condition And Results Of
Operations
 (Continued)


•
$240,000 for the administrative fee payable to Kanders & Company,
Inc. and Ivy Capital Partners, each an affiliate of certain of our officers
and directors, ($10,000 per month for twenty four months); and




•
$885,000 for general working capital that will be used for miscellaneous
expenses and reserves, including approximately $150,000 for director and officer
liability insurance premiums.




We do not
believe we will need to raise additional funds following our initial public
offering in order to meet the expenditures required for operating our business.
However, we may need to raise additional funds through a private offering of
debt or equity securities if funds are required to consummate a Business
Combination that is presented to us.  We would only consummate such a
financing simultaneously with the consummation of a Business
Combination.




Commencing
on October 3, 2007 and ending upon the consummation of a Business Combination or
our liquidation, we began incurring a fee from Kanders & Company,
Inc. and Ivy Capital Partners, of $10,000 per month for office space,
administrative and support services. In addition, in April 2007, Kanders &
Company, Inc. and Ivy Capital Partners advanced an aggregate of $100,000 to us
for payment on our behalf of offering expenses. These loans were repaid
following our initial public offering from the proceeds of the
offering.





See below
for amounts transferred at our instruction from our trustee to pay for certain
tax and working capital payments.





Taxes
                
                
                Working Capital
                
                
                TotalJanuary
      25, 2008
                
                $
                611,203
                
                
                $
                -
                
                
                $
                611,203April
      9, 2008
                
                
                130,000
                
                
                
                
                
                
                
                130,000June
      11, 2008
                
                
                829,671
                
                
                
                
                
                
                
                829,671June
      25, 2008
                
                
                
                
                
                
                150,000
                
                
                
                150,000September
      5, 2008
                
                
                240,000
                
                
                
                
                
                
                
                240,000September
      8, 2008
                
                
                
                
                
                
                300,000
                
                
                
                300,000November
      12, 2008
                
                
                29,086
                
                
                
                
                
                
                
                29,086March
      13, 2009
                
                
                60,518
                
                
                
                300,000
                
                
                
                360,518March
      26, 2009
                
                
                56,885
                
                
                
                
                
                
                
                56,885Total
                
                $
                1,957,363
                
                
                $
                750,000
                
                
                $
                2,707,363




New Accounting Pronouncements
— In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS 162”).  This standard identifies sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with U.S. generally accepted accounting
principles.  The Company does not believe SFAS 162 will change its current
practices and thereby believes it will not impact preparation of the financial
statements.




In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (“SFAS 161”), which amends SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities (“SFAS 133”) and requires enhanced
disclosures about how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for under SFAS 133
and its related interpretations, and how derivative instruments and related
hedge items affect an entity’s financial position, financial performance, and
cash flows.  SFAS 161 also requires the disclosure of the fair values of
derivative instruments and their gains and losses in a tabular format and
requires cross-referencing within the footnote of important information about
derivative instruments.  SFAS 161 is effective for financial statements
issued for fiscal years beginning on or after November 15, 2008.  The
Company does not believe SFAS 161 will change its current practices and thereby
believes it will not impact preparation of the consolidated financial
statements.




17




Highlands
Acquisition Corp.


Item
2. Management’s Discussion And Analysis Of Financial Condition And Results Of
Operations


(Continued)




In
December 2007, the FASB released SFAS No. 141(R), Business Combinations (revised
2007) (“SFAS 141(R)”), which changes many well-established business combination
accounting practices and significantly affects how acquisition transactions are
reflected in the financial statements.  Additionally, SFAS 141(R) will
affect how companies negotiate and structure transactions, model financial
projections of acquisitions and communicate to stakeholders.  SFAS
141(R) must be applied prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  The adoption of this
pronouncement has had no impact on the Company’s financial statements, but will
affect the Company once an acquisition is completed.




In
December 2007, the FASB released SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51 (“SFAS 160”), which
establishes accounting and reporting standards for the noncontrolling interests
in a subsidiary and for the deconsolidation of a subsidiary.  SFAS 160
requires consolidated net income to be reported at amounts that include the
amounts attributable to both the parent and the noncontrolling interests and
requires disclosure, on the face of the consolidated statement of income, of the
amounts of net income attributable to the parent and to the noncontrolling
interest.  Previously, net income attributable to the noncontrolling
interest was reported as an expense or other deduction in arriving at net
income.  SFAS 160 is effective for financial statements issued for
fiscal years beginning after December 15, 2008.  The adoption of this
pronouncement has had no impact on the Company’s financial
statements.




In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities –
Including an Amendment of FASB No. 115,” (“SFAS 159”).  SFAS 159
allows a company to irrevocably elect fair value as the initial and subsequent
measurement attribute for certain financial assets and financial liabilities on
a contract-by-contract basis, with changes in fair value recognized in
earnings.  SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007 and will be applied prospectively.  The adoption of
this pronouncement has had no impact on the Company’s financial
statements.




In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, “Fair Value Measurements”, which establishes a framework
for reporting fair value and expands disclosures about fair value measurements.
SFAS No. 157 was effective for the Company on January 1, 2008, with the
exception that the applicability of SFAS No. 157’s fair value measurement
requirements to nonfinancial assets and liabilities that are not required or
permitted to be recognized or disclosed at fair value on a recurring basis had
been delayed by the FASB for one year and was adopted January 1, 2009. The
adoption of this pronouncement had no impact on the Company’s financial
statements.  See Note 3 to the financial statements contained
elsewhere in this report for more information.





In June
2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument
(or Embedded Feature) is Indexed to an Entity’s Own Stock” (“EITF
07-5”).  EITF 07-5 provides guidance on how to determine if certain
instruments or embedded features are considered indexed to an entity’s own
stock.  EITF 07-5 requires companies to use a two-step approach to
evaluate an instrument’s contingent exercise provisions and settlement
provisions in determining whether the instrument is considered to be indexed to
its own.   EITF 07-5 is effective for fiscal years beginning after
December 15, 2008 and any interim periods therein with any outstanding
instrument at the date of adoption requiring a retrospective application of the
accounting through a cumulative effect adjustment to retained earnings upon
adoption.  The adoption of EITF 07-5 did not have a significant impact
on the Company’s financial statements.




The
Company does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.




Item
3. Quantitative And Qualitative Disclosures About Market Risk.




There
have been no material changes to our market risk since December 31,
2008.




18


Highlands
Acquisition Corp.


Item
4. Controls and Procedures




Evaluation
of Disclosure Controls and Procedures




The
Company's management carried out an evaluation, under the supervision and with
the participation of the Company's Chief Executive Officer and Chief Financial
Officer, its principal executive officer and principal financial officer,
respectively, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act) as of March 31, 2009, pursuant to Exchange
Act Rule 13a-15(b).  Such disclosure controls and procedures are
designed to ensure that information required to be disclosed by the Company is
accumulated and communicated to the appropriate management on a basis that
permits timely decisions regarding disclosure.  Based upon that
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures as of March 31,
2009 are effective.




Changes
in Internal Control over Financial Reporting


The
Company’s management carried out an evaluation, under the supervision and with
the participation of the Company’s Chief Executive Officer and Chief Financial
Officer, its principal executive officer and principal financial officer,
respectively, of the Company’s internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) as
of March 31, 2009, pursuant to Exchange Act Rule 13a-15(d).


There
have not been any changes in our internal control over financial reporting that
have come to management’s attention during the fiscal quarter ended March 31,
2009 evaluation that have materially affected, or are reasonably likely to
materially affect the Company’s internal control over financial
reporting.


19





PART
II. OTHER INFORMATION




Item
1A.  Risk Factors




There
have been no material changes to the risk factors described in Part I, Item 1A
of our Annual Report on Form 10-K for the year ended December 31,
2008.


20




Item
6. Exhibits




(a)   Exhibits:




Exhibit
                        Number
                      
                      Description31.1
                      
                      Certification
      of Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
                      
                      Certification
      of Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                      
                      Certification
      of Principal Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
                      
                      Certification
      of Principal Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of
2002.


21




Highlands
Acquisition Corp.




SIGNATURES




Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.





HIGHLANDS
      ACQUISITION CORP.Dated:
      May 5, 2009/s/Robert W. PangiaRobert
      W. Pangia,Chief
      Executive Officer(Principal
      Executive Officer)/s/ Philip A. BaratelliPhilip
      A. Baratelli,Chief
      Financial Officer(Principal
      Financial Officer and Chief Accounting
  Officer)


22