**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 September 30, 2007





or





oTransition
      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
            
            20-18924044(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              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 o NO x




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large
      accelerated filer o Accelerated
      filer o Non-accelerated
      filer x




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




As
      of
      November 13, 2007, there were outstanding 17,250,000 shares of Common Stock,
      par
      value $0.0001.









**Highlands
      Acquisition Corp.**


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





**Page****Part
                I. Financial Information:****Item
                1 – Financial Statements**Condensed
                Balance Sheet as of September 30, 2007 (Unaudited)
            3Condensed
                Statement of Operations for the Period April 26, 2007 (inception)
                to
                September 30, 2007 (Unaudited)
            4Condensed
                Statement of Stockholders’ Equity for the Period April 26, 2007
                (inception) to September 30, 2007 (Unaudited)
            5Condensed
                Statement of Cash Flows for the Period April 26, 2007 (inception)
                to
                September 30, 2007 (Unaudited)
            6Notes
                to Unaudited Condensed Financial Statements
            7**Item
                2 – Management’s Discussion and Analysis of Financial Condition and
                Results of Operations**
            12**Item
                3 – Quantitative and Qualitative Disclosures About Market
                Risk**
            13**Item
                4 – Controls and Procedures**
            14**Part
                II. Other Information**
            15**Item
                1. Legal Proceedings**
            15**Item
                1A. Risk Factors**
            15**Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds**
            35**Item
                6 – Exhibits**
            36**Signatures**
            38**Certifications**




2




**Highlands
      Acquisition Corp.**


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


**CONDENSED
      BALANCE SHEET**




**September 30,**
              **2007**
              **(Unaudited)****ASSETS**Current
                assets:Cash
            
            **$**
            **60,290**Prepaid
                expenses
            
            
            **71,524**Total
                current assets
            
            
            **131,814**Deferred
                offering costs (Note 3)
            
            
            **197,815****Total
                assets**
            
            **$**
            **329,629****LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Current
                liabilities:**Accounts
                payable
            
            **$**
            **101,204**Accrued
                expenses
            
            
            **110,880**Notes
                payable to affiliates of Founders (Note 4)
            
            
            **100,000****Total
                liabilities**
            
            **$**
            **312,084****Commitments
                (Note 5)****Stockholders’
                equity**Preferred
                stock, $.0001 par valueAuthorized
                1,000,000 shares; none issued and outstandingCommon
                stock, $.0001 par valueAuthorized
                50,000,000 sharesIssued
                and outstanding 3,450,000 shares
            
            
            **345**Additional
                paid-in capital
            
            
            **24,655**Deficit
                accumulated during the development stage
            
            
            **(7,455**
            **)****Total
                stockholders’ equity**
            
            
            **17,545****Total
                liabilities and stockholders’ equity**
            
            **$**
            **329,629**




*See
      Notes to Unaudited Condensed Financial Statements.*




3




**Highlands
      Acquisition Corp.**


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


**STATEMENT
      OF OPERATIONS**


**(unaudited)**




*For
      the period April 26, 2007 (inception) to September 30, 2007*




**Formation
                costs**
            
            **$**
            **1,000****General
                and administrative**
            
            
            **6,455****Net
                loss**
            
            **$**
            **(7,455**
            **)****Weighted
                average shares outstanding**
            
            
            **3,450,000****Net
                loss per share**
            
            **$**
            **(0.00**
            **)**




*See
      Notes to Unaudited Condensed Financial Statements.*




4




**Highlands
      Acquisition Corp.**


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


**STATEMENT
      OF STOCKHOLDERS’ EQUITY**


(unaudited)




*For
      the period April 26, 2007 (inception) to September 30, 2007*




**Common
                    Stock**
                
                **Additional paid-in
                    capital**
                
                **Deficit**
                  **Accumulated**
                  **During the**
                  **Development Stage**
                
                **Stockholders’**
                  **Equity****Shares**
                
                **Amount**Issuance
                    of units to Founders on May 1, 2007 at approximately $0.007 per
                    share
                
                
                3,450,000
                
                $
                345
                
                $
                24,655
                
                $
                —
                
                $
                25,000Net
                    Loss
                
                
                
                
                
                
                
                
                
                
                
                (7,455
                )
                
                (7,455
                )Balance
                    at September 30, 2007
                
                
                3,450,000
                
                $
                345
                
                $
                24,655
                
                $
                (7,455
                )
                $
                17,545




*See
      Notes to Unaudited Condensed Financial Statements.*




5


**Highlands
      Acquisition Corp.**


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


**STATEMENT
      OF CASH FLOWS**


(unaudited)




*For
      the period April 26, 2007 (inception) to September 30, 2007*




**Cash
                flows from operating activities**Net
                loss
            
            $
            (7,455
            )**Adjustments
                to reconcile net loss to net cash used in operating
                activities**Increase
                in prepaid expenses
            
            
            (71,524
            )Increase
                in accounts payable
            
            
            72,572Increase
                in accrued expenses
            
            
            1,000**Net
                cash used in operating activities**
            
            
            (5,407
            )**Cash
                flows from financing activities**Proceeds
                from sale of units to Founders
            
            
            25,000Proceeds
                from notes payable to affiliates of Founders
            
            
            100,000Payment
                of costs relating to Proposed Offering
            
            
            (59,303
            )**Net
                cash provided by financing activities**
            
            
            65,697**Net
                increase in cash**
            
            
            60,290**Cash
                at beginning of period**
            
            
            —**Cash
                at end of period**
            
            $
            60,290**Supplemental
                disclosure of noncash financing activities******Deferred
                offering costs included in accounts payable and accrued
                expenses
            
            $
            138,512




*See
      Notes to Unaudited Condensed Financial Statements.*




6




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




**1.
      Organization and Business Operations**




The
      condensed financial statements at September 30, 2007 and for the period from
      April 26, 2007 (inception) to September 30, 2007 have been prepared by the
      Company. In the opinion of management, all adjustments (consisting of normal
      accruals and recurring items) have been made that are necessary to present
      fairly the financial position of Highlands Acquisition Corp. (the “Company”) as
      of September 30, 2007 and the results of its operations and cash flows for
      the
      period from April 26, 2007 (inception) to September 30, 2007. Operating 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 ended December
      31, 2007.




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 (“Business Combination”).




At
      September 30, 2007, the Company had not yet commenced any operations. All
      activity through September 30, 2007 relates to the Company’s formation and
      initial public offering (“the Offering”) described in Note 2 below.




The
      registration statement for the Offering 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 $131,286,000, 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 warrants sold in the Offering, except (i) if the Company calls
      its 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.




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, was deposited in a trust account (“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. 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.




The
      Company, after signing a definitive agreement for the acquisition of a target
      business, 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 (“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.




7




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




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. 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 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. 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).




**Concentration
      of Credit Risk** —
The
      Company maintains cash in a bank deposit account which, at times, exceeds
      federally insured (FDIC) limits. The Company has not experienced any losses
      on
      this account.




**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.




The
      Company recorded a deferred income tax asset for the tax effect of temporary
      differences, aggregating approximately $2,535. In recognition of the uncertainty
      regarding the ultimate amount of income tax benefits to be derived, the Company
      has recorded a full valuation allowance at September 30, 2007.




The
      effective tax rate differs from the statutory rate of 34% due to the increase
      in
      the valuation allowance.




**Loss
      Per Common Share** —
Loss
      per share is computed by dividing net loss by the weighted-average number of
      shares of common stock outstanding during the period.




**Use
      of Estimates** —
The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      expenses during the reporting period. Actual results could differ from those
      estimates.




**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 September 30, 2007.




The
      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.




8




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




**New
      Accounting Pronouncements** —
In
      July
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” an
      interpretation of FASB Statement No. 109 (“FIN 48”), which provides criteria for
      the recognition, measurement, presentation and disclosure of uncertain tax
      position. A tax benefit from an uncertain position may be recognized only if
      it
      is “more likely than not” that the position is sustainable based on its
      technical merits. The provisions of FIN 48 are effective for fiscal years
      beginning after December 15, 2006. The adoption of FIN 48 did not have a
      material effect on the Company’s financial condition or results of operations.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      (SFAS) 157, “Fair Value Measurements,” (SFAS 157”). SFAS 157 defines fair value,
      establishes a framework for measuring fair value in generally accepted
      accounting principles and expands disclosures about fair value measurements.
      SFAS 157 is effective for fiscal years beginning after November 15, 2007 and
      interim periods within those fiscal years. The Company is currently evaluating
      the effect of the adoption of SFAS 157 will have on its consolidated 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.




**2.
      Subsequent Events - 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 (“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 and 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.




9




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




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 Private Placement
      Warrants approximates the fair value of such warrants.




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. Deferred
      Offering Costs**




Deferred
      offering costs consist principally of legal and
      other fees incurred through the balance sheet date that are directly related
      to
      the Offering and that were charged to the stockholders’ equity upon the closing
      of the Offering.




**4.
      Notes Payable, Affiliates of Stockholders**




The
      Company issued unsecured promissory notes in an aggregate principal amount
      of
      $100,000 to two affiliates of the Founders on April 30, 2007. The notes were
      non-interest bearing and were payable on the earlier of April 30, 2008 or the
      consummation of the Offering. Due to the short-term nature of the notes, the
      fair value of the notes approximated their carrying amount. On October 9, 2007,
      the Company repaid the notes in full.




**5.
      Commitments and Related Party Transactions**




The
      Company presently occupies office space provided by two affiliates of certain
      of
      the Founders. Such affiliates have agreed that, until the Company consummates
      a
      Business Combination, it will make such office space, as well as certain office
      and secretarial 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.




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 their founding shares upon the Company’s liquidation.




Certain
      of the Company’s affiliates have agreed to purchase a total of 1,000,000 units
      (“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 Part I, Note 2 of this Form
      10-Q.




10




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




**6.
      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 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.




**7.
      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.




11




**Highlands
        Acquisition Corp.**
  **ITEM
        2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS - Continued**




The
      following discussion should be read in conjunction with our Condensed Financial
      Statements and footnotes 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
      detailed in this Form 10-Q 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 merger, capital
      stock exchange, asset acquisition or other similar business combination with
      one
      or more operating businesses (“Business Combination”). Our efforts in
      identifying a prospective target business are not limited to a particular
      industry, although we intend to focus our search for target businesses in 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 recently completed public
      offering, our capital stock, debt or a combination of cash, capital stock and
      debt, in effecting a business combination.




**Results
      of Operations**




For
      the
      period from April 26, 2007 (inception) to September 30, 2007, we had a net
      loss
      of $7,455 consisting of formation and general and administrative expenses.
      General and administrative expenses primarily consisted of directors and
      officers liability insurance and formation costs.




**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 $654,000 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
      $131,286,000, and an amount of $134,830,000 was deposited into a trust account
      (the “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
      acquire a target business, 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 the 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 the
      Trust Account to operate through October 3, 2009, assuming that a business
      combination is not consummated during that time.




12


**Highlands
        Acquisition Corp.**
  **ITEM
        2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS - Continued**




We
      expect
      our primary liquidity requirements 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 Security
      and
      Exchange Commission (“SEC “) reporting obligations;




•
      $240,000 for the administrative fee payable to Kanders & Company 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 this 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 and Ivy
      Capital Partners, of $10,000 per month for office space, administrative and
      support services. In addition, in April 2007, Kanders & Company 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.




**ITEM
      3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK.**




To
      date,
      our efforts have been limited to organizational activities and activities
      relating to our initial public offering and the identification of a target
      business; we have neither engaged in any operations nor generated any revenues.
      As the proceeds from our initial public offering held in trust have been
      invested in short term investments, our only market risk exposure relates to
      fluctuation in interest rates.




As
      of
      October 15, 2007, approximately $130,830,000 (excluding $3,990,000 of deferred
      underwriting discounts and commissions) was held in trust for the purposes
      of
      consummating a business combination. The proceeds held in trust (including
      approximately $3,990,000 of deferred underwriting discounts and commissions)
      have been invested in a money market fund that invests solely in short-term
      securities issued or guaranteed by the United States Government.




We
      have
      not engaged in any hedging activities since our inception on April 26, 2007.
      We
      do not expect to engage in any hedging activities with respect to the market
      risk to which we are exposed.




13




**Highlands
      Acquisition Corp.**


**ITEM
      4. PROCEDURES AND CONTROLS**




**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 September 30, 2007, pursuant to
      Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed
      to ensure that information required to be disclosed by the Company is
      accumulated and communicated to 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 September 30, 2007 are
      effective.




**Changes
      in Internal Control over Financial Reporting**




There
      have not been any changes in our internal control over financial reporting
      that
      have come to management’s attention during the third quarter ended September 30,
      2007 evaluation that have materially affected, or are reasonably likely to
      materially affect the Company’s internal control over financial
      reporting.




14




**Highlands
      Acquisition Corp.**




**PART
      II OTHER INFORMATION**




**ITEM
      1. LEGAL PROCEEDINGS**




There
      are
      no material legal proceedings pending nor, to our knowledge, threatened against
      us.




**ITEM
      1A. RISK FACTORS**




**RISK
      FACTORS**




***We
      are a newly formed development stage company with no operating history and
      no
      revenues, and you have no basis on which to evaluate our ability to achieve
      our
      business objective.***




We
      are a
      newly formed development stage company with limited operating results. Because
      we lack an operating history, you have no basis upon which to evaluate our
      ability to achieve our business objective of completing a business combination
      with one or more target businesses. We have no plans, arrangements or
      understandings with any prospective target business concerning a business
      combination and may be unable to complete a business combination. If we fail to
      complete a business combination, we will never generate any operating revenues.




***We
      may not be able to consummate a business combination within the required time
      frame, in which case, we would be forced to liquidate our assets.***




Pursuant
      to our amended and restated certificate of incorporation, we have until October
      3, 2009 in which to complete a business combination. If we fail to consummate
      a
      business combination within the required time frame, our corporate existence
      will, in accordance with our amended and restated certificate of incorporation,
      cease except for the purposes of winding up our affairs and liquidating. The
      foregoing requirements are set forth in Articles Sixth and Seventh of our
      amended and restated certificate of incorporation and may not be eliminated
      except in connection with, and upon consummation of, a business combination.
      We
      may not be able to find suitable target businesses within the required time
      frame. In addition, our negotiating position and our ability to conduct adequate
      due diligence on any potential target may be reduced as we approach the deadline
      for the consummation of a business combination.




***If
      we are forced to liquidate before a business combination and distribute the
      trust account, our public stockholders may receive less than $10.00 per share
      and our warrants will expire worthless.***




If
      we are
      unable to complete a business combination within the required time frame and
      are
      forced to liquidate our assets, the per-share liquidation distribution may
      be
      less than $10.00 because of the expenses of our initial public offering, our
      general and administrative expenses and the anticipated costs of seeking a
      business combination. Furthermore, there will be no distribution with respect
      to
      our outstanding warrants, which will expire worthless, if we liquidate before
      the completion of a business combination.




***If
      we are unable to consummate a business combination, our public stockholders
      will
      be forced to wait the full 24 months before receiving liquidation distributions.***




We
      have
      24 months from October 3, 2007 in which to complete a business combination.
      We
      have no obligation to return funds to public stockholders prior to the
      expiration of such 24 month period unless we consummate a business combination
      prior thereto and only then in cases where public stockholders have sought
      conversion of their shares. Only after the expiration of this full time period
      will public stockholders be entitled to liquidation distributions if we are
      unable to complete a business combination. Accordingly, public stockholders
      funds may be unavailable to them until such date.




15




**Highlands
      Acquisition Corp.**




***You
      will not be entitled to protections normally afforded to investors of blank
      check companies.***




Since
      the
      net proceeds of our initial public offering are intended to be used to complete
      a business combination with a target business that has not been identified,
      we
      may be deemed to be a ‘‘blank check’’ company under the United States securities
      laws. However, since our securities are listed on the American Stock Exchange,
      a
      national securities exchange, and we have net tangible assets in excess of
      $5.0
      million because of the consummation of our initial public offering and have
      filed a Current Report on Form 8-K, including an audited balance sheet
      demonstrating this fact, we are exempt from rules promulgated by the SEC to
      protect investors in blank check companies such as Rule 419. Accordingly, our
      stockholders will not be afforded the benefits or protections of those rules
      such as completely restricting the transferability of our securities, requiring
      us to complete a business combination within 18 months of the effective date
      of
      our initial registration statement and restricting the use of interest earned
      on
      the funds held in the trust account. Because we are not subject to Rule 419,
      our
      units are immediately tradable, we are entitled to withdraw a certain amount
      of
      interest earned on the funds held in the trust account prior to the completion
      of a business combination and we have a longer period of time to complete such
      a
      business combination than we would if we were subject to such rule.




***Because
      there are numerous companies with a business plan similar to ours seeking to
      effectuate a business combination and because of our limited resources and
      structure, it may be more difficult for us to consummate a business combination.***




In
      identifying, evaluating and selecting a target business for a business
      combination, we expect to encounter intense competition from other entities
      having a business objective similar to ours including other blank check
      companies, private equity groups, venture capital funds, leveraged buyout funds,
      and operating businesses seeking strategic acquisitions. Many of these entities
      are well-established and have extensive experience identifying and effecting
      business combinations directly or through affiliates. Moreover, many of these
      competitors possess greater financial, technical, human and other resources
      than
      us which will give them a competitive advantage in pursuing the acquisition
      of
      certain target businesses. Furthermore:




•
our
      obligation to seek stockholder approval of our initial business combination
      or
      obtain necessary financial information may delay the completion of a
      transaction;




•
our
      obligation to convert into cash up to 30% minus one share of the shares of
      common stock held by our public stockholders who vote against the business
      combination and exercise their conversion rights may reduce the resources
      available to us for a business combination;




•
our
      outstanding warrants, and the future dilution they potentially represent, may
      not be viewed favorably by certain target businesses; and




•
the
      requirement to acquire an operating business that has a fair market value equal
      to at least 80% of the balance of the trust account at the time of the
      acquisition (excluding deferred underwriting discounts and commissions) could
      require us to acquire the assets of several operating businesses at the same
      time, all of which sales would be contingent on the closings of the other sales,
      which could make it more difficult to consummate the business combination.




Any
      of
      these factors may place us at a competitive disadvantage in successfully
      negotiating a business combination and, because we are subject to competition
      from entities seeking to consummate a business plan similar to ours, we cannot
      assure you that we will be able to effectuate a business combination within
      the
      required time period.




***If
      the net proceeds of our initial public offering not being held in the trust
      account plus the interest earned on the funds held in the trust account that
      may
      be available to us are insufficient to allow us to operate for at least the
      next
      24 months, we may be unable to complete a business combination.***




We
      believe that the funds available to us outside of the trust account, plus the
      interest earned on the funds held in the trust account that may be available
      to
      us, will be sufficient to allow us to operate for at least the next 24 months,
      assuming that a business combination is not consummated during that time.
      However, we cannot assure you that our estimates will be accurate. We could
      use
      a portion of the funds available to us to pay fees to consultants to assist
      us
      with our search for a target business. We could also use a portion of the funds
      as a down payment or to fund a ‘‘no-shop’’ provision (a provision in letters of
      intent designed to keep target businesses from ‘‘shopping’’ around for
      transactions with other companies on terms more favorable to such target
      businesses) with respect to a particular proposed business combination. If
      we
      entered into a letter of intent where we paid for the right to receive
      exclusivity from a target business and were subsequently required to forfeit
      the
      funds whether as a result of our breach or otherwise), we might not have
      sufficient funds to continue searching for, or conduct due diligence with
      respect to, a target business.




16




**Highlands
      Acquisition Corp.**




***If
      we do not conduct an adequate due diligence investigation of a target business
      with which we combine, we may be required to subsequently take write-downs
      or
      write-offs, restructuring, and impairment or other charges that could have
      a
      significant negative effect on our financial condition, results of operations
      and our stock price, which could cause you to lose some or all of your
      investment.***




We
      must
      conduct a due diligence investigation of the target businesses we intend to
      acquire. Intensive due diligence is time consuming and expensive due to the
      operations, accounting, finance and legal professionals who must be involved
      in
      the due diligence process. Even if we conduct extensive due diligence on a
      target business with which we combine, we cannot assure you that this diligence
      will reveal all material issues that may affect a particular target business,
      or
      that factors outside the control of the target business and outside of our
      control will not later arise. If our diligence fails to identify issues specific
      to a target business, industry or the environment in which the target business
      operates, we may be forced to later write-down or write-off assets, restructure
      our operations, or incur impairment or other charges that could result in our
      reporting losses. Even though these charges may be non-cash items and not have
      an immediate impact on our liquidity, the fact that we report charges of this
      nature could contribute to negative market perceptions about us or our common
      stock. In addition, charges of this nature may cause us to violate net worth
      or
      other covenants to which we may be subject as a result of assuming pre-existing
      debt held by a target business or by virtue of our obtaining post-combination
      debt financing.




***A
      decline in interest rates could limit the amount available to fund our search
      for a target business or businesses and complete a business combination since
      we
      will depend on interest earned on the trust account to fund our search, to
      pay
      our tax obligations and to complete our initial business combination.***




Of
      the
      net proceeds of our initial public offering, only $500,000 will be available
      to
      us initially outside the trust account to fund our working capital requirements.
      We will depend on sufficient interest being earned on the proceeds held in
      the
      trust account to provide us with additional working capital of up to $2.1
      million which we will need to identify one or more target businesses and to
      complete our initial business combination, as well as the funds required to
      pay
      any tax obligations that we may owe. While we are entitled to have released
      to
      us for such purposes certain interest earned on the funds in the trust account,
      a substantial decline in interest rates may result in our having insufficient
      funds available with which to structure, negotiate or close an initial business
      combination. In such event, we would need to borrow funds from our founders
      to
      operate or may be forced to liquidate. Our founders are under no obligation
      to
      advance funds in such circumstances.




***If
      third parties bring claims against us, the proceeds held in trust could be
      reduced and the per-share liquidation price received by stockholders may be
      less
      than approximately $9.77 per share.***




Our
      placing of funds in the trust account may not protect those funds from third
      party claims against us. Although we will seek to have all vendors and service
      providers we engage and prospective target businesses we negotiate with, execute
      agreements with us waiving any right, title, interest or claim of any kind
      in or
      to any monies held in the trust account for the benefit of our public
      stockholders, there is no guarantee that they will execute waiver agreements.
      Furthermore, there is no guarantee that, even if an entity executes a waiver
      agreement with us, it will not seek recourse against the trust account. Nor
      is
      there any guarantee that a court would uphold the validity of a waiver
      agreement.




Accordingly,
      the proceeds held in trust could be subject to claims which could take priority
      over those of our public stockholders and, as a result, the per-share
      liquidation price could be less than approximately $9.77 due to claims of
      creditors. If we liquidate before the completion of a business combination
      and
      distribute the proceeds held in the trust account to our public stockholders,
      Kanders & Company and Ivy Capital Partners have agreed that they will be
      liable to ensure that the proceeds in the trust account are not reduced by
      the
      claims of target businesses or claims of vendors or other entities that are
      owed
      money by us for services rendered or contracted for or products sold to us,
      but
      only if a vendor or prospective target business does not execute a valid and
      enforceable waiver. Because we will seek to have all vendors and prospective
      target businesses execute waiver agreements with us waiving any right, title,
      interest or claim of any kind they may have in or to any monies held in the
      trust account, we believe the likelihood of Kanders & Company and Ivy
      Capital Partners having any such obligations is minimal. Notwithstanding the
      foregoing, we have reviewed their financial information and believe they will
      be
      able to satisfy any indemnification obligations that may arise. However, we
      cannot assure you that they will be able to satisfy those obligations.
      Therefore, we cannot assure you that the per-share distribution from the trust
      account, if we liquidate, will not be less than approximately $9.77, plus
      interest, due to such claims.




17




**Highlands
      Acquisition Corp.**




Additionally,
      if we are forced to file a bankruptcy case or an involuntary bankruptcy case
      is
      filed against us which is not dismissed, the proceeds held in the trust account
      could be subject to applicable bankruptcy law, and may be included in our
      bankruptcy estate and subject to the claims of third parties with priority
      over
      the claims of our stockholders. To the extent any bankruptcy claims deplete
      the
      trust account, we cannot assure you we will be able to return to our public
      stockholders at least approximately $9.77 per share.




***Our
      stockholders may be held liable for claims by third parties against us to the
      extent of distributions received by them.***




If
      we are
      unable to complete a business combination within the required time period,
      our
      corporate existence will cease except for the purposes of winding up our affairs
      and liquidating pursuant to Section 278 of the Delaware General Corporation
      Law,
      in which case we will as promptly as practicable thereafter adopt a plan of
      distribution in accordance with Section 281(b) of the Delaware General
      Corporation Law. Section 278 provides that our existence will continue for
      at
      least three years after its expiration for the purpose of prosecuting and
      defending suits, whether civil, criminal or administrative, by or against us,
      and of enabling us gradually to settle and close our business, to dispose of
      and
      convey our property, to discharge our liabilities and to distribute to our
      stockholders any remaining assets, but not for the purpose of continuing the
      business for which we were organized. Our existence will continue automatically
      even beyond the three-year period for the purpose of completing the prosecution
      or defense of suits begun prior to the expiration of the three-year period,
      until such time as any judgments, orders or decrees resulting from such suits
      are fully executed. Section 281(b) will require us to pay or make reasonable
      provision for all then-existing claims and obligations, including all
      contingent, conditional, or unmatured contractual claims known to us, and to
      make provisions as will be reasonably likely to be sufficient to provide
      compensation for any then-pending claims and for claims that have not been
      made
      known to us or that have not arisen but that, based on facts known to us at
      the
      time, are likely to arise or to become known to us within 10 years after the
      date of dissolution. Accordingly, we would be required to provide for any
      creditors known to us at that time or those that we believe could be potentially
      brought against us within the subsequent 10 years prior to distributing the
      funds held in the trust to stockholders. However, because we are a blank check
      company, rather than an operating company, and our operations will be limited
      to
      searching for prospective target businesses to acquire, the only likely claims
      to arise would be from our vendors that we engage after the consummation of
      this
      offering (such as accountants, lawyers, investment bankers, etc.) and potential
      target businesses. We intend to have all vendors that we engage after the
      consummation of this offering and prospective target businesses execute
      agreements with us waiving any right, title, interest or claim of any kind
      in or
      to any monies held in the trust account. Accordingly, we believe the claims
      that
      could be made against us should be limited, thereby lessening the likelihood
      that any claim would result in any liability extending to the trust. However,
      we
      cannot assure you that we will properly assess all claims that may be
      potentially brought against us. As a result, our stockholders could potentially
      be liable for any claims to the extent of distributions received by them (but
      no
      more) and any liability of our stockholders may extend well beyond the third
      anniversary of the date of distribution. Accordingly, we cannot assure you
      that
      third parties will not seek to recover from our stockholders amounts owed to
      them by us.




If
      we are
      forced to file a bankruptcy case or an involuntary bankruptcy case is filed
      against us which is not dismissed, any distributions received by stockholders
      could be viewed under applicable debtor/creditor and/or bankruptcy laws as
      either a ‘‘preferential transfer’’ or a ‘‘fraudulent conveyance.’’ As a result,
      a bankruptcy court could seek to recover all amounts received by our
      stockholders. Furthermore, because we intend to distribute the proceeds held
      in
      the trust account to our public stockholders promptly after 24 months from
      October 3, 2007, this may be viewed or interpreted as giving preference to
      our
      public stockholders over any potential creditors with respect to access to
      or
      distributions from our assets. Furthermore, our board may be viewed as having
      breached their fiduciary duties to our creditors and/or may have acted in bad
      faith, and thereby exposing itself and our company to claims of punitive
      damages, by paying public stockholders from the trust account prior to
      addressing the claims of creditors. We cannot assure you that claims will not
      be
      brought against us for these reasons.




18




**Highlands
      Acquisition Corp.**




***An
      effective registration statement may not be in place when a warrant holder
      desires to exercise warrants, thus precluding such warrant holder from being
      able to exercise warrants and causing the warrants to expire worthless.***




No
      warrant will be exercisable and we will not be obligated to issue shares of
      common stock unless, at the time a holder seeks to exercise a warrant, we have
      a
      registration statement under the Securities Act in effect covering the shares
      of
      common stock issuable upon the exercise of the warrants and a current prospectus
      relating to the common stock. Under the terms of the warrant agreement, we
      have
      agreed to use our best efforts to have a registration statement in effect
      covering shares of common stock issuable upon exercise of the warrants as of
      the
      date the warrants become exercisable and to maintain a current prospectus
      relating to the common stock issuable upon exercise of the warrants until the
      expiration of the warrants. However, we cannot assure you that we will be able
      to do so. We will not be required to net cash settle the warrants if we do
      not
      maintain a current prospectus. In such event, the warrants held by public
      stockholders may have no value, the market for such warrants may be limited,
      such warrants may expire worthless and, as a result, an investor may have paid
      the full unit price solely for the shares of common stock included in the units.




***A
      warrant holder will only be able to exercise a warrant if the issuance of common
      stock upon the exercise has been registered or qualified or is deemed exempt
      under the securities laws of the state of residence of the holder of the
      warrants.***




No
      warrants will be exercisable and we will not be obligated to issue shares of
      common stock unless the common stock issuable upon an exercise has been
      registered or qualified or deemed to be exempt under the securities laws of
      the
      state of residence of the holder of the warrants. At the time that the warrants
      become exercisable, we expect to continue to be listed on a national securities
      exchange, which would provide an exemption from registration in every state.
      Accordingly, we believe holders in every state will be able to exercise their
      warrants as long as our prospectus relating to the common stock issuable upon
      exercise of the warrants is current. However, we cannot assure you of this
      fact.
      If the common stock issuable upon exercise of the warrant is not qualified
      or
      exempt from qualification in the jurisdictions in which the holders of the
      warrants reside, the warrants may be deprived of any value, the market for
      the
      warrants may be limited and they may expire worthless if they cannot be sold.




***We
      have been advised that certain provisions contained in our amended and restated
      certificate of incorporation may not be enforceable under Delaware law. This
      could reduce or eliminate the protection afforded to our stockholders by such
      provisions.***




Our
      amended and restated certificate of incorporation contains certain requirements
      and restrictions that will apply to us until the consummation of our initial
      business combination. Specifically, our amended and restated certificate of
      incorporation provides, among other things, that:




•
prior
      to the consummation of any business combination, we shall submit the business
      combination to our public stockholders for approval regardless of whether the
      business combination is of a type which normally would require stockholder
      approval under the Delaware General Corporation Law; in the event that a
      majority of the shares held by public stockholders present and entitled to
      vote
      at the meeting to approve the business combination are voted for the approval
      of
      the business combination and an amendment to our certificate of incorporation
      to
      provide for our perpetual existence is approved we will consummate the business
      combination; provided that we will not consummate any business combination
      if
      the holders of 30% or more of the shares sold in this offering vote against
      the
      business combination and exercise their conversion rights;




19




**Highlands
      Acquisition Corp.**




•
upon
      consummation of our initial public offering, we delivered, or cause to be
      delivered, for deposit into the trust account $134,830,000, comprised of (i)
      $131,580,000 of the net proceeds, including $3,990,000 in deferred underwriting
      discounts and commissions, and (ii) $3,250,000 of the proceeds from our issuance
      and sale in a private placement of 3,250,000 sponsors’ warrants issued to
      certain of our officers and directors or affiliates of our officers and
      directors;




**** •
in
      the
      event that a business combination is approved and is consummated, any public
      stockholder holding shares of common stock issued in our initial public offering
      who voted against the business combination may, contemporaneously with such
      vote, demand that we convert his, her or its shares into cash; if so demanded,
      we shall, promptly after consummation of the business combination, convert
      such
      shares into cash;




•
in
      the
      event that we do not consummate a business combination within the required
      time
      period, all amounts in the trust account (including deferred underwriting
      discounts and commissions) plus any other net assets outside of the trust
      account not used for or reserved to pay obligations and claims or other
      corporate expenses relating to or arising from our liquidation, shall be
      distributed on a pro rata basis to our public stockholders; only public
      stockholders shall be entitled to receive liquidating distributions and we
      will
      pay no liquidating distributions with respect to any other shares of capital
      stock;




•
a
      public stockholder shall be entitled to receive distributions from the trust
      account only in the event of our liquidation or in the event he, she or it
      demands conversion in connection with a vote against a business combination;
      in
      no other circumstances shall a public stockholder have any right or interest
      of
      any kind in or to the trust account;




•
unless
      and until we have consummated an initial business combination, we may not
      consummate any other business combination, whether by merger, capital stock
      exchange, asset acquisition, stock purchase, reorganization or other similar
      business combination or transaction or otherwise;




•
we
      will
      continue in existence only until October 3, 2009; if we have not completed
      a
      business combination by such date, our corporate existence will cease except
      for
      the purposes of winding up our affairs and liquidating; we will not take any
      action to amend or waive this provision to allow us to survive for a longer
      period of time except in connection with the consummation of our initial
      business combination;




•
we
      will
      consummate our initial business combination only if (i) the initial business
      combination is approved by a majority of votes cast by our public shareholders
      at a duly held stockholders meeting, (ii) an amendment to our amended and
      restated certificate of incorporation to provide for our perpetual existence
      is
      approved by holders of a majority of our outstanding shares of common stock,
      and
      (iii) we have confirmed that we have sufficient cash resources to pay both
      (x)
      the consideration required to close our initial business combination, and (y)
      the cash due to public stockholders who vote against the business combination
      and who exercise their conversion rights; and




•
our
      Board of Directors may not in any event issue any securities convertible into
      common stock, shares of common stock or preferred stock prior to an initial
      business combination that participates in or is otherwise entitled in any manner
      to any of the proceeds in the trust account or votes as a class with the common
      stock on an initial business combination.




Our
      amended and restated certificate of incorporation provides that until the
      consummation of our initial business combination, the above requirements and
      restrictions will not be amended. We have been advised that such provisions
      limiting our ability to amend our certificate of incorporation may not be
      enforceable under Delaware law. Accordingly, if an amendment were proposed
      and
      approved, it could reduce or eliminate the protection afforded to our public
      stockholders by these requirements and restrictions. However, we view these
      provisions as obligations to our stockholders and have agreed not to take any
      action to amend or waive these provisions.




20




**Highlands
      Acquisition Corp.**




***Since
      we have not yet selected a particular industry or target business with which
      to
      complete a business combination, you will be unable to currently ascertain
      the
      merits or risks of the industry or business in which we may ultimately operate.***




Although
      we intend to focus our search for target businesses in the healthcare industry,
      we may consummate a business combination with a company in any industry and
      are
      not limited to any particular type of business. Accordingly, there is no current
      basis for you to evaluate the possible merits or risks of the particular
      industry in which we may ultimately operate or the target business which we
      may
      ultimately acquire. If we complete a business combination with an entity in
      an
      industry characterized by a high level of risk, we may be affected by the
      currently unascertainable risks of that industry. Although our management will
      endeavor to evaluate the risks inherent in a particular industry or target
      business, we cannot assure you that we will properly ascertain or assess all
      of
      the significant risk factors. Even if we properly assess those risks, some
      of
      them may be outside of our control or ability to affect. We also cannot assure
      you that an investment in our securities will not ultimately prove to be less
      favorable to our stockholders than a direct investment, if an opportunity were
      available, in a target business.




***Your
      only opportunity to evaluate and affect the investment decision regarding a
      potential business combination will be limited to voting for or against the
      business combination submitted to our stockholders for approval.***




Your
      only
      opportunity to evaluate and affect the investment decision regarding a potential
      business combination will be limited to voting for or against the business
      combination submitted to our stockholders for approval. In addition, a proposal
      that you vote against could still be approved if a sufficient number of public
      stockholders vote for the proposed business combination. Alternatively, a
      proposal that you vote for could still be rejected if a sufficient number of
      public stockholders vote against the proposed business combination.




***We
      may not seek an opinion from an unaffiliated third party as to the fair market
      value of the target business we acquire or that the price we are paying for
      the
      business is fair to our stockholders from a financial point of view.***




We
      may
      not seek an opinion from an unaffiliated third party that the target business
      we
      select has a fair market value in excess of at least 80% of the balance in
      the
      trust account (excluding deferred underwriting discounts and commissions).
      We
      are only required to obtain an opinion if (i) our Board of Directors is not
      able
      to independently determine that the target business has a sufficient fair market
      value to meet the threshold criterion or (ii) we are acquiring a target business
      that is an affiliate of a member of our management team. We are also not
      required to obtain an opinion from an unaffiliated third party indicating that
      the price we are paying is fair to our stockholders from a financial point
      of
      view unless the target is affiliated with our officers, directors, founders
      or
      their affiliates. If no opinion is obtained, our stockholders will be relying
      on
      the judgment of our Board of Directors.




***We
      may issue shares of our capital stock or debt securities to complete a business
      combination. Issuance of our capital stock would reduce the equity interest
      of
      our stockholders and may cause a change in control of our ownership, while
      the
      issuance of debt securities may have a significant impact on our ability to
      utilize our available cash.***




Our
      amended and restated certificate of incorporation authorizes the issuance of
      up
      to 50,000,000 shares of common stock, par value $.0001 per share, and 1,000,000
      shares of preferred stock, par value $.0001 per share. There are 16,750,000
      authorized but unissued shares of our common stock available for issuance (after
      appropriate reservation for the issuance of the shares upon full exercise of
      our
      outstanding warrants, including the founders’ warrants and sponsors’ warrants
      but without taking into account the 1,000,000 co-investment units) and all
      of
      the 1,000,000 shares of preferred stock available for issuance. We may issue
      a
      substantial number of additional shares of our common or preferred stock, or
      a
      combination of common and preferred stock, to complete a business combination.
      The issuance of additional shares of our common stock or any number of shares
      of
      our preferred stock:




•
may
      significantly reduce the equity interest of our stockholders;




•
may
      subordinate the rights of holders of common stock if we issue preferred stock
      with rights senior to those afforded to our common stock;




•
may
      cause a change in control if a substantial number of our shares of common stock
      are issued, which may affect, among other things, our ability to use our net
      operating loss carry forwards, if any, and could result in the resignation
      or
      removal of our present officers and directors;




21




**Highlands
      Acquisition Corp.**




•
may,
      in
      certain circumstances, have the effect of delaying or preventing a change of
      control of us; and




•
may
      adversely affect prevailing market prices for our common stock.




Similarly,
      if we issue debt securities, it could result in:




•
default
      and foreclosure on our assets if our operating revenues after a business
      combination are insufficient to repay our debt obligations;




•
      acceleration of our obligations to repay the indebtedness even if we make all
      principal and interest payments when due if we breach certain covenants that
      require the maintenance of certain financial ratios or reserves without a waiver
      or renegotiation of that covenant;




•
our
      immediate payment of all principal and accrued interest, if any, if the debt
      security is payable on demand; and




•
our
      inability to obtain necessary additional financing if the debt security contains
      covenants restricting our ability to obtain such financing while the debt
      security is outstanding.




The
      value
      of your investment in us may decline if any of these events occur.




***Resources
      could be wasted in researching acquisitions that are not consummated, which
      could materially adversely affect subsequent attempts to locate and acquire
      or
      merge with another business.***




It
      is
      anticipated that the investigation of each specific target business and the
      negotiation, drafting, and execution of relevant agreements, disclosure
      documents, and other instruments will require substantial management time and
      attention and substantial costs for accountants, attorneys and others. If a
      decision is made not to complete a specific business combination, the costs
      incurred up to that point for the proposed transaction likely would not be
      recoverable. Furthermore, even if an agreement is reached relating to a specific
      target business, we may fail to consummate the business combination for any
      number of reasons including those beyond our control, such as that public
      stockholders owning 30% or more of our shares vote against the business
      combination and opt to have us convert their shares for a pro rata share of
      the
      trust account even if a majority of our stockholders approve the business
      combination. Any such event will result in a loss to us of the related costs
      incurred which could materially adversely affect subsequent attempts to locate
      and acquire or merge with another business.




***Our
      ability to successfully effect a business combination will be totally dependent
      upon the efforts and time commitments of our management team, and our ability
      to
      be successful after a business combination may be dependent upon the efforts
      of
      our management team and key personnel who may join us following a business
      combination.***




Our
      ability to successfully effect a business combination is dependent upon the
      efforts of our management team. We believe that our success depends on the
      continued service and time commitments of these individuals, at least until
      we
      have consummated a business combination. We cannot assure you that these
      individuals will remain with, or devote sufficient time to, us for the immediate
      or foreseeable future. In addition, these individuals are engaged in, or
      anticipate, in the future, becoming engaged in, several other business endeavors
      and none of them is required to commit any specified amount of time to our
      affairs. If the other business endeavors of these individuals require them
      to
      devote substantial amounts of time, it could limit their ability to devote
      time
      to our affairs, including the time necessary to identify potential business
      combinations and monitor the related due diligence, and could have a negative
      impact on our ability to consummate a business combination. We cannot assure
      you
      that any conflicts of interest that these individuals may have in allocating
      management time among various business activities, including identifying
      potential business combinations and monitoring the related due diligence, will
      be resolved in our favor. We do not have employment agreements with, or key-man
      insurance on the life of, any of our officers. The unexpected loss of the
      services of one or more members of our management team could have a detrimental
      effect on us.




22




**Highlands
      Acquisition Corp.**




The
      role
      of our management team and key personnel from the target business cannot
      presently be ascertained. Although some of our management team may remain with
      the target business in senior management or advisory positions following a
      business combination, it is likely that some or all of the management of the
      target business will remain in place. While we intend to closely scrutinize
      any
      individuals we engage after a business combination, we cannot assure you that
      our assessment of these individuals will prove to be correct. These individuals
      may be unfamiliar with the requirements of operating a public company which
      could cause us to have to expend time and resources helping them become familiar
      with such requirements. This could be expensive and time-consuming and could
      lead to various regulatory issues which may adversely affect our operations.




***Our
      key personnel may negotiate employment or consulting agreements in connection
      with a particular business combination. These agreements may provide for them
      to
      receive compensation following a business combination and as a result, may
      cause
      them to have conflicts of interest in determining whether a particular business
      combination is the most advantageous.***




Our
      key
      personnel will be able to remain with the company after the consummation of
      a
      business combination only if they are able to negotiate employment or consulting
      agreements in connection with the business combination. Such negotiations would
      take place simultaneously with the negotiation of the business combination
      and
      could provide for such individuals to receive compensation in the form of cash
      payments and/or our securities for services they would render to the company
      after the consummation of the business combination. The personal and financial
      interests of such individuals may influence their motivation in identifying
      and
      selecting a target business. However, we believe the ability of such individuals
      to remain with the company after the consummation of a business combination
      will
      not be the determining factor in our decision as to whether or not we will
      proceed with any potential business combination.




***Some
      of our officers and directors are now, and our other officers and directors
      may
      in the future become, affiliated with entities engaged in business activities
      similar to those intended to be conducted by us and accordingly, have or may
      have fiduciary or other obligations to these other entities which could create
      conflicts of interest, including in determining to which entity a particular
      business opportunity should be presented.***




Some
      of
      our officers and directors are currently affiliated with entities engaged in
      business activities similar to those intended to be conducted by us, including
      Clarus Corporation, a publicly traded company with no current operating
      business, net operating loss carryforwards of approximately $223 million and
      approximately $85 million of cash and cash equivalents. Additionally, our
      officers and directors may in the future become affiliated with entities,
      including, among others, ‘‘blank check’’ companies, public companies, hedge
      funds, private equity funds, venture capital funds and other investment vehicles
      and capital pools, which may be engaged in business activities similar to those
      intended to be conducted by us. In order to minimize potential conflicts of
      interest which may arise from multiple corporate affiliations, our officers
      and
      directors have agreed, pursuant to agreements with us and Citigroup Global
      Markets Inc., that they will not organize or become involved in any other blank
      check company with a focus on acquiring a target business in the healthcare
      industry until we consummate our initial business combination. Notwithstanding
      the foregoing, our officers and directors are not restricted from (i) investing
      in, or acquiring, directly or indirectly, the securities of any company listed
      on a national securities exchange (including, without limitation, NASDAQ),
      even
      if such company is engaged in the healthcare industry, (ii) organizing,
      promoting or becoming involved with blank check companies that do not have
      a
      focus of acquiring a target business in the healthcare industry or (iii)
      organizing, promoting or becoming involved with other investment vehicles having
      a business plan of acquiring a healthcare business with which they do not have
      a
      pre-existing disclosed relationship. Warren B. Kanders, through Kanders &
Company, sponsored Kanders Acquisition Company, Inc., a new blank check company.
      Mr. Kanders has been named a director and officer of, and Messrs. Baratelli
      and
      Julien have been named officers of, such new blank check company. Accordingly,
      there may be circumstances where a potential target business may be presented
      to
      another entity prior to its presentation to us, which could have a negative
      impact on our ability to successfully consummate a business combination.




23




**Highlands
      Acquisition Corp.**




***The
      obligation of our officers and directors to present a business opportunity
      to us
      which may be reasonably required to be presented to us under Delaware law is
      limited and may be subject to pre-existing fiduciary or other obligations that
      our officers and directors may owe to other companies. Consequently, we cannot
      assure you that our officers and directors will ever present a business
      combination opportunity to us.***




In
      order
      to minimize potential conflicts of interest which may arise from multiple
      affiliations, our officers and non-independent directors have agreed, until
      the
      earliest of our consummation of a business combination, our liquidation or
      until
      such time as he ceases to be a director or officer, to present to us for our
      consideration, prior to presentation to any other person or entity, any business
      opportunity to acquire a privately held operating business, if, and only if
      (i)
      the target entity has a fair market value between 80% of the balance in the
      trust account (excluding deferred underwriting discounts and commissions) and
      $500 million, the target entity’s principal business operations are in the
      healthcare industry and the opportunity is to acquire substantially all of
      the
      assets or 50.1% or greater of the voting securities of the target entity or
      (ii)
      the target entity’s principal business operations are outside of the healthcare
      industry and the opportunity to acquire such target entity is presented by
      a
      third party to one of our officers or non-independent directors expressly for
      consideration by us. With respect to all business opportunities, including
      those
      described in clause (i), but excluding those described in clause (ii) above,
      the
      obligation of our officers and non-independent directors to present a business
      opportunity to us which may be reasonably required to be presented to us under
      Delaware law is subject to any pre-existing fiduciary or other obligations
      that
      the officer or non-independent director may owe to another entity. Our Board
      of
      Directors has adopted resolutions renouncing any interest in or expectancy
      to be
      presented any business opportunity outside of those described in clauses (i)
      and
      (ii) above (as qualified by the immediately preceding sentence) that comes
      to
      the attention of any of our officers or non-independent directors. Neither
      this
      agreement by our officers and non-independent directors nor the resolutions
      may
      be amended or rescinded in any way except upon prior approval by the holders
      of
      a majority of our outstanding shares of common stock.




Certain
      of our officers and non-independent directors are executive officers and/or
      directors of other companies. As a result, with respect to all business
      opportunities, including those described in clause (i), but excluding those
      described in clause (ii) above, the obligation of our officers and
      non-independent directors to present a business opportunity to us which may
      be
      reasonably required to be presented to us under Delaware law is subject to
      the
      pre-existing fiduciary or other obligations that our officers and
      non-independent directors may owe to such other companies. Consequently, we
      cannot assure you that our officers and non-independent directors will ever
      present a business combination opportunity to us.




In
      addition, although we do not expect our independent directors to present
      business opportunities to us, they may become aware of business opportunities
      that may be appropriate for presentation to us. In such instances they may
      determine to present these business opportunities to other entities with which
      they are or may be affiliated, in addition to, or instead of, presenting them
      to
      us.




***One
      of our directors, who is also a member of our Investment Committee, and two
      of
      our officers who will be involved in the evaluation of a potential business
      combination for us are also a director and officers of a new blank check company
      and, if we reject a potential business combination, such new blank check company
      could be offered such potential business combination.***




Mr.
      Kanders is a director of our company and a member of our Investment Committee
      and Messrs. Baratelli and Julien are officers of our company, as such, each
      will
      be involved in identifying and evaluating prospective acquisition candidates,
      selecting potential target businesses, and structuring, negotiating and
      consummating an acquisition. Mr. Kanders is also a principal stockholder of
      the
      sponsor of, and a director and officer of, Kanders Acquisition Company, Inc.
      ,
      new blank check company and Messrs. Baratelli and Julien are also officers
      of
      such new blank check company that may, subject to, among other things, market
      conditions, move forward with an initial public offering of its securities.
      This
      new blank check company has agreed that it will not seek or acquire a target
      business in the healthcare industry unless and until we have completed our
      initial business combination or have liquidated. If a potential business
      combination is presented to us and we decide not to proceed with such business
      combination for any reason, such business combination could be presented by
      Messrs. Kanders, Baratelli or Julien to the new blank check company for which
      they serve as a director or an officer, as applicable.




24




**Highlands
      Acquisition Corp.**




***The
      founders have waived their rights to participate in liquidation distributions
      with respect to the founders’ common stock and founders’ warrants and sponsors’
warrants and, therefore, our officers and directors may have a conflict of
      interest in determining whether a particular target business is appropriate
      for
      a business combination.***




The
      founders have waived their right to receive distributions with respect to the
      founders’ common stock upon our liquidation if we are unable to consummate a
      business combination. Accordingly, the founders’ common stock and founders’
warrants, as well as the sponsors’ warrants, and any other warrants purchased by
      our officers or directors will be worthless if we do not consummate a business
      combination. The personal and financial interests of our directors and officers
      who own founders’ common stock or warrants (or are affiliated with owners of
      these securities) may influence their motivation in timely identifying and
      selecting a target business and completing a business combination. Consequently,
      our directors’ and officers’ discretion in identifying and selecting a suitable
      target business may result in a conflict of interest when determining whether
      the terms, conditions and timing of a particular business combination are
      appropriate and in our stockholders’ best interest.




***The
      American Stock Exchange may delist our securities from quotation on its exchange
      which could limit investors’ ability to make transactions in our securities and
      subject us to additional trading restrictions.***




Our
      securities are listed on the American Stock Exchange, a national securities
      exchange, however we cannot assure you that our securities will continue to
      be
      listed on the American Stock Exchange in the future prior to a business
      combination. Additionally, in connection with our business combination, it
      is
      likely that the American Stock Exchange will require us to file a new initial
      listing application and meet its initial listing requirements as opposed to
      its
      more lenient continued listing requirements. We cannot assure you that we will
      be able to meet those initial listing requirements at that time.




If
      the
      American Stock Exchange delists our securities from trading on its exchange,
      we
      could face significant material adverse consequences, including:




•
a
      limited availability of market quotations for our securities;




•
a
      reduced liquidity with respect to our securities;




•
a
      determination that our common stock is a ‘‘penny stock’’ which will require
      brokers trading in our common stock to adhere to more stringent rules, possibly
      resulting in a reduced level of trading activity in the secondary trading market
      for our common stock;




•
a
      limited amount of news and analyst coverage for our company; and




•
a
      decreased ability to issue additional securities or obtain additional financing
      in the future.




***We
      may only be able to complete one business combination with the proceeds of
      our
      initial public offering and the private placement of the sponsors’ warrants,
      which will cause us to be solely dependent on a single business which may have
      a
      limited number of products or services.***




Our
      business combination must be with one or more target businesses having an
      aggregate fair market value of at least 80% of the balance in the trust account
      (excluding deferred underwriting discounts and commissions) at the time of
      such
      acquisition. However, we may not be able to acquire more than one target
      business because of various factors, including the existence of complex
      accounting issues and the requirement that we prepare and file pro forma
      financial statements with the SEC that present operating results and the
      financial condition of several target businesses as if they had been operated
      on
      a combined basis. By consummating a business combination with only a single
      entity, our lack of diversification may subject us to numerous economic,
      competitive and regulatory developments. Further, we would not be able to
      diversify our operations or benefit from the possible spreading of risks or
      offsetting of losses, unlike other entities which may have the resources to
      complete several business combinations in different industries or different
      areas of a single industry. Accordingly, the prospects for our success may
      be:




•
solely
      dependent upon the performance of a single business, or




25




**Highlands
      Acquisition Corp.**




•
      dependent upon the development or market acceptance of a single or limited
      number of products, processes or services.




This
      lack
      of diversification may subject us to numerous economic, competitive and
      regulatory developments, any or all of which may have a substantial adverse
      impact upon the particular industry in which we may operate subsequent to a
      business combination.




Alternatively,
      if we determine to simultaneously acquire several businesses and such businesses
      are owned by different sellers, we will need for each of the sellers to agree
      that our purchase of its business is contingent on the simultaneous closings
      of
      the other business combinations, which may make it more difficult for us, and
      delay our ability, to complete the business combination. With multiple business
      combinations, we could also face additional risks, including additional burdens
      and costs with respect to possible multiple negotiations and due diligence
      investigations (if there are multiple sellers) and the additional risks
      associated with the subsequent assimilation of the operations and services
      or
      products of the acquired companies in a single operating business. If we are
      unable to adequately address these risks, it could negatively impact our
      profitability and results of operations.




***We
      will likely seek to effect our initial business combination with one or more
      privately held companies, which may present certain challenges to us including
      the lack of available information about these companies.***




In
      pursuing our acquisition strategy, we will likely seek to effect our initial
      business combination with one or more privately held companies. By definition,
      very little public information exists about these companies, and we could be
      required to make our decision on whether to pursue a potential initial business
      combination on the basis of limited information.




***The
      ability of our stockholders to exercise their conversion rights may not allow
      us
      to effectuate the most desirable business combination or optimize our capital
      structure.***




When
      we
      seek stockholder approval of any business combination, we will offer each public
      stockholder (but not our founders or Mr. Kanders with respect to the shares
      of
      common stock underlying the 500,000 units his affiliate purchased in our initial
      public offering) the right to have his, her or its shares of common stock
      converted to cash if the stockholder votes against the business combination
      and
      the business combination is approved and completed. A public stockholder must
      both vote against the business combination and then exercise his, her or its
      conversion rights to receive a pro rata portion of the aggregate amount then
      on
      deposit in the trust account. Accordingly, if our business combination requires
      us to use substantially all of our cash to pay the purchase price, because
      we
      will not know how many stockholders may exercise such conversion rights, we
      may
      either need to reserve part of the trust account for possible payment upon
      conversion, or we may need to arrange third party financing to help fund our
      business combination in case a larger percentage of public stockholders exercise
      their conversion rights than we expect. Since we have no specific business
      combination under consideration, we have not taken any steps to secure third
      party financing. Therefore, we may not be able to consummate a business
      combination that requires us to use all of the funds held in the trust account
      as part of the purchase price, or we may end up having a leverage ratio that
      is
      not optimal for our business combination. This may limit our ability to
      effectuate the most attractive business combination available to us.




***We
      may proceed with a business combination even if public stockholders owning
      4,139,999 of the shares sold in our initial public offering exercise their
      conversion rights. This requirement may make it easier for us to have a business
      combination approved over stockholder dissent.***




We
      may
      proceed with a business combination as long as public stockholders owning less
      than 30% of the shares sold in our initial public offering both vote against
      the
      business combination and exercise their conversion rights. Accordingly, public
      stockholders holding up to *4,139,999* shares
      of
      our common stock may both vote against the business combination and exercise
      their conversion rights and we could still consummate a proposed business
      combination. We have set the conversion percentage at 30% in order to reduce
      the
      likelihood that a small group of stockholders holding a block of our stock
      will
      be able to stop us from completing a business combination that is otherwise
      approved by a large majority of our public stockholders. However, this may
      have
      the effect of making it easier for us to have a business combination approved
      over a stockholder dissent. While there are a few other offerings similar to
      ours which include conversion provisions greater than 20%, the 20% threshold
      is
      common for offerings similar to ours. Because we permit a larger number of
      stockholders to exercise their conversion rights, it will reduce the requirement
      to consummate an initial business combination with a target business which
      you
      may vote against, making it easier for us to have a business combination
      approved over stockholder dissent, and you may not receive the full amount
      of
      your original investment upon exercise of your conversion rights.




26




**Highlands
        Acquisition Corp.**




Our
      business combination may require us to use substantially all of our cash to
      pay
      the purchase price. In such a case, because we will not know how many
      stockholders may exercise such conversion rights, we may need to arrange third
      party financing to help fund our business combination in case a larger
      percentage of stockholders exercise their conversion rights than we expect.
      Additionally, even if our business combination does not require us to use
      substantially all of our cash to pay the purchase price, if a significant number
      of stockholders exercise their conversion rights, we will have less cash
      available to use in furthering our business plans following a business
      combination and may need to arrange third party financing. We have not taken
      any
      steps to secure third party financing for either situation. We cannot assure
      you
      that we will be able to obtain such third party financing on terms favorable
      to
      us or at all.




***Our
      founders, including our officers and directors, control a substantial interest
      in us and thus may influence certain actions requiring a stockholder vote.***




Our
      founders (including all of our officers and directors) collectively own
      approximately 23.3% of our issued and outstanding shares of common stock. None
      of our founders, officers, directors or their affiliates has indicated any
      intention to purchase additional units or shares of common stock from persons
      in
      the open market or in private transactions. However, if a significant number
      of
      stockholders vote, or indicate an intention to vote, against a proposed business
      combination, our founders, officers, directors or their affiliates could make
      such purchases in the open market or in private transactions in order to
      influence the vote. In addition, Kanders & Company and the Ivy Affiliates
      have agreed to purchase 1,000,000 units from us in a private placement that
      will
      occur immediately prior to the consummation of our initial business combination.
      The holders of these units may vote the shares of common stock included therein
      in any manner they choose (except they have agreed to vote such shares in favor
      of our initial business combination in connection with a vote on our proposed
      initial business combination). Accordingly, they may be able to effectively
      influence the outcome of all matters requiring approval by our stockholders,
      including the election of directors and approval of significant corporate
      transactions other than approval of our initial business combination.




Warren
      B.
      Kanders, Russell F. Warren, Jr., two members of our Board of Directors, and
      our
      founders have entered into a stockholders agreement that will continue to be
      in
      effect for a period of three years after our initial business combination.
      If a
      party to the agreement or an affiliate thereof is nominated to serve as a
      director, all of the parties to the agreement have agreed to vote in favor
      of
      the nominee. Since the parties to the agreement currently hold or have voting
      control over approximately 23% of our outstanding common stock, and will be
      purchasing the co-investment units, these parties will have significant
      influence in electing our directors.




Our
      Board
      of Directors is and will be divided into three classes, each of which will
      generally serve for a term of three years with only one class of directors
      being
      elected in each year. It is unlikely that there will be an annual meeting of
      stockholders to elect new directors prior to the consummation of a business
      combination, in which case all of the current directors will continue in office
      until at least the consummation of the business 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 be considered for election and our
      founders, because of their ownership position, will have considerable influence
      regarding the outcome. Accordingly, our founders will continue to exert control
      at least until the consummation of a business combination.




27




**Highlands
        Acquisition Corp.**




***Our
      outstanding warrants may have an adverse effect on the market price of our
      common stock and make it more difficult to effect a business combination.***




We
      have
      issued warrants to purchase 13,800,000 shares of common stock as part of the
      units sold in our initial public offering. We also have sold the founders’
warrants as part of the founders’ units to purchase 3,450,000 shares of common
      stock, the sponsors’ warrants to purchase 3,250,000 shares of common stock and
      may sell 1,000,000 co-investment units, which include 1,000,000 co-investment
      warrants to purchase 1,000,000 shares of common stock. To the extent we issue
      shares of common stock to effect a business combination, the potential for
      the
      issuance of a substantial number of additional shares upon exercise of these
      warrants could make us a less attractive acquisition vehicle in the eyes of
      a
      target business. These warrants, when exercised, will increase the number of
      issued and outstanding shares of our common stock and reduce the value of the
      shares issued to complete the business combination. Accordingly, our warrants
      may make it more difficult to effectuate a business combination or increase
      the
      cost of acquiring the target business. Additionally, the sale, or even the
      possibility of a sale, of the shares underlying the warrants could have an
      adverse effect on the market price for our securities or on our ability to
      obtain future financing. If and to the extent these warrants are exercised,
      you
      may experience a substantial dilution of your holdings.




***If
      our founders or the purchasers of the sponsors’ warrants or co-investment units
      exercise their registration rights, it may have an adverse effect on the market
      price of our common stock and the existence of these rights may make it more
      difficult to effect a business combination.***




Our
      founders are entitled to demand that we register the resale of the founders’
common stock and warrants at any time commencing 30 days after we consummate
      a
      business combination. Additionally, purchasers of the sponsors’ warrants are
      entitled to demand that we register the resale of their warrants and underlying
      shares of common stock at any time commencing 30 days after we consummate a
      business combination. The purchasers of the co-investment units are entitled
      to
      demand that we register the resale of their co-investment units and underlying
      securities at any time commencing 30 days after we consummate a business
      combination. We will bear the cost of registering these securities. If such
      individuals exercise their registration rights with respect to all of their
      securities, then there will be an additional 4,450,000 shares of common stock
      and 7,700,000 warrants (as well as 7,700,000 shares of common stock underlying
      the warrants) eligible for trading in the public market. The presence of these
      additional securities trading in the public market may have an adverse effect
      on
      the market price of our common stock. In addition, the existence of these rights
      may make it more difficult to effectuate a business combination or increase
      the
      cost of acquiring the target business, as the stockholders of the target
      business may be discouraged from entering into a business combination with
      us or
      will request a higher price for their securities because of the potential
      negative effect the exercise of such rights may have on the trading market
      for
      our common stock.




***If
      we effect a business combination with a company located outside of the United
      States, we would be subject to a variety of additional risks that may negatively
      impact our operations.***




We
      may
      effect a business combination with a company located outside of the United
      States. If we did, we would be subject to any special considerations or risks
      associated with companies operating in the target business’ home jurisdiction,
      including any of the following:




•
rules
      and regulations or currency conversion or corporate withholding taxes on
      individuals;




•
tariffs
      and trade barriers;




•
      regulations related to customs and import/export matters;




•
longer
      payment cycles;




•
tax
      issues, such as tax law changes and variations in tax laws as compared to the
      United States;




•
      currency fluctuations and exchange controls;




•
      challenges in collecting accounts receivable;




28




**Highlands
        Acquisition Corp.**




•
      cultural and language differences;




•
      employment regulations;




•
crime,
      strikes, riots, civil disturbances, terrorist attacks and wars; and




•
      deterioration of political relations with the United States.




We
      cannot
      assure you that we would be able to adequately address these additional risks.
      If we were unable to do so, our operations might suffer.




***If
      we effect a business combination with a company located outside of the United
      States, the laws applicable to such company will likely govern all of our
      material agreements and we may not be able to enforce our legal rights.***




If
      we
      effect a business combination with a company located outside of the United
      States, the laws of the country in which such company operates will govern
      almost all of the material agreements relating to its operations. We cannot
      assure you that the target business will be able to enforce any of its material
      agreements or that remedies will be available in this new jurisdiction. The
      system of laws and the enforcement of existing laws in such jurisdiction may
      not
      be as certain in implementation and interpretation as in the United States.
      The
      inability to enforce or obtain a remedy under any of our future agreements
      could
      result in a significant loss of business, business opportunities or capital.
      Additionally, if we acquire a company located outside of the United States,
      it
      is likely that substantially all of our assets would be located outside of
      the
      United States and some of our officers and directors might reside outside of
      the
      United States. As a result, it may not be possible for investors in the United
      States to enforce their legal rights, to effect service of process upon our
      directors or officers or to enforce judgments of United States courts predicated
      upon civil liabilities and criminal penalties of our directors and officers
      under Federal securities laws.




***If
      we are deemed to be an investment company, we may be required to institute
      burdensome compliance requirements and our activities may be restricted, which
      may make it difficult for us to complete a business combination.***




A
      company
      that, among other things, is or holds itself out as being engaged primarily,
      or
      proposes to engage primarily, in the business of investing, reinvesting, owning,
      trading or holding certain types of securities would be deemed an investment
      company under the Investment Company Act of 1940. Since we will invest the
      proceeds held in the trust account, it is possible that we could be deemed
      an
      investment company. Notwithstanding the foregoing, we do not believe that our
      anticipated principal activities will subject us to the Investment Company
      Act
      of 1940. To this end, the proceeds held in trust may be invested by the trustee
      only 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. By restricting the
      investment of the proceeds to these instruments, we intend to meet the
      requirements for the exemption provided in Rule 3a-1 promulgated under the
      Investment Company Act of 1940.




If
      we are
      nevertheless deemed to be an investment company under the Investment Company
      Act
      of 1940, we may be subject to certain restrictions that may make it more
      difficult for us to complete a business combination, including:




•
      restrictions on the nature of our investments; and




•
      restrictions on the issuance of securities.




In
      addition, we may have imposed upon us certain burdensome requirements,
      including:




•
      registration as an investment company;




29




**Highlands
        Acquisition Corp.**




•
      adoption of a specific form of corporate structure; and




•
      reporting, record keeping, voting, proxy, compliance policies and procedures
      and
      disclosure requirements and other rules and regulations.




Compliance
      with these additional regulatory burdens would require additional expense for
      which we have not allotted.




***Because
      we must furnish our stockholders with target business financial statements,
      we
      may not be able to complete a business combination with some prospective target
      businesses.***




We
      will
      provide stockholders with audited financial statements of the prospective target
      business as part of the proxy solicitation materials sent to stockholders to
      assist them in assessing the target business. In all likelihood, these financial
      statements will need to be prepared in accordance with United States generally
      accepted accounting principles. We cannot assure you that any particular target
      business identified by us as a potential acquisition candidate will have
      financial statements prepared in accordance with United States generally
      accepted accounting principles or that the potential target business will be
      able to prepare its financial statements in accordance with United States
      generally accepted accounting principles. To the extent that this requirement
      cannot be met, we may not be able to acquire the proposed target business.
      These
      financial statement requirements may limit the pool of potential target
      businesses with which we may combine.




***Compliance
      with the Sarbanes-Oxley Act of 2002 will require substantial financial and
      management resources and may increase the time and costs of completing an
      acquisition.***




Section
      404 of the Sarbanes-Oxley Act of 2002 requires that we evaluate and report
      on
      our system of internal controls and requires that we have such system of
      internal controls audited beginning with our Annual Report on Form 10-K for
      the
      year ending December 31, 2008. If we fail to maintain the adequacy of our
      internal controls, we could be subject to regulatory scrutiny, civil or criminal
      penalties and/or stockholder litigation. Any inability to provide reliable
      financial reports could harm our business. Section 404 of the Sarbanes-Oxley
      Act
      also requires that our independent registered public accounting firm report
      on
      management’s evaluation of our system of internal controls. A target company may
      not be in compliance with the provisions of the Sarbanes-Oxley Act regarding
      adequacy of their internal controls. The development of the internal controls
      of
      any such entity to achieve compliance with the Sarbanes-Oxley Act may increase
      the time and costs necessary to complete any such acquisition. Furthermore,
      any
      failure to implement required new or improved controls, or difficulties
      encountered in the implementation of adequate controls over our financial
      processes and reporting in the future, could harm our operating results or
      cause
      us to fail to meet our reporting obligations. Inferior internal controls could
      also cause investors to lose confidence in our reported financial information,
      which could have a negative effect on the trading price of our stock.




***Risks
      Related to the Healthcare Industry***




Business
      combinations with companies with operations in the healthcare industry entail
      special considerations and risks. If we are successful in completing a business
      combination with a target business with operations in the healthcare industry,
      we will be subject to, and possibly adversely affected by, the following risks:




***The
      healthcare industry’s highly competitive market and our inability to compete
      effectively could adversely affect our business prospects and results of
      operations.***




Our
      target businesses may operate in highly competitive markets against both large
      and small companies. Our target business may not be able to offer products
      similar to, or more desirable than, those of our competitors or at a price
      comparable to that of our competitors. Compared to our target business, many
      of
      the competitors may have:




30


**Highlands
          Acquisition Corp.**


•
greater
      financial and other resources;




•
more
      widely accepted products;




•
a
      larger number of endorsements from healthcare professionals;




•
a
      larger product portfolio;




•
      superior ability to maintain new product flow;




•
greater
      research and development and technical capabilities;




•
patent
      portfolios that may present an obstacle to the conduct of our business;




•
      stronger name recognition;




•
larger
      sales and distribution networks; and




•
      international manufacturing facilities that enable them to avoid the
      transportation costs and foreign import duties associated with shipping our
      products manufactured in the United States to international customers.




Accordingly,
      we may be at a competitive disadvantage with respect to our competitors. These
      factors may materially impair our ability to develop and sell our products
      following our business combination.




***If
      our target business cannot develop or license new products or product
      enhancements or find new applications for existing products, we will not remain
      competitive.***




Companies
      operating in the healthcare market must continually develop innovative new
      products before the competition renders those products obsolete. Our success
      and
      our ability to increase revenues following a business combination will depend,
      in part, on our ability to develop, license, acquire and distribute new and
      innovative products, enhance our existing products with new technology and
      find
      new applications for our existing products. However, we may not be successful
      in
      developing or introducing new products, enhancing existing products or finding
      new applications for our existing products. We also may not be successful in
      manufacturing, marketing and distributing products in a cost-effective manner,
      establishing relationships with marketing partners, obtaining coverage and
      satisfactory reimbursement for our future products or product enhancements
      or
      obtaining required regulatory clearances and approvals in a timely fashion
      or at
      all. If we fail to keep pace with continued new product innovation or
      enhancement or fail to successfully commercialize our new or enhanced products,
      our competitive position, financial condition and results of operations could
      be
      materially and adversely affected.




In
      addition, if any of our new or enhanced products contain undetected errors
      or
      defects, especially when first introduced, or if new applications that we
      develop for existing products do not work as planned, our ability to market
      these and other products could be substantially delayed, and we could ultimately
      become subject to product liability litigation, resulting in lost revenues,
      potential damage to our reputation and/or delays in regulatory clearance. In
      addition, obtaining approval and acceptance of our products by physicians,
      physical therapists and other professionals that recommend and prescribe our
      products could be adversely affected.




***Sales
      revenue may decline if third-party distributors and independent sales
      representatives do not dedicate a sufficient level of marketing energy and
      focus
      to the products produced by our target business.***




Companies
      in the healthcare industry often utilize third-party distributors and
      independent sales representatives to distribute product. These third-party
      distributors and independent sales representatives maintain the relationships
      with the hospitals, doctors, and other healthcare professionals that purchase,
      use and recommend the use of products and services. Some of the independent
      sales representatives that sell our target business’ product may also sell our
      competitors’ products. These sales representatives may not dedicate the
      necessary effort to market and sell our products. If we fail to attract and
      retain third-party distributors and skilled independent sales representatives
      or
      fail to adequately train and monitor the efforts of the third-party distributors
      and sales representatives that market and sell our products, or if our existing
      third-party distributors and independent sales representatives choose not to
      carry our products, our results of operations and future growth could be
      adversely affected.




31


**Highlands
          Acquisition Corp.**


***If
      we are required to obtain governmental approval of our products, the production
      of our products could be delayed and we could be required to engage in a lengthy
      and expensive approval process that may not ultimately be successful.***




Unanticipated
      problems may arise in connection with the development of new products or
      technologies, and many such efforts may ultimately be unsuccessful. In addition,
      the testing or marketing of products may require obtaining government approvals,
      which may be a lengthy and expensive process with an uncertain outcome. Delays
      in commercializing products may result in the need to seek additional capital,
      potentially diluting the interests of investors. These various factors may
      result in abrupt advances and declines in the price of our securities and,
      in
      some cases, may have a broad effect on the prices of securities of companies
      in
      the healthcare industry generally.




***Healthcare
      reform, managed care and buying groups have exerted downward pressure on the
      prices of healthcare products and services.***




Healthcare
      reform and the healthcare industry’s response to rising costs have resulted in a
      significant expansion of managed care organizations and buying groups. This
      growth of managed care and the advent of buying groups in the United States
      has
      caused a shift toward coverage and payments based on more cost-effective
      treatment alternatives. Buying groups enter into preferred supplier arrangements
      with one or more manufacturers of medical products in return for price discounts
      to members of these buying groups. Our target business’ failure to obtain new
      preferred supplier commitments from major group purchasing organizations or
      its
      failure to retain existing preferred supplier commitments could adversely affect
      the company’s sales and profitability.




***Healthcare
      products are subject to recalls even after receiving FDA or foreign regulatory
      clearance or approval.***




Products
      and therapeutics are subject to ongoing reporting regulations that require
      companies to report to the FDA or similar governmental authorities in other
      countries if a product causes, or contributes to, death or serious injury,
      or if
      it malfunctions and would be likely to cause, or contribute to, death or serious
      injury if the malfunction were to recur. The FDA and similar governmental
      authorities in other countries have the authority to require a company to recall
      its product in the event of material deficiencies or defects. In addition,
      companies with a defective product may voluntarily recall their product even
      in
      the absence of government intervention. Any recall would divert managerial
      and
      financial resources and could harm our target business’ reputation with its
      customers and with the healthcare professionals that use, prescribe and
      recommend our products. Our target business could have product recalls that
      result in significant costs to us in the future, and such recalls could have
      a
      material adverse effect on our business.




***Companies
      who lose patent protection or inadvertently reveal trade secrets may lose market
      share to competitors and may not be able to operate profitably.***




Companies
      in the healthcare industry rely upon a combination of patents, trade secrets,
      copyrights, trademarks, license agreements and contractual provisions to
      establish and protect the intellectual property rights in their products and
      the
      processes for the development, manufacture and marketing of their products.
      If
      non-patented trade secrets are revealed to the public, our competitors could
      utilize the information to create their own products that incorporate our target
      business’ intellectual property. In addition, our target business’ patents could
      be circumvented, invalidated or declared unenforceable. Any proceedings before
      the U.S. Patent and Trademark Office could result in adverse decisions as to
      the
      priority of our inventions and the narrowing or invalidation of claims in issued
      patents. We could also incur substantial costs in any such proceedings. In
      addition, our target business may hold patent and other intellectual property
      licenses from third parties for some of our business’ products and on
      technologies that are necessary in the design and manufacture of some of our
      business’ products. The loss of such licenses could prevent us from
      manufacturing, marketing and selling these products, which could have a material
      adverse effect on our business.




32


**Highlands
          Acquisition Corp.**


***Patent
      litigation may affect a healthcare company’s operational and financial results
      even if the company ultimately prevails.***




Litigation
      involving patents and other intellectual property rights is common in the
      healthcare industry, and healthcare companies have used intellectual property
      litigation in an attempt to gain a competitive advantage. Our target business
      may become a party to lawsuits involving patents or other intellectual property.
      Such litigation is costly and time consuming. If our target business loses
      any
      of these proceedings, a court or a similar foreign governing body could
      invalidate or render unenforceable our owned or licensed patents, require us
      to
      pay significant damages, seek licenses and/or pay ongoing royalties to third
      parties, require us to redesign our products, or prevent us from manufacturing,
      using or selling our products, any of which would have a material adverse effect
      on our business and results of operations and financial condition.




***Our
      target business may expand into new markets through the development of new
      products and our expansion may not be successful.***




Our
      target business may attempt to expand into new markets through the development
      of new product applications based on the company’s existing specialized
      technology and design capabilities. These efforts could require it to make
      substantial investments, including significant research, development,
      engineering and capital expenditures for new, expanded or improved manufacturing
      facilities which would divert resources from other aspects of its business.
      Expansion into new markets may be costly and may not result in any benefit
      to
      our target business. Specific risks in connection with expanding into new
      markets include the failure of customers in new markets to accept our products
      and price competition in new markets. Such expansion efforts into new markets
      could be unsuccessful.




***Consolidation
      in the healthcare industry could have an adverse effect on our revenues and
      results of operations.***




Many
      healthcare companies are consolidating to create larger companies. As the
      healthcare industry consolidates, competition to provide products and services
      to industry participants will become more intense. In addition, many of our
      potential target business’ customers are also consolidating, and these customers
      and other industry participants may try to use their purchasing power to
      negotiate price concessions or reductions for the products that our target
      business manufactures and markets. If our target business is forced to reduce
      its prices because of consolidation in the healthcare industry, the company’s
      revenues could decrease, and its business, financial condition and results
      of
      operations could be adversely affected.




***Companies
      in the healthcare industry are often subject to environmental and health and
      safety requirements, and may be liable for contamination or other harm caused
      by
      hazardous materials that they use.***




Companies
      in the healthcare industry often utilize hazardous materials to manufacture
      their products. These materials are subject to federal, state, local and foreign
      environmental requirements, including regulations governing the use,
      manufacture, handling, storage and disposal of hazardous materials and related
      occupational health and safety regulations. Our target business could incur
      liability as a result of any contamination or injury and could also be held
      responsible for costs relating to any contamination of its facilities and
      third-party waste disposal sites. Our target business could incur significant
      expenses in the future relating to any failure to comply with environmental
      laws. Any such future expenses or liability could have a material adverse effect
      on our financial condition. The enactment of stricter laws or regulations,
      the
      stricter interpretation of existing laws and regulations or the requirement
      to
      undertake the investigation or remediation of currently unknown environmental
      contamination at our target company’s business or third party sites might
      require it to make additional expenditures, which could be material.




33


**Highlands
          Acquisition Corp.**


***Changes
      in government regulation of health insurance could negatively affect our
      business prospects.***




Several
      states have recently enacted or are considering legislative initiatives intended
      to provide healthcare insurance for all individuals. Similarly, some of the
      leading candidates running for President of the United States in the Democratic
      and Republican parties have announced that they intend to make healthcare
      insurance reform a major part of their respective platforms. It is too early
      to
      understand the specific provisions that are being proposed or assess the
      likelihood that they will be enacted. Nonetheless, there may be legislative
      or
      regulatory changes at the state or federal level that could negatively affect
      (i) our ability to make an acquisition or (ii) after an acquisition, the
      business prospects of such an acquisition. If we are unable to comply with
      governmental regulations affecting the healthcare industry, it could negatively
      affect our operations.




There
      is
      extensive government regulation of certain healthcare businesses as well as
      various proposals at the federal government level to reform the healthcare
      system. Changes to the existing regulatory framework and/or implementation
      of
      various reform initiatives could adversely affect certain sections of the
      healthcare industry. If we are unable to adhere to these requirements, it could
      result in the imposition of penalties and fines against us, and could also
      result in the imposition of restrictions on our business and operations.
      Furthermore, the costs of compliance also could have a material adverse effect
      on our profitability and operations.




34


**Highlands
            Acquisition Corp.**


**ITEM
      2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**




On
      October 9, 2007 we consummated our initial public offering of 12,000,000 units
      and on October 15, 2007 we closed on the exercise of the underwriter’s
      over-allotment option for an additional 1,800,000 units, with each unit
      consisting of one share of our common stock and one warrant to purchase one
      share of our common stock at an exercise price of $7.50 per share. Each warrant
      will become exercisable upon the later to occur of the completion of our initial
      Business Combination or 15 months from October 3, 2007 and expiring five years
      from the October 3, 2007. We may redeem the warrants while the warrants are
      exercisable, at a price of $.01 per warrant, upon 30 days’ notice if the last
      sales price of our 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. The units from the initial public offering
      (including the over-allotment option) were sold at an offering price of $10.00
      per unit, generating total gross proceeds of $138,000,000. The initial public
      offering was led by Citi, acting as sole book-running manager and Wm Smith
&
Co. as co-manager. The securities sold in the initial public offering were
      registered under the Securities Act of 1933 on a registration statement on
      Form
      S-1 (File No. 333-143599). The Securities and Exchange Commission declared
      the
      registration statement effective on October 3, 2007.




We
      paid 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 $654,000 for other costs and expenses related
      to
      the offering and the over-allotment option.




On
      October 9, 2007, simultaneously with the consummation of our initial public
      offering, we completed a private placement of 3,250,000 warrants at a price
      of
      $1.00 per warrant, generating gross proceeds of $3,250,000. These warrants
      were
      purchased by (i) Kanders & Company, Inc., Ivy Healthcare Capital II, L.P.,
      and Fieldpoint Capital, L.L.C., each of which is an affiliate of certain
      officers and directors of our Company; and (ii) Robert W. Pangia, our Chief
      Executive Officer, Dennis O’Dowd and Virgilio Rene Veloso, each of which is an
      existing stockholder of our Company. The warrants sold in the private placement
      are identical to the warrants included in the units sold in our initial public
      offering, except that, if we call the warrants for redemption, the warrants
      sold
      in the private placement will not be redeemable by us so long as they are held
      by these purchasers or their permitted transferees. The purchasers of the
      warrants sold in the private placement have agreed that these warrants will
      not
      be transferred, assigned or sold by them (except in limited situations) until
      after we have completed our initial Business Combination.




After
      deducting the underwriting discounts and commissions and the offering expenses,
      our net proceeds from our initial public offering were approximately
      $131,286,000, and an amount of $130,840,000, including $3,250,000 in connection
      with the private placement of the Sponsors’ Warrants and $3,990,000 in deferred
      underwriting discounts and commissions, was deposited into the trust account
      and
      the remaining proceeds became available to be used to provide for business,
      legal and accounting due diligence on prospective business combinations and
      continuing general and administrative expenses.




For
      a
      description of the use of the proceeds generated in our initial public offering
      and the private placement of the Sponsors’ Warrants, see Part I, Note 2 of this
      Form 10-Q.




35


**Highlands
            Acquisition Corp.**


**ITEM
      6: EXHIBITS**




(a) Exhibits:




Exhibit
              Number
            
            Exhibit3.1
            
            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 the Registrant.***10.1
            
            Form
                of Letter Agreement among the Registrant, Citigroup Global Markets
                Inc.
                and Russell F. Warren, M.D.**10.2
            
            Form
                of Letter Agreement among the Registrant, Citigroup Global Markets
                Inc.
                and Robert W. Pangia.**10.3
            
            Form
                of Letter Agreement among the Registrant, Citigroup Global Markets
                Inc.
                and Philip A. Baratelli.**10.4
            
            Form
                of Letter Agreement among the Registrant, Citigroup Global Markets
                Inc.
                and Gary M. Julien.**10.5
            
            Form
                of Letter Agreement among the Registrant, Citigroup Global Markets
                Inc.
                and Warren B. Kanders.**10.6
            
            Form
                of Letter Agreement among the Registrant, Citigroup Global Markets
                Inc.
                and Russell F. Warren, Jr.**10.7
            
            Form
                of Letter Agreement among the Registrant, Citigroup Global Markets
                Inc.
                and Leslie D. Michelson.**10.8
            
            Form
                of Letter Agreement among the Registrant, Citigroup Global Markets
                Inc.
                and William V. Campbell.**10.9
            
            Form
                of Letter Agreement among the Registrant, Citigroup Global Markets
                Inc.
                and William Forrester Owens.**10.10
            
            Form
                of Letter Agreement among the Registrant, Citigroup Global Markets
                Inc.
                and Michael A. Henning.**10.11
            
            Form
                of Investment Management Trust Agreement between Continental Stock
                Transfer & Trust Company and the Registrant.**10.12
            
            Form
                of Escrow Agreement between the Registrant, Continental Stock Transfer
                & Trust Company and the Initial Stockholders.**10.13
            
            Form
                of Letter Agreement between Kanders & Company Inc., Ivy Capital
                Partners Management, LLC and Registrant regarding administrative
                support.**10.14
            
            Form
                of Promissory Note issued to each of Kanders & Company Inc. and Ivy
                Capital Partners Management, LLC.**10.15
            
            Form
                of Registration Rights Agreement among the Registrant and the Initial
                Stockholders.**10.16
            
            Form
                of Sponsors’ Warrant Subscription Agreements among the Registrant,
                Graubard Miller and each of Kanders & Company, Ivy Healthcare Capital
                II, L.P., Robert W. Pangia, Dennis W. O’Dowd, Virgilio Rene Veloso and
                Fieldpoint Capital, LLC.**10.17
            
            Form
                of Co-Investment Subscription Agreements among the Registrant and
                each of
                Kanders & Company Inc., Healthcare Capital II, L.P., Robert W. Pangia,
                Dennis W. O’Dowd, Virgilio Rene Veloso and Fieldpoint Capital,
                LLC.**31.1
            
            Certification
                of Principal Executive Officer Pursuant to Rule 13a-14(a) as Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.31.2
            
            Certification
                of Principal Financial Officer Pursuant to Rule 13a-14(a) as Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.32.1
            
            Certification
                of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350
                as
                Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2
            
            Certification
                of Principal Financial Officer to 18 U.S.C. Section 1350 as Adopted
                Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




36


**Highlands
            Acquisition Corp.**
 ________________


*
            Previously
                filed as an Exhibit to Highlands Acquisition Corp.’s Current Report on
                Form 8-K, filed with the Commission on October 10, 2007, and incorporated
                herein by reference.


**
            Previously
                filed in connection with amendment number 1 to Highland Acquisition
                Corp.’s registration statement on Form S-1 (File No. 333-143599), filed
                with the Commission on August 7, 2007, and incorporated herein by
                reference.


***
            Previously
                filed in connection with amendment number 2 to Highland Acquisition
                Corp.’s registration statement on Form S-1 (File No. 333-143599), filed
                with the Commission on August 31, 2007, and incorporated herein by
                reference.




37


**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:
                November 16, 2007*/s/Robert
                W. Pangia**Robert
                W. Pangia,**Chief
                Executive Officer**(Principal
                Executive Officer)**/s/
                Philip A. Baratelli**Philip
                A. Baratelli,**Chief
                Financial Officer**(Principal
                Financial Officer)*





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