**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, 2008





or





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


the
      Securities Exchange Act of 1934





For
      the
      transition period from _________ to _________





*Commission
      File Number: 001-33681*





**HIGHLANDS
      ACQUISITION CORP.**





(Exact
      name of registrant as specified in its charter)





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





One
      Paragon Drive, Suite 125


Montvale,
      New Jersey 07645


(Address
      of principal executive offices)


(Zip
      code)





(201)
      573-8400


(Registrant's
      telephone number, including area code)





Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the Registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. YES xNO o





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





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act) YES xNO o





As
      of
      November 5, 2008, there were outstanding 17,250,000 shares of Common Stock,
      par
      value $0.0001.







**TABLE
      OF CONTENTS**




**Highlands
      Acquisition Corp.**


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





**Page****PART
                I. FINANCIAL INFORMATION:**
            1Item
                1. Financial Statements
            1Condensed
                Balance Sheets as of September 30, 2008 (Unaudited) and December
                31,
                2007
            1Condensed
                Statements of Operations (Unaudited) – Three months and nine months ended
                September 30, 2008, three months ended September 30, 2007 and for
                the
                periods April 26, 2007 (inception) to September 30, 2008 and
                2007
            2Condensed
                Statement of Stockholders’ Equity for the Period April 26, 2007
                (inception) to September 30, 2008 (Unaudited)
            3Condensed
                Statements of Cash Flows (Unaudited) – Nine months ended September 30,
                2008 and for the periods April 26, 2007 (inception) to September
                30, 2008
                and 2007
            4Notes
                to Unaudited Condensed Financial Statements
            5Item
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations
            11Item
                3. Quantitative and Qualitative Disclosures About Market
                Risk
            17Item
                4. Controls and Procedures
            18**PART
                II. OTHER INFORMATION**
            19Item
                1A. Risk Factors
            19Item
                6. Exhibits
            20**SIGNATURES**
            21







**PART
      I. FINANCIAL INFORMATION**




**Item
      1. Financial Statements**




**Highlands
      Acquisition Corp.**




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


**CONDENSED
      BALANCE SHEETS**





**September 30, 2008**
            
            **December 31, 2007**(Unaudited)**ASSETS**Cash
            
            $
            274,468
            
            $
            269,314Cash
                held in trust
            
            
            132,802,261
            
            
            132,258,345Cash
                held in trust from underwriter
            
            
            3,990,000
            
            
            3,990,000Prepaid
                expenses
            
            
            64,981
            
            
            66,585Prepaid
                income taxes
            
            
            100,258
            
            
            -Deferred
                tax asset
            
            
            235,513
            
            
            59,998**Total
                assets**
            
            $
            137,467,481
            
            $
            136,644,242**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Accounts
                payable
            
            $
            24,136
            
            $
            10,945Accrued
                expenses
            
            
            43,911
            
            
            84,238Accrued
                offering costs
            
            
            -
            
            
            2,335Income
                taxes payable
            
            
            -
            
            
            538,847Deferred
                trust interest
            
            
            104,751
            
            
            -Deferred
                underwriting fee
            
            
            3,990,000
            
            
            3,990,000**Total
                liabilities**
            
            
            4,162,798
            
            
            4,626,365**Common
                Stock, subject to possible conversion of shares at conversion
                value**
            
            
            40,448,990
            
            
            40,448,990**Commitments
                (Note 3)****Stockholders’
                equity**Preferred
                stock, $.0001 par value, 1,000,000 shares authorized; none issued
                and
                outstanding
            
            
            -
            
            
            -Common
                stock, $.0001 par value, 50,000,000 shares authorized; 17,250,000
                shares
                issued and outstanding in 2008 and 2007
            
            
            1,725
            
            
            1,725Additional
                paid-in capital
            
            
            90,847,090
            
            
            90,847,090Income
                accumulated during the development stage
            
            
            2,006,878
            
            
            720,072**Total
                stockholders’ equity**
            
            
            92,855,693
            
            
            91,568,887**Total
                liabilities and stockholders’ equity**
            
            $
            137,467,481
            
            $
            136,644,242





*See
      Notes to Unaudited Condensed Financial Statements*


1


**Highlands
      Acquisition Corp.**


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


**CONDENSED
      STATEMENTS OF OPERATIONS**


**(unaudited)**





**Three**
              **Months**
              **Ended**
              **September**
              **30, 2008**
            
            **Three**
              **Months**
              **Ended**
              **September**
              **30, 2007**
            
            **Nine**
              **Months**
              **Ended**
              **September**
              **30, 2008**
            
            **For the period**
              **April 26, 2007**
              **(inception) to**
              **September 30,**
              **2007**
            
            **For the period**
              **April 26, 2007**
              **(inception) to**
              **September 30,**
              **2008****Interest
                income**
            
            $
            767,344
            
            $
            -
            
            $
            2,804,790
            
            $
            -
            
            $
            4,223,135**Deferred
                interest income**
            
            
            (104,751
            )
            
            -
            
            
            (104,751
            )
            
            -
            
            
            (104,751
            )**Net
                interest income**
            
            
            662,593
            
            
            -
            
            
            2,700,039
            
            
            -
            
            
            4,118,384**General
                and administrative expenses**
            
            
            152,858
            
            
            6,319
            
            
            498,853
            
            
            6,455
            
            
            717,277**Formation
                costs**
            
            
            -
            
            
            -
            
            
            -
            
            
            1,000
            
            
            1,000**Income
                (loss) before provision for income taxes**
            
            
            509,735
            
            
            (6,319
            )
            
            2,201,186
            
            
            (7,455
            )
            
            3,400,107**Provision
                for income taxes**
            
            
            211,497
            
            
            -
            
            
            914,380
            
            
            -
            
            
            1,393,229**Net
                income (loss)**
            
            $
            298,238
            
            $
            (6,319
            )
            $
            1,286,806
            
            $
            (7,455
            )
            $
            2,006,878**Net
                income (loss) per common share – basic and diluted**
            
            $
            0.02
            
            $
            (0.00
            )
            $
            0.07
            
            $
            (0.00
            )
            $
            0.16**Weighted
                average common shares outstanding, basic and diluted**
            
            
            17,250,000
            
            
            3,450,000
            
            
            17,244,712
            
            
            3,450,000
            
            
            12,846,465





*See
      Notes to Unaudited Condensed Financial Statements*


2


**Highlands
      Acquisition Corp.**


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


**CONDENSED
      STATEMENT OF STOCKHOLDERS’ EQUITY**





*For
      the period April 26, 2007 (inception) to September 30, 2008*





**Common Stock**
            
            **Additional**
              **paid-in**
            
            **Income**
              **Accumulated**
              **During the**
            
            **Stockholders’****Shares**
            
            **Amount**
            
            **capital**
            
            **Development Stage**
            
            **Equity**Issuance
                of units to Founders on May 1, 2007 at approximately $0.007 per
                unit
            
            
            3,450,000
            
            $
            345
            
            $
            24,655
            
            $
            -
            
            $
            25,000Sale
                of Private Placement Warrants on October 9, 2007
            
            
            
            
            
            
            
            
            3,250,000
            
            
            
            
            
            3,250,000Sale
                of 13,800,000 units at $10 per unit through public offering (net
                of
                underwriter’s discount and offering expenses) including 4,139,999 shares
                subject to possible conversion on October 9, 2007
            
            
            13,800,000
            
            
            1,380
            
            
            128,021,425
            
            
            
            
            
            128,022,805Proceeds
                subject to possible conversion
            
            
            
            
            
            
            
            
            (40,448,990
            )
            
            
            
            
            (40,448,990
            )Net
                income
            
            
            
            
            
            
            
            
            
            
            
            720,072
            
            
            720,072Balance
                at December 31, 2007
            
            
            17,250,000
            
            $
            1,725
            
            $
            90,847,090
            
            $
            720,072
            
            $
            91,568,887UnauditedRepurchase
                of 20,700 units at $0.007 per unit
            
            
            (20,700
            )
            
            (2
            )
            
            (148
            )
            
            
            
            
            (150
            )Issuance
                of 20,700 units at $0.007 per unit
            
            
            20,700
            
            
            2
            
            
            148
            
            
            
            
            
            150Net
                income
            
            
            
            
            
            
            
            
            
            
            
            1,286,806
            
            
            1,286,806Balance
                at September 30, 2008
            
            
            17,250,000
            
            $
            1,725
            
            $
            90,847,090
            
            $
            2,006,878
            
            $
            92,855,693





*See
      Notes to Unaudited Condensed Financial Statements*


3


**Highlands
      Acquisition Corp.**


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


**CONDENSED
      STATEMENTS OF CASH FLOWS**


**(unaudited)**





**Nine Months**
              **Ended**
              **September 30,**
              **2008**
            
            **For the period**
              **April 26, 2007**
              **(inception) to**
              **September 30,**
              **2007**
            
            **For the period**
              **April 26, 2007**
              **(inception) to**
              **September 30,**
              **2008****Cash
                flows from operating activities**Net
                income/(loss)
            
            $
            1,286,806
            
            $
            (7,455
            )
            $
            2,006,878Adjustment
                to reconcile net income/(loss) to net cash used in operating
                activities:Income
                earned on trust account
            
            
            (2,804,790
            )
            
            -
            
            
            (4,223,135
            )Decrease/(increase)
                in prepaid expenses
            
            
            1,604
            
            
            (71,524
            )
            
            (64,981
            )Increase
                in prepaid taxes
            
            
            (100,258
            )
            
            -
            
            
            (100,258
            )Increase
                in deferred taxes
            
            
            (175,515
            )
            
            -
            
            
            (235,513
            )Increase
                in accounts payable
            
            
            13,191
            
            
            72,572
            
            
            24,136(Decrease)/increase
                in accrued expenses
            
            
            (40,327
            )
            
            1,000
            
            
            43,911Decrease
                in income tax payable
            
            
            (538,847
            )
            
            -
            
            
            -Increase
                in deferred trust interest
            
            
            104,751
            
            
            -
            
            
            104,751**Net
                cash used in operating activities**
            
            
            (2,253,385
            )
            
            (5,407
            )
            
            (2,444,211
            )**Cash
                flows from investing activities**Cash
                placed in trust account
            
            
            -
            
            
            -
            
            
            (134,830,000
            )Disbursements
                from trust for working capital
            
            
            450,000
            
            
            -
            
            
            450,000Disbursements
                from trust to pay taxes
            
            
            1,810,874
            
            
            -
            
            
            1,810,874**Net
                cash provided by/(used in) investing activities**
            
            
            2,260,874
            
            
            -
            
            
            (132,569,126
            )**Cash
                flows from financing activities**Proceeds
                from sale of units to public
            
            
            -
            
            
            -
            
            
            138,000,000Proceeds
                from private placement of warrants
            
            
            -
            
            
            -
            
            
            3,250,000Proceeds
                from sale of units to Founders
            
            
            -
            
            
            25,000
            
            
            25,000Proceeds
                from borrowings under notes payable to affiliates
            
            
            -
            
            
            100,000
            
            
            100,000Payments
                of notes payable to affiliates
            
            
            -
            
            
            -
            
            
            (100,000
            )Payment
                of offering costs
            
            
            (2,335
            )
            
            (59,303
            )
            
            (5,987,195
            )Issuance
                of founder’s units
            
            
            150
            
            
            -
            
            
            150Repurchase
                of founder’s units
            
            
            (150
            )
            
            -
            
            
            (150
            )**Net
                cash (used in)/provided by financing activities**
            
            
            (2,335
            )
            
            65,697
            
            
            135,287,805**Net
                increase in cash**
            
            
            5,154
            
            
            60,290
            
            
            274,468**Cash
                at beginning of period**
            
            
            269,314
            
            
            -
            
            
            -**Cash
                at end of period**
            
            $
            274,468
            
            $
            60,290
            
            $
            274,468**Supplemental
                disclosure of noncash financing activities:**Accrual
                of offering costs
            
            $
            -
            
            $
            138,512
            
            $
            -Accrual
                of deferred underwriting fee
            
            $
            -
            
            
            -
            
            $
            3,990,000**Supplemental
                disclosure of cash flow information:**Cash
                paid for income taxes
            
            $
            1,729,000
            
            
            -
            
            $
            1,729,000





*See
      Notes to Unaudited Condensed Financial Statements*


4


**Highlands
      Acquisition Corp.**


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


**Notes
      to Unaudited Condensed Financial Statements**




**1.
      Organization and Business Operations**




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




**Interim
      Financial Information**




The
      unaudited condensed interim financial statements as of September 30, 2008 and
      for the period from April 26, 2007 (inception) through September 30, 2008,
      have
      been prepared by the Company in accordance with accounting principles generally
      accepted in the United States of America for interim financial information
      and
      with the instructions to Form 10-Q. Accordingly, they do not include all of
      the
      information and footnotes required by accounting principles generally accepted
      in the United States of America for complete financial statements. In the
      opinion of management, all adjustments (consisting of normal recurring accruals)
      considered necessary for a fair presentation have been included. Operation
      results for the interim period presented are not necessarily indicative of
      the
      results to be expected for any other interim period or for the full year.




These
      unaudited condensed interim financial statements should be read in conjunction
      with the audited financial statements and notes thereto for the period ended
      December 31, 2007 included in the Company’s Annual Report on Form 10-K filed
      with the U.S. Securities and Exchange Commission on March 24, 2008. The December
      31, 2007 balance sheet has been derived from these audited financial statements.
      The accounting policies used in preparing these unaudited financial statements
      are consistent with those described in the December 31, 2007 audited financial
      statements.




The
      registration statement for the Company’s initial public offering (the
“Offering”) as described in Note 2 below was declared effective on October 3,
      2007. The Company sold 12,000,000 units (the “Units”) in the Offering at a price
      of $10 per Unit. Each Unit consists of one share of the Company’s common stock,
      par value $0.0001 per share (the “Common Stock”) and one warrant to purchase one
      share of Common Stock (the “Warrants”). The Company consummated the Offering on
      October 9, 2007 and the underwriters exercised their over-allotment option
      for
      an additional 1,800,000 units on October 10, 2007 and consummated it on October
      15, 2007. The Company received net proceeds of approximately $131,273,000,
      including $3,250,000 of proceeds from the private placement (“the Private
      Placement”) sale of 3,250,000 warrants (the “Sponsors’ Warrants”) to certain
      affiliates of the Company. The Sponsors’ 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.




5


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




The
      Company’s management has broad discretion with respect to the specific
      application of the net proceeds of the Offering and the Private Placement,
      although substantially all of the net proceeds of the Offering are intended
      to
      be generally applied toward consummating a Business Combination. There is no
      assurance that the Company will be able to successfully effect 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. At September 30, 2008, the Company’s trust account
      balance of approximately $136,800,000 was invested in the Morgan Stanley
      Institutional Liquidity Funds – Government Portfolio (stock symbol: MVRXX).
      Based upon information provided by
      Morgan
      Stanley, (i) the Government Portfolio seeks to maintain a stable net asset
      value
      of $1.00 per share by investing exclusively in obligations of the U.S.
      Government and its agencies and instrumentalities and in repurchase agreements
      collateralized by such securities; (ii) at September 30, 2008, 71.3% of the
      portfolio was invested in U.S. Government Agency Securities and 28.7% of the
      portfolio was invested in repurchase agreements collateralized by U.S.
      Government and Agency securities; and (iii) as of October 24, 2008, the one
      day
      yield was 1.72%, and the weighted average maturity was twenty-one days. The
      placing of funds in the Trust Account may not protect those funds from third
      party claims against the Company. Although the Company will seek to have all
      vendors, providers of financing, prospective target businesses or other entities
      it engages, execute agreements with the Company waiving any right, title,
      interest or claim of any kind in or to any monies held in the Trust Account,
      there is no guarantee that they will execute such agreements. Two of the
      Company’s affiliates have agreed that they will be liable under certain
      circumstances to ensure that the proceeds in the Trust Account are not reduced
      by the claims of target businesses or vendors, providers of financing, service
      providers or other entities that are owed money by the Company for services
      rendered to or contracted for or products sold to the Company. There can be
      no
      assurance that they will be able to satisfy those obligations. The net proceeds
      not held in the Trust Account may be used to pay for business, legal and
      accounting due diligence on prospective acquisitions and continuing general
      and
      administrative expenses. Additionally, up to an aggregate of $2,100,000 of
      interest earned on the Trust Account balance may be released to the Company
      to
      fund working capital requirements and additional funds may be released to fund
      tax obligations. $450,000 has been released for working capital requirements
      and
      $1,810,874 has been released to fund tax obligations at September 30,
      2008.




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 (the “Founders Common Stock”)
      included in the units sold to the Founders (the “Founders Units”) in accordance
      with the vote of the majority of the shares voted by all other stockholders
      of
      the Company (the “Public Stockholders”) with respect to any Business Combination
      and in favor of an amendment to our certificate of incorporation to provide
      for
      the Company’s perpetual existence.




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




The
      Company’s 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).




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




6


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




The
      following table details the net income per share computations on a basic and
      diluted basis for the three and nine months ended September 30,
      2008.


**For the Three**
                **Months Ended**
                **September 30, 2008**
              
              **For the Nine**
                **Months Ended**
                **September 30, 2008**Numerator
                  for basic and diluted earnings per shareNet
                  income available to common shareholders
              
              $
              298,238
              
              $
              1,286,806Denominator:Basic
                  earnings per share weighted-average shares outstanding
              
              
              17,250,000
              
              
              17,244,712Effect
                  of dilutive securities:
              
              
              -
              
              
              -Diluted
                  earnings per shareAdjusted
                  weighted-average shares outstanding
              
              
              17,250,000
              
              
              17,244,712Basic
                  and diluted earnings per share
              
              $
              0.02
              
              $
              0.07




*Other
      contingent shares:* The
      dilutive effect of shares issuable does not include 13,800,000 Warrants included
      in the Units sold in the Offering that are not exercisable until later of the
      completion of our initial Business Combination or January 3, 2009. Furthermore,
      3,450,000 warrants included in the Founders Units (the “Founders Warrants”) and
      3,250,000 Sponsors’ Warrants are also excluded from the dilutive effect since
      they are not exercisable until the Warrants included in the Units sold in the
      Offering are exercisable and, in addition with respect to the Founders Warrants,
      our Common Stock price equals or exceeds $14.25 per share for any 20 trading
      days within a 30-trading day period.




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




In
      December 2007, the FASB released SFAS No. 141(R), Business Combinations (revised
      2007) (“SFAS 141(R)”), which changes many well-established business combination
      accounting practices and significantly affects how acquisition transactions
      are
      reflected in the financial statements. Additionally, SFAS 141(R) will affect
      how
      companies negotiate and structure transactions, model financial projections
      of
      acquisitions and communicate to stakeholders. SFAS 141(R) must be applied
      prospectively to business combinations for which the acquisition date is on
      or
      after the beginning of the first annual reporting period beginning on or after
      December 15, 2008. The Company is currently evaluating the impact the adoption
      of this statement could have on its financial condition, results of operations
      and cash flows.




In
      December 2007, the FASB released SFAS No. 160, Noncontrolling Interests in
      Consolidated Financial Statements an amendment of ARB No. 51 (“SFAS 160”), which
      establishes accounting and reporting standards for the noncontrolling interests
      in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 requires
      consolidated net income to be reported at amounts that include the amounts
      attributable to both the parent and the noncontrolling interests and requires
      disclosure, on the face of the consolidated statement of income, of the amounts
      of net income attributable to the parent and to the noncontrolling interest.
      Previously, net income attributable to the noncontrolling interest was reported
      as an expense or other deduction in arriving at net income. SFAS 160 is
      effective for financial statements issued for fiscal years beginning after
      December 15, 2008. The Company believes the adoption of this statement will
      not
      have a material impact on its financial statements.




7


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




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




**2.
      Initial Public Offering**




On
      October 9, 2007, the Company sold 12,000,000 Units 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 Common Stock
      and one Warrant. Each Warrant will entitle the holder to purchase from the
      Company one share of Common Stock at an exercise price of $7.50 commencing
      on
      the later of the completion of an initial Business Combination and 15 months
      from the October 3, 2007 and expiring five years from October 3, 2007. The
      Company may redeem all of the Warrants, at a price of $.01 per Warrant upon
      30
      days’ notice while the Warrants are exercisable, only in the event that the last
      sale price of the Common Stock is at least $14.25 per share for any 20 trading
      days within a 30 trading day period ending on the third day prior to the date
      on
      which notice of redemption is given. In accordance with the warrant agreement
      relating to the Warrants sold and issued in the Offering, the Company is only
      required to use its best efforts to maintain the effectiveness of the
      registration statement covering the Warrants. The Company will not be obligated
      to deliver securities, and there are no contractual penalties for failure to
      deliver securities, if a registration statement is not effective at the time
      of
      exercise. Additionally, in the event that a registration is not effective at
      the
      time of exercise, the holder of a Warrant shall not be entitled to exercise
      such
      Warrant and in no event (whether in the case of a registration statement not
      being effective or otherwise) will the Company be required to net cash settle
      the warrant exercise. Consequently, the Warrants may expire unexercised and
      unredeemed.




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




Simultaneously
      with the consummation of the Offering, certain of the Company’s affiliates
      purchased the Sponsors’ Warrants at a purchase price of $1.00 per Sponsors’
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 approximated the fair value of such warrants.




8




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




The
      Founders and the holders of the Sponsors’ Warrants and Co-Investment Units (as
      described in Note 3 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.
      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. The accompanying condensed statements of
      operations for the three months ended September 30, 2008 and the period from
      April 26, 2007 (inception) to September 30, 2008, includes $30,000 and $120,000,
      respectively of expense related to this agreement.




Pursuant
      to letter agreements that the Founders entered into with the Company and the
      underwriters, the Founders waived their right to receive distributions with
      respect to their shares of Founders Common Stock upon the Company’s
      liquidation.




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




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




**4.
      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.


9


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




**5.
      Common Stock**




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




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




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




**6.
      Deferred Trust Interest**




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




Deferred
      Trust Interest as of September 30, 2008


Total
                  interest income earned since inception
              
              $
              4,223,135Total
                  taxes paid since inception
              
              $
              (1,839,960
              )Prepaid
                  income taxes
              
              $
              100,258Accrued
                  franchise taxes
              
              $
              (34,261
              )Working
                  capital allowance
              
              $
              (2,100,000
              )Total
                  base for deferral
              
              $
              349,172Conversion
                  %
              
              
              29.9999
              %Deferred
                  trust interest
              
              $
              104,751


10




**Highlands
      Acquisition Corp.**


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




The
      following discussion should be read in conjunction with our Condensed Financial
      Statements and 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, stock purchase, reorganization or other similar
      business combination with one or more operating businesses (the “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.





**Critical
      Accounting Policies and Use of Estimates**




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




*Fair
      Value of Financial Instruments* -
      The
      fair values of 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, 2008.




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.




**Results
      of Operations - Three month period ended September 30,
      2008**




**Interest
      Income**





For
      the
      three months ended September 30, 2008, we had interest income of approximately
      $0.8 million. The average yield during this period was 2.24%. Due to the recent
      decline in interest rates, we expect our 2008 interest average yield to decline.
      On October 24, 2008, our yield on investments was 1.72%.





On
      October 8, 2008 the Federal Reserve Board met and lowered the federal funds
      rate
      from 2.00% to 1.50%. On October 29, 2008, the Federal Reserve Board met and
      lowered the federal funds rate from 1.50% to 1.00%. We expect these interest
      rate reductions to negatively impact our reinvestment rate on our cash, cash
      equivalents and marketable securities for the year ended December 31,
      2008.


11


**Highlands
      Acquisition Corp.**


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





**Deferred
      Trust Interest**





For
      the
      three months ended September 30, 2008, we had deferred trust interest of
      $104,751 representing the amount that would be paid out to those dissenting
      shareholders, who have elected to convert their shares (as described in Note
      6),
      in the event of an acquisition as described more fully in Note 2. The deferred
      trust interest is calculated as follows:





Deferred
                Trust Interest as of September 30, 2008Total
                interest income earned since inception
            
            $
            4,223,135Total
                taxes paid since inception
            
            $
            (1,839,960
            )Prepaid
                income taxes
            
            $
            100,258Accrued
                franchise taxes
            
            $
            (34,261
            )Working
                capital allowance
            
            $
            (2,100,000
            )Total
                base for deferral
            
            $
            349,172Conversion
                %
            
            
            29.9999
            %Deferred
                trust interest
            
            $
            104,751





**General
      and Administrative Expenses**





For
      the
      three months ended September 30, 2008, we had general and administrative
      expenses of $152,858, primarily consisting of legal expenses, administrative
      services fee, accounting fees, Delaware franchise taxes, travel expenses, and
      directors and officer’s liability insurance.





**Income
      Before Provision for Income Taxes**





For
      the
      three months ended September 30, 2008, income before provision for income taxes
      was $509,735 from interest income and general and administrative expenses
      discussed above.





**Income
      Taxes**





For
      the
      three months ended September 30, 2008, income tax expense was $211,497 (41.49%
      effective rate), consisting of $145,068 in federal taxes and $66,429 in state
      income taxes. Since it is not more likely than not that we will be able to
      use
      our cumulative state tax losses in the future, no state deferred tax asset
      was
      recorded leading to a higher than normal effective tax rate. The trustee of
      the
      trust account will distribute funds to us to pay any taxes resulting from
      interest accrued on the funds held in the trust account.





**Net
      Income**





For
      the
      three months ended September 30, 2008, net income was $298,238, due to the
      factors discussed above.





**Results
      of Operations – Three Month period ended September 30,
      2007**





**Interest
      Income**





For
      the
      three month period ended September 30, 2007, we had no interest income.


12


**Highlands
      Acquisition Corp.**


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





**Deferred
      Trust Interest**





For
      the
      three month period ended September 30, 2007, we had no deferred trust
      interest.





**General
      and Administrative Expenses**





For
      the
      three month period ended September 30, 2007, we had general and administrative
      expenses of $6,319 primarily consisting of insurance costs.





**Loss
      Before Provision for Income Taxes**





For
      the
      three month period ended September 30, 2007, loss before provision for income
      taxes was $6,319 from general and administrative expenses discussed
      above.





**Income
      Taxes**





For
      the
      three month period ended September 30, 2007, there was no income tax benefit
      recorded.





**Net
      Loss**





For
      the
      three month period ended September 30, 2007, net loss was $(6,319), due to
      the
      factors discussed above.





**Results
      of Operations – Nine month period ended September 30, 2008**




**Interest
      Income**





For
      the
      nine months ended September 30, 2008, we had interest income of approximately
      $2,800,000. The average yield during this period was 2.73%.





**Deferred
      Trust Interest**





For
      the
      nine months ended September 30, 2008, we had deferred trust interest of $104,751
      representing the amount that would be paid out to those dissenting shareholders,
      who have elected to convert their shares (as described in Note 6), in the event
      of an acquisition. The deferred trust interest is calculated as
      follows:





Deferred
                Trust Interest as of September 30, 2008Total
                interest income earned since inception
            
            $
            4,223,135Total
                taxes paid since inception
            
            $
            (1,839,960
            )Prepaid
                income taxes
            
            $
            100,258Accrued
                franchise taxes
            
            $
            (34,261
            )Working
                capital allowance
            
            $
            (2,100,000
            )Total
                base for deferral
            
            $
            349,172Conversion
                %
            
            
            29.9999
            %Deferred
                trust interest
            
            $
            104,751





**General
      and Administrative Expenses**





For
      the
      nine months ended September 30, 2008, we had general and administrative expenses
      of $498,853, primarily consisting of legal expenses, administrative services
      fee, accounting fees, Delaware franchise taxes, travel expenses, and directors
      and officer’s liability insurance.


13


**Highlands
      Acquisition Corp.**


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





**Income
      Before Provision for Income Taxes**





For
      the
      nine months ended September 30, 2008, income before provision for income taxes
      was $2,201,186 from interest income and general and administrative expenses
      discussed above.





**Income
      Taxes**





For
      the
      nine months ended September 30, 2008, income tax expense was $914,380 (41.54%
      effective rate), consisting of $655,265 in federal taxes and $259,115 in state
      income taxes. Since it is not more likely than not that we will be able to
      use
      our cumulative state tax assets in the future, no state deferred tax asset
      was
      recorded leading to a higher than normal effective tax rate. The trustee of
      the
      trust account will distribute funds to us to pay any taxes resulting from
      interest accrued on the funds held in the trust account.





**Net
      Income**





For
      the
      nine months ended September 30, 2008, net income was $1,286,806, due to the
      factors discussed above.





**Results
      of Operations - April 26, 2007 (inception) to September 30,
      2008**





**Interest
      Income**





For
      the
      period from April 26, 2007 (inception) to September 30, 2008, we had gross
      interest income of approximately $4,200,000. The average yield during this
      period was 3.16%.





**General
      and Administrative Expenses**





For
      the
      period from April 26, 2007 (inception) to September 30, 2008, we had general
      and
      administrative and formation expenses of $717,277 and $1,000, respectively,
      primarily consisting of legal expenses, administrative services fee, accounting
      fees, Delaware franchise taxes, travel expenses, and directors and officer’s
      liability insurance.





**Income
      Before Provision for Income Taxes**





For
      the
      period from April 26, 2007 (inception) to September 30, 2008, income before
      provision for income taxes was $3,400,107 from interest income and general
      and
      administrative expenses discussed above.





**Income
      Taxes**





For
      the
      period from April 26, 2007 (inception) to September 30, 2008, income tax expense
      was $1,393,229 (40.98% effective rate), consisting of $1,026,211 in federal
      taxes and $367,018 in state income taxes. The trustee of the trust account
      will
      distribute funds to us to pay any taxes resulting from interest accrued on
      the
      funds held in the trust account.





**Net
      Income**





For
      the
      period from April 26, 2007 (inception) to September 30, 2008, net income was
      $2,006,878, due to the factors discussed above.


14


**Highlands
      Acquisition Corp.**


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





**Results
      of Operations - April 26, 2007 (inception) to September 30,
      2007**





**Interest
      Income**





For
      the
      period from April 26, 2007 (inception) to September 30, 2007, we had no interest
      income.





**Deferred
      Trust Interest**





For
      the
      period from April 26, 2007 (inception) to September 30, 2007, we had no deferred
      trust interest.





**General
      and Administrative Expenses**





For
      the
      period from April 26, 2007 (inception) to September 30, 2007, we had general
      and
      administrative and formation expenses of $6,455 and $1,000, respectively,
      primarily consisting of insurance and formation costs.





**Loss
      Before Provision for Income Taxes**





For
      the
      period from April 26, 2007 (inception) to September 30, 2007, loss before
      provision for income taxes was $7,455 from general and administrative and
      formation expenses discussed above.





**Income
      Taxes**





For
      the
      period from April 26, 2007 (inception) to September 30, 2007, there was no
      income tax benefit recorded.





**Net
      Loss**





For
      the
      period from April 26, 2007 (inception) to September 30, 2007, net loss was
      $(7,455), due to the factors discussed above.





**Financial
      Condition and Liquidity**




On
      October 9, 2007 we consummated our initial public offering of 12,000,000 units
      and the private placement of 3,250,000 warrants (the “Sponsors’ Warrants”) to
      our founders and affiliates of our founders and on October 15, 2007 we closed
      on
      the exercise of the underwriters’ over-allotment option for an additional
      1,800,000 units, resulting in aggregate gross proceeds from our initial public
      offering (including the over-allotment option) and the private placement of
      the
      Sponsors’ Warrants of $141,250,000. We paid or incurred a total of $5,320,000 in
      underwriting discounts and commissions (not including $3,990,000 which was
      deferred by the underwriters until completion of a Business Combination) and
      approximately $667,000 for other costs and expenses related to our initial
      public offering. After deducting the underwriting discounts and commissions
      and
      the offering expenses, the total net proceeds, including $3,250,000 from the
      sale of the Sponsor’ Warrants to us, from the offering were approximately
      $135,263,000 (including $3.99 million in deferred underwriters commission),
      and
      an amount of $134,830,000 was deposited into 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.


15


**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 two year period to include:




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




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




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




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




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




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




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





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





Taxes
            
            Working Capital
            
            TotalJanuary
                25, 2008
            
            $
            611,203
            
            $
            -
            
            $
            611,203April
                9, 2008
            
            
            130,000
            
            
            
            
            
            130,000June
                11, 2008
            
            
            829,671
            
            
            
            
            
            829,671June
                25, 2008
            
            
            
            
            
            150,000
            
            
            150,000September
                5, 2008
            
            
            240,000
            
            
            
            
            
            240,000September
                8, 2008
            
            
            
            
            
            300,000
            
            
            300,000Total
            
            $
            1,810,874
            
            $
            450,000
            
            $
            2,260,874




**New
      Accounting Pronouncements**




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


16


**Highlands
      Acquisition Corp.**


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




In
      December 2007, the FASB released SFAS No. 141(R), Business Combinations (revised
      2007) (“SFAS 141(R)”), which changes many well-established business combination
      accounting practices and significantly affects how acquisition transactions
      are
      reflected in the financial statements. Additionally, SFAS 141(R) will affect
      how
      companies negotiate and structure transactions, model financial projections
      of
      acquisitions and communicate to stakeholders. SFAS 141(R) must be applied
      prospectively to business combinations for which the acquisition date is on
      or
      after the beginning of the first annual reporting period beginning on or after
      December 15, 2008. The Company is currently evaluating the impact the adoption
      of this statement could have on its financial condition, results of operations
      and cash flows.




In
      December 2007, the FASB released SFAS No. 160, Noncontrolling Interests in
      Consolidated Financial Statements an amendment of ARB No. 51 (“SFAS 160”), which
      establishes accounting and reporting standards for the noncontrolling interests
      in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 requires
      consolidated net income to be reported at amounts that include the amounts
      attributable to both the parent and the noncontrolling interests and requires
      disclosure, on the face of the consolidated statement of income, of the amounts
      of consolidated net income attributable to the parent and to the noncontrolling
      interest. Previously, net income attributable to the noncontrolling interest
      was
      reported as an expense or other deduction in arriving at consolidated net
      income. SFAS 160 is effective for financial statements issued for fiscal years
      beginning after December 15, 2008. The Company believes the adoption of this
      statement will not have a material impact 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.




**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
      September 30, 2008, approximately $132,802,000 (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 the Morgan Stanley Institutional Liquidity Funds – Government
      Portfolio (stock symbol:  MVRXX).  Based upon information provided by
      Morgan Stanley, (i) the Government Portfolio seeks to maintain a stable net
      asset value of $1.00 per share by investing exclusively in obligations of the
      U.S. Government and its agencies and instrumentalities and in repurchase
      agreements collateralized by such securities; (ii) at September 30, 2008, 71.3%
      of the portfolio was invested in U.S. Government Agency Securities and 28.7%
      of
      the portfolio was invested in repurchase agreements collateralized by U.S.
      Government and Agency securities; and (iii) as of October 24, 2008, the one
      day
      yield was 1.72%, and the weighted average maturity was twenty-one days.
      Therefore, due to the conservative nature of our investments, our future
      interest income sensitivity and risk are limited.




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.


17


**Highlands
      Acquisition Corp.**




**Item
      4. Controls and Procedures**




**Evaluation
      of Disclosure Controls and Procedures**




The
      Company's management carried out an evaluation, under the supervision and with
      the participation of the Company's Chief Executive Officer and Chief Financial
      Officer, its principal executive officer and principal financial officer,
      respectively, of the effectiveness of the design and operation of the Company's
      disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
      and 15d-15(e) under the Exchange Act) as of September 30, 2008, pursuant to
      Exchange Act Rule 13a-15. 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, 2008 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 fiscal quarter ended September
      30, 2008 that have materially affected, or are reasonably likely to materially
      affect the Company’s internal control over financial reporting.


18


**Highlands
      Acquisition Corp.**




**PART
      II. OTHER INFORMATION**




**Item
      1A. Risk Factors**




**Recent
      turmoil across various sectors of the financial markets may negatively impact
      the Company’s business, financial condition and/or operating
      results.**




Recently,
      the various sectors of the credit markets and the financial services industry
      have been experiencing a period of unprecedented turmoil and upheaval
      characterized by the disruption in credit markets and availability of credit
      and
      other financing, the bankruptcy, failure, collapse or sale of various financial
      institutions and an unprecedented level of intervention from the United States
      federal government. While the ultimate outcome of these events cannot be
      predicted, they may have a material adverse effect on our ability to obtain
      financing that may be necessary to effectively consummate our initial business
      combination, which could have a material adverse effect on the market price
      of
      our common stock and our business, financial condition and results of
      operations. In addition, reductions in interest rates resulting from actions
      by
      the Federal Reserve Board will result in reduced interest income to our Company,
      which may have an adverse effect on our business and financial condition.




Except
      as
      discussed above, there are no material changes to the risk factors disclosed
      in
      the factors discussed in “Risk Factors” in Part I, Item 1A of the Company’s
      Annual Report on Form 10-K for the year ended December 31, 2007, which could
      materially affect the Company’s business, financial condition or future results.
      The risks described in the Company’s filings with the Securities and Exchange
      Commission are not the only risks facing the Company. Additional risks and
      uncertainties not currently known to the Company or that the Company currently
      deems to be immaterial also may materially adversely affect the Company’s
      business, financial condition and/or operating results.


19


**Highlands
      Acquisition Corp.**




**Item
      6. Exhibits**




(a)
      Exhibits:




Exhibit
              Number
            
            Description3.1
            
            By-Laws31.1
            
            Certification
                of Principal Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                of Principal Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of Principal Executive Officer pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.32.2
            
            Certification
                of Principal Financial Officer pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.


20


**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 10, 2008*/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)


21