UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

the Securities Exchange Act of 1934

For the quarterly period ended March 31, 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. Employer
incorporation or organization)	Identification Number)

One Paragon Drive, Suite 125

Montvale, New Jersey 07645

(Address of principal executive offices)

(Zip code)

(201) 573-8400

(Registrant's telephone number, including area code)

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

As of May 2, 2008, there were outstanding 17,229,300 shares of Common Stock, par value $0.0001.

TABLE OF CONTENTS

Highlands Acquisition Corp.

(a corporation in the development stage)

PART I. FINANCIAL INFORMATION:	Page
Item 1 – Financial Statements
Condensed Balance Sheets as of March 31, 2008 (Unaudited) and December 31, 2007	1
Condensed Statements of Income (Unaudited) - Three months ended March 31, 2008 and for the period April 26, 2007 (inception) to March 31, 2008	2
Condensed Statement of Stockholders’ Equity for the Period April 26, 2007 (inception) to March 31, 2008 (Unaudited)	3
Condensed Statements of Cash Flows (Unaudited) - Three months ended March 31, 2008 and for the period April 26, 2007 (inception) to March 31, 2008	4
Notes to Unaudited Condensed Financial Statements	5
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	14
Item 4 – Procedures and Controls	15
PART II. OTHER INFORMATION	16
Item 1A. Risk Factors	16
Item 6 - Exhibits	17
SIGNATURES	18

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Highlands Acquisition Corp.

(a corporation in the development stage)

CONDENSED BALANCE SHEETS

	March 31, 2008		December 31, 2007
	(Unaudited)
ASSETS
Cash	$	163,691	$	269,314
Cash held in trust		132,862,966		132,258,345
Cash held in trust from underwriter		3,990,000		3,990,000
Prepaid expenses		55,126		66,585
Deferred tax asset		125,409		59,998
Total assets	$	137,197,192	$	136,644,242
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	2,812	$	10,945
Accrued expenses		113,460		84,238
Accrued offering costs		70		2,335
Income taxes payable		457,263		538,847
Deferred underwriting fee		3,990,000		3,990,000
Total liabilities		4,563,605		4,626,365
Common Stock, subject to possible conversion of shares at conversion value		40,448,990		40,448,990
Commitments (Note 4)
Stockholders’ equity
Preferred stock, $.0001 par value Authorized 1,000,000 shares; none issued and outstanding		-		-
Common stock, $.0001 par value; 50,000,000 shares authorized; 17,229,300 and 17,250,000 shares issued and 17,229,300 and 17,250,000 outstanding in 2008 and 2007, respectively		1,723		1,725
Additional paid-in capital		90,846,942		90,847,090
Income accumulated during the development stage		1,335,932		720,072
Total stockholders’ equity		92,184,597		91,568,887
Total liabilities and stockholders’ equity	$	137,197,192	$	136,644,242

See Notes to Unaudited Condensed Financial Statements

1

Highlands Acquisition Corp.

(a corporation in the development stage)

STATEMENTS OF INCOME

(unaudited)

	Three Months  Ended March 31, 2008			For the period  April 26, 2007  (inception) to  March 31, 2008
Interest income	$	1,215,833		$	2,634,178
General and administrative expenses		(189,968	)		(409,392	)
Income before provision for income taxes		1,025,865			2,224,786
Provision for income taxes		410,005			888,854
Net income	$	615,860		$	1,335,932
Net income per common share – basic and diluted	$	0.04
Weighted average common shares outstanding, basic and diluted		17,243,631

See Notes to Unaudited Condensed Financial Statements

2

Highlands Acquisition Corp.

(a corporation in the development stage)

STATEMENT OF STOCKHOLDERS’ EQUITY

For the period April 26, 2007 (inception) to March 31, 2008

	Common Stock						Additional  paid-in capital			Income  Accumulated  During the  Development Stage		Stockholders’  Equity
	Shares			Amount
Issuance of units to Founders on May 1, 2007 at approximately $0.007 per unit		3,450,000		$	345		$	24,655		$	-	$	25,000
Sale of Private Placement Warrants on October 9, 2007								3,250,000					3,250,000
Sale 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					128,022,805
Proceeds subject to possible conversion								(40,448,990	)				(40,448,990	)
Net income											720,072		720,072
Balance at December 31, 2007		17,250,000		$	1,725		$	90,847,090		$	720,072	$	91,568,887
Unaudited
Repurchase of 20,700 units at $0.007 per unit		(20,700	)		(2	)		(148	)				(150	)
Net income											615,860		615,860
Balance at March 31, 2008		17,229,300		$	1,723		$	90,846,942		$	1,335,932	$	92,184,597

See Notes to Unaudited Condensed Financial Statements

3

Highlands Acquisition Corp.

(a corporation in the development stage)

STATEMENTS OF CASH FLOWS

(unaudited)

	Three Months  Ended  March 31, 2008			For the period  April 26, 2007  (inception) to  March 31, 2008
Cash flows from operating activities
Net income	$	615,860		$	1,335,932
Adjustment to reconcile net income to net cash used in operating activities:
Income earned on trust account		(1,215,824	)		(2,634,169	)
Decrease/(increase) in prepaid expenses		11,459			(55,126	)
Increase in deferred taxes		(65,411	)		(125,409	)
(Decrease)/increase in accounts payable		(8,133	)		2,812
Increase in accrued expenses		29,222			113,460
(Decrease)/increase in income taxes payable		(81,584	)		457,263
Net cash used in operating activities		(714,411	)		(905,237	)
Cash flows from investing activities
Cash placed in trust account		-			(134,830,000	)
Disbursements from trust to pay taxes		611,203			611,203
Net cash provided by/(used in) investing activities		611,203			(134,218,797	)
Cash flows from financing activities
Proceeds from sale of units to public		-			138,000,000
Proceeds from private placement of warrants		-			3,250,000
Proceeds from sale of units to Founders		-			25,000
Proceeds from borrowings under notes payable to affiliates		-			100,000
Payments of notes payable to affiliates		-			(100,000	)
Payment of offering costs		(2,265	)		(5,987,125	)
Repurchase of founder’s units		(150	)		(150	)
Net cash (used in)/provided by financing activities		(2,415	)		135,287,725
Net (decrease)/increase in cash		(105,623	)		163,691
Cash at beginning of period		269,314			—
Cash at end of period	$	163,691		$	163,691
Supplemental disclosure of noncash financing activities:
Accrual of offering costs	$	-		$	70
Accrual of deferred underwriting fee	$	-		$	3,990,000
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	557,000		$	557,000

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 March 31, 2008 and for the period from April 26, 2007 (inception) through March 31, 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 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 $131,273,000, 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.

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 March 31, 2008, the funds are invested in money market funds. 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. No funds have been released for working capital requirements and $611,203 has been released to fund tax obligations at March 31, 2008.

5

Highlands Acquisition Corp.

(a corporation in the development stage)

Notes to Unaudited Condensed Financial Statements—(Continued)

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 (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 month period March 31, 2008.

	March 31, 2008
Numerator for basic and diluted earnings per share
Net income available to common shareholders	$	615,860
Denominator:
Basic earnings per share weighted-average shares outstanding		17,243,631
Effect of dilutive securities:
Effect of shares issuable under warrants outstanding, based on the treasury stock method		-
Diluted earnings per share
Adjusted weighted-average shares outstanding		17,243,631
Basic earnings per share	$	0.04
Diluted earnings per share	$	0.04

Other contingent shares: The dilutive effect of shares issuable does not include 13,800,000 Public Warrants that are not exercisable until later of the completion of our initial business combination or January 3, 2009. Furthermore, 3,429,300 Founders Warrants and 3,250,000 Sponsors’ warrants are also excluded from the dilutive effect since they are not exercisable until the Public Warrants 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 December 2007, the FASB released SFAS No. 141(R), Business Combinations (revised 2007) (“SFAS 142(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.

7

Highlands Acquisition Corp.

(a corporation in the development stage)

Notes to Unaudited Condensed Financial Statements—(Continued)

2. Initial Public Offering

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

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

Simultaneously with the consummation of the Offering, certain of the Company’s affiliates purchased the 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 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.

8

3. 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.

4. 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 income for the three months ended March 31, 2008 and the period from April 26, 2007 (inception) to March 31, 2008, includes $30,000 and $60,000, 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 founding shares upon the Company’s liquidation.

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

The Founders and the holders of the Sponsors’ Warrants (or underlying securities) and the holders of the Co-Investment Units (or underlying securities) will be entitled to registration rights with respect to their securities pursuant to an agreement signed prior to the effective date of the Offering. For a description of such registration rights agreement see Part II, Item 8, Note 2 of our 2007 Annual Report on Form 10-K.

5. Preferred Stock

The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the 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)

6. Common Stock

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

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

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 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 March 31, 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 March 31, 2008

Interest Income

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

On April 30, 2008 the Federal Reserve Board met and lowered the federal funds rate from 2.25% to 2.00%. 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

Operating Expenses

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

Income Before Provision for Income Taxes

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

Income Taxes

For the three months ended March 31, 2008, income tax expense was $410,005, consisting of $317,615 in federal taxes and $92,390 in state income taxes. The trustee of 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 March 31, 2008, net income was $615,860, due to the factors discussed above.

Results of Operations – April 26, 2007 (inception) to March 31, 2008

Interest Income

For the period from April 26, 2007 (inception) to March 31, 2008, we had interest income of approximately $2.6 million. The average yield during this period was 4.06%.

Operating Expenses

For the period from April 26, 2007 (inception) to March 31, 2008, we had general and administrative expenses of $409,392, 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 March 31, 2008, income before provision for income taxes was $2,224,786 from interest income and general and administrative expenses discussed above.

Income Taxes

For the period from April 26, 2007 (inception) to March 31, 2008, income tax expense was $888,854, consisting of $688,560 in federal taxes and $200,294 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 March 31, 2008, net income was $1,335,932, due to the factors discussed above.

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Highlands Acquisition Corp.

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

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.

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 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 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.

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Highlands Acquisition Corp.

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

On January 25, 2008, at our instruction, the trustee transferred $611,203 of interest earned on the trust account into our operating cash account for tax payments.

New Accounting Pronouncements

In December 2007, the FASB released SFAS No. 141(R), Business Combinations (revised 2007) (“SFAS 142(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 March 31, 2008, approximately $132,863,000 (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. 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.

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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 March 31, 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 March 31, 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 March 31, 2008 that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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Highlands Acquisition Corp.

PART II. OTHER INFORMATION

Item 1A. Risk Factors

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 Annual Report on Form 10-K 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.

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Highlands Acquisition Corp.

Item 6. Exhibits

(a) Exhibits:

Exhibit Number	Description
31.1	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.

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Highlands Acquisition Corp.

SIGNATURES

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

	HIGHLANDS ACQUISITION CORP.
Dated: May 9, 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)

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