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
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|
20-8924044
|
(State
or other jurisdiction of
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|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
Number)
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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
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|
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:
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Page
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Item
1 – Financial Statements
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|
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Condensed
Balance Sheets as of March 31, 2008 (Unaudited) and December 31,
2007
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1
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Condensed
Statements of Income (Unaudited) - Three months ended March 31,
2008 and
for the period April 26, 2007 (inception) to March 31,
2008
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2
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Condensed
Statement of Stockholders’ Equity for the Period April 26, 2007
(inception) to March 31, 2008 (Unaudited)
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3
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Condensed
Statements of Cash Flows (Unaudited) - Three months ended March
31, 2008
and for the period April 26, 2007 (inception) to March 31,
2008
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4
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Notes
to Unaudited Condensed Financial Statements
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5
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Item
2 – Management’s Discussion and Analysis of Financial Condition and
Results of Operations
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11
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Item
3 – Quantitative and Qualitative Disclosures About Market
Risk
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14
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Item
4 – Procedures and Controls
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15
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PART
II. OTHER INFORMATION
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16
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Item
1A. Risk Factors
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16
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Item
6 - Exhibits
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17
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SIGNATURES
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18
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PART
I. FINANCIAL INFORMATION
Item
1.
Financial Statements
Highlands
Acquisition Corp.
(a
corporation in the development stage)
CONDENSED
BALANCE SHEETS
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|
March 31, 2008
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December 31, 2007
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(Unaudited)
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ASSETS
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Cash
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$
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163,691
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$
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269,314
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Cash
held in trust
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132,862,966
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132,258,345
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Cash
held in trust from underwriter
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3,990,000
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3,990,000
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Prepaid
expenses
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55,126
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66,585
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Deferred
tax asset
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125,409
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59,998
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Total
assets
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$
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137,197,192
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$
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136,644,242
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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Accounts
payable
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$
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2,812
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$
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10,945
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Accrued
expenses
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113,460
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84,238
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Accrued
offering costs
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70
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2,335
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Income
taxes payable
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457,263
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538,847
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Deferred
underwriting fee
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3,990,000
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3,990,000
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Total
liabilities
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4,563,605
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4,626,365
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Common
Stock, subject to possible conversion of shares at conversion
value
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40,448,990
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40,448,990
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Commitments
(Note 4)
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Stockholders’
equity
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Preferred
stock, $.0001 par value Authorized 1,000,000 shares; none issued
and
outstanding
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-
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-
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Common
stock, $.0001 par value; 50,000,000 shares authorized; 17,229,300
and
17,250,000 shares issued and 17,229,300 and 17,250,000 outstanding
in 2008
and 2007, respectively
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1,723
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1,725
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Additional
paid-in capital
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90,846,942
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90,847,090
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Income
accumulated during the development stage
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1,335,932
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720,072
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Total
stockholders’ equity
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92,184,597
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91,568,887
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Total
liabilities and stockholders’ equity
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$
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137,197,192
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$
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136,644,242
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See
Notes to Unaudited Condensed Financial Statements
Highlands
Acquisition Corp.
(a
corporation in the development stage)
STATEMENTS
OF INCOME
(unaudited)
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Three Months
Ended
March 31, 2008
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For the period
April 26, 2007
(inception) to
March 31, 2008
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Interest
income
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$
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1,215,833
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$
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2,634,178
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General
and administrative expenses
|
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(189,968
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)
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(409,392
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)
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Income
before provision for income taxes
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1,025,865
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2,224,786
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Provision
for income taxes
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410,005
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888,854
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Net
income
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$
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615,860
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$
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1,335,932
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Net
income per common share – basic and diluted
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$
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0.04
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Weighted
average common shares outstanding, basic and diluted
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17,243,631
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See
Notes to Unaudited Condensed Financial Statements
Highlands
Acquisition Corp.
(a
corporation in the development stage)
STATEMENT
OF STOCKHOLDERS’ EQUITY
For
the period April 26, 2007 (inception) to March 31, 2008
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Common Stock
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Additional
paid-in
capital
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Income
Accumulated
During the
Development Stage
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|
Stockholders’
Equity
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Shares
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Amount
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Issuance of units to Founders on May 1, 2007 at approximately $0.007 per unit
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3,450,000
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$
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345
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$
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24,655
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$
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-
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$
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25,000
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Sale of
Private Placement Warrants on October 9, 2007
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3,250,000
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3,250,000
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Sale
of 13,800,000 units at $10 per unit through public offering (net
of
underwriter’s discount and offering expenses) including 4,139,999 shares
subject to possible conversion on October 9, 2007.
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13,800,000
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1,380
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128,021,425
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128,022,805
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Proceeds
subject to possible conversion
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(40,448,990
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)
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(40,448,990
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)
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Net
income
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|
|
|
|
|
|
|
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720,072
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720,072
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Balance
at December 31, 2007
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17,250,000
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$
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1,725
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$
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90,847,090
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$
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720,072
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$
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91,568,887
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Unaudited
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Repurchase
of 20,700 units at $0.007 per unit
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(20,700
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)
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(2
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)
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(148
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)
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|
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(150
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)
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Net
income
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|
|
|
|
|
|
|
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615,860
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|
615,860
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Balance
at March 31, 2008
|
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17,229,300
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$
|
1,723
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$
|
90,846,942
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$
|
1,335,932
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$
|
92,184,597
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|
See
Notes to Unaudited Condensed Financial Statements
Highlands
Acquisition Corp.
(a
corporation in the development stage)
STATEMENTS
OF CASH FLOWS
(unaudited)
|
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Three Months
Ended
March 31, 2008
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For the period
April
26, 2007
(inception)
to
March 31, 2008
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Cash
flows from operating activities
|
|
|
|
|
|
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Net
income
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$
|
615,860
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$
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1,335,932
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Adjustment
to reconcile net income to net cash used in operating
activities:
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Income
earned on trust account
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(1,215,824
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)
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(2,634,169
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)
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Decrease/(increase)
in prepaid expenses
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11,459
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(55,126
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)
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Increase
in deferred taxes
|
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(65,411
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)
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(125,409
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)
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(Decrease)/increase
in accounts payable
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(8,133
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)
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2,812
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Increase
in accrued expenses
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29,222
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113,460
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(Decrease)/increase
in income taxes payable
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(81,584
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)
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457,263
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Net
cash used in operating activities
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(714,411
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)
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(905,237
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)
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Cash
flows from investing activities
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Cash
placed in trust account
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-
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(134,830,000
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)
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Disbursements
from trust to pay taxes
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611,203
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611,203
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Net
cash provided by/(used in) investing activities
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611,203
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(134,218,797
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)
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Cash
flows from financing activities
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Proceeds
from sale of units to public
|
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|
-
|
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138,000,000
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Proceeds
from private placement of warrants
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-
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3,250,000
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Proceeds
from sale of units to Founders
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-
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25,000
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Proceeds
from borrowings under notes payable to affiliates
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-
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100,000
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Payments
of notes payable to affiliates
|
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|
-
|
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(100,000
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)
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Payment
of offering costs
|
|
|
(2,265
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)
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|
(5,987,125
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)
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Repurchase
of founder’s units
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|
(150
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)
|
|
(150
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)
|
Net
cash (used in)/provided by financing activities
|
|
|
(2,415
|
)
|
|
135,287,725
|
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Net
(decrease)/increase in cash
|
|
|
(105,623
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)
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163,691
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Cash
at beginning of period
|
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269,314
|
|
|
—
|
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Cash
at end of period
|
|
$
|
163,691
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|
$
|
163,691
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of noncash financing activities:
|
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Accrual
of offering costs
|
|
$
|
-
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|
$
|
70
|
|
Accrual
of deferred underwriting fee
|
|
$
|
-
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|
$
|
3,990,000
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|
|
|
|
|
|
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Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
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|
Cash
paid for income taxes
|
|
$
|
557,000
|
|
$
|
557,000
|
|
See
Notes to Unaudited Condensed Financial Statements
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
|
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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