Millstream 10QSB/A

10QSB/A 1 millstream10qsba.htm MILLSTREAM 10QSB/A Millstream 10QSB/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB/A

Amendment No. 1

(MARK ONE)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to _____

Commission file number: 000-51065

MILLSTREAM II ACQUISITION CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware	20-1665695
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

435 Devon Park Drive, Bldg. 400, Wayne, PA 19087

(Address of principal executive offices)

(610) 975-4909

(Issuer’s telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ý No ¨

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 5,600,000 common shares as of August 14, 2006

Transitional Small Business Disclosure Format. Yes o No x

Explanatory Note

We are filing this Amendment No. 1 on Form 10-QSB/A to Millstream II Acquisition Corp.’s Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2006, which was originally filed with the Securities and Exchange Commission on August 14, 2006 (the “Original Form 10-QSB”), to amend the financial information included in such report to provide proper accounting for a legal retainer billed and expensed in the first quarter that was subsequently determined to consist of both expense and deferred items when the related support was received from the law firm in the third quarter.

This Form 10-QSB/A amends and restates only certain information in the following sections as a result of the restatement described above:

Part 1 - Item 1. Financial Statements

Part 1 - Item 2. Plan of Operations

	June 30, 2006
	As Previously Reported		As Restated

Assets	$	25,495,186	$	25,551,567

Liabilities		632,237		623,737

Common stock subject to conversion		4,744,826		4,744,826

Stockholders’ equity		20,118,123		20,183,004

	Quarter Ended June 30, 2006				Six Months Ended June 30, 2006				Period from September 24, 2004 (inception) to June 30, 2006
	As Previously Reported		As Restated		As Previously Reported		As Restated		As Previously Reported		As Restated

Net income	$	76,625	$	85,081	$	88,588	$	153,469	$	147,195	$	212,076

Average common shares outstanding		5,600,000		5,600,000		5,600,000		5,600,000		5,005,156		5,005,156

Earnings per share	$	.01	$	.02	$	.02	$	.03	$	.03	$	.04

In addition, we are also including currently dated Sarbanes Oxley Act Section 302 and Section 906 certifications of the Chairman, Chief Executive Officer and President that are attached to this Form 10-QSB/A as Exhibits 31 and 32.

Except for the amended information referred to above, this Form 10-QSB/A continues to speak as of August 14, 2006, and we have not updated or modified such report for events that occurred at a later date. Events occurring after the date of the Original Form 10-QSB, and other disclosures necessary to reflect subsequent events, will be addressed in our regular subsequent filings.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

MILLSTREAM II ACQUISITION CORPORATION

(a corporation in the development stage)

CONDENSED BALANCE SHEETS

	Restated (Unaudited) June 30, 2006		December 31, 2005

ASSETS
Current assets:
Cash and cash equivalents	$	270,813	$	533,658
Investments held in trust		24,978,034		24,443,182
Prepaid expenses and other current assets		50,573		26,125
Deferred income taxes		216,700		141,000
Total current assets		25,532,520		25,143,965

Deferred acquisition costs		35,447		-
Total assets	$	25,551,567	$	25,143,965

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	176,354	$	121,388
Income taxes payable		199,000		106,800
Deferred interest		248,383		141,416
Total liabilities		623,737		369,604

Commitment

Common stock, subject to possible conversion, 919,540 shares at conversion value		4,744,826		4,744,826

Stockholders’ Equity:
Preferred stock, $.0001 par value, authorized 1,000,000 shares; none issued		-		-
Common stock, $.0001 par value, authorized 15,000,000 shares; issued and outstanding 5,600,000 shares (which includes 919,540 shares subject to possible conversion)		560		560
Additional paid-in capital		19,970,368		19,970,368
Retained earnings accumulated during development stage		212,076		58,607
Total stockholders’ equity		20,183,004		20,029,535

Total liabilities and stockholders’ equity	$	25,551,567	$	25,143,965

See accompanying notes to unaudited condensed financial statements.

MILLSTREAM II ACQUISITION CORPORATION

(a corporation in the development stage)

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

	Restated Quarter Ended June 30, 2006			Quarter Ended June 30, 2005			Restated Six Months Ended June 30, 2006			Six Months Ended June 30, 2005			Restated September 24, 2004 (Inception) to June 30, 2006

General and administrative expenses	$	101,443		$	72,472		$	200,097		$	152,297		$	691,090

Operating loss		(101,443	)		(72,472	)		(200,097	)		(152,297	)		(691,090	)

Other income:
Interest income		2,360			3,238			4,931			7,865			18,065
Interest on trust fund investment		228,264			127,438			428,135			234,713			994,151
Total other income		230,624			130,676			433,066			242,578			1,012,216

Income before income taxes		129,181			58,204			232,969			90,281			321,126

Income tax provision		(44,100	)		(26,200	)		(79,500	)		(35,000	)		(109,050	)

Net income	$	85,081		$	32,004		$	153,469		$	55,281		$	212,076


Weighted average shares of common
stock outstanding

Basic and diluted		5,600,000		5,600,000		5,600,000		5,600,000		5,005,156

Earnings per common share

Basic and diluted	$	.02	$	.01	$	.03	$	.01	$	.04

See accompanying notes to unaudited condensed financial statements.

MILLSTREAM II ACQUISITION CORPORATION

(a corporation in the development stage)

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Restated Six Months Ended June 30, 2006			Six Months Ended June 30, 2005			Restated September 24, 2004 (Inception) to June 30, 2006
Cash flows from operating activities:
Net income	$	153,469		$	55,281		$	212,076
Adjustments to reconcile net income to net cash used in operating activities:
Interest income on investments held in trust		(535,102	)		(293,354	)		(1,242,534	)
(Increase) decrease in prepaid expenses and other current assets		(24,448	)		34,750			(50,573	)
Increase in deferred income taxes		(75,700	)		-			(216,700	)
Increase in accounts payable and accrued expenses		20,588			65,413			141,976
Increase in income taxes payable		92,200			-			199,000
Increase in deferred interest		106,967			58,641			248,383
Net cash used in operating activities		(262,026	)		(79,269	)		(708,372	)

Cash flows from investing activities:
Payments of acquisition costs		(1,069	)		-			(1,069	)
Purchase of treasury bills held in trust		(49,596,365	)		(24,027,946	)		(145,980,432	)
Maturity of treasury bills held in trust		49,596,000			24,027,000			122,245,000
Decrease (increase) in cash held in trust		615			1,196			(68	)
Net cash (used in) provided by investing activities		(819	)		250			(23,736,569	)

Cash flows from financing activities:
Proceeds from sale of shares of common stock to initial stockholders		-			-			25,000
Proceeds from note payable, stockholder		-			-			35,000
Repayment of note payable, stockholder		-			-			(35,000	)
Proceeds from public issuance of 4,600,000 units		-			-			27,600,000
Proceeds from issuance of option		-			-			100
Payment of costs of public offering		-			(32,401	)		(2,909,346	)
Net cash (used in) provided by financing activities		-			(32,401	)		24,715,754

Net (decrease) increase in cash and cash equivalents		(262,845	)		(111,420	)		270,813
Cash and cash equivalents at beginning of period		533,658			941,943			-
Cash and cash equivalents at end of period	$	270,813		$	830,523		$	270,813

Supplemental disclosure of non-cash investing activities:

Accrued acquisition costs

$ 34,378

See accompanying notes to unaudited condensed financial statements.

MILLSTREAM II ACQUISITION CORPORATION

(a corporation in the development stage)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1. Basis of Presentation

The condensed financial statements at June 30, 2006 and for the three and six months ended June 30, 2006 and 2005, and for the period from September 24, 2004 (inception) to June 30, 2006 are unaudited and include the accounts of Millstream II Acquisition Corporation (a corporation in the development stage) (“the Company”). The condensed balance sheet at December 31, 2005 has been derived from the audited financial statements.

In the opinion of management, all adjustments (consisting of normal accruals) have been made that are necessary to present fairly the financial position of the Company as of June 30, 2006 and 2005 and the results of its operations and its cash flows for the three and six months ended June 30, 2006 and 2005. The Company commenced operations effective September 24, 2004. Operating results for the interim period presented are not necessarily indicative of the results to be expected for a full year.

The statements and related notes have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations.

2. Organization and Business Operations

The Company was incorporated in Delaware on September 24, 2004 as a blank check company whose objective is to acquire an operating business.

The registration statement for the Company’s initial public offering ("the Offering") was declared effective on December 17, 2004. The Company consummated the Offering, including the over-allotment option, on December 23, 2004 and December 30, 2004, respectively, and raised total net proceeds of approximately $24,691,000. The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Offering, although substantially all of the net proceeds of the Offering are intended to be generally applied toward consummating a business combination with an operating business ("Business Combination"). There is no assurance that the Company will be able to successfully effect a Business Combination. An amount of $23,736,000 of the net proceeds was placed in an interest-bearing trust account ("Trust Account") until the earlier of (i) the consummation of a Business Combination or (ii) liquidation of the Company. Under the agreement governing the Trust Account, funds will be invested only in United States government securities (Treasury Bills) with a maturity of 180 days or less. This amount has been invested in United States Treasury Bills, which have been accounted for as trading securities (see Note 4). The remaining 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.

The Company, after signing a definitive agreement for the acquisition of a target business, will submit such transaction for stockholder approval. In the event that stockholders owning 20% 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, including all of the officers and directors of the Company ("Initial Stockholders"), have agreed to vote their 1,000,000 founding shares of common stock in accordance with the vote of the majority of all other stockholders of the Company ("Public Stockholders") with respect to any Business Combination. After consummation of a Business Combination, these voting safeguards will no longer be applicable.

MILLSTREAM II ACQUISITION CORPORATION

(a corporation in the development stage)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - (Continued)

2. Organization and Business Operations (continued)

With respect to a Business Combination that is approved and consummated, any Public Stockholder who voted against the Business Combination may demand that the Company convert his or her shares to cash. 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 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 19.99% of the aggregate number of shares owned by all Public Stockholders may seek conversion of their shares in the event of a Business Combination. Such Public Stockholders are entitled to receive their per share interest in the Trust Account computed without regard to the shares held by Initial Stockholders. Accordingly, a portion of the net proceeds from the Offering (19.99% of the amount held in the Trust Account) has been classified as common stock subject to possible conversion in the accompanying balance sheets and 19.99% of the related interest earned has been recorded as deferred interest.

The Company’s Certificate of Incorporation, as amended, provides for mandatory liquidation of the Company in the event that the Company does not consummate a Business Combination within 18 months from the date of the consummation of the Offering (June 23, 2006), or 24 months from the consummation of the Offering (December 23, 2006) if certain extension criteria have been satisfied. There is no assurance that the Company will be able to successfully effect a Business Combination during this period. This factor raises substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements are prepared assuming the Company will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. 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 due to costs related to the Offering, general and administrative expenses incurred prior to the liquidation event and since no value would be attributed to the Warrants contained in the Units sold (see Note 6).

3. Recent Accounting Pronouncement

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

4. Investments Held in Trust

Investments held in trust at June 30, 2006 consist of a zero coupon United States Treasury Bill with a face value of $25,029,000 purchased at a discount of 99.6446% due July 20, 2006 and carried on the Company’s financial statements at $24,978,034, which includes interest of $37,889 and trust cash of $93.

Investments held in trust at December 31, 2005 consist of a zero coupon United States Treasury Bill with a face value of $24,656,000 purchased at a discount of 99.0268% due March 23, 2006 and carried on the Company’s financial statements at $24,443,182, which includes interest of $26,426 and trust cash of $703.

MILLSTREAM II ACQUISITION CORPORATION

(a corporation in the development stage)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - (Continued)

5. Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share:

	Restated Quarter Ended June 30, 2006		Quarter Ended June 30, 2005		Restated Six Months Ended June 30, 2006		Six Months Ended June 30, 2005		Restated September 24, 2004 (Inception) to June 30, 2006

Numerator: Net income	$	85,081	$	32,004	$	153,469	$	55,281	$	212,076

Denominator: Average common Shares outstanding		5,600,000		5,600,000		5,600,000		5,600,000		5,005,156

Basic and diluted earnings per share	$	.02	$	.01	$	.03	$	.01	$	.04

No computation for diluted earnings per share was prepared for the Redeemable Common Stock Purchase Warrants (see Note 6) to purchase an aggregate of 9,200,000 shares of common stock at $5.00 per share and the underwriters’ option (see Note 6) to purchase 300,000 Units at an exercise price of $9.90 per Unit (with underlying warrants at $6.25 per share), respectively, that were outstanding at June 30, 2006 and 2005 because the shares underlying the conversion of the warrants are contingently issuable and the exercise price of the underwriters’ option is in excess of the related market value of the Units.

6. Stockholders’ Equity

The Offering

The Company sold 4,600,000 units ("Units") in the Offering, which included all of the 600,000 Units subject to the underwriters’ over-allotment option. Each Unit consists of one share of the Company’s common stock, $.0001 par value, and two Redeemable Common Stock Purchase Warrants ("Warrants"). Each Warrant entitles the holder to purchase from the Company one share of common stock at an exercise price of $5.00 commencing the later of the completion of a Business Combination with a target business or December 17, 2005 and expiring December 16, 2008. The Warrants will be redeemable at a price of $.01 per Warrant upon 30 days notice after the Warrants become exercisable, only in the event that the last sale price of the common stock is at least $8.50 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 connection with this Offering, the Company issued an option, for $100, to the representative of the underwriters to purchase 300,000 Units at an exercise price of $9.90 per Unit (see Common Stock Commitments below). The Company may be unable to deliver any securities upon exercise of the Warrants, including the Warrants underlying the underwriter's option, if a registration statement is not effective with respect to the common stock underlying such warrants at the time of the exercise. If the Company is unable to delivery any securities pursuant to the exercise of the warrants, including the warrants underlying the underwriter's option, the Company will have no obligation to pay registered warrant holders any cash or otherwise "net cash settle" the warrants. As a result the warrants may expire worthless.

The Company accounted for the fair value of the option, inclusive of the receipt of the $100 cash payment, as an expense of the Offering resulting in a charge directly to stockholders’ equity. The Company estimated that the fair value of this option was approximately $621,000 ($2.07 per Unit) using a Black-Scholes option-pricing model. The fair value of the option granted to the underwriter was estimated as of the date of grant using the following assumptions: (1) expected volatility of 51.45%, (2) risk-free interest rate of 3.59% and (3) expected life

MILLSTREAM II ACQUISITION CORPORATION

(a corporation in the development stage)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - (Continued)

6. Stockholders’ Equity (continued)

The Offering (continued)

of 5 years. The option may be exercised for cash or on a ‘‘cashless’’ basis, at the holder’s option, such that the holder may use the appreciated value of the option (the difference between the exercise prices of the option and the underlying Warrants and the market price of the Units and underlying securities) to exercise the option without the payment of any cash. The warrants underlying such Units are exercisable at $6.25 per share, but otherwise have the same terms and conditions as the Warrants. Separate trading of the Common Stock and Warrants underlying the Company’s Units commenced in January 2005.

Common Stock

The Company’s initial stockholders purchased 347,500 common shares for $24,947 and 527,500 common shares for $53 on September 29, 2004. On December 7, 2004, the Board of Directors authorized a stock dividend of 0.1428571 shares of common stock for each share of common stock outstanding, bringing the initial outstanding shares to 1,000,000. All references in the accompanying financial statements to the number of shares of stock outstanding for the initial stockholders have been retroactively restated to reflect this transaction.

Preferred Stock

The Company is authorized to issue 1,000,000 shares of preferred stock, par value $.0001 per share, with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. As of June 30, 2006, no shares of preferred stock have been issued.

Common Stock Commitments

The Company has 10,100,000 shares of common stock commitments in the form of Warrants and the underwriters’ option, which are currently not exercisable. Only 9,400,000 common shares are available for issuance under the current amount of authorized shares. The Company intends to increase its number of authorized shares in connection with a business combination and prior to the date in which the Warrants and the underwriters’ option become exercisable. The Company’s underwriters have committed that the Company will not be obligated to issue 240,000 of the Units described in The Offering above if the Company is unable to increase its number of authorized shares. These 240,000 Units represent 720,000 shares of common stock commitments.

7. Commitment

The Company presently occupies office space provided by an affiliate of an Initial Stockholder, who is also an officer. Such affiliate has agreed that, until the acquisition of a target business by the Company, 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 the affiliate $7,500 per month for such services commencing December 17, 2004.

MILLSTREAM II ACQUISITION CORPORATION

(a corporation in the development stage)

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - (Continued)

8. Subsequent Event

On August 11, 2006, the Company entered into a definitive merger agreement with Specialty Surfaces International, Inc. t/a Sprinturf (“Sprinturf”), a privately held company based in Wayne, Pennsylvania that is a leading developer, marketer and installer of synthetic turf systems for athletic fields and other related products for residential and commercial landscaping applications. Upon consummation of the merger, the Company will change its name to Sprinturf Corporation. As a result of the merger, the shareholder of Sprinturf will receive (i) $10,000,000 in cash, (ii) 4,166,667 shares of the common stock of the Company, representing 42.7% of the common shares of the combined entity, (iii) if the value of the 4,166,667 shares is less than $25,000,000, or $6.00 per share, measured two days prior to closing, then an amount to be paid in cash equal to the difference between $6.00 per share less the market price per share, measured two days prior to closing, multiplied by 4,166,667 shares, not to exceed $2,000,000; and (iv) an amount of delayed consideration to be paid in cash equal to 2% of the increase in Sprinturf’s annual net sales for the fiscal years ended December 31, 2007, 2008 and 2009 over Sprinturf’s net sales for the immediately preceding fiscal year not to exceed $600,000 per annum. 750,000 of the Company’s shares to be issued to Sprinturf’s stockholder will be placed in escrow to secure the Company’s indemnity rights under the merger agreement. The consummation of the merger is subject to customary closing conditions, including the approval of the merger agreement by the Company’s stockholders. In addition, as the merger will constitute a Business Combination, in order for the Company to consummate the merger, holders of less than 20% of the shares of the Company’s common stock may vote against the merger and elect to convert their shares of common stock into a pro rata share of the Trust Account.

9. Restatement

The Company is amending its Form 10-QSB previously filed on August 14, 2006 to amend the financial information included in such report to provide proper accounting for a legal retainer billed and expensed in the first quarter that was subsequently determined to consist of both expense and deferred items when the related support was received from the law firm in the third quarter.

The effect of the restatement is as follows:

	June 30, 2006
	As Previously Reported		As Restated

Assets	$	25,495,186	$	25,551,567

Liabilities		632,237		623,737

Common stock subject to conversion		4,744,826		4,744,826

Stockholders’ equity		20,118,123		20,183,004

	Quarter Ended June 30, 2006				Six Months Ended June 30, 2006				Period from September 24, 2004 (inception) to June 30, 2006
	As Previously Reported		As Restated		As Previously Reported		As Restated		As Previously Reported		As Restated

Net income	$	76,625	$	85,081	$	88,588	$	153,469	$	147,195	$	212,076

Average common shares outstanding		5,600,000		5,600,000		5,600,000		5,600,000		5,005,156		5,005,156

Earnings per share	$	.01	$	.02	$	.02	$	.03	$	.03	$	.04

Item 2. Plan of Operation.

CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-QSB includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission filings, including our report on Form 10-KSB as filed on March 30, 2006. The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report.

We were formed on September 24, 2004 to serve as a vehicle to effect a merger, capital stock exchange, asset acquisition or other similar business combination with a currently unidentified operating business that we believe has growth potential. We intend to utilize the proceeds of our initial public offering, our capital stock, debt or a combination of cash, capital stock and debt, in effecting a business combination.

We consummated our Offering on December 23, 2004. Until consummation of the Offering, all of our activity related to our formation and the Offering. Since December 23, 2004, we have been searching for prospective target businesses to acquire.

Net income of $85,081 reported for the quarter ended June 30, 2006 consists primarily of $14,336 expense for director and officer liability insurance, $22,500 expense for a monthly administrative services agreement, $20,000 for franchise and state capital stock taxes, $34,787 for legal and accounting, $44,100 for federal income taxes and $9,820 for other expenses. Interest on the trust fund investment was $228,264, excluding $57,031 of deferred interest, and interest earned on the money market account was $2,360.

Net income of $32,004 reported for the quarter ended June 30, 2005 consists primarily of $14,250 expense for director and officer liability insurance, $22,500 expense for a monthly administrative services agreement, $17,213 for franchise and state capital stock taxes, $4,904 for legal and accounting, $26,200 for federal income taxes and $13,605 for other expenses. Interest on the trust fund investment was $127,438, excluding $31,840 of deferred interest, and interest earned on the money market account was $3,238.

Net income of $153,469 reported for the six months ended June 30, 2006 consists primarily of $28,586 expense for director and officer liability insurance, $45,000 expense for a monthly administrative services agreement, $40,000 for franchise and state capital stock taxes, $68,242 for legal and accounting, $79,500 for federal income taxes and $18,269 for other expenses. Interest on the trust fund investment was $428,135, excluding $106,967 of deferred interest, and interest earned on the money market account was $4,931.

Net income of $55,281 reported for the six months ended June 30, 2005 consists primarily of $28,500 expense for director and officer liability insurance, $45,000 expense for a monthly administrative services agreement, $34,428 for franchise and state capital stock taxes, $19,051 for legal and accounting, $35,000 for federal income taxes and $25,318 for other expenses. Interest on the trust fund investment was $234,713, excluding $58,641 of deferred interest, and interest earned on the money market account was $7,865.

Net income of $212,076 reported for the period from September 24, 2004 (inception) to June 30, 2006 consists primarily of $87,961 expense for director and officer liability insurance, $138,750 expense for a monthly administrative services agreement, $126,139 for franchise and state capital stock taxes, $152,687 for legal and accounting, $109,050 for federal income taxes, $114,220 for failed acquisition costs and $71,333 for other expenses. Interest on the trust fund investment was $994,151, excluding $248,383 of deferred interest, and interest earned on the money market account was $18,065.

$23,736,000 of the net proceeds of the Offering, plus accrued interest thereon, is held in trust and the remaining proceeds are available to be used to provide for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. We will use substantially all of the net proceeds of our initial public offering 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 that we have sufficient available funds outside of the trust account to operate for at least 24 months from the date of the Offering (December 23, 2006), assuming a business combination is not consummated during that time. Over this time period, we anticipate approximately $180,000 of expenses for legal, accounting and other expenses attendant to the due diligence investigations, structuring and negotiating of a business combination, $180,000 for the administrative fee payable to 400 Building LLC ($7,500 per month for two years), $50,000 of expenses for the due diligence and investigation of a target business, $40,000 of expenses in legal and accounting fees relating to our SEC reporting obligations and $505,000 for general working capital that will be used for miscellaneous expenses and reserves, including approximately $114,000 for director and officer liability insurance premiums (for two years). We do not believe we will need to raise additional funds 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 it is required to consummate a business combination that is presented to us. We would only consummate such a fundraising simultaneously with the consummation of a business combination.

We are obligated, commencing December 17, 2004, to pay to 400 Building LLC, an affiliate of Arthur Spector, our chairman of the board, chief executive officer and president, a monthly fee of $7,500 for general and administrative services. In addition, on September 29, 2004, Mr. Spector advanced $35,000 to us, on a non-interest bearing basis, for payment on our behalf of offering expenses. This loan was repaid in December 2004 out of proceeds of the Offering.

In connection with the Offering, we issued to the underwriters, for $100, an option to purchase up to a total of 300,000 units exercisable at $9.90 per unit. The units issuable upon exercise of this purchase option are identical to the units we sold in the Offering except that the warrants included in the option have an exercise price of $6.25. We estimated that the fair value of this option was approximately $621,000 ($2.07 per unit underlying such option) using a Black-Scholes option-pricing model. The fair value of the option granted to the underwriter was estimated as of the date of grant using the following assumptions: (1) expected volatility of 51.45%, (2) risk-free interest rate of 3.59% and (3) expected life of 5 years.

Off-balance sheet arrangements

Options and warrants issued in conjunction with our initial public offering are equity-linked derivatives and, accordingly, represent off-balance sheet arrangements. The options and warrants meet the scope exception in paragraph 11(a) of FAS 133 and are accordingly not accounted for as derivatives for purposes of FAS 133, but instead are accounted for as equity. See Note 6 to the financial statements for more information.

Item 3. Controls and Procedures.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our chief executive officer, as appropriate to allow timely decisions regarding required disclosure.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer (principal executive, financial and accounting officer) carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2006. Based upon his evaluation, he concluded that our disclosure controls and procedures were effective.

Our internal control over financial reporting is a process designed by, or under the supervision of, our chief executive officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles (United States). Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles (United States), and that our receipts and expenditures are being made only in accordance with the authorization of our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On December 23, 2004, we consummated the Offering of 4,000,000 Units, with each Unit consisting of one share of our common stock and two warrants, each to purchase one share of our common stock at an exercise price of $5.00 per share. On December 30, 2004, we closed on an additional 600,000 Units that were subject to the underwriters’ over-allotment option. The Units were sold at an offering price of $6.00 per unit, generating total gross proceeds of $27,600,000. EarlyBirdCapital, Inc. acted as lead underwriter. The securities sold in the Offering were registered under the Securities Act of 1933 on a registration statement on Form S-1 (No. 333-119937). The Securities and Exchange Commission declared the registration statement effective on December 17, 2004.

We paid a total of $2,909,000 in underwriting discounts and commissions and offering expenses. After deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds to us from the Offering were approximately $24,691,000, of which $23,736,000 was deposited into the trust account (or $5.16 per share sold in the Offering) and the remaining proceeds are available to be used to provide for business, legal and accounting due diligence on prospective business combinations and continuing general and administrative expenses.

For a description of the use of the proceeds generated in the Offering, see Part I, Item 2 of this Form 10-QSB.

Item 6. Exhibits.

Exhibit No.	Description

31	Certification of Chairman, Chief Executive Officer and President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32	Certification of Chairman, Chief Executive Officer and President pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MILLSTREAM II ACQUISITION CORPORATION
	By: /s/ Arthur Spector
	Arthur Spector
	Chairman of the Board, President and Chief Executive Officer (Principal executive, financial and accounting officer)

Date: November 14, 2006