##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  Commission file number 000-50348
 NATIONSHEALTH, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    06-1688360(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)13650 N.W. 8th Street, Sunrise, Florida
    
    33325(Address of principal executive offices)
    
    (Zip Code)
 (954) 903-5000  (Registrants telephone number, including area code)
 N/A  (Former name, former address, and former fiscal year, if changed since last report)
 x  ̈
  ̈ x
  Class
    
    Outstanding at August 12, 2005Common stock, $0.0001 par value
    
    26,150,458




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##### Table of Contents



NATIONSHEALTH, INC.
 FORM 10-Q
 FOR THE QUARTER ENDED JUNE 30, 2005
 INDEX
 PagePART I.Item 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets (unaudited)  As of June 30, 2005 and December 31, 2004
    
    
    1Condensed Consolidated Statements of Operations (unaudited) For the Three Months and Six Months ended June 30, 2005 and 2004
    
    
    2Condensed Consolidated Statements of Cash Flows (unaudited) For the Six Months ended June 30, 2005 and 2004
    
    
    3Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 4.
    
    Controls and Procedures
    
    
    33PART II.Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    34Item 6.
    
    Exhibits
    
    
    34Signatures
    
    
    
    
    37Amended and Restated Revolving Credit AgreementFirst Amendement to Amended and Restated Reveolving Credit AgreementSecond Amendment to Amended and Restated Revolving Credit AgreementStrategic AgreementSection 302 CEO CertificationSection 302 CFO CertificationSection 906 CEO and CFO Certification




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 NATIONSHEALTH, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
(In thousands)
 June 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    3,165
    
    
    $
    2,904Restricted certificate of deposit
    
    
    
    
    
    
    100Accounts receivable, net of allowance of $15,590 and $10,985,
respectively
    
    
    10,506
    
    
    
    8,708Inventory
    
    
    1,950
    
    
    
    1,719Costs related to billings in process, net
    
    
    1,779
    
    
    
    1,437Investment held in trust
    
    
    2,000
    
    
    
    2,000Prepaid expenses and other current assets
    
    
    549
    
    
    
    392Total current assets
    
    
    19,949
    
    
    
    17,260Property and equipment, net
    
    
    2,225
    
    
    
    1,770Other assets
    
    
    1,524
    
    
    
    346Total assets
    
    $
    23,698
    
    
    $
    19,376LIABILITIES AND STOCKHOLDERS DEFICIENCYCurrent Liabilities:Accounts payable
    
    $
    7,438
    
    
    $
    4,595Accounts payable, related party
    
    
    4,782
    
    
    
    5,004Accrued expenses
    
    
    5,087
    
    
    
    7,195Line of credit
    
    
    4,458
    
    
    
    2,619Total current liabilities
    
    
    21,765
    
    
    
    19,413Long-Term
Debt:Obligations under capital leases
    
    
    86
    
    
    
    Convertible notes, net
    
    
    5,137
    
    
    
    Total long-term debt
    
    
    5,223
    
    
    
    Commitments and contingenciesStockholders
Deficiency:Common stock, at par value
    
    
    3
    
    
    
    3Additional paid-in capital
    
    
    42,736
    
    
    
    32,315Accumulated deficit
    
    
    (46,029
    )
    
    
    (32,355
    )Total stockholders deficiency
    
    
    (3,290
    )
    
    
    (37
    )Total liabilities and stockholders deficiency
    
    $
    23,698
    
    
    $
    19,376
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 1




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NATIONSHEALTH, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
(In thousands, except share data)
 For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue:Net sales
    
    $
    19,995
    
    
    $
    17,859
    
    
    $
    37,132
    
    
    $
    30,695Prescription card revenue
    
    
    2,156
    
    
    
    721
    
    
    
    4,011
    
    
    
    1,19022,151
    
    
    
    18,580
    
    
    
    41,143
    
    
    
    31,885Cost of Sales
    
    
    8,485
    
    
    
    5,953
    
    
    
    15,411
    
    
    
    10,009Gross Profit
    
    
    13,666
    
    
    
    12,627
    
    
    
    25,732
    
    
    
    21,876Operating Expenses:Patient acquisition and related costs
    
    
    5,566
    
    
    
    7,157
    
    
    
    14,720
    
    
    
    12,381Patient service and fulfillment
    
    
    3,933
    
    
    
    3,718
    
    
    
    7,825
    
    
    
    6,410General and administrative
    
    
    5,313
    
    
    
    2,430
    
    
    
    9,617
    
    
    
    4,281Provision for doubtful accounts
    
    
    2,924
    
    
    
    3,256
    
    
    
    5,245
    
    
    
    5,596Depreciation and amortization
    
    
    213
    
    
    
    114
    
    
    
    429
    
    
    
    19417,949
    
    
    
    16,675
    
    
    
    37,836
    
    
    
    28,862Loss from Operations
    
    
    (4,283
    )
    
    
    (4,048
    )
    
    
    (12,104
    )
    
    
    (6,986
    )Other Income (Expense):Interest income
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    2Interest expense
    
    
    (1,117
    )
    
    
    (187
    )
    
    
    (1,590
    )
    
    
    (322
    )(1,117
    )
    
    
    (187
    )
    
    
    (1,570
    )
    
    
    (320
    )Net Loss
    
    $
    (5,400
    )
    
    $
    (4,235
    )
    
    $
    (13,674
    )
    
    $
    (7,306
    )Net loss per share:Basic and diluted
    
    $
    (0.21
    )
    
    $
    (0.16
    )
    
    $
    (0.52
    )
    
    $
    (0.28
    )Weighted average shares outstanding:Basic and diluted
    
    
    26,175
    
    
    
    26,150
    
    
    
    26,175
    
    
    
    26,150
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 2




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NATIONSHEALTH, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
(In thousands)
 For the Six MonthsEnded June 30,2005
    
    
    2004Cash Flows from Operating Activities:Net loss
    
    $
    (13,674
    )
    
    $
    (7,306
    )Adjustments to reconcile net loss to net cash and
cash equivalents used in operating activities:Provision for doubtful accounts
    
    
    5,245
    
    
    
    5,596Depreciation and amortization
    
    
    429
    
    
    
    194Amortization of note discount
    
    
    559
    
    
    
    Changes in operating assets and liabilities:(Increase) in:Accounts receivable
    
    
    (7,043
    )
    
    
    (9,361
    )Inventory
    
    
    (231
    )
    
    
    (829
    )Costs related to billings in process
    
    
    (342
    )
    
    
    (1,234
    )Prepaid expenses and other assets
    
    
    (128
    )
    
    
    (412
    )Increase (decrease) in:Accounts payable and accrued expenses
    
    
    611
    
    
    
    7,026Accounts payable, related party
    
    
    (222
    )
    
    
    3,399Net cash and cash equivalents used in operating activities
    
    
    (14,796
    )
    
    
    (2,927
    )Cash Flows from Investing Activities:Purchase of restricted certificate of deposit
    
    
    (200
    )
    
    
    (100
    )Acquisition of property and equipment
    
    
    (622
    )
    
    
    (849
    )Net cash and cash equivalents used in investing activities
    
    
    (822
    )
    
    
    (949
    )Cash Flows from Financing Activities:Proceeds from issuance of convertible notes
    
    
    15,000
    
    
    
    Net draws on lines of credit
    
    
    1,839
    
    
    
    3,684Payments for note issuance costs
    
    
    (907
    )
    
    
    Principal payments under capital lease obligations
    
    
    (53
    )
    
    
    Payments for merger costs, net
    
    
    
    
    
    
    (439
    )Net cash and cash equivalents provided by financing activities
    
    
    15,879
    
    
    
    3,245Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    261
    
    
    
    (631
    )Cash and Cash Equivalents, Beginning
    
    
    2,904
    
    
    
    1,412Cash and Cash Equivalents, Ending
    
    $
    3,165
    
    
    $
    781Non-cash Investing and Financing Activities:Equipment acquired under capital leases
    
    $
    262
    
    
    $
    Discount on convertible notes
    
    $
    10,422
    
    
    $
    Deferred merger costs incurred
    
    $
    
    
    
    $
    1,494
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 3




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NATIONSHEALTH, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. BASIS OF PRESENTATION
    2. STOCK-BASED COMPENSATION
  4




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Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss, as reported
    
    $
    (5,400
    )
    
    $
    (4,235
    )
    
    $
    (13,674
    )
    
    $
    (7,306
    )Add: Stock-based employee
compensation expense included in
net loss, net of related tax
effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deduct: Total stock-based
compensation expense determined
under fair value based method
for all awards, net of related
tax effects
    
    
    (238
    )
    
    
    
    
    
    
    (493
    )
    
    
    Pro forma
    
    $
    (5,638
    )
    
    $
    (4,235
    )
    
    $
    (14,167
    )
    
    $
    (7,306
    )Basic and Diluted loss per share:As reported
    
    $
    (0.21
    )
    
    $
    (0.16
    )
    
    $
    (0.52
    )
    
    $
    (0.28
    )Pro forma
    
    $
    (0.22
    )
    
    $
    (0.16
    )
    
    $
    (0.54
    )
    
    $
    (0.28
    )
 Share-Based Payment
 1.
    
    A modified prospective method in which compensation cost is recognized beginning
with the effective date (a) based on the requirements of SFAS No. 123(R) for all
share-based payments granted after the effective date and (b) based on the requirements of
SFAS No. 123(R) for all awards granted to employees prior to the effective date of SFAS
No. 123(R) that remain unvested on the effective date.2.
    
    A modified retrospective method which includes the requirements of the modified
prospective method described above, but also permits entities to restate based on the
amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures
either (a) all prior periods presented or (b) prior interim periods of the year of
adoption.
  5




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3. LIQUIDITY AND PROFITABILITY CONSIDERATIONS
   Additional Financing
  Liquidity
 Revolving Line of Credit
  Trade Credit Expansion
  Potential Additional Financing
   6




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Results of Operations
 Cost Reductions
  Summary
  4. BUSINESS OPERATIONS
  Medical Product Sales
  Prescription Discount Drug Card Services
  7




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Agreement with CIGNA
   5. ORGANIZATION AND CAPITALIZATION
  6. MERGER AND ACCOUNTING TREATMENT
   8




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7. RECLASSIFICATION
  8. REVENUE RECOGNITION
    9




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9. ACCOUNTS RECEIVABLE
   10. INVENTORY
  11. COSTS RELATED TO BILLINGS IN PROCESS
  12. INVESTMENT HELD IN TRUST
  13. INTERNAL SOFTWARE DEVELOPMENT COSTS
  10




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14. RELATED PARTY TRANSACTIONS
 Medical Benefit Distribution Agreement
   Notes Payable to Members
  15. LINE OF CREDIT
  11




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16. CONVERTIBLE NOTES
     12




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13




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Principal amount of notes
    
    $
    15,000Less:Unamortized discount for common stock and
beneficial conversion features
    
    
    (9,863
    )$
    5,137
  17. COMMITMENTS AND CONTINGENCIES
 Purchase Commitments
  Related
    
    
    OtherYear ending December 31:
    
    Party
    
    
    Vendors
    
    
    Total2005
    
    $
    8,261
    
    
    $
    15,614
    
    
    $
    23,8752006
    
    
    28,079
    
    
    
    15,500
    
    
    
    43,5792007
    
    
    
    
    
    
    17,050
    
    
    
    17,050$
    36,340
    
    
    $
    48,164
    
    
    $
    84,504
 Equity Participation Fee
  Employment Agreements
  14




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Agreement with CIGNA
   18. STOCKHOLDERS EQUITY
 The Offering
  Warrants to Consultants
  15




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Stock Option Plans
 2004 NationsHealth Incentive Stock Plan
  NationsHealth, Inc. 2005 Long-Term Incentive Plan
  Bonus Plan and Trust
  Preferred Stock
  Common Stock Reserved
  16




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19. BASIC AND DILUTED LOSS PER SHARE
  20. SHIPPING COSTS
  21. SUBSEQUENT EVENT
    17




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Important Factors That May Affect Future Operations and Results
   
    
    Expected future operations, revenue, gross margins and expenses
    
    Credit facilities and projected cash needs
    
    Sales opportunities, strategic relationships and marketing plans
    
    Estimates of potential markets for our products and services, including
the anticipated drivers for future growth
    
    Plans to offer a Medicare Part D program
    
    Assessment of the impact of future accounting pronouncements, including
SFAS 123(R)
   
    
    Our ability to offer a successful Medicare Part D program
    
    Declining reimbursement levels for, or increases in the costs of, products dispensed
    
    Our history of operating losses and our expectation that we will incur
significant additional operating losses
    
    An inability to raise the capital that we will need to sustain our operations
    
    Our ability to attract new customers and retain existing customers
    
    Identification of, and competition for, growth and expansion opportunities
    
    Compliance with, or changes in, government regulation and legislation, or
interpretations thereof, including, but not limited to, pharmacy licensing
requirements and healthcare reform legislation, including the Health Insurance
Portability and Accountability Act of 1996, or HIPAA
 18




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
    
    An inability to establish and maintain successful collaborative relationships
could adversely affect our ability to generate revenue
    
    Adverse developments in any investigation related to the pharmaceutical
industry
    
    Competition and technological change that may make our products and
technologies less attractive or obsolete
    
    An inability to obtain and maintain intellectual property protection for
our technologies
    
    Adverse resolution of future lawsuits or investigations
    
    Significant fluctuations in our revenue and operating results, which have
occurred in the past and which we expect to continue in the future
    
    Any loss or inability to hire and retain qualified personnel
· Our exposure to product liability in excess of our insurance coverage
    
    Any failure to maintain an effective system of internal controls in the
future could adversely affect our ability to accurately report financial results or
prevent fraud
    
    Compliance with changing regulation of corporate governance and public
disclosure may result in additional expenses
    
    Our common stock may continue to have a volatile public trading price and
low trading volume
    
    Anti-takeover provisions in our governing documents and under Delaware law
may make an acquisition of us more difficult
  Business
  Medical Product Sale.
  19




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Retail Program
  Prescription Discount Drug Card Services
  NationsHealth Discount Prescription Drug Card
  20




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Medicare-approved Prescription Drug Card
    CIGNA Agreement and Medicare Part D
  21




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Patient Management
    
    
    Direct-to-consumer marketing
    
    Enrollment and service of individual patients
    
    Fulfillment, reorder and electronic medical records management
    
    Inventory management and distribution systems
    
    Contracting with manufacturers
    
    Regulatory and Medicare compliance, audit and claims settlement
    
    Medicare and private insurer billing and accounts receivable management
 Background
  22




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Merger Accounting Treatment
  Critical Accounting Policies
  23




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Recent Developments
 Medicare Modernization Act
     24




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Results of Operations
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004$
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %Revenue:Net sales
    
    $
    19,995
    
    
    
    90.3
    %
    
    $
    17,859
    
    
    
    96.1
    %
    
    $
    37,132
    
    
    
    90.3
    %
    
    $
    30,695
    
    
    
    96.3
    %Prescription card revenue
    
    
    2,156
    
    
    
    9.7
    
    
    
    721
    
    
    
    3.9
    
    
    
    4,011
    
    
    
    9.7
    
    
    
    1,190
    
    
    
    3.722,151
    
    
    
    100.0
    
    
    
    18,580
    
    
    
    100.0
    
    
    
    41,143
    
    
    
    100.0
    
    
    
    31,885
    
    
    
    100.0Cost of Sales
    
    
    8,485
    
    
    
    38.3
    
    
    
    5,953
    
    
    
    32.0
    
    
    
    15,411
    
    
    
    37.5
    
    
    
    10,009
    
    
    
    31.4Gross Profit
    
    
    13,666
    
    
    
    61.7
    
    
    
    12,627
    
    
    
    68.0
    
    
    
    25,732
    
    
    
    62.5
    
    
    
    21,876
    
    
    
    68.6Operating Expenses:Patient acquisition and related costs
    
    
    5,566
    
    
    
    25.1
    
    
    
    7,157
    
    
    
    38.5
    
    
    
    14,720
    
    
    
    35.8
    
    
    
    12,381
    
    
    
    38.8Patient service and fulfillment
    
    
    3,933
    
    
    
    17.8
    
    
    
    3,718
    
    
    
    20.0
    
    
    
    7,825
    
    
    
    19.0
    
    
    
    6,410
    
    
    
    20.1General and administrative
    
    
    5,313
    
    
    
    24.0
    
    
    
    2,430
    
    
    
    13.1
    
    
    
    9,617
    
    
    
    23.4
    
    
    
    4,281
    
    
    
    13.4Provision for doubtful accounts
    
    
    2,924
    
    
    
    13.2
    
    
    
    3,256
    
    
    
    17.5
    
    
    
    5,245
    
    
    
    12.7
    
    
    
    5,596
    
    
    
    17.6Depreciation and amortization
    
    
    213
    
    
    
    1.0
    
    
    
    114
    
    
    
    0.6
    
    
    
    429
    
    
    
    1.0
    
    
    
    194
    
    
    
    0.617,949
    
    
    
    81.0
    
    
    
    16,675
    
    
    
    89.7
    
    
    
    37,836
    
    
    
    92.0
    
    
    
    28,862
    
    
    
    90.5Loss from Operations
    
    
    (4,283
    )
    
    
    (19.3
    )
    
    
    (4,048
    )
    
    
    (21.8
    )
    
    
    (12,104
    )
    
    
    (29.4
    )
    
    
    (6,986
    )
    
    
    (21.9
    )Other expense, net of other income
    
    
    (1,117
    )
    
    
    (5.0
    )
    
    
    (187
    )
    
    
    (1.0
    )
    
    
    (1,570
    )
    
    
    (3.8
    )
    
    
    (320
    )
    
    
    (1.0
    )Net loss
    
    $
    (5,400
    )
    
    
    (24.4
    %)
    
    $
    (4,235
    )
    
    
    (22.8
    %)
    
    $
    (13,674
    )
    
    
    (33.2
    %)
    
    $
    (7,306
    )
    
    
    (22.9
    %)
 Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
 Revenue.
   25




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Cost of Sales .
  Patient Acquisition and Related Costs.
 Patient Service and Fulfillment Expenses .
 26




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General and Administrative Expenses .
 Provision for Doubtful Accounts.
 Depreciation and Amortization .
 Other Expense.
 Net Loss.
  27




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Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
 Revenue.
  Cost of Sales .
  Patient Acquisition and Related Costs.
 28




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Patient Service and Fulfillment Expenses .
 General and Administrative Expenses .
 Provision for Doubtful Accounts.
 Depreciation and Amortization .
 Other Expense.
 Net Loss.
 29




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LIQUIDITY AND CAPITAL RESOURCES
        30




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31




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Off-Balance-Sheet Arrangements
  32




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
     33




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PART IIOTHER INFORMATION
 
 Item 4. Submission of Matters to a Vote of Security Holders
  For
    
    Against
    
    WithheldTo elect four Class I directors to
serve until 2008Timothy Fairbanks
    
    
    24,516,584
    
    
    
    
    
    
    
    3,435Gary D. Small, D.P.M.
    
    
    24,516,584
    
    
    
    
    
    
    
    3,435Raymond N. Steinman
    
    
    24,516,584
    
    
    
    
    
    
    
    3,435Michael D. Tabris
    
    
    24,516,584
    
    
    
    
    
    
    
    3,435
 BrokerFor
    
    Against
    
    Abstained
    
    Non-VotesTo adopt the NationsHealth, Inc.
2005 Long-Term Incentive Plan
    
    
    22,546,214
    
    
    
    66,000
    
    
    
    
    
    
    
    1,907,804To ratify the selection of Ernst &
Young LLP as the Companys
independent registered public
accounting firm for the fiscal year
ending December 31, 2005
    
    
    24,518,019
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    
 
 Item 6. Exhibits
  Exhibit
No.
    
    Description2.1
    
    Amended and Restated Agreement and Plan of Merger dated as of
August 10, 2004 among the Company, N Merger L.L.C. and
NationsHealth Holdings, L.L.C. Filed as Annex A to the
Companys Definitive Proxy Statement (File No. 000-50348)
filed on August 13, 2004 and incorporated herein by reference.3.1
    
    Second Restated Certificate of Incorporation of Millstream
Acquisition Corporation. Filed as Exhibit 3.3 to the
Companys Form 8-A12G/A (File No. 000-50348) filed September
8, 2004 and incorporated herein by reference.3.2
    
    By-Laws of NationsHealth, Inc., as amended and restated on
August 31, 2004. Filed as Exhibit 3.4 to the Companys Form
8-A12G/A (File No. 000-50348) filed September 8, 2004 and
incorporated herein by reference.
 34




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##### Table of Contents



Exhibit
No.
    
    Description4.1
    
    Specimen Common Stock Certificate. Filed as Exhibit 4.1 to
the Third Amendment to Companys Form S-1 (File No.
333-105388) filed July 24, 2003 and incorporated herein by
reference.4.2
    
    Specimen Warrant Certificate. Filed as Exhibit 4.2 to the
Companys Form S-1 (File No. 333-105388) filed May 19, 2003
and incorporated herein by reference.4.3
    
    Form of Warrant Agreement between Continental Stock Transfer &
Trust Company and the Company. Filed as Exhibit 4.4 to the
Companys Form S-1 (File No. 333-105388) filed May 19, 2003
and incorporated herein by reference.4.4
    
    NationsHealth, Inc. 2004 Incentive Stock Plan, dated August
30, 2004. Filed as Annex I to the Companys Definitive Proxy
Statement (File No. 000-50348) filed on August 13, 2004 and
incorporated herein by reference.4.5
    
    Form of Stock Option Agreement under the NationsHealth, Inc.
2004 Stock Option Plan. Filed as Exhibit 10.12 to the
Companys Form 10-QSB (File No. 000-50348) filed on November
10,2004 and incorporated herein by reference.4.6
    
    7 3/4% Secured Convertible Note issued by the Company to MHR
Capital Partners (100) LP dated February 28, 2005. Filed as
Exhibit 4.1 to the Companys Current Report on Form 8-K (File
No. 000-50348) filed March 4, 2005 and incorporated herein by
reference.4.7
    
    7 3/4% Secured Convertible Note issued by the Company to MHR
Capital Partners LP dated February 28, 2005. Filed as Exhibit
4.2 to the Companys Current Report on Form 8-K (File No.
000-50348) filed March 4, 2005 and incorporated herein by
reference.4.8
    
    7 3/4% Secured Convertible Note issued by the Company to OTQ
LLC dated February 28, 2005. Filed as Exhibit 4.3 to the
Companys Current Report on Form 8-K (File No. 000-50348)
filed March 4, 2005 and incorporated herein by reference.4.9
    
    NationsHealth, Inc. 2005 Long-Term Incentive Plan dated April
25, 2005. Filed as Exhibit 10.1 to the Companys Current
Report on Form 8-K (File No. 000-50348) filed June 17, 2005
and incorporated herein by reference.10.1
    
    Employment Agreement, dated April 15, 2005, by and between the
Company and Tim Fairbanks. Filed as Exhibit 99.3 to the
Companys Current Report on Form 8-K (File No. 000-50348)
filed on April 21, 2005 and incorporated herein by reference.10.2
    
    Employment Agreement, dated April 15, 2005, by and between the
Company and Tracy M. Schmidt, Esq. Filed as Exhibit 99.2 to
the Companys Current Report on Form 8-K (File No. 000-50348)
filed on April 21, 2005 and incorporated herein by reference.10.3
    
    Employment Agreement, dated April 15, 2005, by and between the
Company and Gregory J. Couto. Filed as Exhibit 99.1 to the
Companys Current Report on Form 8-K (File No. 000-50348)
filed on April 21, 2005 and incorporated herein by reference.10.4
    
    Amended and Restated Revolving Credit and Security Agreement,
dated as of June 29, 2004 among United States Pharmaceutical
Group, L.L.C. d/b/a NationsHealth and NationsHealth Holdings,
L.L.C. and CapitalSource Finance LLC. Filed herewith.10.5
    
    First Amendment, dated August 10, 2004, to Amended and
Restated Revolving Credit and Security Agreement, dated as of
June 29, 2004 among United States Pharmaceutical Group, L.L.C.
d/b/a NationsHealth and NationsHealth Holdings, L.L.C. and
CapitalSource Finance LLC. Filed herewith.
 35




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##### Table of Contents



Exhibit
No.
    
    Description10.6
    
    Second Amendment, dated September 14, 2004, to Amended and
Restated Revolving Credit and Security Agreement, dated as of
June 29, 2004 among United States Pharmaceutical Group, L.L.C.
d/b/a NationsHealth, NationsHealth Holdings, L.L.C.,
NationsHealth, Inc. and CapitalSource Finance LLC. Filed
herewith.10.7
    
    Warrant Agreement, dated as of May 4, 2005, by and between the
Company and Connecticut General Life Insurance Company. Filed
as Exhibit 4.1 to the Companys Current Report on Form 8-K
(File No. 000-50348) filed May 11, 2005 and incorporated
herein by reference.10.8
    
    Securities Purchase Agreement, dated as of May 4, 2005, by and
between the Company and Connecticut General Life Insurance
Company. Filed as Exhibit 4.2 to the Companys Current Report
on Form 8-K (File No. 000-50348) filed May 11, 2005 and
incorporated herein by reference.10.9*
    
    Strategic Agreement, dated as of May 4, 2005, by and among
Connecticut General Life Insurance Company and United States
Pharmaceutical Group, LLC and NationsHealth, Inc. Filed
herewith.31.1
    
    Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
 *
    
    This Exhibit has been filed separately with the Commission pursuant to an application for
confidential treatment. The confidential portions of this Exhibit have been omitted and are
marked by an asterisk.
 36




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##### Table of Contents



SIGNATURES
  NATIONSHEALTH, INCDate: August 15, 2005
    By:
    /s/ Glenn M. ParkerName:
    Glenn M. ParkerTitle:
    Chief Executive Officer
(Principal executive officer)Date: August 15, 2005
    By:
    /s/ Timothy FairbanksTitle:
    Name:                 Timothy Fairbanks

Chief Financial Officer
(Principal financial and accounting
officer) 37




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##### Table of Contents



NATIONSHEALTH, INC.
EXHIBIT INDEX
 Exhibit
No.
    
    Description2.1
    
    Amended and Restated Agreement and Plan of Merger dated
as of August 10, 2004 among the Company, N Merger L.L.C.
and NationsHealth Holdings, L.L.C. Filed as Annex A to
the Companys Definitive Proxy Statement (File No.
000-50348) filed on August 13, 2004 and incorporated
herein by reference.3.1
    
    Second Restated Certificate of Incorporation of
Millstream Acquisition Corporation. Filed as Exhibit 3.3
to the Companys Form 8-A12G/A (File No. 000-50348) filed
September 8, 2004 and incorporated herein by reference.3.2
    
    By-Laws of NationsHealth, Inc., as amended and restated
on August 31, 2004. Filed as Exhibit 3.4 to the
Companys Form 8-A12G/A (File No. 000-50348) filed
September 8, 2004 and incorporated herein by reference.4.1
    
    Specimen Common Stock Certificate. Filed as Exhibit 4.1
to the Third Amendment to Companys Form S-1 (File No.
333-105388) filed July 24, 2003 and incorporated herein
by reference.4.2
    
    Specimen Warrant Certificate. Filed as Exhibit 4.2 to
the Companys Form S-1 (File No. 333-105388) filed May
19, 2003 and incorporated herein by reference.4.3
    
    Form of Warrant Agreement between Continental Stock
Transfer & Trust Company and the Company. Filed as
Exhibit 4.4 to the Companys Form S-1 (File No.
333-105388) filed May 19, 2003 and incorporated herein by
reference.4.4
    
    NationsHealth, Inc. 2004 Incentive Stock Plan, dated
August 30, 2004. Filed as Annex I to the Companys
Definitive Proxy Statement (File No. 000-50348) filed on
August 13, 2004 and incorporated herein by reference.4.5
    
    Form of Stock Option Agreement under the NationsHealth,
Inc. 2004 Stock Option Plan. Filed as Exhibit 10.12 to
the Companys Form 10-QSB (File No. 000-50348) filed on
November 10,2004 and incorporated herein by reference.4.6
    
    7 3/4% Secured Convertible Note issued by the Company to
MHR Capital Partners (100) LP dated February 28, 2005.
Filed as Exhibit 4.1 to the Companys Current Report on
Form 8-K (File No. 000-50348) filed March 4, 2005 and
incorporated herein by reference.4.7
    
    7 3/4% Secured Convertible Note issued by the Company to
MHR Capital Partners LP dated February 28, 2005. Filed
as Exhibit 4.2 to the Companys Current Report on Form
8-K (File No. 000-50348) filed March 4, 2005 and
incorporated herein by reference.4.8
    
    7 3/4% Secured Convertible Note issued by the Company to
OTQ LLC dated February 28, 2005. Filed as Exhibit 4.3 to
the Companys Current Report on Form 8-K (File No.
000-50348) filed March 4, 2005 and incorporated herein by
reference.4.9
    
    NationsHealth, Inc. 2005 Long-Term Incentive Plan dated
April 25, 2005. Filed as Exhibit 10.1 to the Companys
Current Report on Form 8-K (File No. 000-50348) filed
June 17, 2005 and incorporated herein by reference.
 38




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##### Table of Contents





Exhibit
No.
    
    Description10.1
    
    Employment Agreement, dated April 15, 2005, by and
between the Company and Tim Fairbanks. Filed as Exhibit
99.3 to the Companys Current Report on Form 8-K (File
No. 000-50348) filed on April 21, 2005 and incorporated
herein by reference.10.2
    
    Employment Agreement, dated April 15, 2005, by and
between the Company and Tracy M. Schmidt, Esq. Filed as
Exhibit 99.2 to the Companys Current Report on Form 8-K
(File No. 000-50348) filed on April 21, 2005 and
incorporated herein by reference.10.3
    
    Employment Agreement, dated April 15, 2005, by and
between the Company and Gregory J. Couto. Filed as
Exhibit 99.1 to the Companys Current Report on Form 8-K
(File No. 000-50348) filed on April 21, 2005 and
incorporated herein by reference.10.4
    
    Amended and Restated Revolving Credit and Security
Agreement, dated as of June 29, 2004 among United States
Pharmaceutical Group, L.L.C. d/b/a NationsHealth and
NationsHealth Holdings, L.L.C. and CapitalSource Finance
LLC. Filed herewith.10.5
    
    First Amendment, dated August 10, 2004, to Amended and
Restated Revolving Credit and Security Agreement, dated
as of June 29, 2004 among United States Pharmaceutical
Group, L.L.C. d/b/a NationsHealth and NationsHealth
Holdings, L.L.C. and CapitalSource Finance LLC. Filed
herewith.10.6
    
    Second Amendment, dated September 14, 2004, to Amended
and Restated Revolving Credit and Security Agreement,
dated as of June 29, 2004 among United States
Pharmaceutical Group, L.L.C. d/b/a NationsHealth,
NationsHealth Holdings, L.L.C., NationsHealth, Inc. and
CapitalSource Finance LLC. Filed herewith.10.7
    
    Warrant Agreement, dated as of May 4, 2005, by and
between the Company and Connecticut General Life
Insurance Company. Filed as Exhibit 4.1 to the Companys
Current Report on Form 8-K (File No. 000-50348) filed May
11, 2005 and incorporated herein by reference.10.8
    
    Securities Purchase Agreement, dated as of May 4, 2005,
by and between the Company and Connecticut General Life
Insurance Company. Filed as Exhibit 4.2 to the Companys
Current Report on Form 8-K (File No. 000-50348) filed May
11, 2005 and incorporated herein by reference.10.9*
    
    Strategic Agreement, dated as of May 4, 2005, by and
among Connecticut General Life Insurance Company and
United States Pharmaceutical Group, LLC and
NationsHealth, Inc. Filed herewith.31.1
    
    Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002


*
    
    This Exhibit has been filed separately with the Commission pursuant to an application for
confidential treatment. The confidential portions of this Exhibit have been omitted and are
marked by an asterisk.


39