UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
                                   (MARK ONE)

|X|      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2004


|_|      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
                 (Name of small business issuer in its charter)

                Delaware                              20-1665695
                --------                              ----------
 (State or other jurisdiction of incorporation    (I.R.S. Employer
             or organization)                      Identification No.)


                435 Devon Park Drive, Bldg. 400, Wayne, PA 19087
                ------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number: (610) 975-4909

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:

                 Units consisting of one share of Common Stock,
                 ----------------------------------------------
                  par value $.0001 per share, and two Warrants
                  --------------------------------------------

                    Common Stock, par value $.0001 per share
                    ----------------------------------------

                   Warrants to purchase shares of Common Stock
                   -------------------------------------------
                                (Title of Class)

      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. (1) Yes |X|
No |_| (2) Yes |_| No |X|


<PAGE>


      Check if there is no disclosure  of delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|

      State issuer's revenues for its most recent fiscal year:  None

      State the aggregate  market value of voting and  non-voting  common equity
held by  non-affiliates  of registrant based upon the average bid and asked sale
price on February 28, 2005: $26,234,995

      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 as of February 28,
2005

                       DOCUMENTS INCORPORATED BY REFERENCE

      None.

      Transitional Small Business Disclosure Format (Check one): Yes |_| No |X|


                                       ii


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               CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-KSB 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,"  "will,"  "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 this  Annual  Report on Form 10-KSB and in our
other Securities and Exchange Commission filings.

                                     PART I
Item 1.  Description of Business.

Introduction

        We are a blank  check  company  formed  to  serve as a  vehicle  for the
acquisition  of an  operating  business.  We were  incorporated  in  Delaware on
September 24, 2004. The  registration  statement for our initial public offering
("the Offering") was declared effective December 17, 2004. On December 23, 2004,
we sold  4,100,000  units in the  Offering  and on December  30,  2004,  we sold
500,000 units in the Offering. The total units sold of 4,600,000 includes all of
the 600,000 units subject to the underwriters' overallotment option. Each of our
units consists of one share of our common stock, $.0001 par value per share, and
two redeemable common stock purchase warrants.  Each warrant entitles the holder
to purchase from us one share of common stock at an exercise price of $5.00.  We
received net proceeds of approximately $24,691,000 from the Offering.

        Our  management  has  broad  discretion  with  respect  to the  specific
application  of the net proceeds of the Offering and, as a result,  the Offering
was  characterized as a blank check offering.  $23,736,000 of these net proceeds
has been placed in a trust  account and  invested  in United  States  government
securities.  The funds held in the trust account will not be released  until the
earlier of the date on which we consummate a business  combination  or liquidate
our assets.

Effecting a business combination

         General

        We are  not  presently  engaged  in,  and we will  not  engage  in,  any
substantive  commercial  business for an indefinite period of time following the
Offering.  We intend to utilize cash derived from the proceeds of the  Offering,
our  capital  stock,  debt or a  combination  of these in  effecting  a business
combination.  Although substantially all of the net proceeds of the Offering are
intended to be generally  applied toward effecting a business  combination,  the
proceeds are not otherwise being  designated for any more specific  purposes.  A
business  combination  may involve the acquisition of, or merger with, a company
which  does not  need  substantial  additional  capital  but  which  desires  to
establish a public  trading  market for its shares,  while  avoiding what it may
deem to be adverse  consequences of undertaking a public offering itself.  These
include time delays,  significant expense, loss of voting control and compliance
with various Federal and state securities laws. In


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<PAGE>


the  alternative,  a business  combination  may  involve a company  which may be
financially  unstable or in its early stages of development or growth.  While we
may seek to effect business  combinations with more than one target business, we
will probably have the ability, as a result of our limited resources,  to effect
only a single business combination.

         We have not identified a target business or target industry

        To date, we have not selected any target  business or target industry on
which to  concentrate  our  search for a  business  combination.  Subject to the
limitations  that a target  business have a fair market value of at least 80% of
our net  assets  at the  time of the  acquisition,  as  described  below in more
detail,  we will have virtually  unrestricted  flexibility  in  identifying  and
selecting a prospective  acquisition candidate.  Accordingly,  there is no basis
for  investors to evaluate the possible  merits or risks of the target  business
with which we may ultimately complete a business  combination.  To the extent we
effect a business  combination with a financially  unstable company or an entity
in its  early  stage  of  development  or  growth,  including  entities  without
established  records of sales or earnings,  we may be affected by numerous risks
inherent in the business and operations of financially  unstable and early stage
or potential emerging growth companies. Although our management will endeavor to
evaluate the risks inherent in a particular  target  business,  we cannot assure
you that we will properly ascertain or assess all significant risk factors.

         Sources of target businesses

        We anticipate  that target  business  candidates  will be brought to our
attention  from various  unaffiliated  sources,  including  investment  bankers,
venture capital funds, private equity funds, leveraged buyout funds,  management
buyout  funds and other  members of the  financial  community,  who may  present
solicited or unsolicited proposals.  Our officers and directors as well as their
affiliates may also bring to our attention target business candidates.  While we
do not presently  anticipate  engaging the services of  professional  firms that
specialize in business  acquisitions  on any formal  basis,  we may engage these
firms  in  the  future,  in  which  event  we may  pay a  finders  fee or  other
compensation.  In no event,  however,  will we pay any of our initial  officers,
directors  or  stockholders  or any entity  with which they are  affiliated  any
finders fee or other  compensation  for  services  rendered to us prior to or in
connection with the consummation of a business combination.

        Selection of a target business and structuring of a business combination

        Subject to the requirement that our initial business combination must be
with a target  business with a fair market value that is at least 80% of our net
assets at the time of such  acquisition,  our  management  will  have  virtually
unrestricted  flexibility  in  identifying  and selecting a  prospective  target
business.  In evaluating a prospective  target  business,  our  management  will
consider, among other factors, the following:

        o       financial condition and results of operations;
        o       growth potential;
        o       experience   and  skill  of  management  and   availability   of
                additional personnel;
        o       capital requirements;
        o       competitive position;

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        o       barriers to entry in other industries;
        o       stage of development of the products, processes or services;
        o       degree  of  current  or  potential  market   acceptance  of  the
                products, processes or services;
        o       proprietary  features  and degree of  intellectual  property  or
                other protection of the products, processes or services;
        o       regulatory environment of the industry; and
        o       costs associated with effecting the business combination.

        These  criteria  are  not  intended  to be  exhaustive.  Any  evaluation
relating to the merits of a particular  business  combination  will be based, to
the extent relevant, on the above factors as well as other considerations deemed
relevant by our management in effecting a business  combination  consistent with
our business  objective.  In evaluating a prospective  target business,  we will
conduct an extensive  due  diligence  review which will  encompass,  among other
things, meetings with incumbent management and inspection of facilities, as well
as review of financial and other information which will be made available to us.

         The time and costs  required to select and  evaluate a target  business
and to  structure  and complete the  business  combination  cannot  presently be
ascertained with any degree of certainty. Any costs incurred with respect to the
identification  and  evaluation  of a prospective  target  business with which a
business combination is not ultimately completed will result in a loss to us and
reduce  the  amount of  capital  available  to  otherwise  complete  a  business
combination.  However,  we will not pay any  finders or  consulting  fees to our
initial  stockholders,  or any of  their  respective  affiliates,  for  services
rendered to or in connection with a business combination.

         Fair Market Value of Target Business

         The initial  target  business  that we acquire  must have a fair market
value  equal to at least 80% of our net assets at the time of such  acquisition.
The fair  market  value of such  business  will be  determined  by our  board of
directors based upon standards  generally  accepted by the financial  community,
such as actual and potential  sales,  earnings and cash flow and book value.  If
our board is not able to independently  determine that the target business has a
sufficient  fair market value,  we will obtain an opinion from an  unaffiliated,
independent   investment  banking  firm  which  is  a  member  of  the  National
Association of Securities Dealers, Inc. with respect to the satisfaction of such
criteria.  Since any opinion,  if obtained,  would merely state that fair market
value meets the 80% of net assets  threshold,  it is not anticipated that copies
of such opinion would be distributed to our  stockholders,  although copies will
be provided to stockholders who request it. We will not be required to obtain an
opinion from an investment banking firm as to the fair market value if our board
of directors  independently  determines  that the target business has sufficient
fair market value.

         Probable lack of business diversification

         While we may seek to effect  business  combinations  with more than one
target business, our initial business combination must be with a target business
which satisfies the minimum valuation  standard at the time of such acquisition,
as discussed above.  Consequently,  it is probable that we will have the ability
to effect only a single business combination. Accordingly, the prospects for our


                                       3

<PAGE>


success  may be  entirely  dependent  upon the  future  performance  of a single
business. Unlike other entities which may have the resources to complete several
business  combinations of entities operating in multiple  industries or multiple
areas of a single  industry,  it is probable that we will not have the resources
to diversify our  operations or benefit from the possible  spreading of risks or
offsetting of losses. By consummating a business  combination with only a single
entity,  our lack of  diversification  may:

        o       subject us to  numerous  economic,  competitive  and  regulatory
                developments, any or all of which may have a substantial adverse
                impact  upon the  particular  industry  in which we may  operate
                subsequent to a business combination, and

        o       result  in  our  dependency   upon  the  development  or  market
                acceptance of a single or limited number of products,  processes
                or services.

         Limited ability to evaluate the target business' management

         Although  we  intend  to  closely   scrutinize   the  management  of  a
prospective  target  business when  evaluating the  desirability  of effecting a
business  combination,  we cannot  assure you that our  assessment of the target
business' management will prove to be correct. In addition, we cannot assure you
that the future  management will have the necessary  skills,  qualifications  or
abilities  to  manage a public  company.  Furthermore,  the  future  role of our
officers  and  directors,  if any, in the target  business  cannot  presently be
stated  with  any  certainty.  While  it is  possible  that  one or  more of our
directors  will remain  associated in some capacity with us following a business
combination,  it is unlikely  that any of them will devote their full efforts to
our affairs subsequent to a business combination. Moreover, we cannot assure you
that our officers and directors  will have  significant  experience or knowledge
relating to the operations of the particular target business.

         Following  a business  combination,  we may seek to recruit  additional
managers to supplement  the  incumbent  management  of the target  business.  We
cannot assure you that we will have the ability to recruit additional  managers,
or that  additional  managers  will  have the  requisite  skills,  knowledge  or
experience necessary to enhance the incumbent management.

         Opportunity for stockholder approval of business combination

         Prior to the completion of a business  combination,  we will submit the
transaction  to  our  stockholders  for  approval,  even  if the  nature  of the
acquisition is such as would not ordinarily require  stockholder  approval under
applicable  state law. In  connection  with  seeking  stockholder  approval of a
business  combination,  we will furnish our stockholders with proxy solicitation
materials  prepared in  accordance  with the  Securities  Exchange  Act of 1934,
which, among other matters,  will include a description of the operations of the
target business and audited historical financial statements of the business.

         In connection with the vote required for any business combination,  all
of our initial stockholders have agreed to vote their 1,000,000 shares of common
stock in accordance with the majority of the shares of common stock voted by the
public stockholders.  This voting arrangement shall not apply to shares included
in units  purchased in the Offering or purchased  following  the Offering in the
open market by any of our initial stockholders,  officers and directors. We will
proceed with the business combination only if a majority of the shares of common
stock  voted by the  public  stockholders  are  voted  in favor of the  business
combination and public  stockholders  owning less than 20% of the shares sold in
the Offering exercise their conversion rights.

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<PAGE>


         Conversion rights

         At the time we seek stockholder  approval of any business  combination,
we will offer each public stockholder the right to have such stockholder's share
of common stock converted to cash if the stockholder  votes against the business
combination and the business  combination is approved and completed.  The actual
per-share  conversion  price will be equal to the  amount in the trust  account,
inclusive  of any  interest  (calculated  as of two  business  days prior to the
consummation  of the proposed  business  combination),  divided by the number of
shares sold in the Offering.  An eligible  stockholder may request conversion at
any time after the mailing to our  stockholders of the proxy statement and prior
to the vote taken with respect to a proposed  business  combination at a meeting
held  for  that  purpose,  but  the  request  will  not be  granted  unless  the
stockholder votes against the business  combination and the business combination
is  approved  and  completed.  Any  request for  conversion,  once made,  may be
withdrawn at any time up to the date of the meeting.  It is anticipated that the
funds to be  distributed  to  stockholders  entitled to convert their shares who
elect  conversion  will be distributed  promptly after  completion of a business
combination. Public stockholders who convert their stock into their share of the
trust  account  still have the right to exercise the warrants that they received
as part of the units.  We will not complete any business  combination  if public
stockholders,  owning 20% or more of the shares sold in this offering,  exercise
their conversion rights.

         Liquidation if no business combination

         If we do not complete a business combination within 18 months after the
completion of the Offering  (June 23, 2006),  or within 24 months  (December 23,
2006) if the extension criteria described below have been satisfied,  we will be
dissolved and will distribute to all of our public  stockholders,  in proportion
to their respective  equity  interests,  an aggregate sum equal to the amount in
the trust account, inclusive of any interest, plus any remaining net assets. Our
initial  stockholders have waived their rights to participate in any liquidation
distribution  with respect to shares of common  stock owned by them  immediately
prior to the Offering. There will be no distribution from the trust account with
respect to our warrants which will expire worthless.

         If we were to expend all of the net  proceeds  of the  Offering,  other
than the  proceeds  deposited  in the trust  account,  and  without  taking into
account  interest,  if any, earned on the trust account,  the initial  per-share
liquidation  price would be $5.16.  The proceeds  deposited in the trust account
could, however, become subject to the claims of our creditors,  which could rank
prior to the claims of our public  stockholders.  We cannot  assure you that the
actual per-share  liquidation  price will not be less than $5.16, plus interest,
due to claims of creditors.  Arthur  Spector,  our chairman of the board,  chief
executive  officer and president,  has agreed pursuant to agreements with us and
EarlyBirdCapital  that, if we distribute  the proceeds held in the trust account
to our  public  stockholders,  he will be  personally  liable  to pay  debts and
obligations  to vendors or other entities that are owed money by us for services
rendered or products  sold to us in excess of the net  proceeds of the  Offering
not held in the trust account.  We cannot assure you, however,  that Mr. Spector
would be able to satisfy those obligations.

         If we enter into either a letter of intent,  an  agreement in principle
or a  definitive  agreement  to  complete  a business  combination  prior to the
expiration  of 18 months (June 23, 2006) after the  completion  of the Offering,
but are unable to complete the business  combination within the 18-month period,
then we will have an  additional  six  months  (December  23,  2006) in which to
complete  the  business  combination  contemplated  by  the  letter  of  intent,
agreement in principle or definitive agreement. If we are unable to do so within
24 months following the completion of the Offering, we will then liquidate. Upon
notice from us, the trustee of the trust account will


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commence  liquidating  the investments  constituting  the trust account and will
turn  over  the  proceeds  to  our  transfer  agent  for   distribution  to  our
stockholders.  We anticipate  that our instruction to the trustee would be given
promptly after the expiration of the applicable 18-month or 24-month period.

         Our public  stockholders  will be  entitled  to receive  funds from the
trust  account  only  in the  event  of our  liquidation  upon  the  failure  to
consummate  a  business   combination   within  the  allotted  time  or  if  the
stockholders  seek to convert their respective  shares into cash upon a business
combination which the stockholder voted against and which is completed by us. In
no other circumstances will a stockholder have any right or interest of any kind
to or in the trust account.

Competition

         In  identifying,  evaluating  and selecting a target  business,  we may
encounter  intense  competition from other entities having a business  objective
similar to ours. Many of these entities are well  established and have extensive
experience  identifying and effecting business  combinations directly or through
affiliates. Many of these competitors possess greater technical, human and other
resources than us and our financial  resources  will be relatively  limited when
contrasted with those of many of these  competitors.  While we believe there may
be numerous  potential  target  businesses  that we could  acquire  with the net
proceeds of the Offering,  our ability to compete in acquiring  certain  sizable
target  businesses will be limited by our available  financial  resources.  This
inherent  competitive  limitation  gives  others an  advantage  in pursuing  the
acquisition of a target business.  Further:

        o       our  obligation  to  seek  stockholder  approval  of a  business
                combination may delay the completion of a transaction;

        o       our  obligation to convert into cash shares of common stock held
                by our public  stockholders in certain  instances may reduce the
                resources available to us for a business combination; and

        o       our  outstanding  warrants and options,  and the future dilution
                they  potentially  represent,  may not be  viewed  favorably  by
                certain target businesses.

         Any of these  factors  may place us at a  competitive  disadvantage  in
successfully  negotiating  a  business  combination.  Our  management  believes,
however,  that our status as a public entity and potential  access to the United
States  public  equity  markets  may  give  us  a  competitive   advantage  over
privately-held entities having a similar business objective as ours in acquiring
a target business with significant growth potential on favorable terms.

         If we succeed in  effecting a business  combination,  there will be, in
all likelihood,  intense competition from competitors of the target business. We
cannot assure you that, subsequent to a business  combination,  we will have the
resources or ability to compete effectively.

Employees

         We have four directors and one executive officer. These individuals are
not  obligated to devote any specific  number of hours to our matters and intend
to devote only as much time as they deem necessary to our affairs. The amount of
time they will devote in any time period will vary based on the  availability of
suitable  target  businesses to  investigate,  although we expect Mr. Spector to


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devote an average of approximately ten hours per week to our business. We do not
intend to have any full time employees  prior to the  consummation of a business
combination.

Risks associated with our business

         In addition to other information included in this report, the following
factors should be considered in evaluating our business and future prospects.

We are a development  stage  company with no operating  history and very limited
resources.

         We are a  recently  incorporated  development  stage  company  with  no
operating results to date. Since we do not have an operating  history,  you will
have no basis upon  which to  evaluate  our  ability  to  achieve  our  business
objective,  which is to acquire an unidentified  operating business. We will not
generate  any revenues  until,  at the  earliest,  after the  consummation  of a
business combination.

If third  parties  bring claims  against us, the proceeds held in trust could be
reduced and the per-share  liquidation  price received by  stockholders  will be
less than $5.16 per share.

         Our  placing of funds in trust may not  protect  those funds from third
party claims  against us. The proceeds  held in trust could be subject to claims
which could take priority over the claims of our public stockholders.  We cannot
assure you that the per-share  liquidation price will not be less than the $5.16
per share held in trust as of December 31, 2004 due to claims of  creditors.  If
we liquidate  before the completion of a business  combination,  Arthur Spector,
our  chairman  of the board,  chief  executive  officer and  president,  will be
personally liable under certain circumstances to ensure that the proceeds in the
trust fund are not  reduced by the claims of various  vendors or other  entities
that are owed money by us for services rendered or products sold to us. However,
we cannot assure you that Mr. Spector will be able to satisfy those obligations.

Since we have not currently selected any target business or target industry with
which to complete a business  combination,  we are unable to currently ascertain
the merits or risks of the business' operations.

         Since we have not yet  identified  a  prospective  target  business  or
target industry, there is no basis for investors to evaluate the possible merits
or risks of the  target  business'  operations  or  industry.  To the  extent we
complete a business combination with a financially unstable company or an entity
in its  development  stage, we may be affected by numerous risks inherent in the
business operations of those entities.  Although our management will endeavor to
evaluate the risks  inherent in a  particular  target  business or industry,  we
cannot  assure  you  that  we  will  properly  ascertain  or  assess  all of the
significant  risk  factors.  We also cannot assure you that an investment in our
securities  will  not  ultimately  prove  to be  less  favorable  than a  direct
investment, if an opportunity were available, in a target business.

We may issue  shares of our  common  stock and  preferred  stock to  complete  a
business combination, which would reduce the equity interest of our stockholders
and likely cause a change in control of our ownership.

         Our  certificate  of  incorporation  authorizes  the  issuance of up to
15,000,000  shares of common  stock,  par value $.0001 per share,  and 1,000,000
shares of preferred  stock, par value $.0001 per share. We currently do not have
any further  authorized  but unissued  shares of our common stock  available for
issuance  (after  appropriate  reservation  for the issuance of shares upon full


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exercise of our outstanding  warrants and options).  All of the 1,000,000 shares
of preferred  stock are available for  issuance.  Although we currently  have no
commitments  to issue  our  securities,  we  will,  in all  likelihood,  issue a
substantial  number of additional shares of our common stock or preferred stock,
or a  combination  of  common  and  preferred  stock,  to  complete  a  business
combination. The issuance of additional shares of our common stock or any number
of shares of our preferred stock:

        o may significantly reduce the equity interest of stockholders;

        o will likely cause a change in control if a  substantial  number of our
shares of common stock are issued,  which may affect,  among other  things,  our
ability to use our net operating  loss carry  forwards,  if any, and most likely
also result in the resignation or removal of our present officers and directors;
and

        o may adversely affect prevailing market prices for our common stock.

         Similarly, if we issue debt securities, it could result in:

        o default and foreclosure on our assets if our operating  revenues after
a business combination were insufficient to pay our debt obligations;

        o acceleration of our obligations to repay the  indebtedness  even if we
have made all  principal  and interest  payments  when due if the debt  security
contains  covenants that require the maintenance of certain  financial ratios or
reserves and any such covenant is breached  without a waiver or renegotiation of
that covenant;

        o our immediate payment of all principal and accrued  interest,  if any,
if the debt security is payable on demand; and

        o our inability to obtain  additional  financing,  if necessary,  if the
debt security  contains  covenants  restricting our ability to obtain additional
financing while such security is outstanding.

It  is  likely  that  our  current  officers  and  directors  will  resign  upon
consummation of a business  combination and we will have only limited ability to
evaluate the management of the target business.

         Our  ability  to  successfully  effect a business  combination  will be
totally dependent upon the efforts of our key personnel.  The future role of our
key personnel in the target business,  however, cannot presently be ascertained.
Although it is possible that some of our key personnel will remain associated in
various capacities with the target business following a business combination, it
is likely that the management of the target business at the time of the business
combination will remain in place.  Although we intend to closely  scrutinize the
management of a prospective  target  business in connection  with evaluating the
desirability of effecting a business combination,  we cannot assure you that our
assessment of management will prove to be correct.

Our officers and directors may allocate their time to other  businesses  thereby
causing  conflicts  of  interest in their  determination  as to how much time to
devote to our  affairs.  This  could have a  negative  impact on our  ability to
consummate a business combination.

         Our officers and  directors  are not required to commit their full time
to our affairs,  which may result in a conflict of interest in allocating  their
time between our operations and other


                                       8

<PAGE>


businesses.  We do not  intend  to have any  full  time  employees  prior to the
consummation  of a business  combination.  Arthur  Spector,  our sole  executive
officer,  is engaged in several other business endeavors and is not obligated to
contribute any specific number of hours to our affairs.  If Mr.  Spector's other
business affairs require him to devote more substantial  amounts of time to such
affairs, it could limit his ability to devote time to our affairs and could have
a negative impact on our ability to consummate a business combination.

Some of our officers and  directors  may in the future  become  affiliated  with
entities  engaged  in  business  activities  similar  to  those  intended  to be
conducted by us and, accordingly,  may have conflicts of interest in determining
which entity a particular business opportunity should be presented.

         Some of our officers and directors may in the future become  affiliated
with  entities,  including  other "blank check"  companies,  engaged in business
activities  similar to those intended to be conducted by us.  Additionally,  our
officers and directors may become aware of business  opportunities  which may be
appropriate for presentation to us as well as the other entities with which they
have fiduciary obligations.  Accordingly, they may have conflicts of interest in
determining  to  which  entity  a  particular  business  opportunity  should  be
presented.  We cannot  assure you that these  conflicts  will be resolved in our
favor.

All of our officers and  directors own shares of our common stock which will not
participate in liquidation  distributions and therefore they may have a conflict
of interest in determining  whether a particular  target business is appropriate
for a business combination.

         All of our officers and  directors  own stock in our company,  but have
waived their right to receive distributions upon our liquidation. The shares and
warrants  owned by our  directors  and  officers  will be worthless if we do not
consummate a business  combination.  The personal and financial interests of our
directors  and  officers may  influence  their  motivation  in  identifying  and
selecting  a target  business  and  completing  a business  combination  timely.
Consequently,  our  directors'  and  officers'  discretion  in  identifying  and
selecting a suitable  target  business may result in a conflict of interest when
determining  whether the terms,  conditions and timing of a particular  business
combination are appropriate and in our stockholders' best interest.

It is probable  that we will only be able to complete one business  combination,
which will cause us to be  dependent  solely on a single  business and a limited
number of products or services.

         As of December 31, 2004, we had  $23,745,193 on deposit in a trust fund
that we may  use to  complete  a  business  combination.  Our  initial  business
combination  must be with a business with a fair market value of at least 80% of
our net assets at the time of such  acquisition.  Consequently,  it is  probable
that we will consummate a business combination with a single operating business.
Accordingly, the prospects for our success may be:

        o solely dependent upon the performance of a single business, or

        o dependent  upon the  development  or market  acceptance of a single or
limited number of products, processes or services.

         In this  case,  we will  not be able to  diversify  our  operations  or
benefit from the possible  spreading of risks or  offsetting  of losses,  unlike
other  entities  which  may have the  resources  to  complete  several  business
combinations in different industries or different areas of a single industry.


                                       9

<PAGE>


Because of our limited  resources and the  significant  competition for business
combination  opportunities,  we  may  not  be  able  to  consummate  a  business
combination with growth potential.

         We expect to encounter intense competition from other entities having a
business objective similar to ours,  including venture capital funds,  leveraged
buyout funds and operating businesses competing for acquisitions.  Many of these
entities are well  established and have extensive  experience in identifying and
effecting business  combinations  directly or through affiliates.  Many of these
competitors possess greater technical,  human and other resources than we do and
our financial resources will be relatively limited when contrasted with those of
many of these  competitors.  While we believe that there are numerous  potential
target  businesses  that we could  acquire,  our ability to compete in acquiring
certain  sizable target  businesses  will be limited by our available  financial
resources.  This inherent  competitive  limitation  gives others an advantage in
pursuing the acquisition of certain target businesses.  Further,  the obligation
we have to seek  stockholder  approval of a business  combination  may delay the
consummation  of a  transaction,  and our  obligation  to convert  into cash the
shares of common  stock held by public  stockholders  in certain  instances  may
reduce the resources  available for a business  combination.  Additionally,  our
outstanding warrants,  and the future dilution they potentially  represent,  may
not be viewed favorably by certain target  businesses.  Any of these obligations
may  place  us at a  competitive  disadvantage  in  successfully  negotiating  a
business combination.

We may be unable to obtain  additional  financing,  if  required,  to complete a
business  combination  or to  fund  the  operations  and  growth  of the  target
business,  which could compel us to  restructure  the  transaction  or abandon a
particular business combination.

         Although we believe our current  assets will be  sufficient to allow us
to consummate a business  combination,  in as much as we have not yet identified
any prospective  target business,  we cannot ascertain the capital  requirements
for any particular  transaction.  If we require further funds, either because of
the size of the business  combination  or the depletion of our available cash in
search of a target business, or because we become obligated to convert into cash
a significant number of shares from dissenting stockholders, we will be required
to seek additional financing.  We cannot assure you that such financing would be
available  on  acceptable  terms,  if at  all.  To the  extent  that  additional
financing  proves to be  unavailable  when  needed to  consummate  a  particular
business  combination,  we would be compelled to restructure  the transaction or
abandon that  particular  business  combination  and seek an alternative  target
business candidate. In addition, if we consummate a business combination, we may
require  additional  financing  to fund the  operations  or growth of the target
business.  The  failure  to secure  additional  financing  could have a material
adverse effect on the continued  development  or growth of the target  business.
None of our  officers,  directors  or  stockholders  is  required to provide any
financing to us in connection with or after a business combination.

Our initial  stockholders,  including  our  officers  and  directors,  control a
substantial  interest in us and thus may  influence  certain  actions  requiring
stockholder vote.

         Our board of  directors is divided  into three  classes,  each of which
will  generally  serve for a term of two years with only one class of  directors
being elected in each year. It is unlikely that there will be an annual  meeting
of stockholders  to elect new directors prior to the  consummation of a business
combination,  in which case all of the current directors will continue in office
at least until the  consummation  of the  business  combination.  If there is an
annual meeting,  as a consequence of our "staggered" board of directors,  only a
minority of the board of  directors  will be  considered  for  election  and our
initial   stockholders,   because  of  their  ownership   position,   will  have
considerable


                                       10

<PAGE>


influence  regarding the outcome.  Accordingly,  our initial  stockholders  will
continue  to exert  control  at  least  until  the  consummation  of a  business
combination.

Our  outstanding  warrants  may have an adverse  effect on the  market  price of
common stock and make it more difficult to effect a business combination.

         We currently have outstanding  warrants to purchase 9,200,000 shares of
common stock and an option to purchase 300,000 units,  including  300,000 shares
of common stock and warrants to purchase an additional  600,000 shares of common
stock.  To the  extent  we issue  shares of  common  stock to effect a  business
combination, the potential for the issuance of substantial numbers of additional
shares  upon  exercise  of  these  warrants  and  options  could  make us a less
attractive  acquisition  vehicle  in the  eyes  of a  target  business  as  such
securities,  when exercised,  will increase the number of issued and outstanding
shares of our common stock and reduce the value of the shares issued to complete
the business combination. Accordingly, our warrants and options may make it more
difficult  to  effectuate  a business  combination  or increase  the cost of the
target business. Additionally, the sale, or even the possibility of sale, of the
shares  underlying  the warrants and options could have an adverse effect on the
market  price for our  securities  or on our  ability  to obtain  future  public
financing.  If and to the extent these warrants and options are  exercised,  our
shareholders may experience dilution to their holdings.

If we are unable to effect a business  combination  and are forced to liquidate,
our warrants will expire worthless.

         If we do not complete a business  combination  by June 23, 2006,  or by
December 23, 2006 if certain criteria have been satisfied,  we will be dissolved
and will  distribute  to all  holders  of  shares  issued  in the  Offering,  in
proportion  to the number of shares held by them,  an aggregate sum equal to the
amount in the trust fund,  inclusive of any  interest,  plus any  remaining  net
assets.  In such  event,  there  will be no  distribution  with  respect  to our
outstanding warrants. Accordingly, the warrants will expire worthless.

If our initial  stockholders  exercise their registration rights, it may have an
adverse  effect on the market price our common stock and the  existence of these
rights may make it more difficult to effect a business combination.

         Our initial  stockholders  are  entitled to demand that we register the
resale of their shares of common stock at any time after the date on which their
shares are released  from escrow.  If our initial  stockholders  exercise  their
registration  rights with respect to all of their shares of common  stock,  then
there  will be an  additional  1,000,000  shares of common  stock  eligible  for
trading in the public market.  The presence of this additional  number of shares
of common stock  eligible  for trading in the public  market may have an adverse
effect on the market price of our common  stock.  In addition,  the existence of
these rights may make it more difficult to effectuate a business  combination or
increase  the cost of the target  business,  as the  stockholders  of the target
business may be discouraged from entering into a business combination with us or
will  request  a  higher  price  for  their  securities  as a  result  of  these
registration  rights and the potential  future effect their exercise may have on
the trading market for our common stock.

Our securities are quoted on the OTC Bulletin Board,  which limits the liquidity
and price of our securities.

         Our securities are traded on the OTC Bulletin Board, an  NASD-sponsored
and operated  inter-dealer  automated quotation system for equity securities not
included on The Nasdaq  Stock


                                       11

<PAGE>


Market.  Quotation  of our  securities  on the OTC  Bulletin  Board  limits  the
liquidity and price of our securities more than if our securities were quoted or
listed on The Nasdaq Stock Market or a national exchange.

If we are deemed to be an  investment  company,  we may be required to institute
burdensome compliance  requirements and our activities may be restricted,  which
may make it difficult for us to complete a business combination.

         If we are  deemed to be an  investment  company  under  the  Investment
Company Act of 1940, our activities may be restricted, including:

         o     restrictions on the nature of our investments; and

         o     restrictions on the issuance of securities,

         which may make it difficult for us to complete a business combination.

         In  addition,  we may have  imposed  upon us  burdensome  requirements,
including:

         o     registration as an investment company;

         o     adoption of a specific form of corporate structure; and

         o     reporting,   record  keeping,   voting,   proxy  and  disclosure
               requirements and other rules and regulations.

         We do not  believe  that  our  anticipated  principal  activities  will
subject us to the Investment Company Act of 1940. To this end, the proceeds held
in trust may be invested by the trust agent only in "government securities" with
specific  maturity dates. By restricting the investment of the proceeds to these
instruments,  we intend to meet the requirements  for the exemption  provided in
Rule 3a-1  promulgated  under the  Investment  Company  Act of 1940.  If we were
deemed to be subject to the act,  compliance  with these  additional  regulatory
burdens would require additional expense that we have not allotted for.

Item 2. Description of Property.

         We maintain  our  executive  offices at 435 Devon Park Drive,  Building
400,  Wayne,  Pennsylvania  19087.  The cost for this space is  included  in the
$7,500  per-month  fee 400 Building  LLC, an affiliate  of Arthur  Spector,  our
chairman of the board,  chief  executive  officer and president,  charges us for
general and  administrative  services  pursuant to a letter agreement between us
and 400 Building LLC. We believe,  based on rents and fees for similar  services
in the Philadelphia  metropolitan area, that the fee charged by 400 Building LLC
is at least as favorable as we could have obtained from an unaffiliated  person.
We consider our current office space adequate for our current operations.

Item 3. Legal Proceedings.

         We are not presently a party to any pending legal proceeding.


                                       12

<PAGE>


Item 4. Submission of Matters to a Vote of Security Holders.

         There were no matters  submitted to a vote of security  holders  during
the fourth quarter of the year ended December 31, 2004.

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters.

         Our  units,  common  stock  and  warrants  are each  quoted  on the OTC
Bulletin  Board  under the  symbols  MSMAU,  MSMA and MSMAW,  respectively.  The
following  table  sets forth the high and low  closing  bid  quotations  for the
calendar quarter indicated since such units commenced public trading on December
20,  2004.  The  over-the-counter   market  quotations  reported  below  reflect
inter-dealer  prices,  without  markup,  markdown  or  commissions  and  may not
represent actual  transactions.  Our common stock and warrants  commenced public
trading on January 3, 2005. Prior to December 20, 2004, there was no established
public trading market for our common stock.

                                                              Units
                                                              -----
Quarter ended                                             High       Low
-------------                                             ----       ---
December 31, 2004                                        $6.49      $5.97

         We have not paid any cash  dividends  on the common stock and we do not
intend to pay any dividends prior to the consummation of a business combination.

         As of  February  28,  2005,  we had 1 holder of record of our units,  6
holders of record of our common stock and 1 holder of record of our warrants.

         As of December 31, 2004, we had no  compensation  plans under which our
equity securities were authorized for issuance.

Recent Sales of Unregistered Securities and Use of Proceeds

         In September 2004, we sold the following shares of common stock without
registration under the Securities Act of 1933, as amended:

        Stockholders                                     Number of Shares
        ------------                                     ----------------
        Arthur Spector                                          347,500
        Spector Family Trust                                    347,500
        Dr. Heinz C. Schimmelbusch                               60,000
        Robert E. Keith, Jr.                                     60,000
        Don K. Rice                                              60,000

         Such shares were issued in connection with our organization pursuant to
the exemption from registration  contained in Section 4(2) of the Securities Act
as they were sold to sophisticated,  wealthy  individuals or entities.  Of these
shares,  the 347,500  shares issued to Mr. Spector were sold at a purchase price
of  approximately  $.0718 per share.  The other shares issued to the individuals
and entity  listed above were sold at purchase  prices of $0.0001 per share.  On
December  7,  2004,  the  Board of  Directors  authorized  a stock  dividend  of
0.1428571  shares of


                                       13

<PAGE>


common stock for each share of common stock  outstanding,  increasing  the total
number of shares of common stock outstanding prior to the Offering to 1,000,000.

         On  December  23,  2004,  we closed  our  initial  public  offering  of
4,000,000 Units,  with each Unit consisting of one share of our common stock and
warrants to  purchase  two shares of our common  stock at an  exercise  price of
$5.00 per share. The managing underwriter in the offering was  EarlyBirdCapital,
Inc. 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.

         On December 23, 2004 and December 30, 2004, the underwriters  exercised
their  over-allotment  option to purchase  600,000  Units at the initial  public
offering  price of $6.00 per share.  Including the  over-allotment  option,  the
aggregate initial offering proceeds totaled $27,600,000.

         We  paid  a  total  of   $2,070,000  in   underwriting   discounts  and
commissions,  and approximately  $839,000 has been or will be paid for costs and
expenses  related to the  offering,  including  $480,000  for the  underwriters'
non-accountable  expense  allowance  of 2% of  the  gross  proceeds  before  the
exercise of the underwriters over-allotment option.

         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 a trust fund
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.  Through December 31, 2004, we
have used $70,212 of the net  proceeds  that were not  deposited  into the trust
fund to pay general and administrative expenses. The net proceeds deposited into
the trust fund  remain on deposit  in the trust fund and have  earned  $9,193 in
interest through December 31, 2004, including deferred interest of $1,838.

 Item 6.  Plan of Operation.

         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
significant  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 initial  public  offering on December 23, 2004. Net
loss of $13,059  reported  for the period from  September  24, 2004  (inception)
through December 31, 2004 consists  primarily of $2,375 expense for director and
officer  liability  insurance,  $3,750  expense  for  a  monthly  administrative
services  agreement,  $11,686 for  franchise  and state  capital stock taxes and
$2,603 for other  expenses.  Interest  accreted on the trust fund investment was
$7,355, excluding $1,838 of deferred interest.

         $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


                                       14

<PAGE>


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.

Off-balance sheet arrangements

         There were no  off-balance  sheet  arrangements  during the period from
September  24,  2004  (inception)  through  December  31,  2004 that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial  condition,  revenues or expenses,  results of  operations,
liquidity,  capital expenditures,  or capital resources that are material to our
investors.


                                       15

<PAGE>


Item 7. Financial Statements.

Report of Independent Registered Public Accounting Firm



To the Board of Directors
Millstream II Acquisition Corporation

We have audited the  accompanying  balance sheet of  Millstream  II  Acquisition
Corporation (a corporation  in the  development  stage) as of December 31, 2004,
and the related statements of operations,  stockholders'  equity, and cash flows
for the period from September 24, 2004  (inception) to December 31, 2004.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of  Millstream  II  Acquisition
Corporation  as of December 31, 2004,  and the results of its operations and its
cash flows for the period from  September 24, 2004  (inception)  to December 31,
2004 in conformity with United States generally accepted accounting principles.



/s/ GOLDSTEIN GOLUB KESSLER LLP


New York, New York
February 11, 2005


                                       16

<PAGE>



                      MILLSTREAM II ACQUISITION CORPORATION
                    (a corporation in the development stage)

                                  BALANCE SHEET

<TABLE>
<CAPTION>
<S>                                                                                         <C>

                                                                                          December 31,
                                                                                              2004
                                                                                       -------------------

 ASSETS
 Cash                                                                                       $     941,943
 Investments held in trust                                                                     23,745,193
 Prepaid expenses                                                                                  62,125
                                                                                       -------------------
      Total assets                                                                          $  24,749,261
                                                                                       ===================

 LIABILITIES AND STOCKHOLDERS' EQUITY
  Accounts payable and accrued expenses                                                     $      44,728
  Deferred interest                                                                                 1,838
                                                                                       -------------------
      Total liabilities                                                                            46,566
                                                                                       -------------------

 Commitment

 Common stock, subject to possible conversion, 919,540 shares at conversion
    value                                                                                       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
    Additional paid-in capital                                                                 19,970,368
    Deficit accumulated during development stage                                                  (13,059)
                                                                                       -------------------
      Total stockholders' equity                                                               19,957,869
                                                                                       -------------------
      Total liabilities and stockholders' equity                                             $ 24,749,261
                                                                                       ===================

</TABLE>

                              See accompanying notes to financial statements.

                                       17

<PAGE>



                      MILLSTREAM II ACQUISITION CORPORATION
                    (a corporation in the development stage)

                             STATEMENT OF OPERATIONS


                                                    September 24, 2004
                                                      (inception) to
                                                     December 31, 2004
                                                    --------------------


 General and administrative expenses                         $   20,414
                                                      ------------------

   Operating loss                                               (20,414)

Interest income                                                   7,355
                                                      ------------------

Loss before income taxes                                        (13,059)

Income tax provision                                                  -
                                                      ------------------


   Net loss                                                 $   (13,059)
                                                      ==================


 Weighted average shares of common
   stock outstanding

       Basic and diluted
                                                              1,550,000
                                                      ==================
  Loss per common share

       Basic and diluted                                     $     (.01)
                                                      ==================


                 See accompanying notes to financial statements.

                                       18

<PAGE>

                      MILLSTREAM II ACQUISITION CORPORATION
                    (a corporation in the development stage)

                        STATEMENT OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
<S>                                        <C>      <C>            <C>     <C>                   <C>         <C>

                                                                                                 Deficit
                                                                                               Accumulated
                                                      Common Stock             Additional       during the
                                      Preferred -------------------------       Paid-In         Development
                                        Stock        Shares      Amount         Capital           Stage            Total
                                        -----        ------      ------         -------           -----            -----

  Balance, September 24, 2004
  (inception)                             $    -            -       $  -        $     -            $    -         $     -

  Sale of 1,000,000 shares of
  common stock to initial
  stockholders for an average
  price of $0.025 per share, as
  adjusted                                     -    1,000,000        100         24,900                 -          25,000

  Sale of 4,600,000 units to
  public stockholders, net of
  underwriters' discount and
  offering expenses (includes
  919,540  shares subject to
  possible redemption)                         -    4,600,000        460     24,690,194                 -      24,690,654


 Proceeds subject to possible
 conversion of 919,540 shares                  -            -          -     (4,744,826)                -      (4,744,826)

 Proceeds from issuance of option
                                               -            -          -            100                 -             100

  Net loss for the period
  September 24, 2004 (inception)
  to December 31, 2004
                                               -            -          -              -           (13,059)        (13,059)

                                   ---------------------------------------------------------------------------------------
  Balance, December 31, 2004               $   -    5,600,000      $ 560   $ 19,970,368          $(13,059)   $ 19,957,869
                                   =======================================================================================
</TABLE>


                 See accompanying notes to financial statements.

                                       19

<PAGE>

                      MILLSTREAM II ACQUISITION CORPORATION
                    (a corporation in the development stage)

                             STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
<S>                                                                                           <C>

                                                                                      September 24, 2004
                                                                                        (inception) to
                                                                                         December 31,
                                                                                             2004
                                                                                     ----------------------
Cash flows from operating activities:
Net loss                                                                                      $    (13,059)
Adjustments to reconcile net loss to net cash used in operating activities:
   Interest income on treasury bills                                                                (9,193)
   Increase in prepaid expenses                                                                    (62,125)
   Increase in accounts payable and accrued expenses                                                12,327
   Increase in deferred interest                                                                     1,838
                                                                                     ----------------------
      Net cash used in operating activities                                                        (70,212)
                                                                                     ----------------------

Cash flows from investing activities:
Purchase of treasury bills held in trust                                                       (23,734,529)
Increase in cash held in trust                                                                      (1,471)
                                                                                     ----------------------
     Net cash used in investing activities                                                     (23,736,000)
                                                                                     ----------------------

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 offering of 4,600,000 units                                                27,600,000
Proceeds from issuance of option                                                                       100
Payment of costs of public offering                                                             (2,876,945)
                                                                                     ----------------------
      Net cash provided by financing activities                                                 24,748,155
                                                                                     ----------------------

Increase in cash and cash at end of period                                                    $    941,943
                                                                                     ======================


Supplemental schedule of non-cash financing activity:

Accrual of costs of initial public offering                                                   $     32,401
                                                                                     ======================
</TABLE>


                              See accompanying notes to financial statements.

                                       20

<PAGE>


                      MILLSTREAM II ACQUISITION CORPORATION
                    (a corporation in the development stage)

                          NOTES TO FINANCIAL STATEMENTS


1.  Organization and Business Operations

Millstream  II  Acquisition  Corporation  ("the  Company") was  incorporated  in
Delaware on September 24, 2004 as a blank check  company  whose  objective is to
acquire an operating  business.  The Company's  initial  stockholders  purchased
347,500 common shares and 527,500 common shares,  $.0001 par value,  for $24,947
and $53, respectively,  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  shareholders  have been
retroactively restated to reflect this transaction.

The  registration  statement for the Company's  initial  public  offering  ("the
Offering") was declared effective on December 17, 2004. The Company  consummated
the  Offering on December 23, 2004 and December 30, 2004 and raised 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  is being  held 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. 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.

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 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


                                       21

<PAGE>


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 December 31, 2004 balance sheet.

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.  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 5).

2. Summary of Significant Accounting Policies

Basis of Presentation
The  financial  statements  include  the  accounts of the  Company.  The Company
commenced  operations  effective  September  24, 2004.  The Company has selected
December 31 as its fiscal year end.

Use of Estimates
The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingencies  at the date of the financial  statements and the reported amounts
of expenses during the reporting period.  Actual amounts could differ from those
estimates.

Concentration of Credit Risk
Financial  instruments  that  potentially  subject  the  Company to credit  risk
consist of cash equivalents and short-term investments.  The Company's policy is
to  place   investments   with   financial   institutions   evaluated  as  being
creditworthy,  or in short-term  money market funds which are exposed to minimal
interest  rate and credit  risk and in a highly  rated  United  States  Treasury
Bills.

Fair Value of Financial Instruments
The  following  methods and  assumptions  are used to estimate the fair value of
each class of financial instruments for which it is practical to estimate:

      Cash:  The carrying amount approximates the fair value.

      Investment  in  United  States  Treasury  Bills:   These  investments  are
      considered trading securities.  The investment is carried at market value,
      which approximates cost plus accreted interest.


                                       22

<PAGE>


Deferred Interest

A portion (19.99%) of the interest earned on the Trust Account has been deferred
on the balance sheet as it represents interest  attributable to the common stock
subject to possible conversion (See Note 1).

Income Taxes
Deferred  income  taxes are provided  for the  differences  between the 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.

The  Company  recorded  a  deferred  income  tax asset for the tax effect of net
operating   loss   carryforwards   and   temporary   differences,    aggregating
approximately  $4,400 at December 31, 2004. In  recognition  of the  uncertainty
regarding the ultimate amount of income tax benefits to be derived,  the Company
has recorded a full valuation allowance at December 31, 2004.

The  effective  tax  rate  differs  from  the  statutory  rate of 34% due to the
increase in the valuation allowance.

Earnings per Common Share
Basic  earnings per share ("EPS") is computed by dividing net income  applicable
to common stock by the weighted  average  common shares  outstanding  during the
period.  Diluted  EPS  reflects  the  additional  dilution  for all  potentially
dilutive securities such as stock warrants.

Recently Issued Accounting Standards

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

3.  Investments Held in Trust

Investments held in trust as of December 31, 2004 are primarily comprised of two
zero coupon United States  Treasury  Bills with face values of  $21,416,000  and
$2,611,000  purchased at discounts of 98.7816% and 98.7917%,  respectively,  due
June 23, 2005 and carried on the Company's financial  statements at $23,745,193,
which includes interest of $9,193 and trust cash of $1,471.

4.  Earnings per Share

The following table sets forth the computation of basic and diluted earnings per
share as of December 31, 2004:

         Numerator:  Net loss                                    $   (13,059)

         Denominator:  Average common shares outstanding           1,550,000

         Basic and diluted earnings per share                    $     (0.01)

                                       23

<PAGE>


No  computation  for diluted  earnings per share was prepared for the Redeemable
Common  Stock  Purchase  Warrants  (see  Note 5) to  purchase  an  aggregate  of
9,200,000 shares of common stock at $5.00 per share and the underwriters' option
(see Note 5) 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  December  31,  2004  because  conversion  of the  warrants  and
underwriters' option would have had an antidilutive effect on loss per share.

5.  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
17, 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 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  on  January  5,  2005 and  January  11,  2005,
respectively.

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 December 31, 2004, 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.

6.  Note Payable, Stockholder

The  Company  issued  a  $35,000   unsecured   promissory  note  to  an  Initial
Stockholder,  who is also an  officer,  on  September  29,  2004.  The  note was
non-interest  bearing and was repaid in  December  2004 with  proceeds  from the
Offering.


                                       24

<PAGE>


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. The Statement of Operations for the period ended December 31,
2004 includes $3,750 related to this agreement.

                                       25

<PAGE>


Item  8.  Changes  In and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure.

         Not applicable.

Item 8A. Controls and Procedures.

         Our management carried out an evaluation, with the participation of our
Chief Executive Officer (principal executive, financial and accounting officer),
of the  effectiveness  of our disclosure  controls and procedures as of December
31, 2004. Based upon that evaluation, our Chief Executive Officer concluded that
our disclosure controls and procedures were effective to ensure that information
required  to be  disclosed  by us in  reports  that we file or submit  under the
Securities  and  Exchange  Act of 1934 is recorded,  processed,  summarized  and
reported,  within  the time  periods  specified  in the  rules  and forms of the
Securities and Exchange Commission.

         There has not been any change in our internal  control  over  financial
reporting in connection with the evaluation required by Rule 13a-15(d) under the
Exchange Act that occurred  during the quarter ended December 31, 2004, that has
materially affected,  or is reasonably likely to materially affect, our internal
control over financial reporting.

Item 8B. Other Information.

         Not applicable.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance
With Section 16(a) of the Exchange Act.

Directors and Executive Officers

         Our current directors and executive officers are as follows:


         Name                         Age        Position
         ----                         ---        --------

         Arthur Spector                64        Chairman of the Board, Chief
                                                 Executive Officer and President
         Robert E. Keith, Jr.          63        Director
         Don K. Rice                   56        Director
         Dr. Heinz C. Schimmelbusch    60        Director

         Arthur  Spector  has been our  chairman of the board,  chief  executive
officer and president since our inception. Mr. Spector has served as chairman of
the board of  NationsHealth,  Inc. since its inception in August 2003 and served
as its chief executive officer and president from August 2003 until August 2004.
NationsHealth,  Inc. is a Nasdaq listed  company that,  through its wholly owned
subsidiary,   NationsHealth  L.L.C.,  provides  medical  products  and  pharmacy
benefits to Medicare participants and other senior citizens. NationsHealth, Inc.
was  originally  known as  Millstream  Acquisition  Corporation,  a blank  check
company  with an objective to acquire an


                                       26

<PAGE>


operating  business  with  significant  growth  potential.   In  his  role  with
Millstream  Acquisition  Corporation,  Mr. Spector  directed the completion of a
public  offering that raised gross  proceeds of  approximately  $24.2 million in
August 2003.  From March 1995 to October 2002, Mr. Spector served as chairman of
the board of Neoware  Systems,  Inc.  ("Neoware  Systems"),  a  manufacturer  of
sophisticated  computer appliances and related software, and from May 1996 until
June 1997, he also served as its president and chief executive officer.  Neoware
Systems was originally known as Information  Systems  Acquisition Corp., a blank
check  company  with an  objective  to  acquire  an  operating  business  in the
information  systems industry.  Information Systems Acquisition Corp. was formed
in 1992 and from its  inception  until it merged  with Human  Designed  Systems,
Inc., Mr. Spector was its chairman of the board,  president and chief  executive
officer.  In this role, Mr. Spector directed the completion of a public offering
that raised gross  proceeds of  approximately  $13.8  million.  Mr.  Spector has
served  as a  director  of  Docucorp  International,  Inc.,  a  public  document
automation  company,  since May 1997.  Mr.  Spector  has also been a director of
Metallurg  Holdings,  Inc.  and  Metallurg,  Inc.  since  July 1998 and has been
executive  vice  president  of  Metallurg  Holdings,  Inc.  since  July 1998 and
treasurer  since  August  2000.  He was  elected  vice  chairman of the board of
Metallurg  Holdings,  Inc.  and  Metallurg,  Inc.  in November  2002.  Metallurg
Holdings, Inc. is a holding company of Metallurg,  Inc., a company that produces
and sells specialty metals, alloys and chemicals. From 1998 to 2002, Mr. Spector
served as a director of USDATA Corporation, a global supplier of component-based
production  software.  Mr.  Spector  received a B.S. from the Wharton  School of
Finance at the  University of  Pennsylvania  and a J.D.  from The  University of
Pennsylvania Law School.

         In addition to Mr.  Spector's  experience  described  above, he has had
extensive  experience in mergers and  acquisitions  and managing  private equity
funds.  Since January  1997,  he has served as managing  director of the general
partner and of the management company of Safeguard  International  Fund, L.P., a
private equity fund investing  primarily in controlling  positions in industrial
companies in North America and Europe.  From 1995 to 1996, Mr. Spector served as
director of acquisitions of Safeguard  Scientifics,  Inc., a public company that
owns controlling interests in and operates numerous private companies. From 1997
to 1998,  Mr.  Spector  served as a managing  director of TL Ventures LLC, whose
present  successor is TL Ventures L.P., a fund management  company  organized to
manage the  day-to-day  operations  of several of the TL  Ventures  funds  which
invest  in  companies  in  the  internet,   software,   information  technology,
communications and life sciences industries.

         Robert E. Keith,  Jr. has been a member of our board of directors since
our  inception.  Since May 1989,  Mr.  Keith has been a managing  director of TL
Ventures,  L.P., its predecessor  entity and related  entities that serve as the
management  companies  for  several of the TL Ventures  funds.  He has served as
president of TL Ventures  Inc., a successor to  Technology  Leaders  Management,
Inc., a private equity capital  management  company,  since December 1991 and as
its chief executive  officer since December 1996.  Since October 2001, Mr. Keith
has served as chairman of the board of directors of Safeguard Scientifics,  Inc.
and served as its vice chairman from February 1999 through  September  2001. Mr.
Keith also served as a member of the office of the chief  executive of Safeguard
Scientifics,  Inc. from April 2001 through October 2001.  Since August 1996, Mr.
Keith  has been the  chairman  of the  management  companies  for,  and a senior
advisor to and co-founder of,  EnerTech  Capital  Partners and EnerTech  Capital
Partners  II,  venture  capital  funds that  invest in  technology  and  service
companies   related  to  energy,   communications   and  the  broader  utilities
marketplace.  Since March 1996,  Mr.  Keith has served as a director of Internet
Capital  Group,  Inc., a public  company that  provides  software  solutions and
related  services to  businesses,  and served as its  chairman of the board from
March 1996 through December 2001. Mr. Keith also served as a member of the board
of directors of

                                       27

<PAGE>


NationsHealth,  Inc. from August 2003 to August 2004.  Mr. Keith received a B.A.
from Amherst College and J.D. from Temple University.

         Don K.  Rice has been a member  of our  board of  directors  since  our
inception.  Mr. Rice is the managing  partner of Rice Sangalis Toole & Wilson, a
privately held firm that through limited  partnerships  invests primarily in the
subordinated  debt of middle  market  companies  located  throughout  the United
States,  which he  co-founded  as Rice Capital in January  1991 before  becoming
Rice,  Sangalis  Toole & Wilson in March 1997.  Prior to forming Rice,  Sangalis
Toole & Wilson, from May 1988 to December 1988, Mr. Rice was president and chief
executive   officer  of  First  Texas  Merchant  Banking  Group,  a  firm  which
specialized in providing  subordinated  debt financing,  and a vice president of
PruCapital,  Inc., an investment  subsidiary of The Prudential Insurance Company
of America  from March 1984 to April  1986.  Mr. Rice also served as a member of
the board of directors of  NationsHealth,  Inc. from August 2003 to August 2004.
Mr. Rice received a B.B.A. and M.B.A. from the University of Texas.

         Dr. Heinz C.  Schimmelbusch has been a member of our board of directors
since our inception.  Since January 1997, he has served as managing  director of
the general  partner and of the  management  company of Safeguard  International
Fund,  L.P.  Since July 1998,  Dr.  Schimmelbusch  has served as chairman of the
board and a director of  Metallurg,  Inc. and has served as its chief  executive
officer since  November 2002. He has also served as president,  chief  executive
officer and a director of Metallurg  Holdings,  Inc. since July 1998. Since June
2003, Dr.  Schimmelbusch has served as a member of the board of directors of MMC
Norilsk  Nickel,  a producer of metals,  technical  sulfur,  hard coal and other
materials for industrial needs with its securities listed on the London,  Moscow
and  Berlin  Stock  Exchanges  and the  Over The  Counter  Bulletin  Board.  Dr.
Schimmelbusch   also  served  as  a  member  of  the  board  of   directors   of
NationsHealth,  Inc. from August 2003 to August 2004. Dr. Schimmelbusch received
a graduate  degree and Ph.D.  in  economics  from the  University  of  Tubingen,
Germany.

         Our board of  directors  is divided  into three  classes  with only one
class  of  directors  being  elected  in each  year  and each  class  serving  a
three-year term. The term of office of the first class of directors,  consisting
of Robert E. Keith Jr., will expire at our first annual meeting of stockholders.
The term of office of the second class of directors,  consisting of Don K. Rice,
will expire at the second annual meeting.  The term of office of the third class
of directors, consisting of Arthur Spector and Dr. Heinz C. Schimmelbusch,  will
expire at the third annual meeting.

         These  individuals  will  play a key role  identifying  and  evaluating
prospective   acquisition   candidates,   selecting  the  target  business,  and
structuring, negotiating and consummating its acquisition. Collectively, through
their positions described above, our directors have extensive  experience acting
as managing  directors of private  equity funds that invested their funds in, or
acquired control of, private companies.

         Our board of  directors  established  an audit  committee  comprised of
Messrs.  Keith and  Rice,  with Mr.  Keith  acting  as the  chairman.  Our audit
committee   appoints,   retains,   sets  compensation  of,  and  supervises  our
independent  accountants,  reviews  the results and scope of the audit and other
accounting related services and reviews our accounting  practices and systems of
internal accounting and disclosure controls.

Audit Committee Financial Expert

         We do not have an audit committee financial expert serving on our audit
committee.  As our plan of operations involves identifying a target business and
completing a business  combination


                                       28

<PAGE>


with such  business,  we presently do not have  material  operations  and do not
experience complex accounting  issues.  Accordingly,  our board of directors has
determined that it is not necessary for us to have an audit committee  financial
expert at this time.

Code of Ethics

         In December 2004, our board of directors  adopted a code of ethics that
applies to our directors,  officers and employees.  A copy of our code of ethics
has been  attached as an exhibit to this annual  report.  Requests for copies of
our code of ethics  should  be sent in  writing  to  Millstream  II  Acquisition
Corporation, 435 Devon Park Drive, Building 400, Wayne, Pennsylvania 19087.

Compliance with Section 16(a) of the Exchange Act

         Section 16(a) of the  Securities  Exchange Act requires our  directors,
executive  officers and persons who are the  beneficial  owners of more than ten
percent of our common  stock  (collectively,  the  "Reporting  Persons") to file
reports of ownership and changes in ownership  with the  Securities and Exchange
Commission and to furnish us with copies of these reports.

         Based   solely  on   copies  of  such   forms   received   or   written
representations from certain Reporting Persons that no Form 5s were required for
those persons,  we believe that, during the fiscal year ended December 31, 2004,
all filing requirements applicable to the Reporting Persons were complied with.

Item 10. Executive Compensation.

         No executive  officer has received any cash  compensation  for services
rendered to us. Commencing  December 17, 2004 and ending upon the acquisition of
a target business, we will pay 400 Building LLC, an affiliate of Arthur Spector,
a fee of $7,500 per month for providing us with office space and certain  office
and secretarial  services.  However,  this arrangement is solely for our benefit
and is not intended to provide Mr. Spector  compensation  in lieu of salary.  No
other executive  officer or director has a relationship  with or interest in 400
Building LLC. Other than this $7,500 per-month fee, no compensation of any kind,
including  finders  and  consulting  fees,  will be  paid to any of our  initial
stockholders, or any of their respective affiliates, for services rendered prior
to  or  in  connection  with  a  business  combination.   However,  our  initial
stockholders  will be  reimbursed  for any  out-of-pocket  expenses  incurred in
connection  with activities on our behalf such as identifying  potential  target
businesses and performing due diligence on suitable business combinations.

         Since our  formation,  we have not granted  any stock  options or stock
appreciation rights or any awards under long-term incentive plans.


Item 11.  Security  Ownership of Certain  Beneficial  Owners and  Management and
Related Stockholder Matters.

         The following  table sets forth  information  regarding the  beneficial
ownership of our common stock as of February 28, 2005, by:

         o        each person known by us to be the owner of more than 5% of our
                  outstanding shares of common stock;

         o        each of our executive officers and directors; and


                                       29

<PAGE>


         o        all our executive officers and directors as a group.

         Unless  otherwise  indicated,  we believe that all persons named in the
table have sole voting and investment power with respect to all shares of common
stock beneficially  owned by them. As of February 28, 2005,  5,600,000 shares of
our common stock were issued and outstanding.

<TABLE>
<CAPTION>
<S>                                                          <C>                       <C>
                                                        Amount and Nature     Approximate Percentage
                                                          of Beneficial       of Outstanding Common
Name and Address of Beneficial Owner(1)                   Ownership(2)               Stock(2)
---------------------------------------                   ------------               --------

Arthur Spector(3) (4)                                        397,142                   7.1%

Dr. Heinz C. Schimmelbusch(4)                                68,572                    1.2%

Robert E. Keith, Jr.(4)(5)                                   68,572                    1.2%

Don K. Rice(4)(6)                                            68,572                    1.2%

All directors and executive officers as a group (4           602,858                   10.8%
individuals)
</TABLE>
___________________________________

(1)      Unless  otherwise  indicated,  the  business  address  of  each  of the
         individuals is 435 Devon Park Drive, Building 400, Wayne,  Pennsylvania
         19087.
(2)      Beneficial  ownership has been determined in accordance with Rule 13d-3
         under the Securities Exchange Act of 1934.
(3)      Arthur Spector is our chairman of the board,  chief  executive  officer
         and president.
(4)      Each of these individuals is a director of ours.
(5)      The  business  address of Mr.  Keith is 435 Devon Park Drive,  Building
         700, Wayne, Pennsylvania 19087.
(6)      The  business  address  of Mr.  Rice is 517  Fishers  Road,  Bryn Mawr,
         Pennsylvania 19010.

         All of the shares of our common stock owned by the initial shareholders
have been placed in escrow with Continental  Stock Transfer & Trust Company,  as
escrow agent, pursuant to an escrow agreement described below.

         Messrs. Arthur Spector and the Spector Family Trust may be deemed to be
our  "parent"  and  "promoter,"  as these  terms are  defined  under the Federal
securities laws.


                                       30

<PAGE>


Item 12.  Certain Relationships and Related Transactions.

         In September  2004, we issued 875,000 shares of our common stock to the
individuals set forth below for $25,000 in cash, at an average purchase price of
approximately $0.029 per share as follows:

<TABLE>
<CAPTION>
<S>                                   <C>                           <C>
Name                                  Number of Shares              Relationship to Us
----                                  ----------------              ------------------
Arthur Spector                        347,500                       Chairman of the Board, Chief Executive
                                                                    Officer and President
Spector Family Trust                  347,500                       Stockholder
Dr. Heinz C. Schimmelbusch            60,000                        Director
Robert E. Keith, Jr.                  60,000                        Director
Don K. Rice                           60,000                        Director
</TABLE>

         On December 7, 2004, our board of directors authorized a stock dividend
of 0.1428571 shares of common stock for each outstanding  share of common stock,
effectively lowering the price to $0.025 per share.

         Pursuant to an escrow  agreement  between us, our initial  stockholders
and Continental Stock Transfer & Trust Company,  all of the initial stockholders
shares were placed in escrow, with Continental acting as escrow agent,  pursuant
to an escrow agreement, until the earliest of:

         o        December 17, 2007;

         o        our liquidation; or

         o        the consummation of a liquidation,  merger,  stock exchange or
                  other  similar   transaction  which  results  in  all  of  our
                  stockholders  having  the right to  exchange  their  shares of
                  common stock for cash, securities or other property subsequent
                  to our  consummating  a  business  combination  with a  target
                  business.

         During the escrow period,  these shares cannot be sold, but the initial
stockholders  will retain all other rights as stockholders,  including,  without
limitation,  the right to vote  their  shares  of common  stock and the right to
receive cash  dividends,  if declared.  If dividends are declared and payable in
shares of common stock,  such dividends will also be placed in escrow. If we are
unable to effect a  business  combination  and  liquidate,  none of our  initial
stockholders  will receive any portion of the liquidation  proceeds with respect
to common stock owned by them prior to our initial public offering.

         We also entered into a registration  rights  agreement with the initial
stockholders  pursuant to which the holders of the  majority of these shares are
entitled to make up to two demands that we register these shares. The holders of
the majority of these shares may elect to exercise these registration  rights at
any time after the date on which these shares of common stock are released  from
escrow. In addition,  these stockholders have certain "piggy-back"  registration
rights on registration  statements  filed  subsequent to the date on which these
shares of common  stock are  released  from  escrow.  We will bear the  expenses
incurred in connection with the filing of any such registration statements.


                                       31

<PAGE>


         Each of our initial  stockholders  also entered into a letter agreement
with us and EarlyBirdCapital, Inc. pursuant to which, among other things:

         o        each  agreed  to vote  all  shares  initially  owned by him in
                  accordance  with the  majority of the holders of our shares of
                  common stock sold in our initial public offering if we solicit
                  approval of our stockholders for a business combination;

         o        if we fail to  consummate a business  combination  by June 23,
                  2006  (or  by  December   23,  2006  under   certain   limited
                  circumstances),  each  agreed to take all  reasonable  actions
                  within  his  power  to  cause  us  to  liquidate  as  soon  as
                  reasonably practicable;

         o        each  waived  any and all  rights he may have to  receive  any
                  distribution of cash,  property or other assets as a result of
                  such liquidation with respect to his initial shares;

         o        each agreed to present to us for our  consideration,  prior to
                  presentation  to any other  person  or  entity,  any  suitable
                  opportunity  to  acquire  an  operating  business,  until  the
                  earlier of our  consummation  of a business  combination,  our
                  liquidation  or until  such time as he ceases to be an officer
                  or director  of ours,  subject to any  pre-existing  fiduciary
                  obligations he might have;

         o        each  agreed  that  we  could  not   consummate  any  business
                  combination  which involves a company which is affiliated with
                  any of our  initial  stockholders  unless we obtain an opinion
                  from  an  independent   investment   banking  firm  reasonably
                  acceptable  to   EarlyBirdCapital,   Inc.  that  the  business
                  combination  is  fair  to our  stockholders  from a  financial
                  perspective;

         o        each agreed that he and his affiliates will not be entitled to
                  receive  and will not accept  any  compensation  for  services
                  rendered  to us  prior  to the  consummation  of our  business
                  combination; and

         o        each agreed that he and his affiliates will not be entitled to
                  receive or accept a finder's fee or any other  compensation in
                  the  event  he  or  his   affiliates   originate   a  business
                  combination.

         400  Building  LLC, an  affiliate  of Arthur  Spector,  has agreed that
commencing  December  17,  2004  and  ending  upon the  acquisition  of a target
business,  it will make  available  to us a small  amount  of  office  space and
certain office and secretarial services, as we may require from time to time. We
have agreed to pay 400 Building LLC $7,500 per month for these  services.  As of
December 31, 2004, we have paid 400 Building LLC $3,750.

         Arthur Spector  advanced $35,000 to us to cover expenses related to the
Offering.  The loan was payable without interest on the earlier of September 29,
2005 or the  consummation of the Offering.  The loan was repaid in December 2004
from the proceeds of the Offering.

         We  have  and  will  reimburse  our  officers  and  directors  for  any
reasonable  out-of-pocket  business expenses incurred by them in connection with
certain activities on our behalf such as identifying and investigating  possible
target businesses and business combinations.


                                       32

<PAGE>


         Other than the $7,500  per-month  administrative  fee and  reimbursable
out-of-pocket expenses payable to our officers and directors, no compensation or
fees of any kind,  including finders and consulting fees, will be paid to any of
our initial stockholders, officers or directors who owned our common stock prior
to the Offering,  or to any of their respective affiliates for services rendered
to us prior to or with respect to the business combination.

         All ongoing and future transactions  between us and any of our officers
and directors or their  respective  affiliates,  including loans by our officers
and directors,  will be on terms believed by us to be no less favorable than are
available  from  unaffiliated  third  parties  and such  transactions  or loans,
including any forgiveness of loans, will require prior approval in each instance
by a majority of our uninterested "independent" directors (to the extent we have
any) or the members of our board who do not have an interest in the transaction,
in either case who had access,  at our expense,  to our attorneys or independent
legal counsel.


Item 13. Exhibits and Reports on Form 8-K.

(a) The following Exhibits are filed as part of this report.

<TABLE>
<CAPTION>
<S>                        <C>
    Exhibit No.            Description
    -----------            -----------

         3.1               Amended and Restated Certificate of Incorporation. (1)

         3.2               By-laws. (1)

         4.1               Specimen Unit Certificate. (1)

         4.2               Specimen Common Stock Certificate. (1)

         4.3               Specimen Warrant Certificate. (1)

         4.4               Form of Unit Purchase Option granted to EarlyBirdCapital, Inc. (1)

         4.5               Form of Warrant Agreement between  Continental Stock Transfer & Trust Company and
                           the Registrant. (1)

         10.1              Letter Agreement among the Registrant,  EarlyBirdCapital, Inc. and Arthur Spector
                           (1)

         10.2              Letter  Agreement  among the Registrant,  EarlyBirdCapital,  Inc. and the Spector
                           Family Trust (1)

         10.3              Letter  Agreement among the Registrant,  EarlyBirdCapital,  Inc. and Dr. Heinz C.
                           Schimmelbusch (1)

         10.4              Letter  Agreement  among the  Registrant,  EarlyBirdCapital,  Inc.  and Robert E.
                           Keith, Jr. (1)

         10.5              Letter Agreement among the Registrant, EarlyBirdCapital, Inc. and Don K. Rice (1)


                                       33

<PAGE>


         10.6              Form of Investment  Management Trust Agreement between Continental Stock Transfer
                           & Trust Company and the Registrant. (1)

         10.7              Form  of  Stock  Escrow  Agreement  between  the  Registrant,  Continental  Stock
                           Transfer & Trust Company and the Initial Stockholders. (1)

         10.8              Form of Letter  Agreement  between  400  Building  LLC and  Registrant  regarding
                           administrative support. (1)

         10.9              Promissory  Note,  dated  September 29, 2004, in the principal  amount of $35,000
                           issued to Arthur Spector. (1)

         10.10             Registration Rights Agreement among the Registrant and the Initial  Stockholders.
                           (1)

         10.11             Warrant Purchase Agreement among Arthur Spector and EarlyBirdCapital, Inc.  (1)

         14                Code of Ethics

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

         32                Certification of Chief Executive Officer pursuant to Section 906 of the
                           Sarbanes-Oxley Act of 2002.
</TABLE>

         (1)  Incorporated  by  reference  to  the   Registrant's   Registration
              Statement  on  Form  S-1  or  amendments  thereto  (SEC  File  No.
              333-119937).

     (b)      Reports on Form 8-K.

              The  Company  filed a Form 8-K with the  Securities  and  Exchange
              Commission on December 23, 2004 regarding the first closing of our
              initial  public  offering of 4,100,000  Units,  including  100,000
              units  issued upon  exercise of the  underwriters'  over-allotment
              option.  Audited financial statements as of December 23, 2004 were
              included in such Form 8-K. On January 4, 2005, the Company filed a
              Form  8-K/A to report the second  closing  of our  initial  public
              offering on December  30,  2004 of 500,000  Units,  which were the
              remaining  units  available  upon  exercise  of the  underwriters'
              over-allotment option.

Item 14. Principal Accountant Fees and Services.

         The  firm  of  Goldstein  Golub  Kessler  LLP  acts  as  our  principal
accountant.   Goldstein   Golub  Kessler  LLP  ("the  Firm")  has  a  continuing
relationship  with American Express Tax and Business  Services Inc. ("TBS") from
which it leases auditing staff who are full time, permanent employees of TBS and
through  which its  partners  provide  non-audit  services.  As a result of this
arrangement,  the Firm has no full time  employees  and  therefore,  none of the
audit services performed were provided by permanent  full-time  employees of the
Firm.  The Firm  manages  and  supervises  the  audit and  audit  staff,  and is
exclusively  responsible  for the  opinion  rendered  in  connection  with  this
examination.


                                       34

<PAGE>


         Other  services,  which do not include  Financial  Information  Systems
Design and Implementation fees, have been provided by TBS.

         The following is a summary of fees paid to our principal accountant for
services provided.

         Audit Fees

         Our principal accountant charged us $25,000 for services they performed
in  connection  with  our  initial  public  offering,  including  the  financial
statements  included in the Current Report of Form 8-K filed with the Securities
and Exchange  Commission  on December 23, 2004.  Of the $25,000  billed for this
work,  $8,250 was paid in  December  2004 and the  balance  was paid in February
2005.

         Audit-Related Fees

         During 2004,  our  principal  accountant  did not render  assurance and
related services reasonably related to the performance of the audit or review of
financial statements.

         Tax Fees

         During 2004, TBS did not render services to us for tax compliance,  tax
advice and tax planning.

         All Other Fees

         During  2004,  there were no fees  billed  for  products  and  services
provided by the principal accountant other than those set forth above.

         Audit Committee Approval

         All of the services  listed above were approved by our audit  committee
prior to their performance.


                                       35

<PAGE>


                                   SIGNATURES

     In accordance  with Section 13 or 15(d) 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, President and Chief Executive Officer
                                 Date:   March 30, 2005


     In  accordance  with the Exchange Act, this report had been signed below by
the following  persons on behalf of the  registrant in the capacities and on the
dates indicated.



                                 /s/ Arthur  Spector
                                 ------------------------------------
                                 Arthur Spector
                                 Chairman, President and Chief Executive Officer
                                 (Principal executive and financial and
                                 accounting officer)
                                 Date:   March 30, 2005


                                 /s/ Robert E. Keith, Jr.
                                 ------------------------------------
                                 Robert E. Keith, Jr.
                                 Director
                                 Date:   March 30, 2005


                                 /s/ Don K. Rice
                                 ------------------------------------
                                 Don K. Rice
                                 Director
                                 Date:   March 30, 2005


                                 /s/ Dr. Heinz Schimmelbusch
                                 ------------------------------------
                                 Dr. Heinz Schimmelbusch
                                 Director
                                 Date: March 30, 2005


                                       36

<PAGE>