UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

   X  . QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2010

      . TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

For the transition period from

 to

Commission File Number 000-53167

Indicate by check mark whether the registrant (1) has filed all reports required to be filed under Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   X  . No      .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes      . No      .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   X  . No      .

21,118,203 shares of the issuer’s common stock, $.001 par value, were outstanding at February 1, 2011.

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

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Millstream Ventures, Inc.

(A Development Stage Enterprise)

Notes to Unaudited Financial Statements

December 31, 2010

Note 1: Basis of Presentation

The accompanying unaudited financial statements of Millstream Ventures, Inc. (the “Company”) were prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. Management of the Company (“Management”) believes that the following disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended March 31, 2010 included in the Company’s Form 10-K report.

These unaudited financial statements reflect all adjustments, consisting only of normal recurring adjustments that, in the opinion of Management, are necessary to present fairly the financial position and results of operations of the Company for the periods presented. Operating results for the nine months ended December 31, 2010 are not necessarily indicative of the results that may be expected for the year ending March 31, 2011.

Note 2: Summary of Significant Accounting Policies

Organization – The Company was originally incorporated in the State of Utah on April 7, 1983 as Carbon Technologies, Inc. for the purpose of engaging in the carbon fiber technology business. Subsequently, the Company became inactive and on May 26, 2005, as part of a reorganization and change of control, the Company’s corporate domicile was changed to Nevada. The Company currently operates as a development stage enterprise with a business objective of entering into a reverse acquisition with an existing business or otherwise acquire an operating entity.

Quasi-reorganization – During 2001 the Company’s stockholders approved a quasi-reorganization resulting in the capital accounts of the Company being adjusted with the result that the paid-in capital account was reduced by the balance in its accumulated deficit account in the amount of $388,919. No other accounts were affected by this readjustment. Operating results subsequent to the quasi-reorganization were recorded in the accumulated deficit account until the Company’s reorganization on May 26, 2005. After the May 26, 2005 reorganization, operating results have been recorded in a separate account entitled deficit accumulated since inception of development stage.

Going concern – The Company’s financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Since inception of the development stage the Company has not generated any revenue and its financial position is not sufficient to fund its planned business objective for an extended period of time. The Company is dependent on its sole officer to obtain the requisite capital to continue to pursue its business objective and relies on its sole officer to serve in this capacity without compensation. It is assumed that these arrangements will continue, but no assurance thereof can be given. A change in these circumstances would have a material adverse effect on the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Use of estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Net loss per common share – The computation of net loss per common share is based on the weighted average number of shares outstanding during the periods presented. No potentially dilutive securities or derivative instruments are outstanding.

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Income taxes – The Company has no deferred taxes arising from temporary differences between income for financial reporting and income for tax purposes. The Company has a net operating loss carry forward at December 31, 2010 of approximately $99,600 that expires if unused through 2030. A deferred tax asset in the amount of $33,858 is fully offset by a valuation allowance in the same amount. The Company follows the provisions of uncertain tax positions as addressed in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 740-10-65-1. The Company recognized approximately no increase in the liability for unrecognized tax benefits. The Company has no tax position at December 31, 2010 and March 31, 2010 for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

Recently enacted accounting pronouncements – The Company has reviewed all issued accounting pronouncements since its audited financial statements in order to determine their effects, if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes none of these pronouncements will have a significant effect on these financial statements as presented.

Note 3: Capital Stock

The Company is currently seeking to enter into a reverse acquisition with an existing business or otherwise acquire an operating entity. If successful, such business activity will likely result in the issuance of shares of the Company’s common and/or preferred stock, which the Company’s board of directors is authorized to issue without the approval of the Company’s stockholders. The Company’s preferred stock may be issued in series, with such designations, preferences, stated values, rights, qualifications or limitations as determined solely by the Company’s board of directors.

Note 4: Related Party Transactions

Related Party Notes Payable – During the year ended March 31, 2009, the Company received $16,000 in cash from a stockholder pursuant to an unsecured demand promissory note bearing interest at the rate of 18% per annum. In addition, the Company received $4,000 from the aforementioned stockholder on September 30, 2010 and $6,000 on January 10, 2011. The Company issued two unsecured promissory notes, both due March 31, 2012, bearing interest at 8% per annum with respect to these latter two amounts. The total amount due this stockholder with respect to all unsecured demand promissory notes is $20,000 at December 31, 2010 and $26,000 at January 10, 2011 (subsequent to the balance sheet date). At December 31, 2010 and March 31, 2010, interest has accrued on these notes in the amounts of $6,456 and $4,215, respectively. The Company relies on the verbal assurance from this stockholder that demand for payment will not be made until such time as the Company has the financial wherewithal to pay such amount without hindering its planned business operations. The Company has classified these notes as current liabilities inasmuch as they are payable to a related party.

The Company received cash from an affiliate of the Company’s sole officer. No amounts have been repaid and the balances due are $34,400 and $21,400 at December 31, 2010 and March 31, 2010, respectively. The Company entered into unsecured notes payable with respect to these amounts bearing interest at 8% per annum. Interest has accrued on these notes in the amounts of $2,950 and $1,115 at December 31, 2010 and March 31, 2010, respectively. These notes mature at various dates through February 2, 2013. The Company has classified these notes as current liabilities inasmuch as they are payable to a related party.

Note 5: Subsequent Events

On January 10, 2011, the Company received $6,000 cash from a stockholder and subsequently issued an unsecured promissory note due March 31, 2012 for that amount bearing interest at a rate of 8% per annum. Thus, at the date these financial statements were issued, the total principal amount due this stockholder was $26,000.  

The Company has evaluated subsequent events from the balance sheet date, December 31, 2010, through the date these financial statements were issued and has determined that there are no additional events that would require additional disclosure in these financial statements.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements and related notes thereto as included with this Form 10-Q report. The statements contained herein that are not historical facts are forward-looking statements that represent management’s beliefs and assumptions based on currently available information.  Forward-looking statements include the information concerning our search for an operating company (“target company”), possible or assumed future operations, business strategies, need for financing, competitive position, ability to retain and recruit personnel, and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believes,” “intends,” “may,” “will,” “should,” “anticipates,” “expects,” “could,” “plans,” or comparable terminology or by discussions of strategy or trends. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Such statements by their nature involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements.

Our current business plan is to locate and acquire the assets or voting securities of a target company in exchange for securities of our Company or to be acquired by such a target company. From time to time our Company has engaged in preliminary discussions with representatives of a potential target company; however, we have not entered into any material negotiations or into a letter of intent with any party and there are currently no agreements or arrangements with respect to any acquisition or material business transaction.  

Results of Operations:

Three Months Ended December 31, 2010 compared to December 31, 2009

During the three months ended December 31, 2010, our operating expenses were $5,313, which represented a 132% increase, compared to the three months ended December 31, 2009. During the three months ended December 31, 2010, 80% of our operating expenses were attributable to legal and accounting fees and seventeen percent were attributable to director fees. During the three month period ended December 31, 2009 we did not incur any director fees and 95% of our operating expenses were attributable to legal and accounting fees. We believe that the obligations placed upon us as a result of our reporting requirements under the Exchange Act will continue to see our operating expenses increase.  

Our interest expense for the three months ended December 31, 2010 ($1,488) likewise increased over the same three month period ended December 31, 2009 ($1,052). The $436 increase represents a 41% increase for the three months ended December 31, 2010 compared to the three months ended December 31, 2009. Inasmuch as our operating expenses are financed through borrowing, interest expense will increase each quarterly period and will continue to do so at least until we are able to acquire a target company. However, no assurance can be given that the target company does not have debt which is subject to interest payments.

Nine Months Ended December 31, 2010 compared to December 31, 2009

During the nine months ended December 31, 2010, our net loss was $25,785 and our total operating expenses were $21,709, which represented a 76% and 84% increase, respectively, compared to the nine months ended December 31, 2009. During the nine months ended December 31, 2010, we paid $2,700 in director fees. During the nine months ended December 31, 2009, we paid no such fees. Our legal and accounting fees increased by 63% during the nine months ended December 31, 2010 when compared to the nine months ended December 31, 2009. We do not foresee a decrease in our legal and accounting expenses.

We caution our stockholders to expect an increase in legal and accounting fees as we continue to undertake activities to remaining compliant with our reporting requirements under the Exchange Act and as we seek a target company. These activities require us to consult with legal counsel and accountants to assure that we remain compliant with regulatory requirements relating both to our disclosures pursuant to the Exchange Act and in the presentation of our financial statements.

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Interest expense for the nine months ended December 31, 2010 amounted to $4,076 compared to $2,832 for the comparative period ended December 31, 2009. We expect our interest expense to continue to escalate in the future inasmuch as our operations are dependent on debt financing. At December 31, 2010 we had notes payable to related parties in the amount of $54,400 and at January 31, 2011 our debt to related parties had increased to $60,400. We are accruing interest at rates between 8% and 18% per annum on these unsecured debt instruments that we issue to finance our operating activities. At present we have no alternative plan to finance our operations other than through the issuance of debt instruments. We see this continuing increase in our debt as a potential impediment in our search for a target company.

Liquidity and Capital Resources:

Sources of Liquidity

We have no business operations and we do not have any assets with which we could secure our future capital borrowing requirements. We have relied on Steven White, our sole officer (one of our two directors), to procure such capital as is necessary for us to remain operational and to search for a target company. We have issued unsecured promissory notes for the cash we have received from an entity which is affiliated with Mr. White and from a stockholder. This stockholder has provided to us $10,000 in cash since September 30, 2010 and at of January 31, 2011, we have issued a total of $26,000 in unsecured promissory notes to this stockholder. We have relied on Mr. White’s ability to procure our operating capital; however, he cannot give us any assurance that he will be able to do so in the future.

We rely on Mr. White not only for our capital needs but also as our officer in directing the affairs of our Company. If Mr. White were to no longer function in this capacity, our board of directors may not be able to locate someone to provide management for the Company without cost and we do not have the financial resources to hire someone to serve in this capacity.

Other than the cash we have received from affiliates in exchange for unsecured promissory notes, additional potential sources of liquidity that are available to us arise from convertible debt or equity securities that we may issue. Our board of directors may issue such debt instruments and equity securities (both common and preferred stock) without the approval of our stockholders. The unsecured promissory notes we have issued to affiliates have not been registered with the SEC and are not freely transferable. We have no shares of our preferred stock outstanding and our common stock is not traded in the marketplace. Other than for purposes of acquiring a target company or in conjunction with the acquisition of a target company, we presently have no intention of issuing shares of our preferred or common stock to raise capital.

Current Capital Resources/Requirements

At December 31, 2010 we had $482 in cash available and $4,411 in outstanding accounts payable. On January 10, 2011, we received $6,000 in cash from a stockholder and subsequently issued an unsecured promissory note due March 31, 2012 for that amount bearing interest at a rate of 8% per annum. We used this cash to pay all of our outstanding accounts payable.  

During the nine months ended December 31, 2010, net cash used in operating activities amounted to $17,298, which compares to $12,374 used during the nine months ended December 31, 2009. During the nine months ended December 31, 2010 we received $17,000 in cash proceeds from an entity affiliated with Mr. White and from one of our stockholders. This represents a $4,600 increase over the nine month period ended December 31, 2009. We anticipate a continuous need for cash to finance our search for a target company and for the payment of costs associated with the filing of our annual and quarterly reports as required under the Exchange Act.

We also anticipate that as we investigate the potential acquisition of a target company, costs will be incurred in this regard. The actual amount of these costs and our ability to raise the capital necessary to investigate such a potential acquisition are presently not determinable. The investigation of a target company will likely require that we incur costs such as travel, lodging, entertainment, and the retention of consultants and other professionals. The costs we incur to investigate a target company may not result in any benefit to our Company and our stockholders. Furthermore, even if an acquisition of a target company is successful, a market for our common stock may not occur afterward.

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As previously stated, we see this continuing increase in our debt as a potential impediment in our search for a target company. We are considered a “shell” company and as such, we are not engaged in any revenue producing activities. We have and continue to rely on Mr. White, our sole officer who owns 95% of our common stock, to provide our needed capital. We have received a total of $34,400 in cash from an affiliated entity of Mr. White and Mr. White has arranged for another stockholder to provide an additional total of $20,000 in cash through December 31, 2010. This stockholder provided an additional $6,000 during January 2011 for a total of $26,000 at January 31, 2011. We have relied on Mr. White to provide sources of capital as needed. His ability to continue to provide such capital in the future and until such time as a reorganization with a target company has been achieved, should be assessed by our stockholders or anyone else desiring to invest in our Company.

We currently have no understandings, commitments or agreements with respect to the acquisition of a target company and we may not be able to identify a target company in the future. Further, we may not be successful in consummating any acquisition on terms favorable to our stockholders. If we should require additional capital in order to pursue our search for a target company or to consummate the acquisition of a target company, we may sell shares of our common or preferred stock or utilize varying forms of debt financing.  

Reorganization Risk

We have issued unsecured promissory notes in the amount of $54,400 at December 31, 2010 and a total of $60,400 at January 31, 2011, to finance our operations. At present, we do not have the wherewithal to repay these notes. A target company will likely take this debt into consideration as part of a reorganization, with the resultant effect that present stockholders will likely receive a smaller percentage of a company formed as a result of us combining with a target company. Inasmuch as our liabilities will continue to increase during the period of time that we search for a target company, our stockholders will be adversely affected. Furthermore, we see this continuing increase in our debt as a potential impediment in our search for a target company.

Going Concern Risk

Our audited financial statements as of March 31, 2010 and our unaudited financial statements as of December 31, 2010, have been prepared assuming that our Company will continue as a going concern. We have incurred losses from operations over several years as we have searched for a target company. We will continue to require additional capital in order for us to comply with our reporting requirements and to seek a target company. The necessity for us to obtain future capital for operational purposes and to pay our unsecured promissory notes when due, raises substantial doubt regarding our ability to continue as a going concern. Nevertheless, our financial statements have been prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Our Company has been and will continue to be dependent on Mr. White, our sole officer, to obtain additional capital from such sources as are available to him. We also rely on Mr. White to serve in this capacity without compensation. We are assuming that these arrangements will continue. A change in these circumstances would have a material adverse effect on our ability to continue as a going concern.

Off-Balance Sheet Arrangements:

During the nine months ended December 31, 2010, we did not engage in any off-balance sheet arrangements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we have elected not to provide the disclosure required by this item.

Item 4.  Controls and Procedures

Disclosure Controls and Procedures

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Our President, who is also our principal financial officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), has concluded that as of the Evaluation Date, our disclosure controls and procedures were effective to provide assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our most recent quarter ended December 31, 2010, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.  Because of these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their stated goals under all potential future conditions.

PART II.  OTHER INFORMATION

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

On October 6, 2010, and January 10, 2011 we issued unsecured promissory notes to 1^st Orion Corp., a Utah corporation (“1^st Orion”) owned and controlled by Laura Lee Madsen, for cash advanced to the Company for operating capital. The principal amounts of the notes were $4,000 and $6,000, respectively, and each note bears interest at 8% per annum. The notes are due and payable on March 31, 2012. The notes were issued without registration under the Securities Act by reason of the exemptions from registration afforded by the provisions of Section 4(2) of the Securities Act.  1^st Orion was an accredited investor at the time of the issuances of the notes. Ms. Madsen on behalf of 1^st Orion acknowledged appropriate investment representations with respect to the notes and consented to the imposition of restrictive legends upon the notes.  1^st Orion did not enter into the note transactions with us as a result of or subsequent to any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast on television or radio, or presented at any seminar or meeting. 1^st Orion was afforded the opportunity to ask questions of our management and to receive answers concerning the terms and conditions of the note issuances.  No selling commissions were paid in connection with these transactions.

Item 6.  Exhibits

The following exhibits are furnished with this report:

10.1

Promissory Note dated January 10, 2011, to 1^st Orion Corp

31.1

Rule 15d-14(a) Certification by Principal Executive Officer and Principal Financial Officer

32.1

Section 1350 Certification of Principal Executive Officer and Principal Financial Officer

SIGNATURES

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

Millstream Ventures, Inc.

Date: February 18, 2011

By: /s/ Denny W. Nestripke            

      Denny W. Nestripke, Director

(Acting Principal Executive and Financial Officer)

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