UNITED STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





_______________________________________________________





FORM 10-Q








_______________________________________________________







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





For the period ended June 30, 2009





|_|           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from ________ to ________





COMMISSION FILE NUMBER 000-51403





BLACKWATER MIDSTREAM CORP.


(Exact name of small business issuer in its charter)





NEVADA

26-2590455(State or other jurisdiction of

(I.R.S. Employerincorporation or organization)

Identification Number)





660 LABAUVE DRIVE


WESTWEGO, LOUISIANA, 70094


(Address of principal executive offices)





TELEPHONE: (504) 340-3000


(Issuer's telephone number)








Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   
Yes |X|    No |_|





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 definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.





Large accelerated filer |_|
Accelerated filer |_|Non-accelerated filer |_|
Smaller reporting company |X|





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes |_|    No |X|





State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:


As of August 7, 2009, there were 52,261,889 shares of Common Stock, $.001 par value per share, outstanding.










PART I - FINANCIAL INFORMATION











ITEM 1. FINANCIAL STATEMENTS





Consolidated Balance Sheets (Unaudited)
3Consolidated Statements of Operations (Unaudited)
4Consolidated Statements of Cash Flows (Unaudited)
5NOTES TO UNAUDITED FINANCIAL STATEMENTS
6









2


BLACKWATER MIDSTREAM CORP.


CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
 
 JUNE 30,
2009


MARCH 31,
2009ASSETSCURRENT ASSETS:Cash and cash equivalents

$
133,186


$
12,565Restricted cash


375,544



500,260Receivables-trade (net of allowance of $0 and $20,680 as of June 30, 2009 and March 31, 2009, respectively)


5,114



21,609Receivables-other


--



181,585Prepaid expenses and other current assets


29,117



68,775Total current assets


542,961



784,794Investment in Safeland Storage, LLC


407,400



407,400Property, plant, equipment, net


5,471,212



5,362,702Total investments and property, plant and equipment net


5,878,612



5,770,102TOTAL ASSETS

$
6,421,573


$
6,554,896LIABILITIESCURRENT LIABILITIES:Accounts payable

$
952,934


$
644,919Accounts payable-related parties


7,068



27,222Accrued liabilities


93,005



51,652Deferred revenue


149,683



72,834Liabilities-disposal of asset


1,206,719



1,215,437Current portion of long-term debt


500,000



500,000Current portion of long-term debt-related parties


290,718



236,365Total current liabilities


3,200,127



2,748,429Long-term debtBank loan


1,875,000



2,000,000Related party loans


--



63,635Total long-term debt


1,875,000



2,063,635TOTAL LIABILITIES

$
5,075,127


$
4,812,064STOCKHOLDERS' EQUITYPreferred stock - 20,000,000 "blank check" preferred shares, issuable in one or more series, no shares issued and outstanding


--



--Common stock - 200,000,000 shares authorized, $0.001 par value: 52,178,555 and 51,993,024 issued and outstanding at June 30, 2009 and March 31, 2009, respectively


52,179



51,993Additional paid-in capital


7,966,346



7,237,576Accumulated deficit


(6,672,079
)


(5,546,737
)TOTAL STOCKHOLDERS' EQUITY


1,346,446



1,742,832TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
6,421,573


$
6,554,896
 
 
 The accompanying notes are an integral part of these unaudited consolidated financial statements.
 3
 BLACKWATER MIDSTREAM CORP.
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Successor


PredecessorThree Months Ended


Three Months EndedJune 30, 2009


June 30, 2008RevenueStorage

$
700,577


$
536,937Other Services


52,071



38,610Total Revenue


752,648



575,547Cost of Revenue


(254,808
)


(426,854
)GROSS PROFIT


497,840



148,693OTHER OPERATING EXPENSES:Selling, general and administrative


1,381,965



81,858Loss on disposal of asset


121,798



---Depreciation


81,471



27,599Total other operating expenses


1,585,234



109,457Income (Loss) from operations


(1,087,394
)


39,236Interest income


284



-Interest expenses


(38,232
)


-Income (Loss)

$
(1,125,342
)

$
39,236NET LOSS PER COMMON SHARE,BASIC AND DILUTED

$
(0.02
)Weighted average number of sharesoutstanding: basic and diluted


52,096,535
 
 The accompanying notes are an integral part of these unaudited consolidated financial statements.
 4
 BLACKWATER MIDSTREAM CORP.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)


Successor


PredecessorThree Months Ended


Three Months EndedJun-09


Jun-08CASH FLOWS FROM OPERATING ACTIVITIES:Net Loss

$
(1,125,342
)

$
39,231Adjustments to reconcile net loss tonet cash used in operating activities:Depreciation


81,471



27,599Stock based compensation


728,956



-Changes in operating assets and liabilities:Accounts receivable


198,080



-Prepaid expenses


39,658



-Deferred revenue


76,849



-Accounts payable and accruals


134,925



-Net cash provided by operating activities


134,597



66,830CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from restricted cash


124,716Purchase of property, plant and equipment


(4,410
)


-Net cash used in investing activities


120,306



-CASH FLOWS FROM FINANCING ACTIVITES:Net cash repayments to parent


-



(66,830
)Net cash payments to related party debt


(9,282
)


-Net cash payments to bank note


(125,000
)


-Net cash used in financing activities


(134,282
)


(66,830
)NET CHANGE IN CASH FOR THE PERIOD


120,621



-CASH AT BEGINNING OF PERIOD


12,565



-CASH AT END OF PERIOD

$
133,186


$
-


The accompanying notes are an integral part of these unaudited consolidated financial statements.  5





BLACKWATER MIDSTREAM CORP.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS








1.
ORGANIZATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





ORGANIZATION





We were incorporated in the State of Nevada, U.S.A., on March 23, 2004. Our fiscal year end is March 31. On March 18, 2008, we changed our name to Blackwater Midstream Corp. from Laycor Ventures Corp. On September 9, 2008, we formed Blackwater New Orleans, LLC (“BNO”) as a wholly-owned subsidiary of the Company,
incorporated in the State of Louisiana. On December 23, 2008, BNO acquired an existing bulk liquid storage terminal in Westwego, LA (“ the Terminal ”) from NuStar Terminals Operations Partnership L.P. (See Note 4)





Successor company references herein are referring to consolidated information pertaining to Blackwater Midstream Corp., the registrant, our wholly-owned subsidiary Blackwater New Orleans, LLC and to Laycor Ventures Corp.





Predecessor company references herein relate to NuStar Terminals Operations Partnership L.P., the former owner and manager of the storage terminal in Westwego, LA, and its operations at the storage terminal.





BASIS OF PRESENTATION – SUCCECSSOR





The accompanying unaudited consolidated financial statements as of June 30, 2009 included herein have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance
with United States generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management of Blackwater Midstream Corp. (the "Company", "us", "our", or "we"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the March 31, 2009 audited financial statements and notes thereto. The balance sheet at March 31, 2009
has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  Certain items in 2008 have been reclassified to conform to the 2009 financial statement presentation.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended March
31, 2009.  The results of the operations for the three months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year.





BASIS OF PRESENTATION – PREDECESSOR





These financial statements include the accounts of the Terminal. Historically, financial statements have not been prepared for the Terminal, as it had no separate legal status of existence. The accompanying carve-out financial statements have been prepared to present the statements of financial position of the Terminal
and statements of operations and cash flows of the Terminal for inclusion in Blackwater Midstream Corp’s Form 10-Q for purposes of complying with the rules and regulations of the Securities and Exchange Commission as required by S-X Rule 8-02. These statements include only those assets, liabilities and related operations of the Terminal as historically incurred by the Terminal and exclude all other assets, liabilities and operations of NuStar Energy. The accompanying carve-out financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America using Terminal-specific information where available and allocations and estimates where data is not maintained on a Terminal-specific basis within its books and records.  Allocations were primarily based on a percentage of revenue adjusted as necessary based on facts and circumstances where a more specific allocation was deemed more appropriate.   Due to the significant amount of
allocations and estimates used to prepare these carve-out financial statements, they may not reflect the financial position, cash flows or results of operations of the Terminal in the future or what its operations, cash flows and financial position would have been had the Terminal been operating on a stand-alone basis during the periods presented. These financial statements do not include a carve-out for cash as the operations have historically been fully funded by NuStar Energy.


6


BUSINESS OBJECTIVE – INDEPENDENT DEVELOPER AND MANAGER OF BULK LIQUID STORAGE TERMINALS





Prior to the acquisition of the Westwego Terminal, we were a shell company and had minimal operations.  Upon acquiring the Westwego Terminal from NuStar, we became an independent developer and manager of fuel, agriculture and chemical bulk liquid storage terminals.





CONSOLIDATION





The accompanying successor consolidated financial statements represent the consolidated operations of Blackwater Midstream Corp. and its wholly-owned subsidiary Blackwater New Orleans, LLC. Intercompany balances and transactions have been eliminated in consolidation.





USE OF ESTIMATES





The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those
estimates. On an ongoing basis, management reviews its estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.




2.
GOING CONCERN





The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.





The Company had recurring net losses, and as of June 30, 2009, had a working capital deficit. Our ability to continue as a going concern is dependent upon our ability to obtain financing for future terminal acquisitions, finance general working capital requirements and fund future operations. Management has plans to seek
additional capital through debt financing, private placement, and public offerings of its common stock for future terminal acquisitions. These factors raise doubt regarding the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event we cannot continue as a going concern.





3.
PROPERTY, PLANT AND EQUIPMENT





Property and equipment consisted of the following:





Estimated
Useful Life

June 30, 2009


March 31, 2009Land



1,313,947



1,313,947Office building & warehouses
40


253,963



244,724Improvements
5—40


146,609



146,609Dock
30—40


978,325



978,325Tanks & piping
40


2,593,980



2,227,023Equipment
5


15,346



15,346Office equipment, software & tools
5—30


126,437



126,437Construction in Process



306,215



492,430Total property, plant and equipment



5,734,822



5,544,841Less: accumulated depreciation



(263,610
)


(182,139)Net property, plant and equipment, net



5,471,212



5,362,702





Depreciation and amortization expenses related to property, plant and equipment totaled $81,471 and $88,194 for the three month periods ending June 30, 2009 and March 31, 2009, respectively


7





4.
ACQUISITION OF NUSTAR ENERGY’S WESTWEGO, LA STORAGE TERMINAL





On December 23, 2008, BNO acquired and purchased from NuStar Terminals Operations Partnership L.P. (“NuStar”) certain assets of NuStar, including but not limited to, approximately 26.5 acres of land located at the Port of New Orleans, Westwego, Louisiana, including the 852,000 barrel chemical storage terminal
and other improvements thereon, as well as certain licenses and permits to operate such terminal (collectively, the “Storage Terminal”). The Storage Terminal was purchased by BNO “as-is”. The purchase price for the Storage Terminal was $4,800,000, subject to certain adjustments for prepaid third-party fees, adjustment to inventory, and NuStar’s transaction-related costs, totaling $119,601. Four of the storage tanks acquired, with a combined shell capacity of about 100,000 barrels
are being dismantled.   As a result, they provided no leasable storage capacity and accordingly no value was assigned, or allocated at purchase.  Therefore, the Westwego Terminal has an approximate leasable capacity of 752,000 barrels. Additionally, we will not incur any demolition expenses associated with these tanks, as they will be disassembled by third-party subcontractors for the value of the steel salvaged.





Prior to the acquisition, BNO was a shell company.  As a result, predecessor financial statements are provided in accordance with the SEC Reporting Manual.  Because BNO had limited operating activity prior to the acquisition, no pro forma statements are provided.





The following table sets forth the costs and related initial purchase price allocation of the assets acquired and liabilities assumed resulting from the NuStar Energy Westwego Terminal acquisition.





Cost of the acquisition:Cash paid from the proceeds of debt

$
2,500,000Cash paid from cash on hand


2,300,000Cash paid for other acquisition costs


119,601$
4,919,601Initial purchase price allocation:Property

$
1,313,947Plant and Equipment


3,577,306Air and Water Permit


28,348$
4,919,601




5.
LONG TERM DEBT AND RELATED PARTY NOTES PAYABLE





JP Morgan Chase loan agreement





In connection with the Acquisition of the Westwego Terminal, we entered into a loan agreement (the “JPM Loan Agreement”) with JP Morgan Chase Bank, N.A. (“JPM”) in the principal amount of $2,500,000, which matures on March 31, 2014 and bears interest at the annual rate of 1.5% above the Prime Rate,
subject to certain minimum rate requirements. Monthly installments of interest only payments began on January 31, 2009 and monthly principle installments of $41,667 commenced on April 30, 2009.





The JPM Loan Agreement is secured by a mortgage on, among other things, BNO’s right, title and interest in the immovable property, buildings, structures, machinery, equipment and improvements to the facility, as well as BNO’s deposit accounts at JPM. The JPM Loan Agreement includes customary events of default,
including, but not limited to, the failure of BNO to pay any principal or interest when due, the breach of any representation or warranty in any of JPM’s loan documents, or the insolvency or bankruptcy of BNO. Upon the occurrence of an event of default, the JPM Loan Agreement will become due and payable automatically and without notice.





The JPM Loan Agreement required BNO to maintain a restricted depository account at JPM with a minimum balance of $500,000, which represents an amount equal to at least twelve months of principal payments due under the agreement. On April 21, 2009, the JPM Loan Agreement was amended to remove the depository account requirement,
provided that and so long as (i) the Account continues to be pledged to JPM pursuant to the terms of the Assignment and (ii) commencing April 30, 2009 and continuing on the last day of each calendar month thereafter, proceeds from the Account are applied to pay the scheduled monthly principal installments of $41,667 each that are due and payable under the Term Note.  At June 30, 2009, the balance of this restricted cash account was $375,544.


8


In addition, the JPM Loan Agreement contains certain restrictive covenants, which among other things limit our ability to make distributions, sell equity interest, incur additional debt, or create liens on our property. The Loan Agreement also contains certain financial covenants, which require us to, beginning March 31,
2010 maintain a fixed charge coverage ratio of less than 1.20 to 1.00. This is defined as the ratio of (1) net income before income taxes, plus amortization, depreciation, interest, rent and operating lease payments less distributions to (2) prior period current maturities of long-term debt and capital leases plus interest, taxes, rent and operating lease payments.





6.
STOCK-BASED COMPENSATION.





Net income for the three month period ended June 30, 2009 included $697,416 of stock-based compensation costs; all of which are included in general and administrative expenses in the accompanying condensed consolidated statements of operations. As of June 30, 2009, there was approximately $1,230,000 of total unrecognized
compensation costs related to unvested stock-based compensation that is expected to be recognized over a weighted-average period of two years.





On April 1, 2009, the Company granted 2,823,528 shares of stock options with a fair value of $435,274 to four directors as follows. The options vested immediately.  The exercise price for the stock options was based on the Company’s closing stock price on the date of grant which was $0.17.





The grant-date fair value for the stock options was estimated using a Black-Scholes option valuation model which incorporated the following assumptions.





Grant-Date Fair Value

$
0.17Expected Term


5Expected Volatility


148%Risk-Free Interest Rate


1.79Expected Dividend Distributions


N/A




7.
COMMITMENTS AND CONTRACTUAL OBLIGATIONS





Annually in August, each member of the Company’s Board of Directors is awarded shares of restricted common stock or common stock purchase options as outlined below. Our directors can choose one of the following methods of compensation:





A)  Up to $60,000 in value of shares of the Company’s common stock at the grant date with immediate vesting, or





B)  Stock options equal to double the number of shares of stock equal to $60,000 at the grant date, with immediate vesting.





On April 29, 2008, the Company entered into a one year supplemental retainer agreement with Milling Benson Woodward, L.L.P. (“Milling”) wherein, as of April 1, 2009, Milling agreed to accept 50% of its monthly retainer fee payable in the common stock of the Company, with the remainder, payable in cash.  Through
June 2009, Milling had received 125,001 shares of common stock, equal to an expense amount of $21,250; and is scheduled to receive 41,667 additional common shares of the Company during the period of July and August 2009.


9


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





Forward-looking Statements





THE FOLLOWING DISCUSSION OF THE RESULTS OF OUR OPERATIONS AND FINANCIAL CONDITION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.





This section of this report includes a number of forward-looking statements that reflect Blackwater Midstream Corp.'s (the "Company") current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: "believe," "expect," "estimate," "anticipate," "intend,"
"project" and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.





The following discussion provides an analysis of the results of our operations, an overview of our liquidity and capital resources and other items related to our business.  The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes
included in this Quarterly Report on Form 10-Q and our audited financial statements and notes included in our Annual Report on Form 10-K as of and for the year ended March 31, 2009.





Overview of Company and its Operations





Successor company references herein are referring to consolidated information pertaining to Blackwater Midstream Corp. (formerly Laycor Ventures Corp.), the registrant, our wholly owned subsidiary Blackwater New Orleans, LLC and to Laycor Ventures Corp.





Predecessor company references herein are referring to NuStar Terminals Operations Partnership L.P. (“NuStar”), the former owner and manager of the storage terminal in Westwego, LA, and their operations at the storage terminal.





Commencing in May 2008, we hired new management and changed our business plan to become an independent developer and acquirer of bulk liquid fuel and chemical storage facilities. Prior to that time, we were engaged in the exploration of a single oil and gas property containing two claims relating to mineral rights in British
Columbia, Canada.





General. We were incorporated in the State of Nevada on March 23, 2004.  We changed our name from Laycor Ventures Corp. to Blackwater Midstream Corp. on March 18, 2008 and on March 21, 2008, a change in the ownership and management control of the Company
occurred.  At that time, we changed our business objective to become an independent developer and manager of third party fuel, agricultural and chemical bulk liquid storage terminals. Commencing in May 2008 we hired new management and appointed a new board of directors.





Westwego Terminal Operations.   On September 9, 2008, we formed Blackwater New Orleans, LLC (“BNO”), a Louisiana limited liability company, as a wholly owned subsidiary of the Company, to acquire the Westwego Terminal.





The purchase price for the Westwego Terminal was $4,800,000, subject to certain adjustments for prepaid third-party fees, adjustment to inventory, and NuStar’s transaction-related expenses. The Westwego Terminal has an approximate leasable capacity of 752,000 barrels.


10


As of June 30, 2009 our asset portfolio and operations consisted of the Westwego Terminal.  The above-the-ground storage tanks at the Westwego Terminal range in size from approximately a 5,000 barrel capacity to tanks with over a 100,000 barrel capacity.  Our operations support many different commercial
customers including refiners and chemical manufacturers.  The diversity of our customer base, lends to the potential diversity of the products customers may want stored in our terminal.  The products will however generally fall into the three broad categories: petroleum, chemical and agricultural.





Our income is derived from tank leasing, operational charges associated with blending services, throughput charges for receipt and delivery options and other services requested by our customers.  The terms of our storage leasing contracts range from month-to-month, to multiple years, with renewal options. Cash
generated from the operations at the Westwego Terminal is our primary source of liquidity for funding debt service, maintenance, and small-scale potential capital expenditures.  Based on long-term contracts, we would seek debt financing to fund larger-scale capital expenditures.





At the Westwego Terminal, we generally receive our customer’s liquid product by river barge at our Mississippi River dock.  The product is transferred from barges to the leased storage tank via the terminal’s internal pipeline apparatus.  The customer’s product is removed from storage
at our terminal by truck, railcar and/or by barge.  The length of time that the customer’s product is held in storage without transfer varies depending upon the customer’s needs.





As of June 30, 2009 we had leased approximately 440,000 barrels of storage, for a storage utilization rate of over 58%.  The products currently stored at the storage terminal are lubricating oils, crude naphthenic acid, 50% diaphragm grade caustic and sulfuric acid.  Our utilization rate is expected to
increase to approximately 72% in August 2009 due to recently signed agreements for additional long-term storage.





Growth of our Business. The importance of bulk terminal facilities in the refined product and chemical manufacturing segments has grown significantly over the past decade as the nation’s product supply patterns have become increasingly more complex. Bulk liquid
terminals allow producers to operate their refineries and manufacturing plants more efficiently by providing capacity to level out both increases and decreases in product demand.  In addition, bulk liquid terminals provide a more efficient supply chain by storing the product either closer to the production or consumption locations.





Our current business model is to increase the utilization of the existing storage tanks at the Westwego Terminal and to construct additional storage tanks at the terminal site as needed.  In July 2009, we announced our plans to add up to 120,000 barrels of new capacity on existing tank foundations.





Additionally, we plan to pursue the acquisition of other underachieving, underutilized storage terminals through asset purchases and management agreements. We believe the considerable experience of the Company’s management team will be a key factor in transitioning underperforming terminals into viable profit centers.
We expect these acquisitions to provide immediate accretive results to the Company’s operations, and will also allow us to serve the specific storage needs of our customers at our various terminals.


11


Results of Operations





For the Three Month Period Ended June 30, 2009 and June 30, 2008.





We became an operational entity when we acquired the Westwego Terminal on December 23, 2008.  For the period ended June 30, 2008, the Westwego Terminal was owned and operated by the predecessor company.





THE FOLLOWING TABLE SETS FORTH, FOR THE PERIODS INDICATED, CERTAIN OPERATING INFORMATION EXPRESSED





THREE MONTHS ENDED JUNE 30, 2009


COMPARED TO THREE MONTHS ENDED JUNE 30, 2008




THREE MONTHS ENDED JUNE 30,2009


2008Successor


PredecessorCONSOLIDATED STATEMENT OF OPERATIONS DATA:Revenue

$
752,648


$
575,547Costs and Expenses:Costs of revenue


254,808



426,854Selling, general and administrative


1,381,965



81,858Depreciation


81,471



27,599Total costs and operating expenses


1,718,244



536,311Profit (Loss) from operations


(965,596
)


39,236Interest income


284



--Interest expenses


(38,232
)


--Loss on disposal of asset


(121,798
)


--Net Profit/(Loss) from Operations

$
(1,125,342
)

$
39,236





Revenues-Storage Leases.For the three month period ended June 30, 2009 storage tank revenues totaled approximately $701,000; averaging approximately $233,500 per month.  This is a 14% increase from the previous three month period average
of approximately $205,000.  This increase is due to a mix of barrels leased, lease rates and number of customer lease contracts.  During the three month predecessor period ended June 30, 2008 storage tank revenues totaled approximately $537,000, averaging approximately $179,000 per month.





Revenues-Ancillary Services.Ancillary revenues are earned based on a customer’s particular needs; and, therefore, by their nature fluctuate from month to month.  For the period ended June 30, 2009 ancillary revenues totaled approximately
$52,000. During the three month predecessor period ended June 30, 2008 ancillary revenues totaled approximately $39,000.





Costs of Revenues.For the three month period ended June 30, 2009 the cost of revenues totaled approximately $255,000; which is consistent with our previous operating periods.  For the three month predecessor period ended June 30, 2008
costs of revenues were approximately $427,000.  The variance between our costs of revenues and the predecessor’s costs of revenues is primarily attributable to one-time repair and maintenance charges by the predecessor and differences in the method of coding some labor related costs.  The predecessor coded all terminal managerial costs to costs of revenues; whereas, we distinguish managerial labor costs between costs of revenues and administrative expenses.


12


Gross profit for the three month period ended June 30, 2009 was approximately $498,000 or 66% of revenues as compared to the predecessor’s three month period ended June 30, 2008 of approximately $149,000 or 26% of revenues.





Selling, General and Administration Expenses (SG&A). Our consolidated SG&A expenses of approximately $1,382,000 for the three month period ended June 30, 2009 were significantly higher, by approximately $1,300,000, than those SG&A expenses
reported for the predecessor for the three month period ended June 30, 2008 of approximately $82,000.  Our SG&A expenses include expenses relate to owning, managing, and operating our corporate organization and the Westwego terminal; which includes executive management salaries, executive management non-cash compensation (restrictive stock grants), director non-cash compensation (stock option grants), expenses related to being a public company and other professional fees, insurance, and other expenses
that were not allocated or expensed by the predecessor company to the terminal’s operations.  The table below outlines these differences.





Successor


PredecessorFor the Three Month Period Ended


For the Three Month Period EndedJune 30, 2009


June 30, 2008Selling, General & Administrative Expenses:Management Salaries

$
247,969



18%


$
—



0%Management, Director & ServicesShare-based Compensation


697,417



50%



—



0%Professional Fees


217,304



16%



—



0%Insurance-Business


81,818



6%



10,740



13%Other SG&A Expenses


137,457



10%



71,118



87%Total SG&A Expenses

$
1,381,965



100%


$
81,858



100%





Three of our SG&A expense categories decreased for the three month period ended June 30, 2009; as compared to our previous three month period ended March 31, 2009.  Management Salaries decreased approximately $61,000, or 20%, due to a reduction in staff.  Insurance was approximately the same; and
Other SG&A expenses decreased approximately $133,500, or 49%, due to a reduction in company set-up expenses and a reduction in travel expenses.





Our SG&A expense category for Management, Director and Services Share-based Compensation was $697,416 for the three month period ended June 30, 2009, and was $242,907 for our previous three month period ended March 31, 2009.   This increase was primarily attributed to the expensing of August 2008 director
stock option share-based compensation of $435,274; which the Company’s Board of Directors approved in January 2009 as per the Company’s 2008 Incentive Plan, effective during the period ended June 30, 2009.





Professional Fees increased approximately $13,000, or 6%, for the period ended June 30, 2009 as compared to the previous three month period ended March 31, 2009; due to an increase in audit and legal fees.





Depreciation. Our consolidated depreciation expense for the three month period ended June 30, 2009 was approximately $82,000; approximately 3 times higher than the predecessor’s depreciation expense of approximately $28,000 for the three month
period ended June 30, 2008.  This was due to a step-up in the value of the property, plant and equipment assets, based on the amount we actually paid upon the acquisition of the Westwego Terminal and different values of the estimated life of the assets.


13


Interest Expense. We recorded approximately $38,000 in interest expense for the three month period ended June 30, 2009; whereas the predecessor did not record any interest expense.  The majority, approximately $30,000, of our consolidated
interest expense was related to our loan agreement with JPMorgan Chase Bank associated with our acquisition of the Westwego Terminal.  The remainder of approximately $8,000 relates to our related party loans.





Loss on Disposal of Asset. Pertaining to the tank leak incident at the Westwego, LA terminal in February 2009, we have recorded the amount due from our insurance carrier and the expenses we have incurred as of March 31, 2009 in the
consolidated statement of operations.  During the period ended June 30, 2009, we collected the recorded amount due from our insurance carrier and we recorded additional expenses incurred of $122,544.  During the period ended June 30, 2008, the predecessor did not have any such activities.  The table below summarizes amounts related to this incident.





We are continuing to work closely with our insurance carriers and have retained legal advice to obtain reimbursement for expenses related to this incident.  We have not recorded any contingent reimbursement income in our consolidated statement of operations for the period ended June 30, 2009.





Successor


Successor

PredecessorFor the period


For the period

For the periodEnded June 30,


Ended March 31,

Ended June 30,2009


2009

2008Pollution Insurance: Clean up & mitigation reimbursement less deductible of $250,000

$
--


$
181,585


$
--Pollution: Clean up & mitigation expenses


(122,544
)


(1,000,668
)


--Property: Tank disposal


--



(83,678
)


--Loss on Disposal of Asset

$
(122,544
)

$
(902,761
)

$
--





LIQUIDITY AND CAPITAL RESOURCES





As shown in the accompanying consolidated financial statements for the three month period ended June 30, 2009, we have incurred a net loss; we have negative working capital, and an accumulated deficit. However, our operation at the newly acquired terminal in Westwego, LA continues to expand with increasing revenues and is
generating industry accepted gross margins.  Management is aware that our corporate and administrative overhead is designed and structured to accommodate and manage multiple storage terminals.





Our ability to continue as a going concern is dependent upon our ability to obtain financing for future terminal acquisitions, financing for general working capital requirements and upon future profitable operations from the operations of our storage terminal(s). Management will seek additional capital through debt financing,
private placement, and public offerings of our common stock for future terminal acquisitions. These factors raise substantial doubt regarding our ability to continue as a going concern.





The predecessor, for the three month period ended June 30, 2008, did produce positive cash flow from operations of approximately $67,000, which was returned to its parent corporation.





As of June 30, 2009, our total assets were $6,421,573 and our total liabilities were $5,075,127.   For the three month period ended June 30, 2009 our total assets decreased approximately $133,000; as we collected accounts receivable more effectively, but then used the cash to reduce debt and current liabilities,
and invested in property, plant and equipment.





For the three month period June 30, 2009 our total current liabilities increased approximately $452,000; while our long-term debt decreased approximately $189,000, resulting in a net increase in total liabilities of approximately $263,000.  Our total current liabilities increased due to increased accounts payables
and accrued liabilities mostly associated with our insurance incident, an increase in the amount of advance collection of accounts receivable (deferred revenue), and an increase in the current portion of long-term debt.  Our long-term debt decreased as we paid monthly installments on debt.


14


At June 30, 2009, we had negative working capital of $2,657,166; as compared to negative working capital of $1,963,635 as of March 31, 2009.  This decrease in working capital is attributable to our use of existing cash to reduce debt, while our accounts payables, accrued liabilities and current portion of long-term
debt increased.





At June 30, 2009, we had cash totaling approximately $509,000, of which approximately $376,000 was restricted as per our agreement with JPMorgan Chase.  As of March 31, 2009 our cash totaled approximately $513,000.





ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.





Not required for smaller reporting companies.





ITEM 4.   CONTROLS AND PROCEDURES.





(a)   Evaluation of Disclosure Controls and Procedures.





As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of our disclosure controls and procedures (as
defined in Rules13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, the CEO and CFO have concluded that our disclosure controls and procedures were not effective as of June 30 2009.





(b)   Changes in Internal Control over Financial Reporting.





There have been no changes in our internal controls over financial reporting that occurred during our fiscal quarter ended June 30, 2009 that have materially affected; or is reasonably likely to materially affect our internal control over financial reporting.


15


PART II. OTHER INFORMATION





ITEM 1.   LEGAL PROCEEDINGS.





None.





ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.





None





ITEM 3.   DEFAULTS UPON SENIOR SECURITIES.





On April 21, 2009, JPM and the Company agreed to amend its Credit Agreement, in which the Company initially agreed, at all times, to maintain in an account (the “JPM Account”) at JPM an amount equal to at least twelve (12) months of principal due and payable under the Term Note.  The agreed amendment
waives this minimum balance requirement, provided that and so long as (i) the JPM Account continues to be pledged to JPM pursuant to the terms of the Assignment and (ii) commencing April 30, 2009 and continuing on the last day of each calendar month thereafter, proceeds from the JPM Account are applied to pay the scheduled monthly principal installments of $41,667 each that are due and payable under the Term Note. The balance in this account as of June 30, 2009 was $375,544.  Principal payments have
been made according to this arrangement for April, May, June, and July of 2009.





ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.





On May 4, 2009 we held an annual meeting of stockholders for the fiscal year ended March 31, 2009.  At the meeting, the stockholders voted, in person and by proxy, on the following proposals:





(1)
To elect a board of four directors;(2)
To approve the Blackwater Midstream Corp. 2008 Incentive Plan, as amended; and(3)
To ratify the appointment of Malone & Bailey, PC as the independent auditors of the Company for thefiscal year ending March 31, 2009.





The following proposals were adopted by the respective margins indicated:





1.  To elect a Board of Directors to hold office until their successors are elected and qualified.





Number of SharesFor


WithheldMichael D. Suder


29,337,966



314,500Herbert Whitney


29,337,211



315,255Mathijs van Houweninge


29,337,966



314,500Christopher Wilson


29,337,211



315,255





2.  Ratification of the Blackwater Midstream 2008 Incentive Plan as amended.





For


28,025,915Against


354,700Abstain


12,500Broker non-vote


1,259,351





3.  Ratification of Malone & Bailey, PC as the independent auditors of the Company for the fiscal year ending March 31, 2009.





For


29,352,466Against


250,000Abstain


50,000





ITEM 5.   OTHER INFORMATION.





None.


16


ITEM 6.   EXHIBITS. THE FOLLOWING DOCUMENTS ARE INCLUDED HEREIN:


EXHIBIT NO.
DOCUMENT DESCRIPTION


5.1
Amendment to Credit Agreement with JP Morgan Chase Bank, N.A.5.2
Credit Agreement with JP Morgan Chase Bank, N.A. (1)5.3
$2,500,000 term loan with JP Morgan Chase Bank, N.A.(1)5.4
Collateral Mortgage in favor of JP Morgan Chase Bank, N.A. (1)5.5
Assignment of Deposit Account to JP Morgan Chase Bank, N.A. (1)31.1
Certification of Principal Executive Officer pursuant to Rule 13a-15(e) and 15d-15(e), promulgated under the Securities and Exchange Act of 1934, as amended.31.2
Certification of Principal Financial Officer pursuant to Rule 13a-15(e) and 15d-15(e), promulgated under the Securities and Exchange Act of 1934, as amended.32.1
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).32.2
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).




(1)
Incorporated herein by reference to the Current Report on Form 8-K filed with the Commission on December 31, 2008.





17


SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 7th day of August, 2009.




BLACKWATER MIDSTREAM CORP.


BY: /s/ Michael D. Suder
Michael D. Suder
Chief Executive Officer


BY: /s/ Donald St. Pierre
Donald St. Pierre
Chief Financial Officer









18


EXHIBIT INDEX








EXHIBIT NO.
DOCUMENT DESCRIPTION




5.1
Amendment to Credit Agreement with JP Morgan Chase Bank, N.A.5.2
Credit Agreement with JP Morgan Chase Bank, N.A. (1)5.3
$2,500,000 term loan with JP Morgan Chase Bank, N.A.(1)5.4
Collateral Mortgage in favor of JP Morgan Chase Bank, N.A. (1)5.5
Assignment of Deposit Account to JP Morgan Chase Bank, N.A. (1)31.1
Certification of Principal Executive Officer pursuant to Rule 13a-15(e) and 15d-15(e), promulgated under the Securities and Exchange Act of 1934, as amended.31.2
Certification of Principal Financial Officer pursuant to Rule 13a-15(e) and 15d-15(e), promulgated under the Securities and Exchange Act of 1934, as amended.32.1
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer).32.2
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer).
  (1)
Incorporated herein by reference to the Current Report on Form 8-K filed with the Commission on December 31, 2008.