UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





_______________________________________________________





FORM
10-Q








_______________________________________________________








xQUARTERLY REPORT UNDER
SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the
period ended September 30, 2009





oTRANSITION 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 incorporation
      or organization)
            (I.R.S.
      Employer 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 xNo o





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 o
            Accelerated
      filer oNon-accelerated
      filer o
            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 oNo 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
November 12, 2009, there were 53,301,039 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)





SEPTEMBER
      30,
                
                
                MARCH
      31,2009
                
                
                2009ASSETSCURRENT
      ASSETS:Cash
                
                $
                61,505
                
                
                $
                12,565Restricted
      cash
                
                
                1,910,754
                
                
                
                500,260Receivables-trade
      (net of allowance of $0 and $20,680 as of September 30, 2009 and March 31,
      2009, respectively)
                
                
                49,246
                
                
                
                21,609Receivables-other
                
                
                250,000
                
                
                
                181,585Deferred
      financing charges
                
                
                311,031
                
                
                
                -Prepaid
      expenses and other current assets
                
                
                75,138
                
                
                
                68,775Total
      current assets
                
                
                2,657,674
                
                
                
                784,794Investment
      in Safeland Storage, LLC
                
                
                -
                
                
                
                407,400Property,
      plant, equipment, net
                
                
                6,147,530
                
                
                
                5,362,702TOTAL
      ASSETS
                
                $
                8,805,204
                
                
                $
                6,554,896LIABILITIESCURRENT
      LIABILITIES:Accounts
      payable
                
                $
                1,233,829
                
                
                $
                644,919Accounts
      payable-related parties
                
                
                -
                
                
                
                27,222Accrued
      liabilities
                
                
                238,467
                
                
                
                51,652Deferred
      revenue
                
                
                813,184
                
                
                
                72,834Liabilities-disposal
      of asset
                
                
                805,338
                
                
                
                1,215,437Current
      portion of long-term liabilities
                
                
                500,000
                
                
                
                500,000Current
      portion of long-term liabilities-related party loans
                
                
                238,498
                
                
                
                236,365Total
      current liabilities
                
                
                3,829,316
                
                
                
                2,748,429Long-term
      liabilitiesBank
      loan
                
                
                1,750,000
                
                
                
                2,000,000Related
      party loans
                
                
                -
                
                
                
                63,635Related
      party convertible debt subscriptions
                
                
                150,000
                
                
                
                -Convertible
      debt subscriptions
                
                
                1,510,000
                
                
                
                -Total
      long-term liabilities
                
                
                3,410,000
                
                
                
                2,063,635TOTAL
      LIABILITIES
                
                
                7,239,316
                
                
                
                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:52,795,797
      and 51,993,024 issued, outstanding and subscribed at September 30, 2009
      and March 31, 2009, respectively
                
                
                52,796
                
                
                
                51,993Additional
      paid-in capital
                
                
                8,407,288
                
                
                
                7,237,576Accumulated
      deficit
                
                
                (6,894,196
                )
                
                
                (5,546,737
                )TOTAL
      STOCKHOLDERS' EQUITY
                
                
                1,565,888
                
                
                
                1,742,832TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                
                $
                8,805,204
                
                
                $
                6,554,896
 The
accompanying notes are an intergral part of these unaudited consolidated
financial statements.
  3
  BLACKWATER
MIDSTREAM CORP.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)




Successor
              
              
              Predecessor
              
              
              Successor
              
              
              PredecessorThree
      Months Ended
              
              
              Three
      Months Ended
              
              
              Six
      Months Ended
              
              
              Six
      Months EndedSeptember
      30, 2009
              
              
              September
      30, 2008
              
              
              September
      30, 2009
              
              
              September
      30, 2008RevenueStorage
              
              $
              907,317
              
              
              $
              513,396
              
              
              $
              1,607,894
              
              
              $
              1,050,333Other
      Services
              
              
              109,550
              
              
              
              74,633
              
              
              
              161,621
              
              
              
              113,243Total
      Revenue
              
              
              1,016,867
              
              
              
              588,029
              
              
              
              1,769,515
              
              
              
              1,163,576Cost
      of Revenue
              
              
              275,963
              
              
              
              380,048
              
              
              
              530,771
              
              
              
              806,902GROSS
      PROFIT
              
              
              740,904
              
              
              
              207,981
              
              
              
              1,238,744
              
              
              
              356,674OTHER
      OPERATING EXPENSES:Selling,
      general and administrative
              
              
              1,102,458
              
              
              
              79,318
              
              
              
              2,484,423
              
              
              
              161,176Depreciation
              
              
              84,960
              
              
              
              27,366
              
              
              
              166,431
              
              
              
              54,965Total
      other operating expenses
              
              
              1,187,418
              
              
              
              106,684
              
              
              
              2,650,854
              
              
              
              216,141Income
      (loss) from operations
              
              
              (446,514
              )
              
              
              101,297
              
              
              
              (1,412,110
              )
              
              
              140,533Gain
      on insurance settlement
              
              
              252,292
              
              
              
              -
              
              
              
              130,494
              
              
              
              -Interest
      income
              
              
              210
              
              
              
              -
              
              
              
              494
              
              
              
              -Interest
      expenses
              
              
              (28,105
              )
              
              
              -
              
              
              
              (66,337
              )
              
              
              -Income
      (loss)
              
              $
              (222,117
              )
              
              $
              101,297
              
              
              $
              (1,347,459
              )
              
              $
              140,533NET
      LOSS PER COMMON SHARE,BASIC
      AND DILUTED
              
              $
              (0.00
              )
              
              
              
              
              
              $
              (0.03
              )Weighted
      average number of sharesoutstanding:
      basic and diluted
              
              
              52,425,969
              
              
              
              
              
              
              
              52,261,252





The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
  4





BLACKWATER
MIDSTREAM CORP.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





Successor
              
              
              PredecessorSix
      Months Ended
              
              
              Six
      Months EndedSep-09
              
              
              Sep-08CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Loss
              
              $
              (1,347,459
              )
              
              $
              140,533Adjustments
      to reconcile net loss tonet cash used in operating
      activities:Depreciation
              
              
              166,431
              
              
              
              54,965Impairment
      of investment
              
              
              82,400
              
              
              
              -Stock
      based compensation
              
              
              1,027,764
              
              
              
              -Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (96,052
              )
              
              
              -Prepaid
      expenses
              
              
              (174,644
              )
              
              
              -Deferred
      revenue
              
              
              740,350
              
              
              
              -Accounts
      payable and accruals
              
              
              (365,374
              )
              
              
              -Net
      cash provided by operating activities
              
              
              33,416
              
              
              
              195,498CASH
      FLOWS FROM INVESTING ACTIVITIES:Net
      increase in cash from restricted cash
              
              
              (1,410,494
              )
              
              
              -Proceeds
      from investments
              
              
              325,000
              
              
              
              -Purchase
      of property, plant and equipment
              
              
              (247,480
              )
              
              
              -Net
      cash used in investing activities
              
              
              (1,332,974
              )
              
              
              -CASH
      FLOWS FROM FINANCING ACTIVITES:Cash
      repayments to parent
              
              
              -
              
              
              
              (195,498
              )Cash
      proceeds from convertible debt raise
              
              
              1,660,000
              
              
              
              -Net
      cash payments to related party debt
              
              
              (61,502
              )
              
              
              -Cash
      payments to bank note
              
              
              (250,000
              )
              
              
              -Net
      cash provided by (used in) financing activities
              
              
              1,348,498
              
              
              
              (195,498
              )NET
      CHANGE IN CASH FOR THE PERIOD
              
              
              48,940
              
              
              
              -CASH
      AT BEGINNING OF PERIOD
              
              
              12,565
              
              
              
              -CASH
      AT END OF PERIOD
              
              $
              61,505
              
              
              $
              -


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, L.L.C. (“BNO”) as a wholly-owned subsidiary of the Company, organized
in the State of Louisiana. On December 23, 2008, BNO acquired an existing bulk
liquid storage terminal in Westwego, LA (“the Westwego Terminal” or “Terminal”)
from NuStar Terminals Operations Partnership L.P. (“NuStar”.)





Successor
company references herein are referring to consolidated information pertaining
to Blackwater Midstream Corp., the registrant, our wholly-owned subsidiary
Blackwater New Orleans, L.L.C. 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 – SUCCESSOR





The
accompanying unaudited consolidated financial statements as of September 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 accepted accounting principles for
complete financial statements.  Certain items in 2008 have been
reclassified to conform to the 2009 financial statement presentation generally
accepted in the United States of America.  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 operations for the three-month and six-month
periods ended September 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.
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 was 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.





REVENUE
RECOGNITION





Revenues
for third-party terminals include storage tank lease fees, whereby a customer
agrees to pay for a certain amount of tank storage over a certain period of
time; and throughput fees, whereby a customer pays a fee based on volumes moving
through the terminal.  At our terminal, we can also offer and provide
blending, handling, filtering and certain other ancillary
services.  Revenue from storage tank lease fees are recognized
ratably, which is typically monthly, over the term of the
lease.  Revenue from throughput fees and ancillary fees are recognized
as services are provided to the customer.  For services that are
billed and collected in advance, revenues are deferred until the period in which
the services are provided.





6


NEW ACCOUNTING
PRONOUNCEMENTS





In June
2009, the Financial Accounting Standards Board (“FASB”) issued an update of
Accounting Standards Codification 105, “Generally Accepted Accounting
Principles” (“ASC 105”) which establishes the FASB Accounting Standards
Codification TM (the “ASC”).  The ASC is the sole source of
authoritative U.S. generally accepted accounting principles (“GAAP”) recognized
by the FASB to be applied by nongovernmental entities.  The ASC
superseded all then-existing non-SEC accounting and reporting standards. All
other non-grandfathered, non-SEC accounting literature not included in the ASC
is no longer authoritative. While the ASC does not change GAAP, it introduces a
new structure that reorganizes the GAAP pronouncements into accounting topics.
All content of the ASC carries the same level of authority.  The ASC
is effective for our financial statements as of September 30, 2009.




In
May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” (now ASC
855) which modifies the definition of subsequent events and requires disclosure
of the date through which an entity has evaluated subsequent events and the
basis for that date. These requirements became effective for us on June 15,
2009. We evaluated subsequent events through November 12, 2009, which
represents the date our financial statements were issued.


2.STOCK-BASED
COMPENSATION. Net
income for the three-month and six-month periods ended September 30, 2009
included $298,808 and $1,027,764 respectively 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 September
30, 2009, there was approximately $961,777 of total unrecognized compensation
costs related to unvested stock-based compensation that is expected to be
recognized over a weighted-average period of approximately 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
              48%Risk-Free Interest
      rate
              1.79Expected Dividend
      Distributions
              N/A


3.COMMITMENTS AND
CONTRACTUAL OBLIGATIONS.





The
Company’s 2008 Incentive Plan allows annually, in August, each member of the
Company’s Board of Directors to be awarded shares of restricted common stock or
common stock purchase options as outlined below. The Plan allows directors to
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.





As of
August, 2009 and currently, our 2008 Incentive Plan does not have adequate
shares available to issue or grant shares or options to the Board of
Directors.  The Company is currently evaluating alternatives to fund
the 2008 Incentive Plan and also funding for future incentive plans





On April
29, 2009, 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
September 2009, Milling had received 250,002 shares of common stock, equal to an
expense amount of $57,917; and is scheduled to receive 83,334 additional common
shares of the Company during the period of October and November
2009.





7




4.REDEMPTION OF
SAFELAND STORAGE, L.L.C. INVESTMENT





On
September 4, 2009, the Company completed the redemption of its seven percent
(7%) interest in Safeland Storage, L.L.C  (“Safeland”), represented by
70,000 Class A units of Safeland membership interest.




The
Company received $325,000 for its 7% interest in Safeland, resulting in a loss
of $82,400 for the three months ended September 30, 2009. Previously, in its
Annual Report on Form 10-K, for the fiscal year ended March 31, 2009, the
Company recorded an impairment charge of $1,092,600 based on an independent
third party appraisal.




5.PRIVATE
OFFERING OF CONVERTIBLE DEBT





The
Company engaged in a private offering of $2,250,000 of convertible debt (the
“September 2009 Offering”) of the Company.  As of September 30, 2009,
the Company received subscription agreements and collected funds in the amount
of $1,660,000.  As of November 12, 2009, the Company had received
subscription agreements and collected funds in the amount of $3,001,033, related
to the September 2009 Offering.




As a
result if the oversubscription to the September 2009 Offering, the Company has
elected to increase the amount of the Offering to $3,001,033, and accept all
subscriptions received by the Company.




The
relevant provisions contained in the subscription agreement for the September
2009 convertible debt private offering are as follows:




The
closing date was October 15, 2009 and the maturity date is October 15,
2011.  Interest will be earned at 10% per annum; to be paid quarterly,
beginning on January 15, 2010.  The principal is to be repaid to
investors upon the maturity date, unless the convertible debt is converted into
shares of the Company’s common stock at a price of $0.50 per
share.  The convertible debt may be converted at any time prior to the
maturity date, upon the option of the investor.




The
Company intends to use the proceeds of the September 2009 Offering to partially
fund the construction of 150,000 barrels of new tanks on existing foundations,
and to partially fund the reconstruction of a ship dock at the Westwego
Terminal.  The balance of the net proceeds will be used for general
and administrative costs of the business and working capital.  Shares
of the Company’s common stock obtained through the conversion option are
“restricted securities” and may only be transferred pursuant to registration,
qualification, or exemption under applicable United States and states securities
laws.




US GAAP
requires that, if certain criteria are met, companies must bifurcate conversion
options from their host instruments and account for them as free standing
derivative instruments.  The Company has evaluated the conversation
options on the convertible debt and has determined that the embedded conversion
option should not be bifurcated.  Additionally, the Company analyzed
the conversion feature and determined that the effective conversion price was
higher than the market price at date of issuance; therefore no beneficial
conversion feature was recorded.




The
Company engaged Falcon Capital to secure and assist with the September 2009
offering.  As of September 30, 2009, Falcon Capital had earned a cash
fee of $142,750 and a fee payable in common stock of the Company in the same
amount.  These fees are included in the deferred financing costs in
the consolidated balance sheet as of September 30, 2009 and will be amortized to
interest expense over the term of the convertible notes using the effective
interest method.  As of November 12, 2009, for its services, Falcon
Capital has earned a cash fee of $265,103 and 914,149 restricted shares of the
Company’s common stock, valued on October 15, 2009 at $0.29 per share which is
equal to $265,103.





8





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, L.L.C. 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, manager 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, L.L.C.
(“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. At purchase, the Westwego Terminal had an
approximate leasable capacity of 752,000 barrels.





As of
September 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, 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 barge 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.





9





As of
September 30, 2009 we had leased approximately 540,000 barrels of storage, for a
storage utilization rate of approximately 72%.  The products currently
stored at the storage terminal are lubricating oils, 50% grade caustic and
sulfuric acid.  Our utilization rate is expected to increase to over
85% by the end of December 2009 due to recently signed agreements for additional
long-term storage.  This expected utilization rate of approximately
85% is considering the increase in storage tank capacity of approximately
100,000 barrels currently under construction.




Safeland Storage Investment and
Redemption.On September 4, 2009, the Company completed the redemption of
its seven percent (7%) interest in Safeland Storage,
L.L.C  (“Safeland”), represented by 70,000 Class A units of Safeland
membership interest.




The
Company received $325,000 for its 7% interest in Safeland, resulting in a loss
of $82,400 for the three months ended September 30, 2009. Previously, in its
Annual Report on Form 10-K, for the fiscal year ended March 31, 2009, the
Company recorded an impairment charge of $1,092,600 based on an independent
third party appraisal.





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 continue to increase the utilization rate 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. In September 2009, we updated these plans from 120,000 barrels
to 150,000 barrels based on signing a five-year storage
contract.  Current construction plans call for two of the 50,000
barrel steel tanks to be erected and ready for leasing by the end of December
2009 and the third 50,000 barrel steel tank to be erected and ready for leasing
by the end of April 2010.  We are also in the permitting and
engineering stage of constructing a new Mississippi River ship dock, with
scheduled completion by the end of April 2010.  The addition of the
Mississippi River ship dock to our Westwego Terminal facilities will greatly
increase our potential for servicing a larger range and number of customers and
their products.





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.





10


Results
of Operations





For
the Three-Month and Six-Month Periods Ended September 30, 2009 and September 30,
2008.





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





Revenues-Revenues
from storage terminal facilities are derived from two mains areas of operation:
recurring contractual storage tank lease fees and monthly ancillary services.
The following is a discussion about each.





Revenues-Storage
Leases. The Company’s storage tank revenues for the three-month period
ended September 30, 2009 totaled approximately $907,000; averaging approximately
$302,000 per month.  This is a 29% increase from the previous
three-month period average of approximately $233,500.  This rise is
due mainly to an increase in the number of customers with lease contracts during
the last quarter.  The Company’s storage tank revenues for the
three-month period ended September 2009 is approximately 77% higher than the
predecessor’s storage tank revenues for the three-month period ended September
2008.





During
the three-month period ended September 30, 2008 the predecessor’s storage tank
revenues totaled approximately $513,000, averaging approximately $171,000 per
month.





The
Company’s storage tank revenues for the six-month period ended September 30,
2009 totaled approximately $1,608,000; averaging approximately $268,000 per
month.  This is approximately a 15% increase from the previous
three-month period average of approximately $233,500.  This rise is
due mainly to an increase in the number of customers with lease
contracts.  The successor’s storage tank revenues for the six-month
period ended September 2009 is approximately 53% higher than the predecessor’s
storage tank revenues for the six-month period ended September
2008.





During
the six-month period ended September 30, 2008 the predecessor’s storage tank
revenues totaled approximately $1,050,000, averaging approximately $175,000 per
month.





Management
monitors the utilization rate of the leasable storage tanks at the Westwego
Terminal each month.  At the commencement of the Company’s operations
at the Westwego Terminal in December 2008, the storage tank utilization rate was
38%.  As of September 30, 2009, the storage tank utilization rate was
approximately 72%.  See the table below for the month-to-month
utilization percentage.  Management attributes this approximate 90%
increase in the utilization rate to aggressive marketing of the terminal
location, services, and capacity and to management’s industry
associations.




Sep 2009
= 71.8%


Aug 2009
= 71.8%


Jul 2009
= 65.6%


Jun 2009
= 56.4%


May 209 =
55.9%


Apr 2009
= 56.9%


Mar 2009
= 57.8%


Feb 2009
= 57.8%


Jan 2009
= 57.8%


Dec 2008
= 38.0%





Revenues-Ancillary
Services. Ancillary revenues are earned based on a customer’s particular
needs; and, therefore, by their nature fluctuate from month to
month.  The Company’s ancillary revenues for the three-month period
ended September 30, 2009 totaled approximately $110,000 or approximately 47%
more than the predecessor’s ancillary revenues. The predecessor’s ancillary
revenues during the three-month period ended September 30, 2008 totaled
approximately $75,000.





The
Company’s ancillary revenues for the six-month period ended September 30, 2009
totaled approximately $162,000 or approximately 43% more than the predecessor’s
ancillary revenues. The predecessor’s ancillary revenues during the six-month
period ended September 30, 2008 totaled approximately $113,000.





Cost of
Revenues. The Company’s cost of revenues for the three-month period ended
September 30, 2009 totaled approximately $276,000 or 27% of revenues; which is
consistent with our previous operating periods.  The predecessor’s
costs of revenues for the three-month period ended September 30, 2008 were
approximately $380,000 or 65% of revenues.  The variance between our
cost of revenues and the predecessor’s cost of revenues is primarily
attributable to one-time repair and maintenance charges by the predecessor and
differences in the method of classifying some labor related
costs.  The predecessor classified all storage terminal managerial
cost to cost of revenues; whereas, the Company distinguishes managerial labor
costs between cost of revenues and administrative expenses.





11





The
Company’s gross profit for the three-month period ended September 30, 2009 was
approximately $741,000 or 73% of revenues as compared to the predecessor’s
three-month period ended September 30, 2008 of approximately $208,000 or 35% of
revenues.





The
Company’s cost of revenues for the six-month period ended September 30, 2009
totaled approximately $531,000 or 30% of revenues.  The predecessor’s
costs of revenues for the six-month period ended September 30, 2008 were
approximately $807,000 or 69% of revenues.





The
Company’s gross profit for the six-month period ended September 30, 2009 was
approximately $1,239,000 or 70% of revenues as compared to the predecessor’s
six-month period ended September 30, 2008 of approximately $357,000 or 31% of
revenues.





Selling, General
and Administration Expenses (SG&A). The Company’s consolidated
SG&A expenses of approximately $1,102,000 for the three-month period ended
September 30, 2009 and the expenses of approximately $2,484,000 for the
six-month period ended September 30, 2009 were significantly higher, by
approximately $1,023,000 and $2,323,000, respectively, than those SG&A
expenses reported for the predecessor for the three-month period ended September
30, 2008 of approximately $79,000 and expenses for the six-month period ended
September 30, 2008 of approximately $161,000.





The
Company’s 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, impairment on investments and other expenses that were not allocated
or expensed by the predecessor’s parent company to the terminal’s
operations.  The table below outlines these differences.





For the Three-Month
      Period Ended September 30,
            
            For the Six-Month
      Period Ended September 30,Successor
            
            Successor2009
            
            2009Selling, General & Administrative
      Expenses:Management
      Salaries
            
            $
            247,968
            
            
            $
            495,937Management,
      Director & Services Share-based Compensation
            
            
            262,141
            
            
            
            959,557Professional
      Fees
            
            
            300,070
            
            
            
            517,374Insurance-Business
            
            
            82,320
            
            
            
            164,138Other
      SG&A Expenses
            
            
            209,959
            
            
            
            347,417Total
      SG&A Expenses
            
            $
            1,102,458
            
            
            $
            2,484,423





The
Company’s average monthly SG&A expenses, for both the three-month and
six-month periods ended September 2009, were relatively unchanged for each
category, when excluding one-time and/or non-monthly recurring
expenses.




ü
            Management
      salaries (including payroll burden) averaged approximately $83,000 per
      month.


ü
            Management,
      director and services non-cash, share-based compensation, excluding
      $435,274 for director options expensed in the 1st
      quarter, averaged approximately $87,000 per
  month.


ü
            Professional
      fees, excluding $100,000 for annual director fees expensed in August 2009,
      averaged approximately $68,000 per
month.


ü
            Business
      insurance for both periods averaged approximately $27,000 per
      month.


ü
            Other
      SG&A expenses, excluding an investment impairment expense in September
      2009 of $82,400, averaged approximately $43,000 per
  month.





In
summary, the Company’s average SG&A expenses have been and are currently
averaging approximately $308,000 per month.  This is compared to the
predecessor’s average SG&A expenses of approximately $26,500 per
month.





The
Company’s non-cash SG&A expense for management, director and services
share-based compensation was $262,141 for the three-month period ended September
30, 2009, and totaled $959,557 for the six-month period ended September 30,
2009.   During the period ended June 30, 2009, the Company
expensed the 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.





Depreciation.
Our consolidated depreciation expense for the three-month period and the six
month ended September 30, 2009 were approximately $85,000 and $166,000;
respectively.  This was approximately three times higher than the
predecessor’s depreciation expense of approximately $27,000 for the three-month
period ended September 30, 2008 and approximately $55,000 for the six-month
period ended September 30, 2008.  This was due to a step-up in the
value of the property, plant and equipment assets, and changes in Management’s
assessment of the estimated life of the assets, in connection with the
acquisition of the Westwego Terminal.




12




Interest
Expense. We incurred approximately $42,000 in interest for the
three-month period ended September 30, 2009 and approximately $80,000 in
interest for the six-month period ended September 2009; whereas the predecessor
did not record any interest for either of these periods.  The
majority, approximately $28,000 for the three-month period and approximately
$61,000 for the six-month period, of our consolidated interest was related to
our loan agreement with JPMorgan Chase Bank associated with our acquisition of
the Westwego Terminal.  The remainder relates to our related party
loans.





During
the three-month period ended September 30, 2009, we allocated approximately
$14,000 of interest to our Construction-in-Progress capital
projects.





Gain and Loss on
Disposal of Asset.  Pertaining to the tank leak incident at the
Westwego, LA terminal in February 2009, we have recorded the
amounts due from our insurance carriers and the expenses we have
incurred as of September 30, 2009 in the consolidated statement of
operations.





During
the three-month period ended September 30, 2009, we collected $61,842 in
pollution insurance expense reimbursements from our pollution insurance carrier
and recorded a receivable of $250,000, as per a property insurance settlement,
due from our property insurance carrier.  The $250,000 was collected
in October 2009.  During the three-month period ended September 30,
2009, we recorded additional expenses incurred of approximately $55,882 and we
recorded $181,348 for the six-month period ended September
2009.  During the three-month and six-month period ended September 30,
2008, the predecessor had no such activities.  The table below
summarizes amounts related to this incident.





We are
continuing to work closely with our pollution insurance carrier 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 September 30,
2009.





Successor
            
            
            Successor
            
            PredecessorFor the
      six-month Period
            
            
            For the period
            
            For
      the periodEnded
      Sept. 30,
            
            
            Ended March
      31,
            
            Ended
      Sept. 30,2009
            
            
            2009
            
            2008Pollution &
      Property Insurance: Clean up & mitigation reimbursement less
      deductible of $250,000
            
            $
            311,842
            
            
            $
            181,585
            
            
            $
            --Pollution:
      Clean up & mitigation expenses
            
            
            (181,348
            )
            
            
            (1,000,668
            )
            
            
            --Property:
      Tank disposal
            
            
            --
            
            
            
            (83,678
            )
            
            
            --Gain
      (Loss) on Disposal of Asset
            
            $
            130,494
            
            
            $
            (902,761
            )
            
            $
            --





13


LIQUIDITY
AND CAPITAL RESOURCES





As shown
in the accompanying consolidated financial statements for the three-month and
six-month periods ended September 30, 2009, we have incurred a net loss of
approximately $222,000 and approximately $1,347,000, respectively; and have an
accumulated deficit of approximately $6,894,000 as of September 30,
2009





We have
negative working capital of approximately $1,172,000 as of September 30,
2009.  This is an improvement when compared to our negative working
capital of $2,657,166 as of June 30, 2009 and negative working capital of
$1,963,635 as of March 31, 2009.   This improvement is
attributable to proceeds received from the convertible debt subscriptions,
increase utilization and revenues at the Westwego terminal, and collection and
receivables of the February 2009 insurance claim related funds.





Our
operation at the newly acquired terminal in Westwego, LA continues to expand
with increasing capacity and revenues and is generating industry accepted gross
margins.  However, management is aware that our corporate and
administrative overhead is designed and structured to accommodate and manage
multiple storage terminals.





The
Company generated positive cash flow of approximately $33,000 from its
operations for the six-month period ended September 30, 2009. This
included an increase of approximately $740,000 from prepaid storage lease fees
invoiced and collected as of September 30, 2009.  The predecessor, for
the six-month period ended September 30, 2008, generated positive cash flows
from operations of approximately $195,000, which was returned to its parent
corporation.





As of
September 30, 2009, our total assets were approximately
$8,805,000.   For the six-month period ended September 30, 2009
our total assets increased approximately $2,250,000 as we collected $1,660,000
in convertible debt subscriptions as of September 30, 2009, recorded an
insurance receivable of $250,000, and redeemed our investment in Safeland
Storage, LLC for cash of $325,000 but recorded a related impairment loss on
investments of $82,400 for the period.





As of
September 30, 2009 our total current liabilities were approximately $3,829,000;
while our long-term liabilities were approximately $3,410,000.  This
is a net increase in total liabilities of approximately $2,427,000 for the
six-month period ended September 30, 2009.  Our total current
liabilities increased by approximately $1,081,000 due to an increase of accounts
payable and deferred revenue; as one of our major customers prepaid a year of
storage lease fees.  Our total long-term liabilities increased by
approximately $1,346,000 due to the addition of convertible debt subscriptions
and to a pay-down of principal on our bank loan and related party
loans.





At
September 30, 2009, we had cash totaling approximately $1,972,000, of which
approximately $1,660,000, attributable to the convertible debt raise, was
classified as restricted cash, and $250,754 was restricted as per our agreement
with JPMorgan Chase.  As of March 31, 2009 our cash totaled
approximately $513,000; of which $500,260 was restricted as per our agreement
with JPMorgan Chase.




On
September 4, 2009, the Company completed the redemption of its seven percent
(7%) interest in Safeland, represented by 70,000 Class A units of Safeland
membership interest.  The Company received $325,000 for its 7%
interest in Safeland, resulting in a loss of $82,400 for the three months ended
September 30, 2009. Previously, in its Annual Report on form 10-K, for the
fiscal year ended March 31, 2009, the Company recorded an impairment charge of
$1,092,600 based on an independent third party appraisal.




The
Company made a private offering of $2,250,000 of convertible debt of the
Company.  As of September 30, 2009, the Company received Subscription
Agreements and collected funds in the amount $1,660,000.  As of
November 12, 2009, the Company has received Subscription Agreements and
collected funds in the amount of $3,001,033.  As a result of the
oversubscription to the September 2009 Offering, the Company has elected to
increase the amount of the Offering to $3,001,033, and accept all subscriptions
received by the Company.




14


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.





Disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) are designed to ensure that information required to be disclosed
in our reports filed under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and forms.
This information is also accumulated and communicated to management, including
our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), to
allow timely decisions regarding required disclosure. Our management, under the
supervision and with the participation of our CEO and, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the most recent fiscal quarter reported on herein.
Based upon that evaluation, our CEO and CFO have concluded that our disclosure
controls and procedures were effective as of September 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 September 30, 2009 that have materially
affected; or are 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.





None.





ITEM
5.OTHER
INFORMATION.





None.





16





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





EXHIBIT
      NO.
            DOCUMENT
      DESCRIPTION5.1
            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)6.1
            Redemption
      Agreement with Safeland Storage, L.L.C. (2)7.1
            Private
      Offering of Convertible Debt31.1
            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.(2)
            Incorporated
      herein by reference to the Current Report on Form 8-K filed with the
      Commission on September 8, 2009.(3)
            Incorporated
      herein by reference to the Current Report on Form 8-K filed with the
      Commission on October 21, 2009.





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 12th day of November, 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
      DESCRIPTION5.1
              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)6.1
              Redemption
      Agreement with Safeland Storage, L.L.C. (2)7.1
              Private
      Offering of Convertible Debt31.1
              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.(2)
              Incorporated
      herein by reference to the Current Report on Form 8-K filed with the
      Commission on September 8, 2009.(3)
              Incorporated
      herein by reference to the Current Report on Form 8-K filed with the
      Commission on October 21,
2009.




19