UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-K




(Mark
One)




x           ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934




For
the fiscal year ended: March 31, 2009




OR




 ̈           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
                State
      or other jurisdiction of
                incorporation
      or organization)
              26-2590455
                (I.R.S.
      Employer
                Identification
      No.)660
      LaBauve Drive
                Westwego,
      Louisiana
                (Address
      of principal executive offices)
              70094
                (Zip
      Code)
  (504)340-3000
                (Issuer’s
      telephone number, including area code)
                
                Securities
      Registered Pursuant to Section 12(B) of the Act: None.
                Securities
      Registered Pursuant to Section 12(G) of the Act:
                Common
      Stock, $.001 par value per
share.




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.Yes  ̈ No x




Indicate
by check mark if the issuer is not required to file reports pursuant to Section
13 or 15(d) of the Act. Yes  ̈ No x




Indicate
by check mark whether the issuer (1) has 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 requirement for
the past 90 days. Yes x No  ̈




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




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K   ̈




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




Large
      accelerated filer    ̈
                Accelerated
      filer      ̈Non-accelerated
      filer      ̈
                  (do
      not check if a smaller reporting company)
                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




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of
September 30, 2008 was approximately $25,948,593.




Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.




As of
June 24, 2009, there were 52,178,555 shares of Common Stock, $.001 par value per
share, outstanding.




DOCUMENTS
INCORPORATED BY REFERENCE




List
hereunder the following documents if incorporated by reference and the Part of
the Form 10-K into which the document is incorporated: (1) Any annual report to
security holders; (2) Any proxy or information statement; and (3) Any prospectus
filed pursuant to Rule 424 (b) or (c) under the Securities Act of
1933.  The listed documents should be clearly described for
identification purposes.




Portions
of the Registrant’s proxy statement for the 2009 Annual Meeting of Shareholders
on Schedule 14A, filed with the Securities and Exchange Commission April 3, 2009
and supplemented April 15, 2009, are incorporated by reference into Items 10,
11, 13 and 14 of this Annual Report on Form 10-K.














BLACKWATER
MIDSTREAM CORP.


FORM
10-K




PART
I




ITEM
1. Business.




Our
Corporate History




Unless
indicated otherwise, the terms “our”, “we”, “us” and similar language refer to
Blackwater Midstream Corp. (the “Company”), together with our
subsidiary.




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.




From
incorporation until March 2008, we were a development stage company primarily
engaged in the acquisition and exploration of mining properties.  As
of July 9, 2008, we discontinued our mining pursuits.





On
September 9, 2008, we formed Blackwater New Orleans, LLC (“BNO”), a Louisiana
limited liability company, as our wholly owned subsidiary.




We were
in the development stage of developing and managing third party storage
terminals from March 2008 through December 23, 2008, when we acquired the
Westwego, LA liquid bulk storage terminal (the “Westwego Terminal”) from NuStar
Terminals Operations Partnership, L.P. (the “Acquisition”).  As of
that date, we became an operating company and were no longer in the
development stage.




We
maintain our statutory registered agent’s office at 3199 East Warm Springs Road,
Suite 200, Las Vegas, Nevada 89120.  Our executive office is located
at the Westwego Terminal, 660 LaBauve Drive, Westwego, Louisiana 70094. Our
telephone number is (504) 340-3000.




Description
of Our Business




Change
in Business Plan




Commencing
in May 2008 we hired new management, appointed a new Board of Directors and
changed our business plan to become an independent developer and manager of
third-party bulk liquid fuel, agricultural and chemical storage terminals. As of
March 31, 2009 our asset portfolio consisted of the Westwego Terminal located
along the Mississippi River within the Port of New Orleans.  The
Westwego Terminal site consists of approximately 26.5 acres of land, including
49 leasable above ground storage tanks with a combined leasable capacity of
approximately 752,000 barrels, a barge dock, an office, a warehouse, and other
site improvements.




Third
Party Terminalling Business Background




Independent
bulk liquid terminals play a crucial role for product distribution within the
supply chain.  Terminals store a range of products including crude
oil, bunker fuel, gasoline, distillates, chemicals, agricultural products, and
renewable fuels.


2




It is
estimated that in the United States, there is approximately 700 million barrels
of storage of petroleum, chemicals, agricultural products, and renewable fuels
stored at any one point in time between the various refining and manufacturing
units and the delivery to the ultimate consumer.  For example, in the
refined oil product segment, approximately 300 million barrels of refined
products, blendstock and intermediate products are stored within the refined
product value chain in facilities located between refining manufacturing units
and product tank trucks. Refiner storage accounts for approximately 40 percent
or about 120 million barrels of total product inventory; while refined product
pipelines typically contain less than 20 percent or about 60 million barrels.
The remainder is stored in bulk storage terminals that provide facilities for
aggregation, distribution, finished produce blending, imports offloading and
pipeline staging.  This amount is approximately equal to 120 million
barrels.




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.




Third-party
terminalling businesses are generally independent operations that support many
different commercial customers including refiners, manufacturers, blenders,
traders and marketers. Income is derived from tank leasing, operational charges
associated with blending services and throughput charges for receipt and
delivery options. The primary strategic drivers of the business include location
and connectivity to logistics infrastructure. Capital investment in terminalling
assets is generally supported by long-term (three years or more) contracts with
major oil and gas, chemical and agricultural companies.




Investments
resulting in incremental expansion of existing capacity through tank additions
and increased utilization of existing infrastructure such as docks, pipeline
origin pumps, truck racks, etc. have been the focus of the industry over the
past two decades. Over the past few years, the underlying infrastructure and in
some cases the real estate associated with many bulk terminals has been
exhausted. As such, industry fee structures have evolved with costs for
additional capacity, today increasing over historical levels to recuperate the
total cost for real estate, new tanks and the addition of related terminal
infrastructure as well.




Our
Investment in Safeland Storage, L.L.C.




On June
26, 2008, we purchased a seven percent (7%) interest in Safeland Storage, L.L.C.
a Louisiana limited liability company (“Safeland”), represented by 70,000 Class
A units for a purchase price of $1.5 million, pursuant to a Membership Interest
Purchase Agreement with Safeland, an unrelated
party.  Contemporaneously, therewith, on June 26, 2008, we entered
into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) for the
purchase of 435 acres of land near the town of Garyville, Louisiana, located in
St. John the Baptist Parish, from Safeland, for a purchase price of $20,500,000.
The closing of the Purchase and Sale Agreement was to take place within 120 days
from June 26, 2008.




We
considered the site an excellent location in which to develop and build a new
large-scale third party liquid bulk storage terminal.  Safeland
applied for and was granted air and water permits from local and state agencies
for development of the site as a storage terminal.




However,
in November 2008 it became evident to Blackwater management that due to the
worldwide economic credit crisis we would be unable to secure debt financing and
raise capital that the proposed development of the Garyville, LA terminal would
require to be economically feasible.  Accordingly, closing of the
Purchase and Sale Agreement with Safeland did not take place. Safeland will
continue marketing the property and we will retain our 7% interest in
Safeland.




As part
of our March 31st fiscal year-end analysis, we obtained from a third-party real
estate appraiser a current valuation of our 7% minority investment in
Safeland.  Safeland’s principle asset is the property located in
Garyville, LA, as referenced above.  This property was currently
valued at approximately $7,760,000; therefore, our 7% share is valued at about
$543,200.  This amount was discounted approximately 25% to reflect our
minority management interest; therefore, our investment is currently valued at
approximately $407,400.  Accordingly, we have recorded an adjustment
to our investment of $1,092,600, as of March 31, 2009 in the other operating
expenses section of our Consolidated Statement of  Operations for the
period December 23, 2008 through March 31, 2009.


3




Acquisition
of the Storage Terminal in Westwego, LA




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.




In
connection with the closing of the Acquisition, BNO entered into a Loan
Agreement with JP Morgan Chase Bank of N.A. (“JPM”) in the principal amount of
$2,500,000, as well as a credit agreement. The Loan Amount bears interest at the
annual rate of 1.5% above the Prime Rate, subject to certain minimum rate
requirements.  BNO paid consecutive monthly installments of interest
only, until April 30, 2009, from when BNO also paid monthly principal
installments of $41,667.  All unpaid principal and accrued and unpaid
interest is finally due and payable on March 31, 2014.




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 March 31, 2009
was $500,260.  Principal payments have been made according to this
arrangement for April, May and June of 2009.




The 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 on the premises located at 660 LaBauve Drive,
Westwego, Jefferson Parish, Louisiana, as well as the JPM Account, with a
balance of approximately $451,000 at the close of the Acquisition.




Payment
of the purchase price for the Westwego Terminal totaled $4,800,000, which
consisted of the Loan Amount of $2,500,000, and $2,300,000 of proceeds from a
private placement in December 2008, and acquisition costs of 119,601. The
Company did not assume any contingent liabilities in the
Acquisition.




Significant
Customers




As of
December 31, 2008, the utilization rate of the leasable barrel storage capacity
of the Westwego Terminal was approximately 38%.  As of June 1, 2009
the Westwego Terminal had five customers utilizing approximately 58% of its
leasable barrel storage capacity, and the contracted leased storage to our
largest customer comprised approximately 70% of our total barrel storage
utilization, with our next two largest customers comprising approximately 10%
each.  The increase in utilization is mainly due to our having
acquired two additional customers.  The products stored at the
Westwego Terminal as of the date of this Annual Report on Form 10-K are
lubricating oils, crude naphthenic acid, 50% diaphragm grade caustic and
sulfuric acid. As of June 2009, one customer accounted for over 50% of total
revenue.




Growth
of our Business




We are
engaged in the business of third-party terminalling; specifically, bulk liquid
storage at the Westwego Terminal.  The Westwego Terminal has 49
storage tanks available for leasing.  The tanks 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.


4




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.




Our
current business model is to increase the utilization at the Westwego Terminal,
expand storage at the terminal site as needed, and 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.




Environmental




Under
various federal, state and local laws, ordinances and regulations, we are
considered to be an owner or operator of real property and may have to arrange
for the disposal or treatment of hazardous or toxic substances. As a result, we
could become liable for the costs of removal or remediation of certain hazardous
substances released on or near our property. We could also be liable for other
costs that relate to hazardous or toxic substances, including governmental fines
and injuries to persons and property. Many of the chemicals and fuels we store
are considered to be hazardous materials. Inadvertent releases or spills can
subject us to costly remediation expenses and/or fines.




We have
pollution, property, auto, general liability and umbrella insurance coverage, as
well as workers compensation insurance.  Each of our insurance
carriers currently has an AM Best Rating of A to A+.On February 9, 2009 one of
our storage tanks with a leasable capacity of approximately 47,000 barrels
developed a minor leak during the initial introduction of our customer’s product
(sulfuric acid) into the tank.  Terminal staff detected the leakage in
its early stages, which was successfully contained in the designed earthen berm
area.  Terminal staff and management immediately contacted and
apprised all required federal, state and local authorities and agencies of the
situation.  Additionally, terminal staff began remediation and cleanup
efforts and activated expert environmental cleanup companies.  One of
the efforts to minimize the leakage was to transfer the product into an adjacent
100,000 barrel storage tank.  This tank also seemed to be experiencing
a possible leak, so the product was transferred into rented barges specifically
designed for the product.




During
the event we worked closely with various agencies and subcontractors and were
successful in stopping and containing the leakage.  To our knowledge
there have been no reported injuries among staff, management, subcontractors,
agency staff, nor the community.




We are
working closely with our insurance companies, their representatives, our
industry experts and the effected customer to determine the cause of the tank
failures and in making necessary repairs to the tanks.  We believe our
out-of-pocket expenses will include our insurance deductible amounts of $25,000
and $250,000 for the property and pollution policies, respectively.




Our
property claim has been denied by the carrier as per their understanding of the
incident, how and why it occurred, and the coverage available as per the
policy.  Therefore, we have recorded approximately $273,000 of
expenses in this fiscal year and estimate an additional $250,000 in the next
fiscal year to fully repair the damaged tanks and surrounding
areas.  We are discussing the property carrier’s initial determination
with them and may seek legal advice to pursue further options.




In
relation to our pollution claim, through March 31, 2008 we incurred clean up and
mitigation expenses of approximately $781,000 and estimate we will incur
additional expenses of approximately $212,000 during our next fiscal year, which
we have recorded as an accrued liability in our Statements of Consolidated
Operations.  During April and May of 2009, our pollution carrier
reimbursed us $181,625, net of our pollution coverage deductible amount of
$250,000. Our pollution carrier has submitted a letter stating they believe they
are not liable for any further payments.  We disagree with their
determination and after receiving independent legal advice, we intend to pursue
this claim.


5




Competition




The fuel
and chemical storage business is highly competitive. We expect the competitive
environment to continue in the future. We face competition from a number of
existing storage facilities in the New Orleans to Baton Rouge, Louisiana
refining and manufacturing corridor. We believe that current economic conditions
present additional opportunities in the bulk liquid storage industry by allowing
refiners and manufacturers the ability to manage product inventories and plant
production rates in response to fluctuating consumption demands and variations
in market product pricing. As consumers continue to demand a more efficient
supply chain from refiners and manufacturers, this demand for storage will
continue to drive capacity expansions in the terminal industry.




Some of
our competitors include Kinder Morgan and International Matex Tank
Terminals.  Many of our competitors have longer operating histories,
better brand recognition and significantly greater financial, technical and
marketing resources than we do. Many of these competitors may have
well-established relationships with customers and other key partners and can
devote substantially more resources to marketing and sales. Larger competitors
may enjoy significant competitive advantages that result from, among other
things, a lower cost of capital and enhanced operating
efficiencies.   We believe we offer prospective customers
flexibility with their storage needs, due to current excess capacity at our
Storage Terminal and our ability to also offer them competitive long-term
contract rates.  Additionally, the Westwego Terminal site offers
storage tank expansion potential, which can be custom designed to specific
customer requirements.




Government
Approvals and Regulation




We are
required to maintain and currently hold approvals and permits from federal,
state and local regulatory agencies for air quality and water discharge, as well
as standard local occupational licenses.




Employees




We have
eleven full-time and one part-time employee.  The positions held are
Chief Executive Officer, Chief Operations Officer, Chief Commercial Officer,
Chief Financial Officer, Assistant Terminal Operator, Operators, Maintenance,
and Accounting Clerks.




Research
and Development




The
Company has not spent any funds during either of its last two fiscal years on
research or development.




Intellectual
Property




The
Company does not hold, nor has it applied for, any patents, trademarks,
licenses, franchises or concessions, nor is the Company a party to any royalty
agreements or labor contracts.




ITEM 1A. Risk Factors








ITEM
2. Properties.




Our
corporate office, bulk liquid terminal storage tanks, and barge dock are located
at 660 LaBauve Drive in Westwego, Louisiana.  Our terminal is adjacent
to the Mississippi River, within the jurisdiction of Port of New Orleans and is
situated on approximately 26.5 acres on land. We have 49 leasable, above-ground,
storage tanks with a combined leasable capacity of approximately 752,000
barrels.  As of March 31, 2009 and June 30, 2009, we had a
storage tank utilization rate of approximately 58%, based on the total leasable
barrel storage capacity.  The Westwego Terminal is subject to a
mortgage held by JPM.




ITEM
3. Legal Proceedings.




We are
not presently a party to any litigation.


6




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




During
the fourth quarter of our fiscal year ended March 31, 2009, there were no
matters submitted to a vote of our shareholders.




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 the fiscal 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


7




PART
II.




ITEM
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.




Our
shares are traded on the Over-the-Counter Bulletin Board under the symbol
“BWMS.”  The Company is authorized to issue 200,000,000 shares of
common stock and 20,000,000 of preferred shares. As of June 24, 2009, 52,178,555
shares of common stock had been issued and were outstanding and zero shares of
preferred shares had been issued.




The
following table sets forth the range of high and low closing bid prices for the
common stock for the fiscal quarters. The over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily reflect actual transactions.





FISCAL
      QUARTER
                            
                            HIGH
      BID
                            
                            
                            LOW
      BID2010First
      Quarter 4-1-09 to 6-12-09
                            
                            $
                            0.25
                            
                            
                            $
                            0.122009Fourth
      Quarter 1-1-09 to   3-31-09
                            
                            $
                            0.30
                            
                            
                            $
                            0.15Third
      Quarter 10-1-08 to 12-31-08
                            
                            $
                            1.28
                            
                            
                            $
                            0.19Second
      Quarter 7-1-08 to   9-30-08
                            
                            $
                            4.50
                            
                            
                            $
                            0.45First
      Quarter 4-1-08 to   6-30-08
                            
                            $
                            4.42
                            
                            
                            $
                            1.002008Fourth
      Quarter 1-1-08 to   3-31-08
                            
                            $
                            2.00
                            
                            
                            $
                            0.15Third
      Quarter 10-1-07 to 12-31-07
                            
                            $
                            0.50
                            
                            
                            $
                            0.22Second
      Quarter 7-1-07 to   9-30-07
                            
                            $
                            0.70
                            
                            
                            $
                            0.03First
      Quarter 4-1-07 to   6-30-07
                            
                            $
                            1.76
                            
                            
                            $
                            0.53




Dividends




On
January 28, 2008, we declared a stock dividend of two shares of common stock for
each share outstanding. As a result, the number of outstanding shares increased
from 8,011,500 to 24,034,500. We have not declared any cash dividends, nor do we
intend to do so. Additionally, our loan agreements with JPM restrict our ability
to make dividend distributions.   Our dividend policy will be
based on our cash resources and needs and it is anticipated that all available
cash will be needed for our operations in the foreseeable future. All share and
per share amounts in this filing have been retroactively adjusted to reflect the
stock dividend.




Holders
of Record




As of
June 12, 2009 there are approximately 118 record holders of our common
stock.




Outstanding
Equity Awards at Fiscal Year Ended March 31, 2009




The
following table summarizes the number of securities underlying outstanding plan
awards for each named executive officer as of March 31, 2009.


8





Option Awards
                                        
                                        
                                        Stock AwardsName
                                        
                                        Number of
                                          Securities
                                          Underlying
                                          Unexercised
                                          Options (#)
                                          Exercisable
                                        
                                        
                                        Number of
                                          Securities
                                          Underlying
                                          Unexercised
                                          Options (#)
                                          unexercisable
                                        
                                        
                                        Equity
                                          Incentive
                                          Plan
                                          Awards:
                                          Number of
                                          Securities
                                          Underlying
                                          Unexercised
                                          Unearned
                                          Options (#)
                                        
                                        
                                        Option
                                          Exercise
                                          Price ($)
                                        
                                        
                                        Option
                                          Expiration
                                          Date
                                        
                                        
                                        Number of
                                          Shares or
                                          Units of
                                          Stock That
                                          Have Not
                                          Vested (#)
                                        
                                        
                                        Market
                                          Value of
                                          Shares or
                                          Units of
                                          Stock
                                          That
                                          Have Not
                                          Vested ($)
                                        
                                        
                                        Equity
                                          Incentive Plan
                                          Awards:
                                          Number of
                                          Unearned
                                          Shares, Units
                                          or Other
                                          Rights That
                                          Have Not
                                          Vested (#)
                                        
                                        
                                        Equity
                                          Incentive Plan
                                          Awards:
                                          Market or
                                          Payout Value
                                          of Unearned
                                          Shares, Units
                                          or Other
                                          Rights That
                                          Have Not
                                          Vested ($)Christopher
      A. Wilson
                                        
                                        
                                        20,000
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        $
                                        2.00
                                        
                                        
                                        5/7/2018
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        120,0000
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        705,882
                                        (1)
                                        
                                        $
                                        0.17
                                        
                                        
                                        4/1/2019Robert
      WayneMorgan
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0Michael
      D. Suder
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        705,882
                                        (1)
                                        
                                        $
                                        0.17
                                        
                                        
                                        4/1/2019
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        2,802,588
                                        (2)
                                        
                                        
                                        1,574,730Donald
      St. Pierre
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        650,000
                                        (3)
                                        
                                        
                                        98,500Dale
      T. Chatagnier
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        1,350,863
                                        (4)
                                        
                                        
                                        534,350Frank
      Marrocco
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        0
                                        
                                        
                                        
                                        1,350,863
                                        (5)
                                        
                                        
                                        674,952




(1)           Such
options are fully vested and are exercisable at $0.17 per share, the closing
price of the common stock on April 1, 2009, the date that such options were
issued.  Messrs. Suder and Wilson received compensation as directors
as well as for their services as executive officers of the Company during the
fiscal year ending March 31, 2009.




(2)           Includes
(i) 480,690 shares of restricted common stock granted on May 7, 2008 at $2.00
per share and which vest on January 1, 2010, only if Mr. Suder is employed by
the us on such date; (ii) 1,321,898 shares of restricted common stock granted on
January 1, 2009, valued at $0.29 per share as of such date; and (iii) 1,000,000
shares of restricted common stock granted on March 2, 2009, valued at $0.11 per
share as of such date.  The shares referenced in items “ii” and “iii”,
immediately preceding, vest according to the following schedule: (a) 33.3% on
January 1, 2010; and (b) 8.3375% on the last calendar day of each subsequent
calendar quarter, until all such shares have vested, provided; however, that
such shares shall vest according to such schedule only if Mr. Suder is employed
by the Company on such dates, respectively.




(3)           Includes
(i) 150,000 shares of restricted common stock granted on January 1, 2009, valued
at $0.29 per share as of such date; and (ii) 500,000 shares of restricted common
stock granted on March 2, 2009, valued at $0.11 per share as of such
date.  Each such grant vests according to the following schedule: (i)
33.3% on January 1, 2010; and (ii) 8.3375% on the last calendar day of each
subsequent calendar quarter, until all such shares have vested, provided;
however, that such shares shall vest according to such schedule only if Mr.
St. Pierre is employed by us on such dates, respectively.




(4)           Includes
(i) 120,173 shares of restricted common stock granted on May 14, 2008, valued at
$2.60 per share on such date and which vest on January 1, 2010, only if Mr.
Chatagnier is employed by us on such date; (ii) 480,690 shares of restricted
common stock granted on January 1, 2009, valued at $0.29 per share as of such
date; and (iii) 750,000 shares of restricted common stock granted on March 2,
2009, valued at $0.11 per share on such date.  The shares referenced
in items “ii” and “iii”, immediately preceding, vest according to the following
schedule: (a) 33.3% on January 1, 2010; and (b) 8.3375% on the last calendar day
of each subsequent calendar quarter, until all such shares have vested,
provided; however, that such shares shall vest according to such schedule only
if Mr. Chatagnier is employed by the Company on such dates,
respectively.




(5)           Includes
(i) 120,173 shares of restricted common stock granted on June 1, 2008, valued at
$3.77 per share as of such date and which vest on January 1, 2010 if Mr.
Marrocco is employed by us on such date; (ii) 480,690 shares of restricted
common stock granted on January 1, 2009, valued at $0.29 per share as of such
date; (iii) and 750,000 shares of restricted common stock granted on March 2,
2009, valued at $0.11 per share as of such date.  The shares
referenced in items “ii” and “iii”, immediately preceding, vest according to the
following schedule: (a) 33.3% on January 1, 2010; and (b) 8.3375% on the last
calendar day of each subsequent calendar quarter, until all such shares have
vested, provided; however, that such shares shall vest according to such
schedule only if Mr. Marrocco is employed by the Company on such dates,
respectively.


9




Recent
Sales of Unregistered Securities; Use of Proceeds from Registered
Securities




None.




Purchases
of Equity Securities by the Small Business Issuer and Affiliated
Purchasers




None.




ITEM
6. Selected Financial Data.




Not
applicable to smaller reporting company filers.




ITEM
7. 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 the Company’s 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 consolidated financial statements and related notes
included in this Annual Report on Form 10-K 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.




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.




Development Stage. From
incorporation until March 2008, we were a development stage company primarily
engaged in the acquisition and exploration of mining properties.  As
of July 9, 2008, we allowed our mining claim in the Rock Creek Project in
British Columbia, Canada, to expire and discontinued our mining
pursuits.  The Ministry of  the Environment designated the
property, containing our claim, as a wildlife habitat area and we received a
report from a geologist concluding that the property claim would unlikely yield
enough mineral to allow us to be  economically viable.




On June
26, 2008, we purchased a seven percent (7%) interest in Safeland Storage, L.L.C.
(“Safeland”) an unrelated party, Louisiana limited liability company, pursuant
to a Membership Interest Purchase Agreement with
Safeland.  Contemporaneously, therewith, on June 26, 2008, we entered
into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) for the
purchase of 435 acres of land near the town of Garyville, Louisiana, located in
St. John the Baptist Parish, from Safeland.  The closing of the
Purchase and Sale Agreement was to take place within 120 days from June 26,
2008.


10




This land
was considered to be an excellent location in which to develop and build (in
phases) a new large-scale third party liquid bulk storage terminal. However,
in November 2008 it was evident to Blackwater management that due to the
worldwide economic credit crisis we would be unable to secure debt financing and
raise capital that the proposed development of the Garyville, LA terminal would
require to be economically feasible.  The closing of the Purchase and
Sale Agreement with Safeland did not take place.  The Company still
maintains a 7% interest in Safeland. Safeland will continue marketing the
property and we will be entitled to 7% of the liquidating value of
Safeland.




As part
of our March 31, 2009 fiscal year-end analysis, we obtained from a third-party
real estate appraiser a current valuation of our 7% minority investment in
Safeland.  Safeland’s principle asset is the property located in
Garyville, LA, as referenced above.  This property is currently valued
at approximately $7,760,000; therefore, our 7% share is valued at about
$543,200.  This amount was discounted approximately 25% to reflect our
minority management interest; therefore, our investment is currently valued at
approximately $407,400.  Accordingly, we have recorded an adjustment
to our investment of $1,092,600, as of March 31, 2009 in the other operating
expenses section of our Consolidated Statement of Operations for the period
December 23, 2008 through March 31, 2009.




We were
in the development stage of developing and managing third party storage
terminals from March 2008 through December 23, 2008, until we acquired the
Westwego, LA liquid bulk storage terminal (the “Westwego Terminal”) from
NuStar.  As of that date, we became operating company and were no
longer in the development stage.




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.




As of
March 31, 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.


11




As of
March 31, 2009 and June 30, 2009 we had leased approximately 440,000
barrels of storage, for a storage utilization rate of approximately
58%.  The products currently stored at the storage terminal are
lubricating oils, crude naphthenic acid, 50% diaphragm grade caustic and
sulfuric acid.




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 at the Westwego Terminal,
expand storage at the terminal site as needed, and 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.




Critical
Accounting Policies and Estimates




Our
management has discussed the development and selection of the following critical
accounting estimates with our audit committee and the audit committee has
reviewed and approved these disclosures.




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 also offer and provide
blending, handling, filtering and certain other ancillary
services.  Revenue from storage tank lease fees are recognized at the
beginning of each month.  Revenue from throughput fees and ancillary
fees are recognized as services are provided to the customer.




Property, Plant and Equipment.Property, plant and equipment, are comprised of real estate, buildings,
warehouses, storage tanks, terminal assets, office equipment, computer software
and heavy equipment and are stated at cost, less accumulated
depreciation.




Assets
are depreciated on a straight-line basis over their estimated useful lives,
which range from 5 to 40 years. Repair and maintenance costs associated with
existing assets that are minor in nature and do not extend the useful life of
existing assets are charged to operating expenses as incurred.




Impairment of Long-lived
Assets.Long-lived assets, including property and equipment, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. The evaluation of recoverability is
performed using undiscounted estimated net cash flows generated by the related
asset. If an asset is deemed to be impaired, the amount of impairment is
determined as the amount by which the net carrying value exceeds discounted
estimated net cash flows.


12




Results
of Operations




For
the Year Ended March 31, 2008.




During
this period we were in the development stage of our mining activities in Canada
and thus had no revenues.  Expenses were primarily related to
professional fees for auditing.




For
the Period December 23, 2008 through March 31, 2009 compared to the Period
January 1, 2008 through March 31, 2008.




The
period December 23, 2008 through March 31, 2009 is the first period of storage
terminal operations for Blackwater Midstream and for our new management team
hired in May and June 2008.  We became an operational entity when we
acquired the Westwego Terminal on December 23, 2008.  For the period
January 1, 2008 through December 22, 2008, the Westwego Terminal was owned and
operated by the predecessor company.




Revenues.For the period December 23, 2008 through March 31, 2009 the storage tank
revenues totaled approximately $661,000, with ancillary fees totaling
approximately $99,000.  This includes approximately $45,000 in
revenues for prepaid tank storage rental paid to the predecessor company of the
Westwego Terminal for the period December 23, 2008 through December 31,
2008.  Monthly storage tank revenues increased from $195,481 in
January 2009 to $210,271 for both February and March 2009 due to fees from
a new customer.




Ancillary
fees are earned based on a customer’s particular needs; and, therefore, by their
nature fluctuate from month to month.  In January 2009, we provided
special tank cleaning services to a customer, resulting in ancillary
revenues of approximately $78,000.  In February and March 2009, we
provided only routine ancillary fees to customers and our ancillary revenues
were about $13,500 and $6,500, respectively.




During
the period January 1, 2008 through March 31, 2008, the terminal earned
approximately $533,000 in storage tank revenues and approximately $47,000 from
ancillary fees.




Operating
Expenses.  Our operating expense structure is essentially the
same as that of our predecessor.  We retained the employees and
maintained the same vendors and suppliers.  One-time repair and
maintenance charges by the predecessor of approximately $100,000 make up the
majority of variance between the operating costs of approximately $355,000 for
period of January 1, 2008 through March 31, 2008 and approximately $253,000 for
the period December 23, 2008 through March 31, 2009. Gross
profit for the period from December 23, 2008 through March 31, 2009 was
approximately $500,000, or 69%, of revenues.  Gross profit for the
period from January 1, 2008 through March 31, 2008 was approximately $225,000,
or 38%, of revenues.  The increase is attributable to increased
customers and revenues during the period ended March 31, 2009 as compared to the
period ended March 31, 2008 and higher costs of revenues during the period ended
March 31, 2008.




Selling, General
and Administration Expenses (SG&A).Our consolidated SG&A
expenses for the period December 23, 2008 through March 31, 2009 were
significantly higher (approximately $1,117,000) than those SG&A expenses
reported for the predecessor for the period January 1, 2008 through March 31,
2008 (approximately $38,000).  Our SG&A expenses include our
corporate executive management salaries, executive management non-cash
compensation (restrictive stock 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 period
                                
                                
                                
                                
                                
                                For the periodDecember 23, 2008
                                
                                
                                
                                
                                
                                January 1, 2008Selling, General & Administrative
                                
                                Through
                                
                                
                                
                                
                                
                                ThroughExpenses
                                
                                March 31, 2009
                                
                                
                                
                                
                                
                                March 31, 2008Management
      Salaries
                                
                                
                                $ 
      308,810
                                
                                
                                
                                28%
                                
                                
                                
                                $    
         —
                                
                                
                                
                                0%Management
      Non-cash Compensation
                                
                                
                                242,907
                                
                                
                                
                                22%
                                
                                
                                
                                —
                                
                                
                                
                                0%Professional
      Fees
                                
                                
                                204,606
                                
                                
                                
                                18%
                                
                                
                                
                                —
                                
                                
                                
                                0%Insurance-Other
                                
                                
                                89,472
                                
                                
                                
                                8%
                                
                                
                                
                                4,894
                                
                                
                                
                                13%Other
      SG&A Expenses
                                
                                
                                270,981
                                
                                
                                
                                24%
                                
                                
                                
                                32,977
                                
                                
                                
                                87%Total
      SG&A Expenses
                                
                                
                                $ 
      1,116,776
                                
                                
                                
                                100%
                                
                                
                                
                                $ 
      37,871
                                
                                
                                
                                100%


13




Depreciation.
Our consolidated depreciation expense for the period December 23, 2008 through
March 31, 2009 was approximately $88,000; over 3 times higher than the
predecessor’s depreciation expense of approximately $28,000 for the period
January 1, 2008 through March 31, 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.




Interest
Expense. We recorded $44,454 in interest expense for the period December
23, 2008 through March 31, 2009; whereas the predecessor did not record any
interest expense.  The majority, approximately $34,000, 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 $10,000 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 paid
by our insurance carrier and the expenses we have incurred as of March
31, 2009 in the consolidated statement of operations.  During the
period January 1, 2008 through March 31, 2008, the predecessor did not have any
such activities.  The table below summarizes amounts related to this
incident.





Successor
                    
                    
                    PredecessorFor the period
                    
                    
                    For the periodDecember 23, 2008
                    
                    
                    January 1, 2008through
                    
                    
                    throughMarch 31, 2009
                    
                    
                    March 31, 2008Pollution
      Insurance: Clean up & mitigation expenses less deductible of
      $250,000
                    
                    $
                    181,585
                    
                    
                    $
                    —Pollution:
      Clean up & mitigation expenses
                    
                    
                    (1,000,668
                    )
                    
                    
                    —Property:
      Tank disposal
                    
                    
                    (83,678
                    )
                    
                    
                    —Loss
      on Disposal of Asset
                    
                    $
                    (902,761
                    )
                    
                    $
                    —




For
the Period January 1, 2008 through December 22, 2008 compared to the Period
January 1, 2007 through December 31, 2007.




Revenues.For the period ended December 22, 2008 storage tank revenues totaled
approximately $2,060,000, with ancillary fees totaling approximately $237,000,
for a total of approximately $2,297,000.  This total is
approximately 12% less than for the comparable year ended December 31, 2007,
during which storage tank revenues totaled approximately $2,255,000 and
ancillary fees totaled approximately $366,000.  The decrease in
revenues is a result of the loss of customers leasing storage at the Westwego
Terminal.




Operating
ExpensesFor the period ended December 22, 2008, operating expenses were
approximately $1,700,000 as compared to $2,607,000 for the year ended December
31, 2007. This decrease of approximately 17.5% is primarily attributable to the
corresponding decrease in activity at the terminal and also due to a decrease in
the amounts spent on tank inspections, tank cleaning and maintenance and repairs
preformed during the year 2007. Gross profit for the period ended December
22, 2008 was approximately 26% and gross profit for the year ended 2007 was
approximately 21%, again reflecting the additional amounts spent on tank
inspections, tank cleaning and maintenance and repairs performed in 2007, but
not during 2008.




Selling General
and Administration Expenses (SG&A). These expenses decreased
approximately $40,000 from the year ended December 2007 to the period ended
December 22, 2008; however, they maintained their percentage of revenue amount
of about 9% for both periods.


14




Depreciation.  Depreciation
expense for the year 2007 was approximately $110,000 and depreciation expenses
for the period ended December 22, 2008 was approximately
$101,000.  The difference can be attributed to the selling of the
Westwego Terminal on December 23, 2008 and therefore the reduction in
depreciation expense reported by the predecessor.




Other Income.During the period January 1, 2008 through December 22, 2008 the
predecessor did not record any other income. In March 2007, the
predecessor received $8,738,041 in a legal settlement pertaining to damages to
the ship dock at the Westwego Terminal that occurred in January
2005.  The proceeds exceeded the recorded receivable by $5,229,891,
which is included in other income on the Statement of Consolidated Operations.




Net Profit from
Continuing Operations. Net profit for the period ended December 2007 was
approximately $200,000 (excluding the insurance claim recorded of $5,229,288);
which is approximately 7.6% of revenues.  The net profit for the
period ended December 22, 2008 was approximately $291,000; which is about 12.7%
of revenues.  The difference can be attributed to the additional
amounts spent on tank inspections, tank cleaning and maintenance and repairs
performed in 2007, but not during 2008.




Liquidity
and Capital Resources.




For
the Year Ended March 31, 2008.




For the
year ended March 31, 2008, we had not generated any revenues from our business
operations.




As of
March 31, 2008, our total assets were $5,472 and our total liabilities were
$7,942. We had cash and cash equivalents of $3,574.




At March
31, 2008, we had negative working capital of $2,470.  Operating
Expenses for the fiscal year ended March 31, 2008 were $27,752. Our operating
expenses consisted primarily of professional fees and claim
administration.




We had no
long-term debt.




Off
Balance-Sheet Arrangements




We did
not have any off-balance sheet arrangements as of March 31, 2008.




For
the Period December 23, 2008 through March 31, 2009 compared to the Period
January 1, 2008 through March 31, 2008.




As
shown in the accompanying consolidated financial statements, we incurred a
consolidated net loss of $2,736,971 for the period December 23, 2008 through
March 31, 2009.  This figure includes non-cash expenses for
depreciation of $88,194, an impairment charge of $1,092,600 for our minority
management investment in Safeland Storage, LLC, a loss on tank disposal
associated with our insurance incident for $83,678 and stock based compensation
to members of management for $248,339.  Without these non-cash
expenses, we would have recorded a net loss of $1,224,160 for the
period.  The predecessor’s operations resulted in a net profit of
$159,199 for the period January 1, 2008 through March 31, 2008.  Our
operations at the newly acquired Westwego Terminal are generating
revenues.




As of
March 31, 2009 we had negative working capital of $1,963,635.  As of
March 31, 2008 we had negative working capital of $2,470.




As of
March 31, 2009, our total assets were $6,554,896 and our total liabilities were
$4,812,064.  At March 31, 2008, our total assets were $5,472 and our
total liabilities were $7,942.




At
March 31, 2009, we had cash totaling $512,825.  At December 22,
2009 we had cash of $2,560,650; therefore, during the period we had a net
decrease in cash of $2,047,825.  During the period of December 23,
2008 through March 31, 2009, we generated $78,186 from our operating activities,
we used proceeds of $2,426,011 to purchase the Westwego Terminal and other
assets, and received cash proceeds in the amount of $300,000 from financing
activities.


15




Acquisition of
the Westwego Terminal.  On December 23, 2008, BNO acquired the
Westwego Terminal from NuStar.  The Westwego Terminal was purchased by
BNO “as-is”.  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.




Long-term Debt
and Notes Payable.  In connection with this purchase, BNO
entered into an agreement (the “JPM Loan Agreement’) with JP Morgan Chase Bank,
N.A. (“JPM”) to finance $2,500,000 of the purchase price of the storage
terminal, which amount bears interest at the annual rate of 1.5% above the Prime
Rate, subject to certain minimum rate requirements.  BNO paid
consecutive monthly installments of interest only from January 31, 2009 through
March 31, 2009. Beginning on April 30, 2009, BNO pays monthly principal
installments of $41,667. All unpaid principal and accrued and unpaid interest is
finally due and payable on March 31, 2014.




On April
21, 2009, JPM and the Company agreed to amend Section 3.1 D of the Credit
Agreement, in which the Company initially agreed to, at all times, 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 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 on the premises located at 660 LaBauve Drive,
Westwego, Jefferson Parish, Louisiana, 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.




Related party
Loans. In December 2008, we borrowed $125,000 and $100,000 from Ter Mast
Beheer Utrecht, B.V. and Isaac Suder, respectively, and recorded the receipt of
these funds as a current liability; in advance of agreeing to loan terms and
security agreements.  In January 2009 we borrowed $75,000 from No Logo
Air, Inc. and recorded the receipt of these funds as a current
liability.  On January 20, 2009, we entered into a loan and security
agreement, effective January 1, 2009, with each of Ter Mast Beheer Utrecht,
B.V., No Logo Air, Inc. and Isaac Suder, in the principal amount of $125,000,
$75,000 and $100,000, respectively (collectively, the “Insider
Loans”).  Ter Mast Beheer Utrecht, B.V. and No Logo Air, Inc. are each
owned and controlled by Mathijs van Houweninge, a director of
BWMS.  Isaac Suder is the father of Michael Suder, a director of BWMS
and its President and Chief Executive Officer.  Collectively, Ter Mast
Beheer Utrecht, B.V., No Logo Air, Inc. and Isaac Suder are hereinafter referred
to as the “Creditors”.




The
Insider Loans bear interest at the annual rate of 12%.  Monthly
installments of interest only payments commenced on January 31, 2009 and
continue through maturity.  In addition, principle installments of
$9,015, $5,409 and $7,212 to Ter Mast Beheer Utrecht B.V., No Logo Air, Inc. and
Isaac Suder, respectively, commenced on April 30, 2009 and continue through
maturity.  All unpaid principal and accrued and unpaid interest on the
Insider Loans is finally due and payable on June 30, 2010.




If any
amount due and owing pursuant to the Insider Loans is not promptly paid when
due, then all installments payable thereon shall, at the option of the
respective Creditor, immediately mature, and become due and owing.




In
April 2009, the Creditors individually and jointly agreed to grant the Company’s
management the ability to choose when to make principal payments beginning in
April 2009, without penalty.




The
Insider Loans are secured by a security interest on BWMS’s interest in its
wholly owned subsidiary, BNO.




Additionally,
BWMS and the Creditors entered into an Intercreditor agreement, whereby the
Creditors agreed that in the event of foreclosure on the Collateral, each
Creditor ranks pari passu as amongst themselves.




Future
minimum payments under the above third party and related party loan agreements
for the next five years and the total amount thereafter are as
follows:


16





Year
      ending March 31,2010
                    
                    $
                    736,3652011
                    
                    
                    563,6352012
                    
                    
                    500,0002013
                    
                    
                    500,0002014
                    
                    
                    500,000Thereafter
                    
                    
                    0$
                    2,800,000




Previous
Liquidity and Capital Resources Activity.




From June
through August 2008, we issued 2,092,500 shares of restricted common stock for
cash proceeds of $4,185,000 in a private placement. The issuance of the Shares
was exempt from registration under Regulation S and/or Regulation D and Section
4(2) of the Securities Act of 1933, as amended. In connection with the Offering,
we engaged Falcon International Consulting Limited to act as placement agent.
Falcon International received a fee of 10% of the gross proceeds of the
Offering.




In August
2008, we granted and issued 83,700 shares of restricted common stock at $2.00
per share, to affiliates of Falcon International Consulting Limited for
professional services rendered to the Company in connection with the private
placement described above. The value of these shares was recorded as a cost of
the offering.




In
December 2008, we entered into certain subscription agreements (collectively,
the “December Purchase Agreement”) with certain investors (the “December 2008
Investors”) for the sale of an aggregate of 8,224,600 shares of our common
stock, par value $.001 per share, at a purchase price of $0.25 per share for
gross proceeds of $2,056,150 (the “December 2008 Offering”). Pursuant to the
terms of the December Purchase Agreement the December 2008 Investors are
entitled to receive one share of common stock at no additional consideration for
each four shares for which they subscribed, resulting in an effective purchase
price of $0.20 per share.  This resulted in an additional 2,056,150
shares (collectively, the “Free Shares”), in the aggregate issued to the
purchasers, at no additional consideration, resulting in an aggregate of
10,280,750 shares issued to the December 2008 Investors.   The
Company issued these additional shares in March 2009.




The
December Purchase Agreement sets forth certain rights and obligations of the
parties, as well as customary representations and warranties by the Company and
the Investors, including anti-dilution and preemptive rights. The issuance of
the shares pursuant to the December 2008 Offering is exempt from registration
under Regulation D and Section 4(2) of the Securities Act of 1933, as
amended.




In
connection with the December 2008 Offering, the Company engaged Falcon Capital
Limited to act as placement agent.  Falcon Capital secured Purchase
Agreements for a total of 5,424,600 shares and received a fee of $135,615, or
10% of the gross proceeds for the portion of the December 2008 Offering
attributable to them, as well as 542,460 restricted shares of the Company’s
common stock distributed to affiliates of Falcon Capital, which includes 406,845
shares to the Company’s director Mathijs van Houweninge.




The
December 2008 Offering triggered anti-dilution rights of investors in its August
2008 private placement, in which the Company sold an aggregate of 2,092,500
shares for gross proceeds of $4,185,000, par value $.001 per share, at a
purchase price of $2.00 per share (the “August 2008 Offering”). The December
2008 Offering entitled investors in the August 2008 Offering to receive an
aggregate of approximately 690,016 shares pursuant to their contractual
anti-dilution rights. At its meeting on January 28, 2009, the Board of Directors
determined to reprice the per share amount paid in the August 2008 Offering to
$0.40 per share, which was not contractually required, resulting in an aggregate
additional issuance of 8,704,800 shares, which includes an additional 334,800
shares issued to affiliates of Falcon Capital, the placement agent in the August
2008 Offering.  The decision of the Board of Directors to reprice the
shares purchased in the August 2008 Offering was based on the $0.25 per share
offering price of the December 2008 Offering and the quoted market price of the
stock on or near the date of the resolution. Therefore, investors in the August
2008 Offering received four shares of restricted common stock of the Company for
every one share purchased in the August 2008 Offering.




On June
26, 2008, we purchased a seven percent (7%) interest in Safeland, represented by
70,000 Class A units, for a purchase price of $1.5 million, pursuant to a
Membership Interest Purchase Agreement with Safeland. Safeland is an unrelated
party. Contemporaneously therewith, on June 26, 2008, we entered into a Purchase
and Sale Agreement (the “Purchase and Sale Agreement”) with Safeland and its
wholly-owned subsidiary, Future Energy Investments LLC, for the purchase of 435
acres of land located in Garyville, LA, in St. John the Baptist Parish,
Louisiana, for a purchase price of $20,500,000. The Company, Safeland and Future
Energy Investments LLC have agreed not to extend the closing date and the
Company will not pursue the purchase or development of this
property.




Off
Balance-Sheet Arrangements




We did
not have any off-balance sheet arrangements for the period December 23, 2008
through March 31, 2009, nor for the period Janaury1, 2008 through March, 31
2008.




For
the Period Ended December 22, 2008 compared to the Year Ended December 31,
2007.




During
the year ended December 31, 2007 and the period from January 1, 2008 through
December 22, 2008 cash flows from the predecessor’s operations contributed
$8,609,423 and $411,197, respectively.  During 2007, the predecessor
received $8,738,041 of proceeds related to a legal settlement, of which
$3,508,150 had been recorded as a receivable when the assets were originally
purchased by the predecessor company.  Cash proceeds of $8,609,423 for
the year ended December 31, 2007 and cash proceeds of $411,197 for the period
January 1, 2008 to December 22, 2008 were remitted to the parent company of the
predecessor of the Westwego Terminal.




Off
Balance-Sheet Arrangements




We are
not aware of any off-balance sheet arrangements by the predecessor company for
the year ended December 22, 2008 or for the year ended December 31,
2007.




ITEM
7A. Quantitative and Qualitative Disclosures About Market Risk.




Not
applicable to smaller reporting company filers.


17




ITEM
8. Financial Statements and Supplementary Data.




BLACKWATER
MIDSTREAM CORP.




CONSOLIDATED
FINANCIAL STATEMENTS




Report of
Independent registered public accounting firm




Report of
Independent registered public accounting firm




Consolidated
balance sheets as of March 31, 2009 and March 31, 2008 (Successor),




Consolidated
statements of operations for the period December 23, 2008 through March 31, 2009
(Successor), the year ended March 31, 2008 (Successor), the period January 1,
2008 through March 31, 2008 (Predecessor) (Unaudited), the period January 1,
2008 through December 22, 2008 (Predecessor), and the year ended December 31,
2007 (Predecessor)




Consolidated
statements of stockholders’ equity for the period December 23, 2008 through
March 31, 2009 (Successor)




Statements
of net parent investment for the period January 1, 2007 through December 22,
2008 (Predecessor)




Consolidated
statements of cash flows for the period December 23, 2008 through March 31, 2009
(Successor), the year ended March 31, 2008 (Successor), the period January 1,
2008 through March 31, 2008 (Predecessor) (Unaudited), the period January 1,
2008 through December 22, 2008 (Predecessor), and the year ended December 31,
2007 (Predecessor)




Notes to
consolidated financial statements


18




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the
Board of Directors


Blackwater
Midstream Corporation


New
Orleans, LA




We have
audited the accompanying consolidated balance sheet of Blackwater Midstream
Corporation (“the Company”or “Successor”) as of March 31, 2009 and the related
consolidated statements of operations, stockholders’ equity, and cash flows for
the period December 23, 2008 through March 31, 2009.  We have also
audited the accompanying statements of operations, net parent investment and
cash flows of the Westwego, LA Terminal Business (Predecessor) for the period
January 1, 2008 through December 22, 2008 and the year ended December 31, 2007.
These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based
on our audits.




We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatements. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company as of
March 31, 2009 and the consolidated results of its operations and its cash flows
for the period December 23, 2008 through March 31, 2009 in conformity with
accounting principles generally accepted in the United States of
America.  Further, in our opinion, the Predecessor financial
statements referred to above present fairly, in all material respects, the
results of its operations and cash flows for the period January 1, 2008 through
December 22, 2008 and the year ended December 31, 2007, in conformity with
accounting principles generally accepted in the United States of
America.




The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations, which raises substantial doubt about its ability to continue as
a going concern. Management’s plans regarding those matters are described in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.




MALONE
& BAILEY, PC


www.malone-bailey.com


Houston,
Texas




June 29,
2009




19


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
  To
the Board of Directors and Shareholders of
 Blackwater
Midstream Corp.
 Blackwater
New Orleans, LLC
 
 We
have audited the accompanying Balance Sheets of Blackwater Midstream Corp.
(formerly Laycor Ventures Inc.) (an Exploration Stage Company) as of March 31,
2008 and the related Statements of Operations, Stockholders' Equity (Deficiency)
and Cash Flows for the year then ended, and for the period from inception on
March 23, 2004 to March 31, 2008. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the report of the other auditors provide a reasonable basis for our
opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Blackwater Midstream Corp.
(formerly Laycor Ventures Corp) (an Exploration Stage Company) as of March 31,
2008, and the results of its operations and its cash flows for year then ended,
and for the period from inception on March 23, 2004 to March 31, 2008, in
conformity with accounting principles generally accepted in the United States of
America.
 
 The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As described in note 2 to the financial statements,
the Company's operating losses raise substantial doubt about its ability to
continue as a going concern, unless the Company attains profitable operation
and/or obtain additional financing. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
  /s/
      STS PARTNERS LLPSTS
      PARTNERS LLPCHARTERED
      ACCOUNTANTS
  Vancouver,
British Columbia, Canada
 July
15, 2008





20





BLACKWATER
MIDSTREAM CORP


CONSOLIDATED
BALANCE SHEETS





SUCCESSORMARCH
      31,2009
                        
                        
                        2008ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                        
                        $
                        12,565
                        
                        
                        $
                        3,574Restricted
      cash
                        
                        
                        500,260
                        
                        
                        
                        —Receivables-trade
      (net of allowance of $20,680 and $0 as of March 31, 2009 and 2008,
      respectively)
                        
                        
                        21,609
                        
                        
                        
                        —Receivables-other
                        
                        
                        181,585
                        
                        
                        
                        —Prepaid
      expenses and other current assets
                        
                        
                        68,775
                        
                        
                        
                        1,898Total
      current assets
                        
                        
                        784,794
                        
                        
                        
                        5,472Investment
      in Safeland Storage, LLC
                        
                        
                        407,400
                        
                        
                        
                        —Property,
      plant, equipment, net
                        
                        
                        5,362,702
                        
                        
                        
                        —Total
      investments and property, plant and equipment net
                        
                        
                        5,770,102
                        
                        
                        
                        —TOTAL
      ASSETS
                        
                        $
                        6,554,896
                        
                        
                        $
                        5,472LIABILITIESCURRENT
      LIABILITIES:Accounts
      payable
                        
                        $
                        644,919
                        
                        
                        $
                        7,942Accounts
      payable-related parties
                        
                        
                        27,222
                        
                        
                        
                        —Accrued
      liabilities
                        
                        
                        51,652
                        
                        
                        
                        —Deferred
      revenue
                        
                        
                        72,834
                        
                        
                        
                        —Liabilities-insurance
      claim
                        
                        
                        1,215,437
                        
                        
                        
                        —Current
      portion of long-term debt
                        
                        
                        500,000
                        
                        
                        
                        —Current
      portion of long-term debt-related parties
                        
                        
                        236,365
                        
                        
                        
                        —Total
      current liabilities
                        
                        
                        2,748,429
                        
                        
                        
                        7,942Long-Term
      DebtBank
      loan
                        
                        
                        2,000,000
                        
                        
                        
                        —Related
      party loans
                        
                        
                        63,635
                        
                        
                        
                        —Total
      long-term debt
                        
                        
                        2,063,635
                        
                        
                        
                        —TOTAL
      LIABILITIES
                        
                        
                        4,812,064
                        
                        
                        
                        7,942STOCKHOLDERS’
      EQUITY (DEFICIT)Preferred
      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;51,993,024
      and 24,034,500 issued and outstanding, respectively
                        
                        
                        51,993
                        
                        
                        
                        24,035Additional
      paid-in capital
                        
                        
                        7,237,576
                        
                        
                        
                        131,540Accumulated
      deficit
                        
                        
                        (5,546,737
                        )
                        
                        
                        (158,045
                        )TOTAL
      STOCKHOLDERS’ EQUITY (DEFICIT)
                        
                        
                        1,742,832
                        
                        
                        
                        (2,470
                        )TOTAL
      LIABILITIES AND STOCKHOLERS’ EQUITY (DEFICIT)
                        
                        
                        6,554,896
                        
                        
                        
                        5,472




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




21





BLACKWATER
MIDSTREAM CORP.


CONSOLIDATED
STATEMENTS OF OPERATIONS





Successor
                                                                                                          
                                                                                                          
                                                                                                          PredecessorFor the periodDecember 23,
                                                                                                            2008
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          For the period
                                                                                                            January 1, 2008
                                                                                                          
                                                                                                          
                                                                                                          For the Period
                                                                                                            January 1,
      2008Through
                                                                                                          
                                                                                                          
                                                                                                          Year ended
                                                                                                          
                                                                                                          
                                                                                                          Through
                                                                                                          
                                                                                                          
                                                                                                          through
      December
                                                                                                          
                                                                                                          
                                                                                                          Year endedMarch 31, 2009
                                                                                                          
                                                                                                          
                                                                                                          March 31, 2008
                                                                                                          
                                                                                                          
                                                                                                          March 31, 2008
                                                                                                          
                                                                                                          
                                                                                                          22, 2008
                                                                                                          
                                                                                                          
                                                                                                          December 31, 2007(Unaudited)RevenueStorage
                                                                                                          
                                                                                                          $
                                                                                                          661,292
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          533,127
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          2,060,157
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          255,168Other
      Services
                                                                                                          
                                                                                                          
                                                                                                          98,601
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          46,748
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          237,009
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          365,772Total
      Revenue
                                                                                                          
                                                                                                          
                                                                                                          759,893
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          579,875
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2,297,166
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          2,620,940Cost
      of revenueSalary
      and wages
                                                                                                          
                                                                                                          
                                                                                                          (127,625
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (204,029
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (771,016
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (780,790
                                                                                                          )General
      materials
                                                                                                          
                                                                                                          
                                                                                                          (31,435
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (39,431
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (165,947
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (328,256
                                                                                                          )Subcontractors
                                                                                                          
                                                                                                          
                                                                                                          (66,645
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (19,315
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (167,300
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (261,397
                                                                                                          )Other costs
      of revenue
                                                                                                          
                                                                                                          
                                                                                                          (26,856
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (92,284
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (597,438
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (696,581
                                                                                                          )Total
      cost of revenue
                                                                                                          
                                                                                                          
                                                                                                          (252,561
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          (355,059
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (1,701,701
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (2,067,024
                                                                                                          )GROSS
      PROFIT
                                                                                                          
                                                                                                          
                                                                                                          507,332
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          224,816
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          595,465
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          553,916OTHER
      OPERATING EXPENSES:Selling,
      general and administrative
                                                                                                          
                                                                                                          
                                                                                                          1,116,776
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          27,752
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          37,871
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          202,922
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          243,279Impairment
      of cost method investment
                                                                                                          
                                                                                                          
                                                                                                          1,092,600
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —Loss
      on disposal of asset
                                                                                                          
                                                                                                          
                                                                                                          902,761
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —Depreciation
                                                                                                          
                                                                                                          
                                                                                                          88,194
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          27,746
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          101,007
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          110,240Total
      other operating expenses
                                                                                                          
                                                                                                          
                                                                                                          3,200,331
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          27,752
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          65,617
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          303,929
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          353,519Profit
      (Loss) from operations
                                                                                                          
                                                                                                          
                                                                                                          (2,692,999
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (27,752
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          159,199
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          291,536
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          200,397Interest
      income
                                                                                                          
                                                                                                          
                                                                                                          482
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          866
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —Interest
      expense
                                                                                                          
                                                                                                          
                                                                                                          (44,454
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          (129
                                                                                                          )
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —Other
      income
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          —
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          5,229,891Net
      profit (loss) from continuing operations
                                                                                                          
                                                                                                          $
                                                                                                          (2,736,971
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          (27,015
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          159,199
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          291,536
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          5,430,288NET
      LOSS PER COMMON SHARE,BASIC
      AND DILUTED
                                                                                                          
                                                                                                          $
                                                                                                          (0.06
                                                                                                          )
                                                                                                          
                                                                                                          $
                                                                                                          (0.00
                                                                                                          )Weighted
      average number of sharesoutstanding: basic and
      diluted
                                                                                                          
                                                                                                          
                                                                                                          45,750,795
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          10,682,000




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




22




BLACKWATER
MIDSTREAM CORP
 CONSOLIDATED
STATEMENT OF STOCKHOLDER’ EQUITY
 
 For
the period December 23, 2008 to March 31, 2009
 SUCCESSOR
 
 COMMON STOCKNUMBER OF
                      
                      
                      PAR
                      
                      
                      ADDITIONALCOMMON
                      
                      
                      VALUE
                      
                      
                      PAID
      -IN
                      
                      
                      ACCUMULATEDSHARES
                      
                      
                      $ 0.001
                      
                      
                      CAPITAL
                      
                      
                      DEFICIT
                      
                      
                      TOTALBalance,
      December 23, 2008
                      
                      
                      44,503,596
                      
                      
                      $
                      44,504
                      
                      
                      $
                      6,996,726
                      
                      
                      $
                      (2,809,766
                      )
                      
                      $
                      4,231,464Shares
      issued for services
                      
                      
                      5,433,278
                      
                      
                      
                      5,433
                      
                      
                      
                      242,906
                      
                      
                      
                      —
                      
                      
                      
                      248,339Free
      “Make-whole” Shares issued to private placement
    investors
                      
                      
                      2,056,150
                      
                      
                      
                      2,056
                      
                      
                      
                      (2,056
                      )
                      
                      
                      —
                      
                      
                      
                      —Net
      loss
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      —
                      
                      
                      
                      (2,736,971
                      )
                      
                      
                      (2,736,971
                      )Balance,
      March 31, 2009
                      
                      
                      51,993,024
                      
                      
                      $
                      51,993
                      
                      
                      $
                      7,237,576
                      
                      
                      $
                      (5,546,737
                      )
                      
                      $
                      1,742,832
  The
accompanying notes are an integral part of these audited consolidated financial
statements.
  BLACKWATER
MIDSTREAM CORP.
  STATEMENTS
OF NET PARENT INVESTMENT
  For
the period January 1, 2007 to December 22, 2008
  Predecessor
  AmountBalance,
      January 1, 2007
                      
                      $
                      5,886,981Net
      income
                      
                      
                      5,430,288Net
      cash repayments to parent
                      
                      
                      (8,609,423
                      )Balance,
      December 31, 2007
                      
                      
                      2,707,846Net
      Income
                      
                      
                      291,536Net
      cash repayments to parent
                      
                      
                      (411,197
                      )Balance, December 22,
      2008
                      
                      $
                      2,588,185
  The
accompanying notes are an integral part of these audited consolidated financial
statements.




23


BLACKWATER MIDSTREAM CORP.
 CONSOLIDATED STATEMENTS OF CASH FLOWS


Successor
                            
                            
                            PredecessorFor the period
                            
                            
                            Year ended
                            
                            
                            For the period
                            
                            
                            
                            
                            
                            Year endedDecember 23,
                            
                            
                            March 31,
                            
                            
                            January 1,
                            
                            
                            For
      the period
                            
                            
                            December 31,2008 Through
                            
                            
                            2008
                            
                            
                            2008
                            
                            
                            January
      1, 2008
                            
                            
                            2007March 31, 2009
                            
                            
                            
                            
                            
                            Through
                            
                            
                            through
      DecemberMarch 31, 2008
                            
                            
                            22,2008(Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      Loss
                            
                            $
                            (2,736,971
                            )
                            
                            $
                            (27,015
                            )
                            
                            $
                            159,199
                            
                            
                            $
                            291,536
                            
                            
                            $
                            5,430,288Adjustments
      to reconcile net loss tonet
      cash used in operating activities:Depreciation
                            
                            
                            88,194
                            
                            
                            
                            —
                            
                            
                            
                            27,746
                            
                            
                            
                            101,007
                            
                            
                            
                            110,240Loss
      on tank disposal
                            
                            
                            83,678
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Impairment
      of Safeland Storage, LLC investment
                            
                            
                            1,092,600
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Stock
      based compensation
                            
                            
                            248,339
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Changes
      in operating assets and liabilities:Accounts
      receivable
                            
                            
                            (203,194
                            )
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            7,654
                            
                            
                            
                            434,750Prepaid
      expenses
                            
                            
                            229,930
                            
                            
                            
                            (1,898
                            )
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            3,508,145Deferred
      revenue
                            
                            
                            72,834
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Accounts
      payable and accruals
                            
                            
                            1,202,776
                            
                            
                            
                            442
                            
                            
                            
                            —
                            
                            
                            
                            11,000
                            
                            
                            
                            (874,000
                            )Net
      cash provided by (used in) operating activities
                            
                            
                            78,186
                            
                            
                            
                            (28,471
                            )
                            
                            
                            186,945
                            
                            
                            
                            411,197
                            
                            
                            
                            8,609,423CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property, plant and equipment
                            
                            
                            (6,410
                            )
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Purchase
      of Westwego, LA terminal
                            
                            
                            (2,419,601
                            )
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Net
      cash used in investing activities
                            
                            
                            (2,426,011
                            )
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      cash repayments to parent
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            (186,945
                            )
                            
                            
                            (411,197
                            )
                            
                            
                            (8,609,423
                            )Proceeds
      from related party debt
                            
                            
                            300,000
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —Net
      cash provided by financing activities
                            
                            
                            300,000
                            
                            
                            
                            —
                            
                            
                            
                            (186,945
                            )
                            
                            
                            (411,197
                            )
                            
                            
                            (8,609,423
                            )NET
      CHANGE IN CASH FOR THE PERIOD
                            
                            
                            (2,047,825
                            )
                            
                            
                            (28,471
                            )
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —CASH
      AT BEGINNING OF PERIOD
                            
                            
                            2,560,650
                            
                            
                            
                            32,045
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —CASH
      AT END OF PERIOD
                            
                            $
                            512,825
                            
                            
                            $
                            3,574
                            
                            
                            $
                            —
                            
                            
                            $
                            —
                            
                            
                            $
                            —SUPPLEMENTAL
      CASH FLOW DISCLOSURESCash
      paid for interest
                            
                            $
                            44,454
                            
                            
                            $
                            —
                            
                            
                            $
                            —
                            
                            
                            $
                            —
                            
                            
                            $
                            —Cash
      paid for income taxes
                            
                            $
                            —
                            
                            
                            $
                            —
                            
                            
                            $
                            —
                            
                            
                            $
                            —
                            
                            
                            $
                            —Non-cash
      investing and financing transactionsNon-cash
      investing and financing transactions:Bank loan used to purchase Westwego
      Terminal
                            
                            
                            2,500,000Construction
      in progress included in accounts payable
                            
                            $
                            356,550
                            
                            
                            $
                            —
                            
                            
                            $
                            —
                            
                            
                            $
                            —
                            
                            
                            $
                            —




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


24




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 -
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-K 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 based primarily off of a
percentage of revenue adjusted when needed 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.




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.




25




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 their estimates based
on currently available information. Changes in facts and circumstances may
result in revised estimates.




CASH AND
CASH EQUIVALENTS




Cash
equivalents are all highly liquid investments with an original maturity of three
months or less when acquired.




RESTRICTED CASH




We
maintain a bank account with JPM, which we pledge to use proceeds from this
Account to pay the scheduled monthly principal installments of $41,667 each that
are due and payable under our Term Note.




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 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.




ACCOUNTS
RECEIVABLE




Accounts
receivable represent valid claims against non-affiliated customers and are
recognized when products are sold or services are rendered. We extend credit
terms to certain customers based on historical dealings and to other customers
after review of various credit indicators, including the customer’s credit
rating. Outstanding customer receivable balances are regularly reviewed for
possible non-payment indicators and allowances for doubtful accounts are
recorded based upon management’s estimate of collectability at the time of their
review.  Accounts receivable are written off when the account is
deemed uncollectible.




PROPERTY,
PLANT AND EQUIPMENT




Property,
plant and equipment, are comprised of real estate, buildings, warehouses,
storage tanks, terminal assets, office equipment, computer software and heavy
equipment and are stated at cost, less accumulated depreciation.




Assets
are depreciated on a straight-line basis over their estimated useful lives,
which range from 5 to 40 years. Repair and maintenance costs associated with
existing assets that are minor in nature and do not extend the useful life of
existing assets are charged to operating expenses as incurred.




CONSTRUCTION
IN PROGRESS




Construction
in progress is stated at cost, which includes the costs of construction and
other direct costs attributable to the construction. No provision for
depreciation is made on construction in progress until such time as the relevant
assets are completed and put into use. Construction in progress at March 31,
2009, represents facilities under installation and prepayments on assets being
purchased.




IMPAIRMENT
OF LONG-LIVED ASSETS




Long-lived
assets, including property and equipment, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. The evaluation of recoverability is performed using undiscounted
estimated net cash flows generated by the related asset. If an asset is deemed
to be impaired, the amount of impairment is determined as the amount by which
the net carrying value exceeds discounted estimated net cash
flows.  See Note 7 for impairment of certain assets.


26




DEFERRED
FINANCING COSTS




Costs
incurred for debt borrowing are capitalized as paid and amortized over the life
of the associated debt instrument.  To the extent material that debt
is retired before its scheduled maturity date, any remaining deferred financing
costs associated with that debt are written off.




ENVIRONMENTAL
REMEDIATION COSTS




Environmental
remediation costs are expensed and an associated accrual established when site
restoration and environmental remediation and cleanup obligations are either
known or considered probable and can be reasonably estimated. As of March 31,
2009, we are not aware of any environmental remediation costs associated with
the acquisition of the Westwego Terminal. Cleanup efforts are continuing due to
the tank leak incident in Feb 2009 at the Westwego Terminal site.  We
have estimated these costs and have accrued them in our Consolidated Statements
of Operations.




INVESTMENTS




The cost
method is used to account for our investments in limited liability companies
where we hold an interest of 10% or less and do not have control of the limited
liability company.




INCOME
TAXES




We follow
Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting
Standards (“SFAS”) No. 109 - “Accounting for Income Taxes” (“SFAS 109”). This
standard requires the use of an asset and liability approach for financial
accounting for and reporting of income taxes. If it is more likely than not that
some portion or all of a deferred tax asset will not be realized, a valuation
allowance is recognized.




BASIC AND
DILUTED LOSS PER SHARE




Basic
loss per share is computed using the weighted average number of shares of common
stock outstanding during each period. Diluted loss per share includes the
dilutive effects of common stock equivalents on an “as if converted” basis. For
the period December 23, 2008 through March 31, 2009 and for the year ended March
31, 2008, potential dilutive securities had an anti-dilutive effect and
therefore, were not included in the calculation of diluted net loss per common
share.




STOCK-BASED
COMPENSATION




The
Company follows SFAS 123(R) SFAS 123(R) requires all share-based payments to
employees, including grants of employee stock options and restricted stock, to
be recognized in the income statement based on their estimated fair values. The
Company recognizes the expense on a straight-line basis over the requisite
service period, which is normally the vesting period.




We
account for non-employee share-based awards in accordance with EITF No. 96-18,
“Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquisition, or in Conjunction with Selling, Goods or Services.”




FAIR
VALUE MEASURES




In
September 2006, the FASB issued Statement No. 157, “Fair Value
Measurements.”  Statement No. 157, as amended, defines fair value,
establishes a framework for measuring fair value under GAAP, and expands
disclosures about fair value measures.  Statement No. 157 is effective
for fiscal years beginning after November 15, 2007, with early adoption
encouraged.  The provisions of Statement No. 157 are to be applied on
a prospective basis with the exception of certain financial instruments for
which retrospective application is required.  The FASB deferred the
effective date for one year for all nonfinancial assets and liabilities, except
for those items that are recognized or disclosed at fair value in the financial
statement on a recurring basis (at least annually).  The Company
adopted Statement No. 157 effective January 1, 2008, the adoption of which has
not affected its financial position or results of operations.


27




The fair
value of cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities approximates book value at March 31, 2009 and 2008 due to
the short-term nature of these accounts.  The fair value of our debt
with JP Morgan Chase Bank, N.A. also approximates book value due to the variable
rate of interest charged.  We have three insider loans that bear
interest at the fixed annual rate of 12%, maturing June 2010.  The
fair value of these loans does not materially differ from book
value.  It is management’s opinion that we are not exposed to
significant interest or credit risks arising from these financial
instruments.  The fair value of these financial instruments
approximates their carrying values. Occasionally, our cash deposits may exceed
the FDIC insurable limit.




2.
            GOING
      CONCERN




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




The
Company has incurred recurring net losses, and as of March 31, 2009, has 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 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
                              
                              
                              March
      31, 2009
                              
                              
                              March
      31, 2008Land
                              
                              
                              
                              
                              
                              1,313,947
                              
                              
                              
                              —Office
      building & warehouses
                              
                              40
                              
                              
                              
                              244,724
                              
                              
                              
                              —Improvements
                              
                              5—40
                              
                              
                              
                              146,609
                              
                              
                              
                              —Dock
                              
                              30—40
                              
                              
                              
                              978,325
                              
                              
                              
                              —Tanks
                              
                              40
                              
                              
                              
                              2,227,023
                              
                              
                              
                              —Equipment
                              
                              5
                              
                              
                              
                              15,346
                              
                              
                              
                              —Office
      equipment, software & tools
                              
                              5—30
                              
                              
                              
                              126,437
                              
                              
                              
                              —Construction
      in Process
                              
                              
                              
                              
                              
                              
                              492,430
                              
                              
                              
                              —Total
      property, plant and equipment
                              
                              
                              
                              
                              
                              
                              5,544,841
                              
                              
                              
                              —Less:
      accumulated depreciation
                              
                              
                              
                              
                              
                              
                              (182,139
                              )
                              
                              
                              —Net
      property, plant and equipment, net
                              
                              
                              
                              
                              
                              
                              5,362,702
                              
                              
                              
                              —




Depreciation
and amortization expenses related to property, plant and equipment totaled
$88,194 and $0 for the periods from December 23, 2008 through March 31, 2009 and
the year ended March 31, 2008 (successor company), respectively and $27,746,
$101,007, and $110,240 for the period from January 1, 2008 through March 31,
2008; January 1, 2008 through December 22, 2008; and the year ended December 31,
2007.




Additionally,
we recorded a loss on storage tank disposal of $902,761. ( See Note
5).




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 800,000 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 destroyed.   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.


28




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.
            LOSS
      ON STORAGE TANK DISPOSAL




On
February 9, 2009 one of our storage tanks developed a minor leak during the
introduction product (sulfuric acid) into the tank.  Terminal staff
detected the leak and successfully contained it in the designated earthen
berm area and immediately contacted all required federal, state and local
authorities and agencies about the situation.  Shortly thereafter, we
began remediation and cleanup efforts and engaged expert environmental cleanup
companies to assist with the process.  While the cleanup effort was
ongoing, the product was transferred into rented barges specifically designed
for sulfuric acid.





As a
result of this leak we recorded a loss on disposal of asset of $902,761 in our
consolidated statement of operations for the period December 23, 2008 through
March 31, 2009.  Components of this loss are as
follows:





Environmental:
      Clean up & mitigation expenses
                                  
                                  $
                                  (1,000,668
                                  )Property:
      Tank disposal
                                  
                                  
                                  (83,678
                                  )Less:
      Insurance recovery
                                  
                                  
                                  181,585Loss
      on Disposal of Asset
                                  
                                  $
                                  (902,761
                                  )





Insurance
recovery is shown net of a $250,000 deductible.





The
underside of the tanks’ steel bottoms, related pumps and values and the
surrounding containment areas were damaged when they came in contact with the
leaked sulfuric product during the remediation and cleanup
process.  The tank bottom was replaced and we have recognized a loss
on disposal of tank totaling $83,678.  There were no tank leaks in
other periods presented.




6.
            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.


29




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 March
31, 2009, the balance of this restricted cash account is $500,260.




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.




Related
party loans




In
December 2008, we borrowed $125,000 and $100,000 from Ter Mast Beheer Utrecht,
B.V. and Isaac Suder, respectively.  In January 2009 we borrowed
$75,000 from No Logo Air, Inc.  On January 20, 2009, we entered into a
loan and security agreement, effective January 1, 2009, with Ter Mast Beheer
Utrecht, B.V., No Logo Air, Inc. and Isaac Suder, in the principal amount of
$125,000, $75,000 and $100,000, respectively (collectively, the “Insider
Loans”).  Ter Mast Beheer Utrecht, B.V. and No Logo Air, Inc. are each
owned and controlled by Mathijs van Houweninge, a director of
BWMS.  Isaac Suder is the father of Michael Suder, a director of BWMS
and its President and Chief Executive Officer.  Collectively, Ter Mast
Beheer Utrecht, B.V., No Logo Air, Inc. and Isaac Suder are hereinafter referred
to as the “Creditors”.




The
Insider Loans bear interest at the annual rate of 12%.  Monthly
installments of interest only payments began on January 31, 2009 and continue
through maturity.  In addition, principal installments of $9,015,
$5,409 and $7,212 to Ter Mast Beheer Utrecht B.V., No Logo Air, Inc. and Isaac
Suder, respectively, commence on April 30, 2009 and continue through
maturity.  All unpaid principal and accrued and unpaid interest on the
Insider Loans is finally due and payable on June 30, 2010.




If any
amount due and owing pursuant to the Insider Loans is not promptly paid when
due, then all installments payable thereon shall, at the option of the
respective Creditor, immediately mature, and become due and owing.




In April
2009, the Creditors individually and jointly agreed to grant the Company’s
management flexibility in making principal payments, beginning in April 2009,
without penalty.




The
Insider Loans are secured by a security interest on BWMS’s interest in its
wholly owned subsidiary, BNO.




Additionally,
BWMS and the Creditors entered into an Intercreditor agreement, whereby the
Creditors agreed that in the event of foreclosure on the collateral, referred to
above, each Creditor ranks equally amongst themselves.




Future
minimum payments under the above third party and related party loan agreements
for the next five years and the total amount thereafter are as
follows:




30




Year
      ending March 31,2010
                    
                    $
                    736,3652011
                    
                    
                    563,6352012
                    
                    
                    500,0002013
                    
                    
                    500,0002014
                    
                    
                    500,000Thereafter
                    
                    
                    0$
                    2,800,000





There was no debt at March 31, 2008.




7.
            INVESTMENT
      IN SAFELAND STORAGE, LLC.




On June
26, 2008, we purchased a 7% membership interest (comprising 70,000 class A
units) in Safeland Storage L.L.C.; a Louisiana limited liability company
(“Safeland”) for a purchase consideration of $1,500,000. Contemporaneously
therewith, we entered into a Property Purchase Agreement with Safeland and its
wholly-owned subsidiary, Future Energy Investments LLC, for the purchase of 435
acres of land in St. John the Baptist Parish, Louisiana, for a purchase price of
$20,500,000. The transaction did not close on October 24, 2008, as required by
the terms of the Property Purchase Agreement. The Company, Safeland and Future
Energy Investments LLC have agreed not to extend the closing date and we will
not pursue the purchase or development of this property. Safeland will continue
marketing the property and we will be entitled to 7% of the liquidating value of
Safeland Storage L.L.C.




As part
of our March 31, 2009 fiscal year-end analysis, we obtained from a third-party
real estate appraiser a current valuation of our 7% minority investment in
Safeland Storage, LLC (Safeland).  The major investment of Safeland is
the property located in Garyville, LA, as referenced above.  This
property was currently valued at approximately $7,760,000; therefore, our 7%
share is valued at about $543,200.  This amount was discounted
approximately 25% to reflect our minority management interest and lack of
control over the asset; therefore, our investment is currently valued at
approximately $407,400.  Accordingly, we have recorded an impairment
charge of $1,092,600, which is reflected in the other operating expenses of our
Consolidated Statements of Operations for the period December 23, 2008 through
March 31, 2009.




8.
            SHARE
      CAPITAL AND STOCK-BASED
COMPENSATION




The
following table details equity transactions of the Successor which occurred
between March 3l, 2008 and December 22, 2008 and are not included in the
consolidated statement of equity:




COMMON STOCKNUMBER OF
                    
                    
                    PAR
                    
                    
                    ADDITIONALCOMMON
                    
                    
                    VALUE
                    
                    
                    PAID -IN
                    
                    
                    ACCUMULATEDSHARES
                    
                    
                    $
      0.001
                    
                    
                    CAPITAL
                    
                    
                    DEFICIT
                    
                    
                    TOTALBalance,
      March 31, 2008
                    
                    
                    24,034,500
                    
                    
                    $
                    24,035
                    
                    
                    $
                    131,541
                    
                    
                    $
                    (158,045
                    )
                    
                    $
                    (2,469
                    )Shares
      issued for services
                    
                    
                    821,036
                    
                    
                    
                    821
                    
                    
                    
                    1,227,312
                    
                    
                    
                    —
                    
                    
                    
                    1,228,133Shares
      issued for cash, net of offering costs
                    
                    
                    10,317,100
                    
                    
                    
                    10,317
                    
                    
                    
                    5,646,578
                    
                    
                    
                    —
                    
                    
                    
                    5,656,895Shares
      issued to placement agent for stock offering
                    
                    
                    960,960
                    
                    
                    
                    961
                    
                    
                    
                    (335
                    )
                    
                    
                    —
                    
                    
                    
                    626Additional
      shares issued in connection with August 2008 offering
                    
                    
                    8,370,000
                    
                    
                    
                    8,370
                    
                    
                    
                    (8,370
                    )
                    
                    
                    —
                    
                    
                    
                    —Net
      loss
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (2,651,721
                    )
                    
                    
                    (2,651,721
                    )Balance,
      December 22, 2008
                    
                    
                    44,503,596
                    
                    
                    $
                    44,504
                    
                    
                    $
                    6,996,726
                    
                    
                    $
                    (2,809,766
                    )
                    
                    $
                    4,231,464








31




COMMON
STOCK SALES




From June
through August 2008, we issued 2,092,500 shares of restricted common stock for
cash proceeds of $4,185,000 in a private placement. In connection with the
Offering, we engaged Falcon International Consulting Limited to act as placement
agent. Falcon International received a fee of 10% of the gross proceeds of the
Offering.




In August
2008, we granted and issued 83,700 shares of restricted common stock at $2.00
per share, to affiliates of Falcon International Consulting Limited for
professional services rendered to the Company in connection with the private
placement above. The value of these shares was recorded as offering
costs.




In
December 2008, we entered into certain subscription agreements (collectively,
the “December Purchase Agreement”) with certain investors (the “December 2008
Investors”) for the sale of an aggregate of 8,224,600 shares of its common
stock, par value $.001 per share, at a purchase price of $0.25 per share for
gross proceeds of $2,056,150 (the “December 2008 Offering”). Pursuant to the
terms of the December Purchase Agreement the December 2008 Investors are
entitled to receive one share of common stock at no additional consideration for
each four shares for which they subscribed, resulting in an effective purchase
price of $0.20 per share. This resulted in an additional 2,056,150 shares
(collectively, the “Free Shares”), in the aggregate which were issued to the
purchasers In March of 2009, at no additional consideration, resulting in an
aggregate of 10,280,750 shares to be issued to the December 2008
Investors.




In
connection with the December 2008 Offering, the Company engaged Falcon Capital
Limited to act as placement agent. Falcon Capital secured Purchase Agreements
for a total of 5,424,600 shares and received a fee of $135,615, or 10% of the
gross proceeds for the portion of the December 2008 Offering attributable to
them, as well as 542,460 restricted shares of the Company’s common stock, which
it distributed to its affiliates.  One of these affiliates is Mathis
van Houweninge, a director of the Company, who received 406,845
shares.




The
December 2008 Offering triggered anti-dilution rights of investors in its August
2008 private placement, in which the Company sold an aggregate of 2,092,500
shares for gross proceeds of $4,185,000, par value $.001 per share, at a
purchase price of $2.00 per share (the “August 2008 Offering”). The December
2008 Offering entitled investors in the August 2008 Offering to receive an
aggregate of approximately 690,000 shares pursuant to their contractual
anti-dilution rights. At its meeting on January 28, 2009, the Board of Directors
determined to reprice the per share amount paid in the August 2008 Offering to
$0.40 per share, which was not contractually required, resulting in an aggregate
additional issuance of 8,704,800 shares, which includes an additional 334,800
shares issued to affiliates of Falcon Capital, the placement agent in the August
2008 Offering. The board’s decision to reprice the shares purchased in the
August 2008 Offering was based on the $0.25 per share offering price of the
December 2008 Offering and the quoted market price of the stock on or near the
date of the resolution. Therefore, investors in the August 2008 Offering
received four shares of restricted common stock of the Company for every one
share purchased in the August 2008 Offering.  The accounting for the
issuance of these Free shares followed the character of the initial offering and
no expense was recorded.




STOCK-BASED
COMPSENATION





In May
and June 2008, we issued 821,036 shares of common stock as per employment
agreements with directors and officers of the Company for management services
and legal services with a value of $1,726,160 and $200,000, respectively. The
shares granted for legal services vested immediately and were expensed. The
shares granted for management services originally were to vest completely within
one year. Therefore, the vesting scheduled was adjusted from a period of twelve
months to one of twenty months. In December 2008, the board of directors
extended the vesting period of these shares to January 1, 2010. For the period
from April 1, 2008 through December 22, 2008, we expensed $1,228,133 related to
these grants. During the period December 23, 2008 through March 31, 2009, we
expensed $174,147 related to these grants.





On May
7, 2008, the Company issued warrants to purchase 20,000 shares of
nonqualified common stock for legal services with an exercise price per share of
$2.00 per share.  The fair value of these options was $2,957. The
Company used the Black-Scholes option pricing model to value the warrants using
the following assumptions: number of options as set forth in the option
aggreements; no expected dividend yield; expected volatitlity of 44%; risk-free
interest rates of 2.44%; and expected term consistent with the contractual term
of the warrants.




32




In
January 2009, we granted 2,283,278 shares of common stock to certain officers of
the Company for management services. These shares were valued at $0.29 per share
as of the January 2009 grant date; which vests according to the following
schedule: (i) 33.3% on January 1, 2010; and (ii) 8.3375% on the last calendar
day of each subsequent calendar quarter, until all such shares have vested,
provided; however, that such shares shall vest according to such schedule only
if the officers are employed by us on such dates.  During the period
December 23, 2008 through March 31, 2009, we expensed $57,272 related to these
grants.





Pursuant
to the 2008 Plan, in January 2009, we issued 150,000 shares of restricted common
stock to the Company’s Chief Financial Officer for management services, valued
at $0.29 per share as of such date; which vests according to the following
schedule: (i) 33.3% on January 1, 2010; and (ii) 8.3375% on the last calendar
day of each subsequent calendar quarter, until all such shares have vested,
provided; however, that such shares shall vest according to such schedule only
if the Chief Financial Officer is employed by us on such
dates.  During the period December 23, 2008 through March 31, 2009, we
expensed $3,763 related to this grant.





Pursuant
to the 2008 Plan, in March 2009, we issued 3,000,000 shares of restricted common
stock to certain officers of the Company for management services, valued at
$0.11 per share as of such date; which vests according to the following
schedule: (i) 33.3% on January 1, 2010; and (ii) 8.3375% on the last calendar
day of each subsequent calendar quarter, until all such shares have vested,
provided; however, that such shares shall vest according to such schedule only
if the officers are employed by us on such dates.  During the period
December 23, 2008 through March 31, 2009, we expensed $12,618 related to these
grants.




A summary
of the status of our common stock options awards is presented in the table
below.





Number of
                    Shares
                  
                  
                  Weighted-Average
                    Grant-Date Fair
                    Value Per ShareRestricted
      shares at April 1, 2008
                  
                  $
                  —
                  
                  
                  $
                  —Granted
                  
                  
                  20,000
                  
                  
                  
                  2.00Vested
                  
                  
                  —
                  
                  
                  
                  —Forfeited
                  
                  
                  —
                  
                  
                  
                  —Restricted
      shares at March 31, 2009
                  
                  $
                  20,000
                  
                  
                  $
                  2.00




As of
March 31, 2009, there was approximately $1.7 million of total unrecognized
compensation cost related to restricted share-based compensation arrangements
granted under the 2008 Plan. That cost is expected to be recognized over a
weighted-average period of 2.2 years.




9.
            COMMITMENTS
      AND CONTRACTUAL OBLIGATIONS




On June
9, 2008 the Company entered into a consulting Agreement (the “Lotus Agreement”)
with Lotus Fund Inc. for operational, financial and management services. Per the
Lotus Agreement, the Company is required to pay $30,000 per month commencing
June 9, 2008, and terminating on June 9, 2009, unless terminated by either party
in the event of a material breach by providing 15 days notice. In January 2009,
the Company and Lotus Fund, Inc. mutually agreed to terminate the “Lotus
Agreement”, effective in January 2009; with no party being subject to early
termination penalties.




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




33




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




10.
            CONCENTRATION
      OF RISK




Concentrations
of customers in the terminalling industry may impact our overall exposure to
credit risk, in that these customers may be similarly affected by changes in
economic or other conditions. We market and sell our services to a broad base of
customers and perform ongoing credit evaluations of our customers.  As
of June 2009, one customer accounted for over 50% of total revenue.




11
            OTHER
      INCOME




In March
2007, the Predecessor received $8,738,041 in a legal settlement pertaining to
damages of the ship dock at the Westwego Terminal that occurred in January
2005.  The proceeds exceeded the recorded receivable by $5,229,891,
which is included in other income in our consolidated statements of operations
for the year ended December 31, 2007.




12.
            PROVISION
      FOR INCOME TAXES




The
Company follows the provisions of SFAS No. 109, “Accounting For Income
Taxes,” which provides for recognition of deferred tax assets and liabilities
for deductible temporary timing differences, operating loss carryforwards,
statutory depletion carryforwards and tax credit carryforwards net of a
valuation allowance for any asset for which it is more likely than not will not
be realized in the Company’s tax return. An analysis of the Company’s deferred
taxes follows:




2009
                                
                                
                                2008Deferred
      tax liabilitiesFixed
      assets
                                
                                $
                                29,587
                                
                                
                                $
                                —Prepaid
      insurance
                                
                                
                                14,297
                                
                                
                                
                                —43,884
                                
                                
                                
                                —Deferred tax assetsMineral property
                                
                                
                                —
                                
                                
                                
                                17,356Stock-based compensation
                                
                                
                                495,424
                                
                                
                                
                                —Accounts receivable
                                
                                
                                8,065
                                
                                
                                
                                —Net operating loss
      carryforwards
                                
                                
                                1,209,623
                                
                                
                                
                                44,282Impairment on investment
                                
                                
                                426,114
                                
                                
                                
                                —2,139,226
                                
                                
                                
                                61,638Valuation
      allowance
                                
                                
                                (2,095,342
                                )
                                
                                
                                (61,638
                                )Deferred
      income taxes, net
                                
                                $
                                —
                                
                                
                                $
                                —





At
March 31, 2009, the Company had $3,215,139 of operating loss carryforwards. The
net operating loss carryfowards would begin to expire in 2028.  Some
of the Company's net operating losses may be limited by section 382 of the
Internal Revenue Code due to the change in control that occurred in March of
2008. Statement of Financial Accounting Standards No. 109, Accounting for Income
taxes, (SFAS 109) specifies that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion of the deferred tax
asset will be realized. Accounting rules require that more restrictive criteria
be used to consider the book value of deferred assets in instances in which a
company has not demonstrated an ability to generate taxable
income.  Realization of the deferred tax asset is dependent on
generating sufficient taxable income prior to expiration of any net operating
loss carryforwards. Because there is some uncertainty as to the Company’s
ability to generate future taxable income, net operating loss carryforwards have
been fully reserved.





13.
            SUBSEQUENT
      EVENTS





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 would accept 50% of its monthly retainer fee payable in the common
stock of the Company, with the reminder, payable in cash. Through June 2009,
Milling Benson had received 125,001 shares of common stock.





On May
7, 2009, we granted 2,823,528 common stock options to our directors for services
rendered.  The options are exercisable at $0.17, vest immediately and
have a contractual term of no more than ten years.






34




ITEM
8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.




None.




ITEM
8A. Controls and Procedures.




(a)
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.




As of the
end of the period covered by this Annual Report on Form 10-K, 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
concluded that, because of the material weaknesses in our internal control over
financial reporting described below, our disclosure controls and procedures were
not effective as of March 31, 2009. The Company has taken the steps described
below to remediate such material weaknesses.




(b)
INTERNAL CONTROL OVER FINANCIAL REPORTING.




The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting. The Company’s internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.





The
Company’s internal controls over financial reporting include policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect transactions and dispositions of assets;
(2) provide reasonable assurances that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures are being made only in
accordance with authorizations of management and the directors of the Company;
and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’ assets that could
have a material effect on our financial statements.




Under the
supervision and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness of
our internal control over financial reporting as of March 31, 2009. In its
evaluation, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework.
  Based
on our assessment and the criteria described above, management has concluded
that, as of March 31, 2009, our internal control over financial reporting
was not effective.








1.
Deficiencies in Our Control Environment. Our control environment did not
sufficiently promote effective internal control over financial reporting
throughout the organization. This material weakness exists because of the
aggregate effect of multiple deficiencies in internal control which affect our
control environment, including: a) the lack of an effective risk assessment
process for the identification of fraud risks; b) the lack of an internal audit
function or other effective mechanism for ongoing monitoring of the
effectiveness of internal controls; c) deficiencies in our accounting system and
controls; d) and insufficient documentation and communication of our accounting
policies and procedures as of March 31, 2009.





2.
Deficiencies in the staffing of our financial accounting department. The number
of qualified accounting personnel with experience in public company SEC
reporting and GAAP is limited. This weakness does not enable us to maintain
adequate controls over our financial accounting and reporting processes
regarding the accounting for non-routine and non-systematic transactions. There
is a risk that a material misstatement of the financial statements could be
caused, or at least not be detected in a timely manner, by this shortage of
qualified resources.





3.
Deficiencies in Segregation of Duties. The limited number of qualified
accounting personnel results in an inability to have independent review and
approval of financial accounting entries. Furthermore, management and financial
accounting personnel have wide-spread access to create and post entries in our
financial accounting system. There is a risk that a material misstatement of the
financial statements could be caused, or at least not be detected in a timely
manner, due to insufficient segregation of duties.





Because
of its inherent limitation, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




In
order to rectify these deficiencies, we have engaged a consulting firm to help
us to develop better procedures and appropriate segregation of duties,
improvement in the software used to manage our financial processes and increased
communications with the audit committee and management to improve oversight and
control over the financial reporting process. Our financial accounting staff is
actively attending and receiving training. Management
is still determining additional measures to remediate deficiencies related to
staffing.
 ’s
registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the Company’s
registered public accounting firm pursuant to temporary rules of the Securities
Exchange Commission that permit the company to provide only management’s report
in this annual report.


35




ITEM 9A. Other
Information.




None.


36




PART
III




ITEM
10. Directors, Executive Officers and Corporate Governance.




The
information required by this Item is incorporated herein by reference to the
definitive Proxy Statement filed with the Securities and Exchange Commission
April 3, 2009 and supplemented on April 15, 2009 for our 2009 Annual Meeting of
Shareholders.




ITEM
11. Executive Compensation.




The
information required by this Item is incorporated herein by reference to the
definitive Proxy Statement filed with the Securities and Exchange Commission
April 3, 2009 and supplemented on April 15, 2009 for our 2009 Annual Meeting of
Shareholders.




ITEM
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.




The
following table sets forth, as of June 12, 2009, certain information as to the
stock ownership of (i) each person known by the Company to own beneficially more
than five percent of the Company’s Common Stock, (ii) each of the Company’s
directors, (iii) each of the Company’s executive officers, and (iv) the
Company’s executive officers and directors as a group.  Except
otherwise set forth in the notes to the table, the business address of each
shareholder is c/o the Company, 660 LaBauve Drive, Westwego, Louisiana
70094.  Information provided as to 5% shareholders other than our
employees or management is based solely on forms 13D or 13G filed with the
Securities and Exchange Commission.





Name of Beneficial Owner
                                      
                                      Number of Shares
                                        Beneficially
                                        Owned (1)
                                      
                                      
                                      Percentage
                                        OwnershipMichael D. Suder
                                      
                                      
                                      3,547,070
                                      (2)
                                      
                                      
                                      6.71
                                      %Donald St.Pierre
                                      
                                      
                                      652,287
                                      
                                      
                                      
                                      1.25
                                      %Dale T. Chatagnier
                                      
                                      
                                      1,371,863
                                      
                                      
                                      
                                      2.63
                                      %Francis (Frank) Marrocco
                                      
                                      
                                      1,360,964
                                      
                                      
                                      
                                      2.61
                                      %Mathijs van Houweninge
                                      
                                      
                                      1,332,727
                                      (3)
                                      
                                      
                                      2.52
                                      %Christopher A. Wilson
                                      
                                      
                                      825,882
                                      (4)
                                      
                                      
                                      1.56
                                      %Herbert N. Whitney
                                      
                                      
                                      705,882
                                      (5)
                                      
                                      
                                      1.33
                                      %All executive officers and directors as a group (7
      persons)
                                      
                                      
                                      9,796,675
                                      
                                      
                                      
                                      17.80
                                      %




(1)  Beneficial
ownership is determined in accordance with the rules and regulations of the U.S.
Securities and Exchange Commission (SEC). In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of June 1, 2009 are deemed
outstanding. Such shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of any other person. Except as indicated
in the footnotes to the following table or pursuant to applicable community
property laws, each stockholder named in the table has sole voting and
investment power with respect to the shares set forth opposite such
stockholder’s name. The percentage of beneficial ownership is based on
52,178,555 shares of Common Stock outstanding as of June 12, 2009.




(2)
Includes (i) 2,841,188 shares of common stock and (ii) options to purchase
705,882 shares of common stock.




(3)  Includes
(i) 626,845 shares of common stock and (ii) options to purchase 705,882 shares
of common stock.




(4)  Includes
(i) 100,000 shares of common stock, (ii) options to purchase
725,882.




(5)  Includes
options to purchase 705,882 shares of common stock.




37




Securities Authorized for Issuance
Under Equity Compensation Plans.




The Board
of Directors approved the 2008 Incentive Plan on May 7, 2008.  The
2008 Incentive Plan was amended by our Board of Directors in February 2009 to
allow for a maximum of 2.5 million shares of common stock to be issued to any
single individual employee within any calendar year.  It was again
amended on April 14, 2009 to increase the number of shares available for
issuance pursuant to it from the greater of: (i) (a) 15% of the number of issued
and outstanding shares of common stock as of the first day of the then-current
fiscal quarter of the Company, or (b) 5,000,000 shares, to (ii) (x) 17.5% of the
number of issued and outstanding shares of common stock as of the first day of
the then-current fiscal quarter of the Company, or (y) 5,000,000
shares.  At our annual meeting of stockholders held on May 4, 2009,
holders of our common stock as of March 26, 2009 ratified and approved the 2008
Plan as amended.




The
following table provides information with respect to compensation plans
(including individual compensation arrangements) under which equity securities
of the registrant are authorized for issuance, as of June 12, 2009.




Plan Category
                            
                            No. of securities to beissued
                              upon exercise of outstanding
                              options, warrants and rights
                              (a)
                            
                            
                            Weighted-average exercise
                              price of outstanding
                              options, warrants and rights
                              (b)
                            
                            
                            No. of securities remaining
                              available for future
                              issuance under equity
                              compensation plans
                              (excluding securities
                              reflected in column (a))
                              (c)Equity compensation plans approved by security
      holders
                            
                            
                            2,843,528
                            
                            
                            $
                            0.18
                            
                            
                            
                            —Equity compensation plans not approved by security
      holders
                            
                            
                            —
                            
                            
                            
                            —Total
                            
                            
                            2,843,528
                            
                            
                            $
                            0.18




ITEM
13.  Certain Relationships and Related Transactions, and Director
Independence.




The
information required by this Item is incorporated herein by reference to the
definitive Proxy Statement filed with the Securities and Exchange Commission
April 3, 2009 and supplemented April 15, 2009 for our 2009 Annual Meeting of
Shareholders.




ITEM
14. Principal Accountant Fees and Services.




The
information required by this Item is incorporated herein by reference to the
definitive Proxy Statement filed with the Securities and Exchange Commission
April 3, 2009 and supplemented April 15, 2009 for our 2009 Annual Meeting of
Shareholders.




PART
IV




ITEM
15.  Exhibits and Financial Statement Schedules.




A
(1)  Financial statements filed as part of this report:




Consolidated balance sheets as of March
31, 2009 and March 31, 2008 (Successor),




Consolidated
statements of operations for the period December 23, 2008 through March 31, 2009
(Successor), theyear ended March 31,2008 (Successor), the period January 1, 2008
through March 31, 2008 (Predecessor)(Unaudited), the period January 1, 2008
through December 22, 2008 (Predecessor), and the year ended December 31, 2007
(Predecessor)




38




Consolidate statements of stockholders’
equity for the period December 23, 2008 through March 31, 2009
(Successor)




Statements of net parent investment for
the period January 1, 2007 through December 22, 2008 (Predecessor)




Consolidated
statements of cash flows for the period December 23, 2008 through March 31, 2009
(Successor), theyear ended March 31,2008 (Successor), the period January 1, 2008
through March 31, 2008 (Predecessor)(Unaudited), the period January 1, 2008
through December 22, 2008 (Predecessor), and the year ended December 31, 2007
(Predecessor)








Exhibit
                    Number
                  
                  Description3.1
                  
                  Articles
      of Incorporation (incorporated by reference to the Company's Registration
      Statement on Form S-8 filed with the Commission on July 10,
      2008)3.2
                  
                  Bylaws
      (incorporated herein by reference to the Company's Registration Statement
      on Form SB-2 filed with the Commission on June 7, 2004)4.1
                  
                  Specimen
      Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the
      Company’s Registration Statement on Form SB-2 filed June 7,
      2004)4.2*
                  
                  Blackwater
      Midstream Corp. 2008 Incentive Plan, as amended (incorporated by reference
      to Exhibit B of the Company’s definitive Proxy Statement on Schedule 14A
      filed on April 3, 2009)4.3*
                  
                  Form
      of Award Agreement for Incentive Stock Options (incorporated by reference
      to Exhibit B of the Company’s definitive Proxy Statement on Schedule 14A
      filed on April 3, 2009)4.4*
                  
                  Form
      of Award Agreement for Nonstatutory Stock Options (incorporated by
      reference to Exhibit B of the Company’s definitive Proxy Statement on
      Schedule 14A filed on April 3, 2009)4.5*
                  
                  Form
      of Award agreement for Stock (incorporated by reference to Exhibit B of
      the Company’s definitive Proxy Statement on Schedule 14A filed on April 3,
      2009)10.1*
                  
                  Services
      Agreement with Christopher Wilson dated May 5, 2008 (incorporated by
      reference to the Company's Current Report on Form 8-K filed May 6,
      2008)10.2*
                  
                  Employment
      Agreement with Michael Suder, dated May 7, 2008 (incorporated by reference
      to the Company's Current Report on Form 8-K filed May 9,
    2008)10.3*
                  
                  Employment
      Agreement with Dale T. Chatagnier, dated May 14, 2008 (incorporated by
      reference to the Company's Current Report on Form 8-K filed May 16,
      2008)10.4
                  
                  Placement
      agent's agreement with Falcon International Consulting Limited, dated May
      28, 2008 (incorporated by reference to Exhibit 10.4 of the Company’s
      Quarterly Report on Form 10-Q filed August 19, 2008)10.5
                  
                  Membership
      Interest Purchase Agreement with Safeland Storage, LLC (incorporated by
      reference to Exhibit 10.6 of the Company's Annual Report on Form 10-KSB
      filed July 15, 2008)10.6
                  
                  Purchase
      and Sale Agreement between Safeland Storage LLC, Future Energy Investments
      and Blackwater Midstream Corp., dated June 25, 2008 (incorporated by
      reference to Exhibit 10.7 of the Company's Annual Report on Form 10-KSB
      filed July 15, 2008)10.7
                  
                  $2,500,000
      Term Loan with JP Morgan Chase Bank, N.A. dated December 23, 2008
      (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K
      filed December 31, 2008).10.8
                  
                  Credit
      Agreement with JP Morgan Chase Bank, N.A. dated December 23, 2008
      (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K
      fled December 31, 2008)10.9
                  
                  Collateral
      Mortgage in favor of JP Morgan Chase Bank, N.A. dated December 23, 2008
      (incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K
      filed December 31, 2008)10.10
                  
                  Assignment
      of Deposit Account to JP Morgan Chase Bank, N.A. dated December 23, 2008
      (incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K
      filed December 31, 2008)10.11
                  
                  Asset
      Purchase Agreement by and between the Company and NuStar Terminals
      Operations Partnership L.P. dated September 25, 2008, as
      amended  (incorporated by reference to the Company’s Current
      Reports on Form 8-K filed on September 30, 2008 and November 4,
      2008)10.12
                  
                  Loan
      agreement with Ter Mast Beheer Utrecht B.V. (incorporated herein by
      reference to the Company’s Current Report on Form 8-K filed with the
      Commission on January 26,
2009)




39




10.13
            Security
      agreement with Ter Mast Beheer Utrecht B.V. (incorporated herein by
      reference to the Company’s Current Report on Form 8-K filed with the
      Commission on January 26, 2009)10.14
            Loan
      agreement with No Logo Air, Inc. (incorporated herein by reference to the
      Company’s Current Report on Form 8-K filed with the Commission on January
      26, 2009)10.15
            Security
      agreement with No Logo Air, Inc.(incorporated herein by reference to the
      Company’s Current Report on Form 8-K filed with the Commission on January
      26, 2009)10.16
            Loan
      agreement with Isaac Suder (incorporated herein by reference to the
      Company’s Current Report on Form 8-K filed with the Commission on January
      26, 2009)10.17
            Security
      agreement with Isaac Suder (incorporated herein by reference to the
      Company’s Current Report on Form 8-K filed with the Commission on January
      26, 2009)10.18
            Intercreditor
      agreement amongst Ter Mast Beheer Utrecht B.V, No Logo Air, Inc. and Isaac
      Suder (incorporated herein by reference to the Company’s Current Report on
      Form 8-K filed with the Commission on January 26, 2009)10.19
            Form
      of Subscription Agreement for December 2008 Offering (incorporated herein
      by reference to the Current Report on Form 8-K filed with the Commission
      on February 3, 2009)10.20
            Form
      of Subscription Agreement for August 2008 Offering (incorporated by
      reference to Exhibit 4.1 to Quarterly Report on Form 10-Q filed August 19,
      2008)


21.1
                  
                  Subsidiaries
      of the Registrant23.1
                  
                  Consent
      of Malone & Bailey, PC independent registered public accounting
      firm31.1
                  
                  Certification
      of Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
                  
                  Certification
      of Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
                  
                  Certification
      of Principal Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.2
                  
                  Certification
      of Principal Financial Officer pursuant to Section 906 of the
      sarbanes-Oxley Act of
2002
  *
Management Contract or Compensatory Plan or Arrangement




40




SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) 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 the 26th day of June
2009.




BLACKWATER
MIDSTREAM CORP.




(Registrant)




By:
                                    /S/ MICHAEL D. SUDERMichael
      D. SuderChief
      Executive
Officer




Date June
26, 2009




In
accordance with the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.





Name
              
              Title
              
              Date/S/
      MICHAEL D. SUDER
              
              Chief
      Executive Officer and Director
              
              June
      26, 2009Michael
      D. Suder/S/
      DONALD ST.PIERRE
              
              Chief
      Financial Officer
              
              June
      26, 2009Donald
      St.Pierre/S/
      HERBERT N. WHITNEY
              
              Director
              
              June
      26, 2009Herbert
      N. Whitney/S/
      MATHIJS VAN HOUWENINGE
              
              Director
              
              June
      26, 2009Mathijs
      van Houweninge/S/
      CHRISTOPHER A. WILSON
              
              Director
              
              June
      26, 2009Christopher
      A. Wilson




41