UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________________________________________

FORM 10-Q

~~_______________________________________________________~~______________________________________________________

(Mark One)

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

For the period ended ~~December~~June 3130, ~~2011~~2012

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

For the transition period from ________ to ________

COMMISSION FILE NUMBER 000-51403

BLACKWATER MIDSTREAM CORP.

(Exact name of small business issuer in its charter)

NEVADA		26-2590455
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

660 LABAUVE DRIVE

WESTWEGO, LOUISIANA, 70094

(Address of principal executive offices)

TELEPHONE: (504) 340-3000

(Issuer's telephone number)

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

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 x No o

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x

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

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

As of ~~February~~July 331, 2012, there were 56,476,186 shares of Common Stock, $.001 par value per share, outstanding.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS

Consolidated Balance Sheets (Unaudited)	3

Consolidated Statements of Operations (Unaudited)	4

Consolidated Statements of Cash Flows (Unaudited)	5

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	6

Consolidated Balance Sheets (Unaudited)	4
Consolidated Statements of Operations (Unaudited)	5
Consolidated Statements of Cash Flows (Unaudited)	6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	7

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	26

ITEM 4. CONTROLS AND PROCEDURES	26

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS	27

ITEM 1A. RISK FACTORS	27

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	27

ITEM 3. DEFAULTS ON SENIOR SECURITIES	27

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	27

ITEM 5. OTHER INFORMATION	27

ITEM 6. EXHIBITS	28

SIGNATURES	29

~~ITEM~~ 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 31 ITEM 4. CONTROLS AND PROCEDURES 31 PART II – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 32 ITEM 1A. RISK FACTORS 32 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 32 ITEM 3. DEFAULTS ON SENIOR SECURITIES 32 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 32 ITEM 5. OTHER INFORMATION 32 ITEM 6. EXHIBITS 33 SIGNATURES 35

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BLACKWATER MIDSTREAM CORP.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	DECEMBER 31,			MARCH 31,
	JUNE 30, 2012			MARCH 31, 2012
	2011			2011
ASSETS
CURRENT ASSETS:
Cash	$	~~239~~332,~~917~~944		$	51190,~~386~~334
Receivables-trade		~~460~~209,~~107~~766			~~196~~386,~~424~~668
Receivables-other		-47,556			~~208~~50,~~600~~567
Current portion of deferred financing charges		-			314,913
Current portion of intangible assets, net		140,191			210,214
Prepaid expenses and other current assets		~~178~~276,~~212~~445			~~191~~237,~~533~~780
Total current assets		~~878~~1,~~236~~006,902			~~962~~1,~~856~~075,563
Property, plant, equipment, net		1518,~~753~~120,~~187~~679			1316,~~542~~473,~~885~~674
Intangible assets		328,851			-
Intangible assets, net		45,174			46,894
TOTAL ASSETS	$	1619,~~960~~172,~~274~~755		$	1417,~~505~~596,~~741~~131
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	12,~~356~~008,~~256~~357		$	1,~~746~~320,~~155~~305
Accounts payable-related parties		~~149~~68,~~689~~876			1060,~~527~~763
Accrued liabilities		~~297~~218,~~060~~072			~~149~~204,~~073~~582
Deferred revenue		~~220,234~~-			~~215~~114,~~234~~334
Liabilities-disposal of asset		-			410,431
Derivative liabilities of convertible debt loans		4,522,468			3,520,496
Current portion of related party long-term convertible debt loans		-			250,000
Current portion of long-term bank loans		1,903,189			1,551,864
Current portion of long-term convertible debt loans		-			4,501,033
Total current liabilities		8,720,962			6,772,344
Derivative liabilities of convertible debt loans		2,519,246			1,397,911
Current portion of long-term bank loans		1,431,686			1,271,686
Total current liabilities		5,974,171			9,952,050
Long-term liabilities:
Bank loans		3,~~494~~295,~~262~~889			23,~~934~~390,~~660~~868
Related party convertible debt loans, net of discount of $631,220 and $0		43,780			-
Related party convertible debt loans, net of discount of $597,386 and $620,291		77,614			54,709
Convertible debt loans, net of discount of $3,811,666 and $0		264,367			-
Convertible debt loans, net of discount of $3,607,352 and $3,745,668		468,681			330,365
Total long-term liabilities		3,~~802~~842,~~409~~184			23,~~934~~775,~~660~~942
TOTAL LIABILITIES		912,~~776~~563,~~580~~146			1210,~~886~~548,~~710~~286
STOCKHOLDERS' EQUITY
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: 56,471,186 and 54,792,114 issued, outstanding at December 31, 2011 and March 31, 2011, respectively		56,471			54,792
Common stock - 200,000,000 shares authorized, $0.001 par value: 56,476,186 and 56,476,186 issued, outstanding at June 30, 2012 and March 31, 2012, respectively		56,476			56,476
Additional paid-in capital		8,~~384~~411,~~390~~476			8,~~011~~398,~~658~~943
Accumulated deficit		(1,~~257~~858,~~167~~343	)		(61,~~447~~407,~~419~~574	)
TOTAL STOCKHOLDERS' EQUITY		76,~~183~~609,~~694~~609			17,~~619~~047,~~031~~845
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1619,~~960~~172,~~274~~755		$	1417,~~505~~596,~~741~~131

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

BLACKWATER MIDSTREAM CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

BLACKWATER MIDSTREAM CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months			Three Months			Nine Months			Nine Months
	Three Months Ended June 30, 2012			Three Months Ended June 30, 2011
	Ended			Ended			Ended			Ended
Revenue
	December 31, 2011			December 31, 2010			December 31, 2011			December 31, 2010
Storage	$	2,113,035		$	1,628,839
Revenue
Packaging services		319,734			374,436
Storage	$	1,932,521		$	1,442,760		$	5,371,500		$	4,173,624
Excess through-put services		174,282			239,705
Packaging services		493,995			192,273			1,260,765			411,683
Other services		111,965			86,650
Excess through-put services		2,588			2,550			247,314			7,930
Total revenue		2,719,016			2,329,630
Other services		93,672			292,914			256,056			413,409
Operating expenses		(903,620	)		(747,021	)
Total Revenue		2,522,776			1,930,497			7,135,635			5,006,646
Selling, general and administrative expenses		(954,101	)		(804,654	)
Cost of revenue
Loss on disposal of assets		-			(362,110	)
Labor		(271,219	)		(216,010	)		(752,555	)		(540,839	)
Operating income		861,295			415,845
General materials		(375,540	)		(362,059	)		(994,864	)		(639,061	)
Net interest expense		(310,092	)		(277,769	)
Subcontractors		(17,078	)		(79,133	)		(39,749	)		(105,231	)
Gain on extinguishment of convertible debt loans		-			1,399,940
Depreciation		(156,093	)		(142,000	)		(441,153	)		(372,181	)
(Loss) gain on change in fair market value of derivative liabilities		(1,001,972	)		224,975
Other costs of revenue		(43,198	)		12,313			(149,659	)		(59,470	)
Net (loss) income	$	(450,769	)	$	1,762,991
Total cost of revenue		(863,128	)		(786,889	)		(2,377,980	)		(1,716,782	)
NET (LOSS) INCOME PER COMMON SHARE,
GROSS PROFIT		1,659,648			1,143,608			4,757,655			3,289,864
BASIC	$	(0.01	)	$	0.03
OTHER OPERATING EXPENSES:
DILUTED	$	(0.05	)	$	(0.05	)
Selling, general and administrative		1,015,675			776,797			2,691,009			2,618,844
Weighted average number of shares outstanding:
Loss on disposal of assets		-			4,556			362,110			178,532
BASIC		56,476,186			55,165,077
Depreciation		12,687			12,400			37,325			34,518
DILUTED		65,978,252			66,096,328
Total other operating expenses		1,028,362			793,753			3,090,444			2,831,894
Income from operations		631,286			349,855			1,667,211			457,970
Net interest expense		(195,677	)		(262,982	)		(650,144	)		(643,076	)
Gain on bargain purchase of assets		970,000			-			970,000			100,000
Other income		-			139,806			-			139,806
Gain on extinguishment of convertible debt loans		-			-			1,399,940			-
Gain on change in fair market value of derivative liabilities		867,705			-			1,803,245			-
Net Income	$	2,273,314		$	226,679		$	5,190,252		$	54,700
NET INCOME (LOSS) PER COMMON SHARE,
BASIC	$	0.04		$	0.00		$	0.09		$	0.00
DILUTED	$	(0.05	)	$	0.00		$	(0.02	)	$	0.00
Weighted average number of shares outstanding:
BASIC		55,868,366			54,753,287			55,551,397			54,559,830
DILUTED		65,776,314			66,211,790			65,498,476			65,646,763

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

BLACKWATER MIDSTREAM CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months			Nine Months
	Three Months Ended June 30, 2012			Three Months Ended June 30, 2011
	Ended			Ended
	December 31, 2011			December 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	5,190,252		$	54,700
Net (loss) Income	$	(450,769	)	$	1,762,991
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation		~~478~~203,~~478~~678			~~406~~155,~~699~~296
Amortization of deferred financing fees & convertible loan discounts		196,546			321,707
Amortization of intangible assets		71,743			-
Net loss on disposal of assets		362,110			164,534
Amortization of deferred financing fees & convertible loan discounts		161,221			124,965
Net gain on bargain purchase of assets		(970,000	)		(100,000	)
Net loss on disposal of assets		-			362,110
Net gain on extinguishment of convertible debt loans		(1,399,940	)		-
Net (gain) on extinguishment of convertible debt loans		-			(1,399,940	)
Net gain on change in fair market value of derivative liabilities		(1,803,245	)		-
Net loss (gain) on change in fair market value of derivative liabilities		1,001,972			(224,975	)
Stock based compensation		~~374~~12,~~411~~533			~~609~~118,~~381~~960
Changes in operating assets and liabilities:
Accounts receivable-trade		~~(263~~176,~~683~~902	)		(~~175~~209,~~284~~234	)
Accounts receivable-other		~~208~~3,~~600~~011			~~(156~~208,~~163~~600	)
Prepaid expenses		(217,~~117~~678	)		~~145,459~~(662	)
Inventory		15(20,~~438~~987	)		~~(27~~4,~~257~~743	)
Deferred revenue		5(114,~~000~~334	)		(~~205~~130,~~734~~055	)
Accounts payable and accruals		(~~618~~604,~~775~~886	)		(~~562~~290,~~116~~815	)
Net cash provided by (used in) operating activities	$	1,773,075		$	475,926
Net cash provided by operating activities	$	422,406		$	481,984
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Brunswick, GA Terminal		-			(1,800,000	)
Purchase of property, plant and equipment		(536,142	)		(83,825	)
Purchase of Salisbury, MD Terminal		(1,600,000	)		-
Net cash (used in) investing activities	$	(536,142	)	$	(83,825	)
Purchase of property, plant and equipment		(704,146	)		(1,721,384	)
Net cash provided by (used in) investing activities	$	(2,304,146	)	$	(3,521,384	)
CASH FLOWS FROM FINANCING ACTIVITES:
Proceeds from bank loan		1549,~~600,000~~812			~~1,816,160~~-
Payments on bank loan		(~~880~~293,~~398~~466	)		(~~753~~391,~~670~~288	)
Net cash provided by (used in) financing activities	$	~~719~~256,~~602~~346		$	1(391,~~062,490~~288	)
NET CHANGE IN CASH FOR THE PERIOD		~~188~~142,~~531~~610			(16,~~982,968~~871	)
CASH AT BEGINNING OF PERIOD		51190,~~386~~334			251,~~020,527~~386
CASH AT END OF PERIOD	$	~~239~~332,~~917~~944		$	3758,~~559~~257
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest	$	~~482~~179,~~270~~816		$	~~518~~169,~~657~~209
Cash paid for income taxes	$	-		$	-
Non-cash investing and financing activities:
Construction in process included in accounts payable	$	1,314,542		$	203,831
Construction in process included in accounts payable	$	220,595		$	869,871
Barge dock exchanged for accounts payable	$	-		$	115,000
Barge dock exchanged for accounts payable	$	115,000		$	-
Debt discount related to derivative liabilities	$	-		$	4,516,240
Debt discount related to derivative liabilities	$	4,516,240		$	-

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

BLACKWATER MIDSTREAM CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION.

The accompanying unaudited consolidated financial statements as of ~~December~~June 3130, ~~2011~~2012 included herein have been prepared without an audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of the management of Blackwater Midstream Corp. (the "Company", "us", "our", or "we"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the March 31, ~~2011~~2012 audited financial statements and notes thereto. The balance sheet at March 31, ~~2011~~2012 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accepted accounting principles for complete financial statements. Certain items in ~~2010~~2011 have been reclassified to conform to the ~~2011~~2012 financial statement presentation generally accepted in the United States of America. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended March 31, ~~2011~~2012. The results of operations for the ~~nine~~three-month period ended ~~December~~June 3130, ~~2011~~2012 are not necessarily indicative of the results that may be expected for the year.

RECLASSIFICATIONS

We have reclassified certain prior-year amounts to conform to the current year’s presentation.

2. PROPERTY, PLANT AND EQUIPMENT.

Property and equipment consisted of the following. The Estimated Useful Life figure presented in the table represents management’s determination as to the potential full useful life range of the assets when new:

	Estimated Useful Life		~~December 31, 2011~~		June 30, 2012		~~March 31, 2011~~		March 31, 2012
Land	-	-	$	~~1,914,808~~	$	1,914,808	$	~~1,313,947~~	$	1,914,808
Office buildings & warehouses	10~~-40~~	-	40	~~729,690~~		729,690		~~339,784~~		729,690
Improvements	20~~-40~~	-	40	~~628,049~~		628,049		~~539,622~~		628,049
Dock	20~~-40~~	-	40	~~3,675,065~~		3,675,065		~~4,228,648~~		3,675,065
Tanks, racks and piping	20~~-40~~	-	40	~~9,555,672~~		10,217,435		~~7,455,192~~		9,696,197
Equipment	5	5		~~16,119~~		26,158		~~15,346~~		16,119
Office equipment, software, packaging equipment & tools	5 ~~- 7~~	-	7	~~406,491~~		408,993		~~337,996~~		408,993
Construction in process				~~274,073~~		2,372,458		~~365,713~~		1,053,052
Total property, plant and equipment				~~17,199,967~~		19,972,656		~~14,596,248~~		18,121,973
Less: accumulated depreciation				~~(1,446,780~~	)	(1,851,977	)	~~(1,053,363~~	)	(1,648,299	)
Property, plant and equipment, net			$	~~15,753,187~~	$	18,120,679	$	~~13,542,885~~	$	16,473,674

Construction in process projects as of March 31, ~~2011~~2012 consisted of amodifications ~~customer~~to ~~contract~~tanks ~~storage tank~~ and piping ~~improvements,~~related to customer contracts and construction of a new ~~truck~~storage ~~loading~~tank ~~facility~~at ~~classified~~our inBrunswick ~~the~~Terminal. The ~~office~~tank ~~buildings~~modifications and ~~warehouses~~piping ~~category. These~~work ~~projects~~ were ~~complete~~completed and capitalized as of ~~September~~June 30, ~~2011~~2012, with the new storage tank construction continuing. Current construction in process projects also include ~~modifications~~construction toof two new storage tanks ~~and~~at ~~piping~~our ~~related~~Westwego toTerminal ~~customer~~and ~~contracts~~various other projects. These projects are scheduled to be completed within the coming months.

During the ~~nine~~three-month period ended ~~December~~June 3130, ~~2011~~2012, the Company capitalized approximately $4530,~~332~~800 of interest expense related to construction in process projects. During the ~~nine~~three-month period ended ~~December~~June 3130, ~~2010~~2011, the Company capitalized approximately $~~197~~16,~~200~~000 of interest expense related to construction in process projects during that time. The difference in the amount of interest capitalized between the ~~2011~~2012 and ~~2010~~2011 ~~nine~~ three-month periods is due to ~~the~~an ~~decrease~~increase in the amount of projects under construction.

Depreciation expenses related to property, plant and equipment totaled $~~470~~203,~~764~~678 for the ~~nine~~three-month period ended ~~December~~June 3130, ~~2011~~2012 and $~~406~~155,~~699~~296 for the ~~nine~~three-month period ended ~~December~~June 3130, ~~2010~~2011.

3. STOCK-BASED COMPENSATION.

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

	Number of Common Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)
Outstanding at March 31, 2011		2,943,528	$	0.18		2.69
Outstanding at March 31, 2012		825,882	$	0.25		6.65
Granted		—		—		—
Exercised		~~2,117,646~~—		—		—
Forfeited		—		—		—
Outstanding at December 31, 2011		825,882	$	0.24		6.90
Outstanding at June 30, 2012		825,882	$	0.24		6.40
Exercisable at December 31, 2011		825,882	$	0.24		6.90
Exercisable at June 30, 2012		825,882	$	0.24		6.40

OnNet ~~October~~income ~~05,~~for ~~2011, director Herbert Whitney gave notice to~~ the ~~Company~~three-month ofperiod ~~his~~ended ~~intent~~June ~~to exercise 200~~30,~~000~~ of2012 ~~the~~includes ~~options~~approximately ~~granted~~$12,500 toexpensed ~~him~~for instock-based ~~2009,~~compensation incosts afor ~~cashless exercise transaction~~management. ~~This~~As ~~cashless~~of ~~option~~June ~~exercise~~30, ~~transaction resulted in Mr. Whitney surrendering 75~~2012,~~555~~ ~~shares;~~there ~~determined~~was byapproximately ~~the stated exercise amount of~~ $34155,~~000~~555 ~~(exercise per share price~~ of ~~$0.17~~total ~~for 200,000~~unrecognized ofcompensation ~~the~~costs ~~options~~related ~~granted~~ to ~~him~~unvested instock-based ~~2009),~~compensation ~~divided~~for by the ~~value~~restricted ofshares ~~the~~granted ~~Company’s~~to ~~common~~management ~~stock~~that ~~share~~is ~~price~~expected onto ~~October~~be ~~05,~~recognized ~~2011~~over ofa ~~$0.45,~~weighted-average ~~the~~period ~~date~~ of ~~exercise. After~~approximately ~~surrendering~~30 ~~the 75,555 shares, Mr~~months. ~~Whitney received 124,445 common shares. The Company did not record any expenses related to this event.~~

On ~~November~~May 1719, ~~2011~~2010, ~~director Herbert Whitney gave notice to~~ the Company ofentered ~~his~~into ~~intent~~an toinvestor ~~exercise~~relations ~~200,000~~agreement ofwith ~~the~~Malcolm ~~options~~McGuire ~~granted~~& ~~to him in 2009~~Associates, ~~in a cashless exercise transaction~~L. ~~This cashless option exercise transaction resulted in Mr~~L. ~~Whitney surrendering 77,273 shares; determined by the stated exercise amount of $34,000 (exercise per share price of $0~~C.17 ~~for 200,000 of the options granted to him in 2009~~(“McGuire”), ~~divided~~and byamended the ~~value~~agreement ~~of the Company’s common stock share price~~ on ~~November~~June 1711, ~~2011~~2010. The ofCompany ~~$0.44,~~terminated the ~~date~~agreement ofwith ~~exercise. After surrendering the 77~~McGuire,~~273~~ ~~shares,~~effective ~~Mr.~~February ~~Whitney received 122~~29,~~727~~ ~~common shares~~2012. ~~The~~Therefore, ~~Company~~we did not ~~record~~incur any related expenses ~~related~~during tothe ~~this~~three-month ~~event~~period ended June 30, 2012.

OnDuring ~~December 21, 2011, former director Mathijs von Houweninge gave notice to~~ the ~~Company~~three-month ofperiod ~~his~~ended ~~intent~~June to30, ~~exercise 705~~2011,~~882~~ ofwe ~~the~~expensed ~~options~~stock-based ~~granted~~compensation tocosts ~~him~~of ~~in 2009~~$115,198 infor ~~a cashless exercise transaction~~management. ~~This cashless option exercise transaction resulted in Mr. Houweninge surrendering 285~~ Also,~~714~~ ~~shares;~~we ~~determined~~incurred ~~by the stated exercise amount of~~ $~~120~~3,~~000~~762 ~~(exercise~~in ~~per~~stock-based ~~share~~compensation ~~price~~expense ofrelated ~~$0.17~~to ~~for~~ the ~~705~~7,~~882 options~~500 ~~granted~~shares ~~to him in 2009), divided by the value~~ of the Company’s restricted common stock ~~share~~granted ~~price~~to onMcGuire ~~December~~during ~~21,~~the ~~2011~~three-month ofperiod ~~$0.42,~~ended ~~the~~June ~~date~~30, ~~of exercise~~2011. ~~After~~Together ~~surrendering~~these ~~the~~expenses ~~285,714~~total ~~shares~~$118,960; ~~Mr.~~which ~~Houweninge~~are ~~received~~included ~~420,168~~in ~~common~~general ~~shares. The~~and ~~Company~~administrative ~~did~~expenses ~~not~~in ~~record~~the ~~any~~accompanying ~~expenses~~consolidated ~~related~~statement toof ~~this event~~operations.

On December 22, 2011, director Herbert Whitney gave notice to the Company of his intent to exercise 305,882 of the options granted to him in 2009, in a cashless exercise transaction. This cashless option exercise transaction resulted in Mr. Whitney surrendering 123,810 shares; determined by the stated exercise amount of $52,000 (exercise per share price of $0.17 for 305,882 of the options granted to him in 2009), divided by the value of the Company’s common stock share price on December 22, 2011 of $0.42, the date of exercise. After surrendering the 123,810 shares, Mr. Whitney received 182,072 common shares. The Company did not record any expenses related to this event.

During the three-month and nine-month periods ended December 31, 2011, we did not incur or expense any stock-based compensation costs for directors, as no new grants were awarded. However, during the three-month and nine-month periods ended December 31, 2010, we did incur $0 and $241,349, respectively.

Net income for the three-month and nine-month periods ended December 31, 2011 included $124,388 and $363,973, respectively of stock-based compensation costs for management. During the three-month and nine-month periods ended December 31, 2010, we expensed $107,784 and $299,928, respectively of stock-based compensation costs for management; all of these expenses are included in general and administrative expenses in the accompanying consolidated statements of operations.

On December 1, 2011 the Board of Directors of the Company amended certain restricted share grants previously granted to management in 2008, 2009 and 2010 wherein the vesting dates of these grants were changed to be January 1, 2015. This vesting amendment, in effect, increased the number of periods required to expense these non-cash transactions.

As of December 31, 2011, there was approximately $150,500 of total unrecognized compensation costs related to unvested stock-based compensation for the restricted shares granted to management that is expected to be recognized over a weighted-average period of approximately thirty-six months.

On May 19, 2010, the Company entered into an investor relations agreement with Malcolm McGuire & Associates, L.L.C. (“McGuire”) and amended the agreement on June 11, 2010. The agreement required the Company to grant McGuire the option to purchase 100,000 shares of the Company’s restricted common stock at the exercise price of $0.50 per share, vesting on November 20, 2010, exercisable until November 20, 2015. The Company recorded a fair value expense of $60,854, as of December 31, 2010 for these options, with no expense recorded during the nine-month period ended December 31, 2011.

The agreement with McGuire also requires the Company to issue 2,500 shares monthly to McGuire of the Company’s restricted common stock. Net income for the three-month and nine-month periods ended December 31, 2011 includes expense in the amount of $3,025 and $10,438 respectively for these shares. Net income for the three-month and nine-month periods ended December 31, 2010 includes expense in the amount of approximately $3,350 and $7,250, respectively for these shares. These expenses are included in general and administrative expenses in the accompanying consolidated statement of operations.

4. BANK LOANS AND CONVERTIBLE DEBT.

JPJPMorgan ~~Morgan~~ Chase Bank, N.A. (“JPM”) loan ~~agreement~~agreements

InStorage ~~connection~~Tank ~~with~~Construction the purchase and acquisition of the Salisbury, MD Terminal on December 22, 2011, Blackwater Maryland, L.L.C. (“BWMD”) a wholly-owned subsidiary of the Company entered into a term loan agreement (the “Term Agreement” or the “Loan”) with JP Morgan Chase Bank (“JPM”) in the principal amount of $1,600,000 to finance the purchase price of the terminal. The Loan bears interest at the ~~annual~~Brunswick fixed rate of 4.50%. Beginning on January 21, 2012 and continuing on the last day of each calendar month thereafter, BWMD will pay consecutive monthly installments of interest only on the Loan. In addition, beginning on July 21, 2012 and continuing on the last day of each calendar month thereafter BWMD will pay monthly principal installments of $26,667. All unpaid principal and accrued and unpaid interest is finally due and payable on July 21, 2017.Terminal

~~The~~In ~~JPM~~connection ~~Term~~with ~~Agreement~~the ~~includes~~construction ~~customary~~of ~~events~~a of60,000 ~~default~~barrel ~~including~~storage tank at the Brunswick Terminal, ~~but~~on ~~not~~February ~~limited~~28, to2012, ~~the~~Blackwater ~~failure~~Georgia, ofL.L.C. ~~BWMD~~(“BWGA”) toentered ~~pay~~into ~~any~~a ~~principal~~term orloan ~~interest~~with ~~when~~JPM ~~due~~in the principal amount of $1,380,000 to finance the ~~breach~~construction of ~~any~~the ~~representation~~new orstorage ~~warranty~~tank. During inthe ~~any~~three-month ofperiod ~~JPM’s~~ended ~~loan~~June ~~documents~~30, or2012, BWGA received advances on this loan in the ~~insolvency~~amount orof ~~bankruptcy~~$347,487. ~~Upon~~As of the ~~occurrence~~filing date of anthis ~~event~~quarterly ofreport ~~default~~on Form 10-Q, ~~the~~BWGA ~~JPM~~had ~~Loan~~received ~~will~~advances ~~become~~on ~~due~~this ~~and~~loan ~~payable~~in ~~automatically~~the ~~and~~amount ~~without~~of ~~notice~~approximately $1,194,400.

~~Additionally,~~Storage inTank ~~connection~~Construction ~~with~~at the ~~closing~~Westwego ofTerminal ~~the~~and ~~acquisition,~~Storage ~~BWMD~~Tank ~~entered~~System ~~into~~Modifications ~~the~~at ~~following with JPM: a credit agreement, a continuing security agreement covering all of BWMD’s personal property, and a subordination agreement (~~the ~~“Subordination~~Salisbury ~~Agreement”).~~Terminal

On June 22, 2012, in connection with the construction of two 50,000 barrel storage tanks at the Westwego Terminal and storage tank system modifications at the Salisbury Terminal, Blackwater New Orleans, L.L.C. (“BWNO"”), aentered ~~wholly-owned~~into ~~subsidiary~~a ofterm ~~the~~loan ~~Company~~with ~~entered~~JPM ~~into~~in ~~continuing~~the ~~pledge~~principal amount of ~~collateral~~$2,300,000 ~~mortgage~~to ~~note~~finance (the ~~“Continuing Pledge Agreement”) with JPM~~construction. ~~The~~During ~~Loan~~the ~~Agreement~~three-month isperiod ~~secured~~ended byJune 30, 2012, the ~~Continuing~~Company ~~Pledge~~received ~~Agreement~~advances on, ~~among~~this ~~other~~loan ~~things,~~in ~~BWNO’s~~the ~~right~~amount of $202,325. As ~~title~~of ~~and~~the ~~interest~~filing indate ~~the~~of ~~immovable~~this ~~property,~~quarterly ~~buildings,~~report ~~structures,~~on ~~machinery~~Form 10-Q, ~~equipment~~the ~~and~~Company ~~improvements~~had onreceived ~~the~~advances ~~premises~~on ~~located~~this atloan ~~660~~in ~~LaBauve~~the ~~Drive,~~amount ~~Westwego,~~of ~~Jefferson~~approximately ~~Parish~~$1, ~~Louisiana~~034,700.

~~Blackwater~~The ~~Midstream~~loan ~~Corp.~~bears ~~entered~~interest ~~into~~at ~~with~~the JPM aCommercial Bank Prime floating rate. Beginning on July 31, 2012 and continuing ~~guaranty~~on the last day of each calendar month thereafter, the ~~Subordination~~Company ~~Agreement~~will pay consecutive monthly installments of interest only on the loan. In addition, beginning on January 31, 2013 and ~~guaranteed~~continuing on the ~~obligations~~last day of ~~BWMD~~each ~~under~~calendar month thereafter, the ~~terminal~~Company ~~Purchase~~will ~~Agreement~~pay monthly principal installments of approximately $38,000. All unpaid principal and accrued and unpaid interest is finally due and payable on December 31, 2017.

9The loan includes customary events of default including, but not limited to, the failure of the Company to pay any principal or interest when due, the breach of any representation or warranty in any of JPM’s loan documents, or insolvency or bankruptcy. Upon the occurrence of an event of default, the loan will become due and payable automatically and without notice.

Additionally, in connection with the closing of the term loan, BWNO entered into the following with JPM: the Fifth Amendment to the Credit Agreement, an Allonge to the Collateral Mortgage Note, dated December 23, 2008, and a First Amendment to Collateral Mortgage, Assignment of Leases and Rents and Security Agreement, dated December 23, 2008.

Blackwater Midstream Corp. entered into a continuing guaranty pursuant to which the Company guaranteed the obligations of BWNO to JPM.

Convertible Debt

October 2009 convertible debt offering

On October 15, 2009, we issued $3,001,033 of convertible notes. The convertible notes originally set a maturity date on October 15, 2011 (the date was later extended, see below) and have a stated annual interest rate of 10%. The principal is payable at maturity but interest is paid quarterly beginning January 15, 2010. The Company incurred interest expense of $75,026 ~~and $225,078, respectively~~ for the three-month ~~and nine-month~~ periods ~~ending~~ended ~~December~~June 3130, ~~2011~~2012 and ~~December~~June 3130, ~~2010~~2011. In addition, the notes are convertible at any time into restricted shares of the Company’s common stock at $0.50 per share.

Related party investors as of ~~December~~June 3130, ~~2011~~2012 and ~~March~~June 3130, 2011 accounted for $430,000 ~~and $180,000, respectively~~ of the aggregate amount of convertible debt funds collected. The $250,000 increase is due to the appointment in June 2011 of two members to the Company’s Board of Directors, Mr. Philip Tracy and Mr. William Gore, who hold October 2009 convertible debt notes in the amounts of $100,000 and $150,000, respectively. Mr. Gore and Mr. Tracy were elected to the Company’s Board of Directors in September 2011.

On March 28, 2011, the convertible note agreements were amended to reduce the conversion price to $0.40 per share upon a change in control of the Company. ~~This~~In ~~change~~June in2011, the ~~conversion~~Company ~~feature~~contacted ~~was~~the ~~evaluated~~holders ~~under~~of ~~ASC~~the ~~815-40. As~~Company’s a2009 ~~result~~Convertible ofPromissory ~~the~~Notes ~~new~~to ~~provision,~~extend the ~~conversion~~note’s ~~feature~~maturity ~~now~~date ~~qualifies~~from ~~for~~October ~~derivative~~15, ~~accounting~~2011 ~~pursuant~~ to ~~ASC~~October ~~815.~~15, ~~(see Note 8)~~2013.

InThe change in the conversion feature was evaluated under ASC 815-40 “Contracts in Entity’s Own Equity”. On June ~~2011~~30, ~~the~~2012, ~~Company~~as ~~contacted~~per ASC 815-40, we evaluated the ~~holders~~fair market value of the ~~Company’s~~derivative ~~2009~~liability ~~Convertible~~(using ~~Promissory~~the ~~Note~~BWMS toclosing ~~extend~~share ~~the~~price ~~note’s~~of ~~maturity~~$0.61) ~~date~~and ~~from~~recorded ~~October~~a ~~15,~~net ~~2011~~non-cash toloss ~~October~~of ~~15,~~approximately ~~2013~~$637,600.

As ~~per~~a ~~accounting~~result ~~standards,~~of ~~this~~the ~~change~~First inAmendment to the Credit Agreement with JPM, the maturity ~~date~~and ~~was~~conversion ~~evaluated~~dates ~~under~~of ~~ASC~~the ~~470~~convertible ~~“EITF~~debt ~~96-19”~~notes ~~“Debtor~~issued pursuant to the Company’s ~~Accounting~~September ~~for~~2009 ~~Modification~~Convertible orDebt ~~Exchange~~Offering ofwere ~~Debt~~to ~~Instruments~~be extended by certain intervals.” As aof ~~result~~June of24, 2011, the maturity ~~date~~and ~~extension~~conversion ~~amendment,~~dates ~~the~~have ~~convertible~~been ~~debt~~extended ~~notes~~until ~~then~~October ~~qualified~~15, as2013 abut ~~debt~~still ~~extinguishment~~do ~~and~~not ~~therefore~~meet ~~were~~the ~~treated~~maturity asdate ifof ~~the~~September ~~Company~~30, ~~settled~~2014, ~~the~~as ~~debt~~requested ~~prior~~by toJPM. However, JPM is aware of the maturity date ~~and~~extension ~~then~~that ~~entered~~was ~~into~~achieved anand ~~entirely~~has ~~new~~not ~~debt~~requested ~~agreement~~any ~~after~~action from the ~~amendment~~Company. ~~(see Note 8)~~

In connection with the offering, we incurred cash fees of $265,103 and issued 700,000 shares of restricted common stock, valued at $203,000 based on the grant-date fair value of our common stock. These fees were included in the deferred financing costs in our consolidated balance sheet and were being amortized over the original term of the convertible notes using the effective interest rate method. During the nine-month period ended December 31, 2011 and the nine-month period ended December 31, 2010, we amortized $73,314 and $186,595, respectively, of deferred financing cost. During the three-month period ended December 31, 2011, due to the extinguishment of the debt in June 2011, we did not amortize any expenses. During the three-month period ended December 31, 2010 we expensed $62,198.

On June 24, 2011, as per ASC 815-40, we evaluated the fair value of the derivative liability (using the BWMS closing share price of $0.55) and recorded a net “non-cash” loss of $115,378, which represents the change in the fair value of the derivative from March 31, 2011 through June 24, 2011.

Per the applicable accounting standards, the amendment of the convertible debt notes was required to be treated as an extinguishment of the original convertible debt notes and related accounts, as of June 24, 2011. Therefore, we wrote off and expensed the remainder of the unamortized deferred financing asset of $61,449 and decreased the derivative liability of $820,800. These transactions resulted in a net “non-cash” gain of $759,351.

Additionally as per ASC 470, we evaluated the fair value of the derivative related to the amended convertible debt notes as of June 24, 2011 (using the BWMS closing share price of $0.55) and recorded a new derivative liability of $2,870,987. This amount was recorded as a discount to the debt and will be amortized over the new remaining life of the notes, until October 15, 2013.

As a result of the First Amendment to the Credit Agreement with JPM, the maturity and conversion dates of the convertible debt notes issued pursuant to the Company’s September 2009 Convertible Debt Offering were to be extended by certain intervals. As of June 24, 2011, the maturity and conversion dates have been extended until October 15, 2013 but still do not meet the maturity date of September 30, 2014, as requested by JPM.

March 2010 convertible debt offering

On March 31, 2010, we issued $1,750,000 of convertible notes. The convertible notes originally set a maturity date on March 31, 2012 (the date was later extended, see below) and have a stated annual interest rate of 10%. The principal is payable at maturity but interest is paid quarterly beginning June 30, 2010. The Company incurred interest expense of $43,750 ~~and $131,250, respectively~~ for the three-month ~~and nine-month~~ periods ~~ending~~ended ~~December~~June 3130, ~~2011~~2012 and ~~December~~June 3130, ~~2010~~2011. In addition, the notes are convertible at any time into restricted shares of the Company’s common stock at $0.50 per share.

Related party investors as of ~~December~~June 3130, ~~2011~~2012 and ~~March~~June 3130, 2011 accounted for $245,000 ~~and $70,000, respectively~~ of the aggregate amount of convertible debt funds collected. The $175,000 increase is due to the appointment in June 2011 of two members to the Company’s Board of Directors, Mr. Philip Tracy and Mr. Gore, who hold March 2010 convertible debt notes in the amount of $100,000 and $75,000, respectively. Mr. Gore and Mr. Tracy were elected to the Company’s Board of Directors in September 2011.

On March 28, 2011, the convertible note agreement was amended to reduce the conversion price to $0.40 per share upon a change in control of the Company. ~~This~~In ~~change~~June in2011, the ~~conversion~~Company ~~feature~~contacted ~~was~~the ~~evaluated~~holders ~~under~~of ~~ASC~~the ~~815-40. As~~Company’s a2010 ~~result~~Convertible ofPromissory ~~the~~Notes ~~new~~to ~~provision,~~extend the ~~conversion~~note’s ~~feature~~maturity ~~now~~date ~~qualifies~~from ~~for~~March ~~derivative~~31, ~~accounting~~2012 ~~pursuant~~ to ~~ASC~~September ~~815.~~30, ~~(see Note 8)~~2013.

InThe change in the conversion feature was evaluated under ASC 815-40 “Contracts in Entity’s Own Equity”. On June ~~2011~~30, ~~the~~2012, ~~Company~~as ~~contacted~~per ASC 815-40, we evaluated the ~~holders~~fair market value of the ~~Company’s~~derivative ~~2010~~liability ~~Convertible~~(using ~~Promissory~~the ~~Note~~BWMS toclosing ~~extend~~share ~~the~~price ~~note’s~~of ~~maturity~~$0.61) ~~date~~and ~~from~~recorded ~~March~~a ~~31,~~net ~~2012~~non-cash toloss ~~September~~of ~~30,~~approximately ~~2013~~$364,300.

AsIn ~~per accounting standards~~summary, ~~this~~during ~~change in~~ the ~~maturity date was evaluated under ASC 470 “EITF 96~~three-~~19”~~month ~~“Debtor’s~~period ~~Accounting~~ended ~~for~~June ~~Modification~~30, ~~or Exchange of Debt Instruments.” As a result of the maturity date extension amendment~~2012, the ~~convertible~~Company ~~debt~~recorded ~~notes then qualified as~~ a ~~debt~~net ~~extinguishment~~non-cash ~~and~~loss ~~therefore~~of ~~were~~approximately ~~treated~~$1,002,000 asrelated ifto the ~~Company~~2009 ~~settled~~and ~~the~~2010 ~~debt~~Notes ~~prior~~related to ~~the~~changes ~~maturity~~in ~~date~~the ~~amendment~~fair ~~and~~market ~~then~~value ~~entered~~of ~~into~~the anconvertible ~~entirely new~~ debt ~~agreement~~notes ~~after~~derivative ~~the amendment~~liabilities. ~~(see Note 8)~~

In connection with the offering, we incurred cash fees of $164,750 and issued 659,000 shares of restricted common stock, valued at $171,340 based on the grant-date fair value of our common stock. These fees were included in the deferred financing costs in our consolidated balance sheet and were being amortized over the original term of the convertible notes using the effective interest rate method. During the nine-month period ended December 31, 2011 and the nine-month period ended December 31, 2010, we amortized $49,878 and $135,112, respectively, of deferred financing cost. During the three-month period ended December 31, 2011, due to the extinguishment of the debt in June 2011, we did not amortize any expenses. During the three-month period ended December 31, 2010 we expensed $45,038.8

On June 24, 2011, as per ASC 815-40, we evaluated the fair value of the derivative liability (using the BWMS closing share price of $0.55) and recorded a net “non-cash” loss of $78,371, which represents the change in the fair value of the derivative from March 31, 2011 through June 24, 2011.

Per the applicable accounting standards, the amendment of the convertible debt notes was required to be treated as an extinguishment of the original convertible debt notes and related accounts, as of June 24, 2011. Therefore, we wrote off and expensed the remainder of the unamortized deferred financing asset of $130,271 and decreased the derivative liability of $770,860. These transactions resulted in a net “non-cash” gain of $640,589.

Additionally as per ASC 470, we evaluated the fair value of the derivative related to the amended convertible debt notes as of June 24, 2011 (using the BWMS closing share price of $0.55) and recorded a new derivative liability of $1,645,253. This amount will be amortized over the new remaining life of the notes, until September 30, 2013.

In summary, during the nine-month period ending December 31, 2011, the Company recorded a net “non-cash” gain of $3,203,185 related to the 2009 and 2010 Notes; approximately $1,400,000 due to the extinguishment of the original convertible debt notes and deferred financing charges; and $1,803,245 related to changes in the fair market value of the convertible debt notes derivative liabilities.

Future minimum debt payments

The future minimum payments related to our JPM credit facilities and convertible notes as of ~~December~~June 3130, ~~2011~~2012, for the next five years and the total amount thereafter are as follows, assuming none of the convertible notes are converted:

Years ending December 31,
Years ending June 30,
2012	$	1,431,686
2013	$	1,903,189
2013		6,244,897
2014		6,520,897
2014		1,200,398
2015		886,025
2015		320,000
2016		320,000
Thereafter		160,000
2017		320,000
	$	9,676,981
Thereafter		0
	$	9,950,111

~~5. GAIN~~The ~~AND~~following ~~LOSS~~table ONreconciles ~~DISPOSAL~~our OFvarious ~~ASSETS~~debt instruments to the balance sheet line items for June 30, 2012 and March 31, 2012.

On April 14, 2011 the Company entered into an agreement with River Construction to transfer the Company’s barge dock and related equipment to the vendor in exchange for $115,000 to be offset against amounts currently owed by the Company to River Construction. As a result, the Company recorded a loss of $362,110 on the disposal of assets. William Weidner is the owner of River Construction and was elected to the Company’s Board of Directors in September 2011. As a result, $122,500 in accounts payable owing to River Construction as of December 31, 2011 is reported as an accounts payable related party in the Company’s consolidated balance sheet.

	As of June 30, 2012
	Consolidated Balance Sheet		JPM CHASE Bank Loans		2009 CD Loans		2010 CD Loans
Related party long-term convertible debt loans *1	$	675,000	$	-	$	430,000	$	245,000
Long-term convertible debt loans *2	$	4,076,033	$	-	$	2,571,033	$	1,505,000
Current portion of long-term bank loans	$	1,903,189	$	1,903,189	$	-	$	-
Long-term bank loans	$	3,295,889	$	3,295,889	$	-	$	-
	$	9,950,111	$	5,199,078	$	3,001,033	$	1,750,000

~~6. BRUNSWICK~~*1 ~~TERMINAL~~- ~~AND~~Shown ~~SALISBURY~~on ~~TERMINAL~~Consolidated ~~ASSET~~Balance ~~PURCHASES.~~Sheet as of June 30, 2012 as Net of CD Discount:

~~Brunswick~~Related party long-term convertible debt loans of $675,000 ~~Georgia~~less ~~Terminal~~CD Discounts of $597,386 = Net of $77,614

*2 - Shown on Consolidated Balance Sheet as of June 30, 2012 as Net of CD Discount:

OnLong-term ~~July~~convertible ~~15,~~debt ~~2010~~loans ~~Blackwater~~of ~~Georgia~~$4, ~~L.L.C. (“BWGA”)~~076,033 aless ~~wholly-owned~~CD ~~subsidiary~~Discounts of ~~the Company~~$3,607,352 ~~finalized~~= ~~the~~Net ~~acquisition~~ of ~~the Brunswick Terminal for~~ $1468,~~800,000 from NuStar Terminals Operations Partnership, L.P.~~681

Presented below are unaudited pro-forma consolidated statements of operations for the nine-month period ending December 31, 2010, when considering the operating results of the Brunswick Terminal, if acquired as of April 1, 2010. Actual financial results for the nine-month period ending December 31, 2011 include the operation results from the Brunswick Terminal.

	As of March 31, 2012
	Consolidated Balance Sheet		JPM CHASE Bank Loans		2009 CD Loans		2010 CD Loans
Related party long-term convertible debt loans *3	$	675,000	$	-	$	430,000	$	245,000
Long-term convertible debt loans *4	$	4,076,033	$	-	$	2,571,033	$	1,505,000
Current portion of long-term bank loans	$	1,551,864	$	1,551,864	$	-	$	-
Long-term bank loans	$	3,390,868	$	3,390,868	$	-	$	-
	$	9,693,765	$	4,942,732	$	3,001,033	$	1,750,000

*3 - Shown on Consolidated Balance Sheet as of March 31, 2012 as Net of CD Discount:

Related party long-term convertible debt loans of $675,000 less CD Discounts of $620,291 = Net of $54,709

*4 - Shown on Consolidated Balance Sheet as of March 31, 2012 as Net of CD Discount:

Long-term convertible debt loans of $4,076,033 less CD Discounts of $3,745,668 = Net of $330,365

5. SALISBURY TERMINAL ASSET PURCHASE.

Salisbury, Maryland Terminal

On December 22, 2011, Blackwater Maryland, L.L.C. (“BWMD”), a wholly-owned subsidiary of the Company, acquired the 172,000 barrel Salisbury Terminal, including storage tanks and other improvements for $1,600,000. The terminal consists of sixteen leasable above ground storage tanks (ranging in size from 2,500-50,000 barrels), two office buildings, a three-bay covered truck loading rack, a barge dock and other site improvements located on approximately 27 acres of land, located along the Wicomico River in Salisbury, Maryland.

WePresented ~~commissioned~~below ~~and~~are ~~obtained~~unaudited ~~a market valuation appraisal (the “Salisbury Terminal Appraisal”) from a third~~pro-~~party~~forma ~~independent~~consolidated ~~appraisal~~statements ~~firm. The~~of ~~Salisbury~~operations ~~Terminal~~for ~~Appraisal concluded that~~ the ~~market~~three-month ~~value~~period ofended ~~the Salisbury Terminal as of~~ June 30, 2011 ~~was $2~~,~~570,000. Therefore,~~ wewhen ~~valued~~considering the ~~combined~~operating ~~assets~~results ~~at the Salisbury Terminal for $2,570,000 and recorded a $970,000 “bargain purchase” gain for the difference, which is recorded in the Company’s consolidated statement~~ of ~~operations. The Company determined that~~ the ~~market value of the~~ Salisbury Terminal ~~did not change materially from the date of the appraisal on June 30~~, ~~2011~~if ~~and the date of the acquisition on December 22, 2011. Included in the~~ acquired ~~assets were the tangible terminal assets described above~~ as ~~well as four in-place customer contracts with a fair value~~ of ~~$287,766~~April ~~and various prepaid permits and taxes with a fair value of $48~~1,~~799. The~~ fair value of the in-place customer contacts was determined using a discounted cash flow projection over the one-year life of the contracts and this amount will be amortized over a useful life of one-year2011.

	Three-Months Ended June 30, 2011
	Three-Months Ended June 30, 2011
	Blackwater Midstream, Westwego & Brunswick Terminals Actual			Salisbury Terminal Pro-Forma for Period 1/Apr/2011-30/Jun/2011			Consolidated Pro-Forma
Revenue	$	2,329,630		$	127,000		$	2,456,630

Net income	$	1,762,991		$	964,541	*1	$	2,727,532

NET INCOME PER COMMON SHARE,
BASIC	$	0.03		$	0.02		$	0.05
DILUTED	$	(0.05	)	$	(0.03	)	$	(0.02	)

Weighted average number of shares outstanding:
BASIC		55,165,077			55,165,077			55,165,077
DILUTED		66,096,328			66,096,328			66,096,328

~~The~~*1 ~~following~~- ~~table~~Includes ~~sets~~bargain ~~forth the costs and final~~ purchase ~~price~~gain ~~allocation~~of ~~related to the Salisbury Terminal acquisition~~$970,000.

Cost of the acquisition:
Cash paid from the proceeds of debt	$	1,600,000
Less: fair market value of identifiable assets acquired		(2,570,000)
Gain on bargain purchase of asset		(970,000)
Purchase price allocation:
Plant and Equipment		2,233,435
Intangible assets		336,565
Identifiable assets	$	2,570,000

A reconciliation of the components of basic and diluted net income per common share is presented in the tables below.

~~Presented~~6. NET ~~below~~INCOME ~~are~~PER unaudited pro-forma consolidated statements of operations for the nine-month period ending December 31, 2011 and for the nine-month periods ending December 31, 2010, when considering the operating results of the Salisbury Terminal, if acquired as of April 1, 2010SHARE.

BLACKWATER MIDSTREAM CORP.

	For the Three-Months Ended
	June 30, 2012
	Income			Weighted Average Shares Outstanding		Per Share
Basic:
Income attributable to common stock	$	(450,769	)		56,476,186	$	(0.01	)
Effect of Dilutive Securities:
Stock options		-			-		(0.00	)
Convertible debt		(3,111,208	)		9,502,066		(0.04	)
Diluted:
Income attributable to common stock, including assumed conversions	$	(3,561,977	)		65,978,252	$	(0.05	)

~~CONSOLIDATED PRO-FORMA STATEMENTS OF OPERATIONS~~10

(UNAUDITED)

	For the Three-Months Ended
	June 30, 2011
	Income			Weighted Average Shares Outstanding		Per Share
Basic:
Income attributable to common stock	$	1,762,991			55,165,077	$	0.03
Effect of Dilutive Securities:
Stock options		-			1,429,185		(0.00	)
Convertible debt		(4,927,618	)		9,502,066		(0.08	)
Diluted:
Income attributable to common stock, including assumed conversions	$	(3,164,627	)		66,096,328	$	(0.05	)

	Nine-Months Ended 31-Dec-2011								Nine-Months Ended 31-Dec-2010
	Blackwater Midstream, Westwego & Brunswick Terminals Actual			Salisbury Terminal Pro-Forma for Period 1/Apr/2011-21/Dec/2011		Consolidated Pro-Forma			Blackwater Midstream and Westwego Terminal Actual		Brunswick Terminal Pro-Forma for Period 1/Apr/2010-14/Jul/2010		Salisbury Terminal Pro-Forma for Period 1/Apr/2010-31/Dec/2010		Consolidated Pro-Forma
Revenue	$	7,135,635		$	364,140	$	7,499,775		$	5,006,646	$	140,000	$	378,000	$	5,524,646
Net income	$	5,190,252		$	81,065	$	5,271,317		$	54,700	$	1,213	$	84,150	$	140,063
NET INCOME PER COMMON SHARE,
BASIC	$	0.09		$	0.00	$	0.09		$	0.00	$	0.00	$	0.00	$	0.00
DILUTED	$	(0.02	)	$	0.00	$	(0.02	)	$	0.00	$	0.00	$	0.00	$	0.00
Weighted average number of shares outstanding:
BASIC		55,551,397			55,551,397		55,551,397			54,559,830		54,559,830		54,559,830		54,559,830
DILUTED		65,498,476			65,498,476		65,498,476			65,646,763		65,646,763		65,646,763		65,646,763

For the three-month periods ending June 30, 2012 and June 30, 2011, 825,882 and 20,000, respectively, potentially dilutive securities were excluded from the computation of weighted average diluted shares of common stock because the impact of these potentially dilutive securities were antidilutive.

137. EMBEDDED DERIVATIVE LIABILITY.

7As described in Note 4, the Company issued convertible debt notes in October 2009 and March 2010. ~~NET~~ The ~~INCOME~~notes ~~PER~~are ~~SHARE~~convertible at $0.50 per share, or $0.40 per share upon a change in control of the Company. Based on the alternative conversion options, the Company determined that the conversion options in the notes should be accounted for as derivatives. The Company used the Black-Scholes model to determine the fair value of each of the conversion options as of June 30, 2012, assigning a probability of occurrence to each conversion option. The final fair value of each of the derivative liabilities considered the likelihood of conversion at the separate conversion prices.

A reconciliation of the components of basic and diluted net income per common share is presented in the tables below:

	For the Three-Months Ended
	December 31, 2011
Basic:	Income			Weighted Average Shares Outstanding		Per Share
Income attributable to common stock	$	2,273,314			55,868,366	$	0.04
Effect of Dilutive Securities:
Stock options		-			405,882		(0.00	)
Convertible debt		(5,266,626	)		9,502,066		(0.09	)
Diluted:
Income attributable to common stock, including assumed conversions	$	(2,993,312	)		65,776,314	$	(0.05	)

	For the Nine-Months Ended
	December 31, 2011
Basic:	Income			Weighted Average Shares Outstanding		Per Share
Income attributable to common stock	$	5,190,252			55,551,397	$	0.09
Effect of Dilutive Securities:
Stock options		-			445,013		(0.00	)
Convertible debt		(6,289,401	)		9,502,066		(0.11	)
Diluted:
Income attributable to common stock, including assumed conversions	$	(1,099,149	)		65,498,476	$	(0.02	)

For the three-month and nine-month periods ending December 31, 2011, 120,000 potentially dilutive securities were excluded from the computation of weighted average diluted shares of common stock because the impact of these potentially dilutive securities were antidilutive.

8. EMBEDDED DERIVATIVE LIABILITY.

As described in Note 4, the Company issued convertible debt notes in October 2009 and March 2010. The notes are convertible at $0.50 per share, or $0.40 per share upon a change in control of the Company. Based on the alternative conversion options, the Company determined that the conversion options in the notes should be accounted for as derivatives. The Company used the Black-Scholes model to determine the fair value of each of the conversion options as of December 31, 2011, assigning a probability of occurrence to each conversion option. The final fair value of each of the derivative liabilities considered the likelihood of conversion at the separate conversion prices.

On June 24, 2011 as per ASC 470 the Company amended the notes to extend the maturity date from October 15, 2011 to October 15, 2013 for the October 2009 Notes and from March 31, 2012 to September 30, 2013 for the March 2010 Notes. As a result of these changes to the maturity dates, the Company compared the fair values of the embedded derivative liabilities using the maturity dates immediately prior to and after the modification date to determine if the amendments should be accounted for as a debt extinguishment.

October 2009 notes:

The table below summarizes the Black-Scholes Option Pricing Model range of inputs used to calculate the fair market values on the date of the amendment (June 24, 2011) and then at the end of each quarter afterwards.

2009 Convertible Debt Notes

Value Date				Dividend				Stock				Risk Free			Expected
Value Date Stock Price			Dividend Yield	Stock Volatility			Risk Free Rate			Expected Term (Months)
Stock Price				Yield				Volatility				Rate			Term
$0.39	-	0.61	0%	95.01%	-	195.20%	0.24%	-	0.80%	4	-	28
$	0.39-0.55				0	%			95.01%-195.20	%			0.25%-0.80	%	4-28 Months

March 2010 notes:

The table below summarized the Black-Scholes Option Pricing Model information used to calculate the fair market values on the date of the amendment (June 24, 2011) and then at the end of each quarter afterwards.

2010 Convertible Debt Notes

Value Date				Dividend				Stock				Risk Free			Expected
Value Date Stock Price			Dividend Yield	Stock Volatility			Risk Free Rate			Expected Term (Months)
Stock Price				Yield				Volatility				Rate			Term
$0.39	-	0.61	0%	109.41%	-	189.35%	0.24%	-	0.80%	9	-	27
$	0.39-0.55				0	%			109.41%-189.35	%			0.25%-0.80	%	9-27 Months

For the ~~nine~~three-month period ended ~~December~~June 3130, 2012 the Company recorded an aggregate loss of approximately $1,002,000; and for the three-month period June 30, 2011, the Company recorded an aggregate gain of approximately $1225,~~803~~000,~~245~~ as a result of these transactions.

~~9. FAIR VALUE OF FINANCIAL INSTRUMENTS.~~11

8. FAIR VALUE OF FINANCIAL INSTRUMENTS.

The Company measures fair value in accordance with a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities;

Level 2 - Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The table below sets forth a summary of the fair values of the Company’s financial assets and liabilities as of ~~September~~June 30, ~~2011~~2012:

	TOTAL			LEVEL 1		LEVEL 2		LEVEL 3
LIABILITIES:
Convertible loan derivative liability at March 31, 2011	$	1,397,911		$	-	$	-	$	1,397,911
Cumulative changes in fair market value as of March 31, 2012		3,520,496			-		-		3,520,496
Change in fair market value from March 31, 2011 to June 24, 2011		193,749			-		-		193,749
Change in fair market value from April 1, 2012 to June 30, 2012		1,001,972			-		-		1,001,972
Accounting “extinguishment” of derivative liabilities on June 24, 2011		(1,591,660	)		-		-		(1,591,660	)
Convertible loan derivative liability at June 30, 2012	$	4,522,468		$	-	$	-	$	4,522,468
Establishment of new derivative liabilities on June 24, 2011		4,516,240			-		-		4,516,240
Change in fair market value from June 24, 2011 to June 30, 2011		(418,724	)		-		-		(418,724	)
Change in fair market value from July 1, 2011 to Sept. 30, 2011		(710,565	)		-		-		(710,565	)
Change in fair market value from Oct. 1, 2011 to Dec. 31, 2011		(867,705	)		-		-		(867,705	)
Convertible loan derivative liability at December 31, 2011	$	2,519,246		$	-	$	-	$	2,519,246

159. PROPOSED AGREEMENT AND PLAN OF MERGER.

10On June 29, 2012 the Company announced that it had entered into an Agreement and Plan of Merger (the “Merger Agreement”) to be acquired by an affiliate of ArcLight Capital Partners, LLC (“ArcLight”), an energy-focused private equity investment firm. ~~SUBSEQUENT~~ The ~~EVENTS~~Merger Agreement was adopted and approved by the Company’s Board of Directors on June 28, 2012, and is subject to approval by the Company’s stockholders. If the Merger Agreement is approved by the Company’s stockholders and the merger is consummated, each share of common stock of the Company issued and outstanding immediately prior to the closing (other than (i) any shares held by the Company or any direct or indirect wholly-owned subsidiary of the Company, (ii) any shares held by ArcLight’s affiliates, and (iii) any shares owned by stockholders who have properly demanded, perfected and not withdrawn rights of dissenting stockholders in accordance with the provisions of Chapter 92A of the Nevada Revised Statutes, will convert into the right to receive $0.64, without interest and less any applicable withholdings or deductions.

InFor ~~January~~additional ~~and~~information, ~~February~~see ~~2012,~~MANAGEMENT'S weDISCUSSION ~~granted~~AND ~~5,000~~ANALYSIS ~~additional~~OF ~~shares~~FINANCIAL ofCONDITION ~~the~~AND ~~Company’s~~RESULTS ~~common~~OF ~~stock~~OPERATIONS ~~for~~- ~~services~~Proposed Merger with anAffiliate ~~aggregate~~of ~~grant~~ArcLight ~~date~~Capital ~~fair~~Partners, ~~value~~LLC ofon ~~$2,000~~page 14 following.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking Statements

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

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

The following discussion provides an analysis of the results of our operations, an overview of our liquidity and capital resources and other items related to our business. The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and our audited financial statements and notes included in our Annual Report on Form 10-K as of and for the year ended March 31, ~~2011~~2012.

Overview of Company and its Operations

Company references herein are referring to consolidated information pertaining to the Company (formerly Laycor Ventures Corp.), the registrant, our wholly-owned subsidiaries Blackwater New Orleans, L.L.C. (“BWNO”), Blackwater Georgia, L.L.C. (“BWGA”), Blackwater Maryland, L.L.C. (“BWMD”), and to Laycor Ventures Corp.

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.

Income is derived by leasing space in our above ground storage tanks, throughput charges for receipt and delivery of our customer’s products, 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 these operations is our primary source of liquidity for funding our operations, debt service, maintenance, and small-scale capital expenditures. Based on long-term leasing contracts, we seek debt financing to fund larger-scale capital expenditures. 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 terminals.

We generally receive our ~~customer~~customers’s liquid product by river barge and ship. Their product is transferred from the river vessels to the leased storage tank(s) via the terminal’s internal pipeline apparatus. The ~~customer~~customers’s product is removed from storage by truck, railcar and/or by barge or ship. The length of time that the ~~customer~~customers’s product is held in storage without transfer varies depending upon the ~~customer~~customers’s needs.

Westwego, LA Terminal Operations. In September 2008, we formed BWNO, a Louisiana limited liability company, as a wholly-owned subsidiary of the Company, to acquire the Westwego, LA Terminal (the “Westwego Terminal”) in December 2008.

The purchase price for the Westwego Terminal was $4,800,000, subject to certain adjustments for prepaid third-party fees, adjustment to inventory and transaction-related expenses. At purchase, the Westwego Terminal had an approximate leasable storage capacity of 752,000 barrels and recorded a storage tank utilization rate of approximately 38%. As of ~~December~~June 3130, ~~2011~~2012 the Westwego Terminal had leasable storage capacity of 857,000 barrels and a utilization rate of approximately 9690%.

Currently, at the Westwego Terminal we are constructing two 50,000 carbon-steel storage tanks, financed by JPMorgan Chase Bank, N.A. ("JPM"). One of the tanks is preleased to an existing customer and the other tank is being marketed to existing and potential customers. Upon completion of the construction of the storage tanks during the summer of 2012, the Westwego Terminal will have a leasable storage capacity of 957,000 barrels.

Brunswick, GA Terminal Operations. In February 2010, we formed BWGA, a Georgia limited liability company, as a wholly-owned subsidiary of the Company, to acquire the Brunswick, GA Terminal (the “Brunswick Terminal”) on July 15, 2010.

1713

The purchase price for the Brunswick Terminal was $1,800,000. At purchase and as of ~~December~~June 3130, ~~2011~~2012, the Brunswick Terminal had an approximate leasable storage capacity of 161,000 barrels. At purchase the utilization rate was 0%. As of ~~December~~June 3130, ~~2011~~2012, the utilization rate was 100%.

~~Effective on November 1~~Currently, ~~2011,~~at ~~BWGA entered into an agreement titled Fourth Amendment to Agreement (~~the ~~“Agreement”) with the Georgia Ports Authority (“GPA”). The Agreement amends the property lease of the~~ Brunswick Terminal bywe ~~renewing~~are ~~and~~constructing ~~extending~~a ~~the~~60,000 ~~lease~~carbon-steel ~~period~~storage ~~an additional four years~~tank, ~~through~~financed ~~September~~by ~~4, 2016~~JPM. ~~Additionally,~~This instorage ~~consideration~~tank ofis ~~the~~preleased ~~lease, BWGA shall pay~~ to ~~the~~a ~~GPA,~~new ascustomer. Upon ~~rental,~~completion ~~the annual sum~~ of ~~Thirty-six Thousand Dollars ($36,000), payable monthly in~~ the ~~amount~~construction of ~~Three Thousand Dollars ($3,000) in advance before or on~~ the ~~first~~storage ~~day~~tank ~~of each month~~ during August ~~the renewal term. All other terms and conditions~~ of ~~the~~2012, ~~original lease agreement and earlier amendments between~~ the ~~property’s~~Brunswick ~~former~~Terminal ~~Lessors~~will ~~and~~have ~~Lessees~~a ~~remain~~leasable ~~unchanged~~storage ~~and~~capacity inof ~~full~~221,000 ~~force and effect~~barrels.

Salisbury, MD Terminal Operations. In November 2011, we formed BWMD, a Maryland limited liability company, as a wholly-owned subsidiary of the Company, to acquire the Salisbury, MD Terminal (the “Salisbury Terminal”) on December 22, 2011.

The purchase price for the Salisbury Terminal was $1,600,000 and was funded by a term loan agreement with JPM. At purchase and as of ~~December~~June 3130, ~~2011~~2012, the Salisbury Terminal had an approximate storage capacity of 172,000 barrels ~~and had a utilization rate of approximately 76%~~. This location currently operates as a fuel rack terminal for petroleum products, which are owned by our customers.

During the three-month period ending June 30, 2012 at the Salisbury Terminal, we were modifying the existing storage tank systems and making improvements to the existing storage tanks to better meet the needs of our existing customers and to make way for the potential of new storage customers. These modifications and improvements are financed by JPM and were completed during July 2012.

Growth of our Business. The importance of bulk terminal facilities in the agricultural, 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 and/or consumption locations.

Our current business model is to continue to increase the utilization rate of our existing storage tanks at the Westwego, Brunswick and Salisbury terminals and to construct additional storage tanks at those sites as needed.

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

Proposed Merger with Affiliate of ArcLight Capital Partners, LLC

On June 29, 2012 the Company announced that it had entered into a definitive agreement (the “Merger Agreement”) to be acquired by an affiliate of ArcLight Capital Partners, LLC (“ArcLight”), an energy-focused private equity investment firm. The Merger Agreement was adopted and approved by the Company’s Board of Directors on June 28, 2012, and is subject to approval by the Company’s stockholders. Upon approval of the Merger Agreement by the Company’s stockholders and upon the consummation of the merger, Blackwater Midstream Corp. will be merged into an ArcLight affiliate, and the Company’s common stock will no longer be publicly owned or publically traded. At present, all employees will be retained and the Company’s executive management is in negotiations pertaining to multi-year employment agreements.

Under the terms of the Merger Agreement, each share of common stock of the Company issued and outstanding immediately prior to the closing (other than (i) any shares held by the Company or any direct or indirect wholly-owned subsidiary of the Company, (ii) any shares held by ArcLight's affiliates, and (iii) any shares owned by stockholders who have properly demanded, perfected and not withdrawn rights of dissenting stockholders in accordance with the provisions of Chapter 92A of the Nevada Revised Statutes (“NRS Chapter 92A”) will convert into the right to receive $0.64 (the “Merger Consideration”), without interest and less any applicable withholdings or deductions. All shares of Company common stock so converted will, at the closing of the merger, be cancelled, and each holder of a certificate representing any shares of Company common stock will cease to have any rights with respect thereto, except the right to receive the Merger Consideration upon surrender of such certificate (if such shares are certificated). Following and as a result of the merger, Company stockholders (other than certain members of the Company’s senior management holding shares of common stock subject to rollover agreements) will no longer have any interest in, and will no longer be stockholders of, the Company, and will not participate in any of the Company’s future earnings or growth. In addition, shares of the Company common stock will no longer be listed on the Over the Counter Bulletin Board (“OTCBB”), and price quotations with respect to shares of Company common stock in the public market will no longer be available.

In accordance with the terms of the Company’s 2008 Equity Incentive Plan (the “Stock Purchase Plan”), each option or other award to purchase shares of Company common stock (“Company Stock Option”) granted under the Stock Purchase Plan, whether vested or unvested, that is outstanding immediately prior to the effective time of the merger will become fully vested, cancelled, and converted into the right to receive an amount in cash in U.S. dollars equal to the product of (i) the total number of shares of Company common stock subject to such Company Stock Option and (ii) the excess, if any, of the amount of the Merger Consideration over the exercise price per share of Company common stock subject to the Company Stock Option less such amounts as are required to be withheld or deducted. Further in accordance with the terms of the Stock Purchase Plan, each award of restricted Company common stock will vest in full immediately prior to the effective time of the merger, and be treated like a share of Company common stock with the right to receive the Merger Consideration, less such amounts as are required to be withheld or deducted.

All amounts outstanding at the effective time of the merger under the Convertible Promissory Notes dated October 15, 2009, as amended and the Convertible Promissory Notes dated March 31, 2010, as amended (the “Notes”) will be paid in full unless the holder has provided written notice to the Company at least 5 business days prior to the closing of the holder’s intent to convert the applicable Notes immediately upon and effective as of the Effective Time into such number of shares of Company common stock obtained by dividing the total amount owed under each applicable Note by $0.40 pursuant to the terms of the Notes, in which case such holder will be entitled to receive the Merger Consideration per share of common stock then received less such amounts as are required to be withheld.

Shares of Company stock held by a stockholder who did not vote in favor of the merger and who has properly demanded and perfected dissenter’s rights pursuant to the applicable provisions of NRS Chapter 92A will not be converted into or be exchangeable for the right to receive the Merger Consideration, but instead such holder will be entitled to payment of the fair value of such shares in accordance with the provisions of NRS Chapter 92A, unless and until such holder will have failed to perfect or will have effectively withdrawn or lost rights to receive the fair value of such shares of Company common stock under NRS Chapter 92A. If any dissenting stockholder will have failed to perfect or will have effectively withdrawn or lost such right, such holder’s shares of Company common stock will thereupon be treated as if they had been converted into and become exchangeable for the right to receive, as of the effective time of the merger, the Merger Consideration, without any interest thereon.

The Company has agreed that, until the earlier of the termination of the Merger Agreement or the effective time of the merger, except (i) as may be required by applicable law, (ii) with the prior written consent of Parent, (iii) as expressly contemplated or expressly permitted by Merger Agreement, it will conduct its business in all material respects in the ordinary course consistent with past practices, use commercially reasonable best efforts to maintain and preserve intact its business organization and business relationships and to retain the services of its key officers and key employees, and take no action which would adversely affect or delay the ability of any of the parties to the Merger Agreement from obtaining any necessary approvals, performing its covenants and agreements, or consummating the transactions contemplated by the Merger Agreement.

Approval of the Merger Agreement requires the affirmative vote of stockholders owning at least a majority of the outstanding shares of Company common stock. On July 31, 2012, the Company submitted a Preliminary Proxy Statement on Schedule 14A to the Securities and Exchange Commission (the "SEC") for its review. After the SEC review process, the Company will send proxy materials to all stockholders of record. These materials will contain a more detailed and comprehensive discussion of the Merger Agreement and the proposed merger. The Company anticipates mailing the proxy statement on Schedule 14A to stockholders of record in August 2012, with the Company’s Annual Stockholders’ Meeting to be held in October 2012. At that time, stockholders will have the opportunity to vote on, in addition to routine issues, the approval of the Merger Agreement.

Results of Operations

For the Three-Month ~~and~~Period ~~Nine-Month Periods~~ Ended ~~December~~June 3130, ~~2011~~2012 ~~and~~Compared ~~December~~to 31the Three-Month Period Ended June 30, ~~2010~~2011.

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

Revenues-Storage Revenues. The Company’s storage tank revenues for the three-month periods ending ~~December~~June 3130, ~~2011~~2012 and ~~2010~~2011 totaled approximately $12,~~932~~113,~~500~~000 and $1,~~442~~629,~~700~~000, respectively. This is an increase of approximately 3430% when comparing the three-month periods ending ~~December~~June ~~31st~~30th. For the three-month period ended ~~December~~June 3130, ~~2011~~2012, the monthly average storage revenue was approximately $~~644~~704,~~200~~300 and for the three-month period ended ~~December~~June 3130, ~~2010~~2011, the monthly average was approximately $~~480~~542,900.

The ~~Company’s~~rise ~~storage~~in ~~tank~~ revenues ~~for~~is ~~the~~attributable ~~nine-month~~to ~~periods~~an ~~ending~~increase ~~December~~in ~~31,~~the ~~2011~~number ~~and~~of ~~2010~~tanks ~~totaled~~and ~~approximately~~barrels $5leased,~~371,500~~ and ~~$4,173,600, respectively. This is~~ an increase ofin ~~approximately 29% when comparing~~ the ~~nine-month~~rate ~~periods~~structure ~~ending~~due ~~December~~to ~~31st. For~~a ~~the~~different ~~nine-month~~product ~~period ended December 31, 2011, the monthly average storage revenue was approximately $596,800 and for the nine-month period ended December 31, 2010, the monthly average was approximately $463,700~~mix.

~~The~~Management ~~rise~~monitors inthe ~~revenues~~utilization israte ~~attributable~~of tothe anleasable ~~increase~~barrels available in ~~the~~our ~~number~~storage terminals. As of ~~tanks~~June ~~and~~30, ~~barrels~~2012 we had leased approximately 947,000 anbarrels ~~increase~~of instorage, ~~the~~for a combined storage utilization rate ~~structure~~of ~~due~~approximately to80%. This is a ~~different~~decrease ~~product~~from ~~mix,~~previous recent periods as one of our contracts at the Westwego Terminal completed and at the ~~purchase~~Salisbury Terminal, storage of customer products was temporarily decreased to allow for storage tank improvements and system modifications. The improvements and the ~~Brunswick~~modifications at the Salisbury Terminal onwere completed in July 152012, ~~2010~~allowing for storage volumes to increase to contracted levels. Since June 30, 2012, we have obtained a short-term storage contract at the Salisbury Terminal and at our Brunswick Terminal our new customer will begin leasing the newly constructed storage tank in August 2012. Additionally, storage quotes for all three terminals, presented to potential customers, are pending approval.

18The major products currently stored at our Westwego Terminal are lubricating additives, oil field drilling fluids, 50% diaphragm grade caustic soda, and vegetable oils. At our Brunswick Terminal the major product stored is liquid fertilizer and our Salisbury Terminal stores gasoline, diesel and ethanol.

AsSee the ~~Brunswick~~following ~~Terminal~~table ~~was~~for ~~purchased in July 2010,~~ the ~~nine~~quarter-~~month~~to-quarter ~~period~~utilization ~~ended~~rate ~~December 31, 2010 does not include storage revenues for the period April 1, 2010 through July 31, 2010 earned from our Brunswick Terminal~~percentages. ~~For~~Management ~~the~~is ~~nine-month~~pleased ~~period~~with ~~ending December 31, 2011,~~ the ~~Brunswick~~progress ~~Terminal~~in ~~storage revenues averaged approximately $61,800 per month. For~~ the ~~five-month~~utilization ~~period~~rate ~~ended~~and ~~December~~attributes ~~31, 2010,~~ the ~~Brunswick~~progress ~~Terminal~~to ~~storage~~aggressive ~~revenues~~marketing ~~averaged $35,000 per month. When considering only the Westwego Terminal storage revenues~~ of ~~approximately~~our $4terminals,~~815,500~~ ~~for~~ the ~~nine-month~~desirable ~~period~~locations ~~ended~~of ~~December~~our ~~31,~~terminals ~~2011,~~as ~~averaging~~distribution ~~approximately $535~~hubs,~~000~~ ~~per~~our ~~month,~~services ~~this represents a 20% increase from the nine-month period ended December 31~~offered, ~~2010~~available ~~of approximately $3,998,600 in~~ storage ~~revenues~~capacity, ~~averaging~~and ~~approximately~~to ~~$444,300~~management’s ~~per~~industry ~~month~~associations.

~~Management~~If ~~monitors~~considering the ~~utilization~~six ~~rate~~tanks ofor ~~the~~45,000 ~~leasable~~ barrels ~~available~~demolished in ~~our~~July ~~storage. As~~and ofAugust ~~December~~2010 ~~31,~~at ~~2011~~the weWestwego ~~had~~Terminal ~~leased~~as ~~approximately~~only ~~1,113,000~~temporarily ~~barrels~~unavailable ~~of storage~~capacity, ~~for~~then athe ~~combined~~consolidated ~~storage~~ utilization rate as of ~~approximately~~June ~~94%. Additional~~30, ~~storage~~2012 ~~quotes~~would ~~for~~be ~~all~~approximately ~~three~~77% ~~terminals,~~or ~~presented~~an toincrease ~~potential~~of ~~customers,~~102% ~~are~~from ~~pending~~the ~~approval~~original acquisition dates. The ~~major~~45,000 ~~products~~barrels ~~currently~~of ~~stored~~capacity atdemolished ~~our~~in ~~Westwego~~2010 ~~Terminal~~ are ~~lubricating~~currently ~~additives,~~being ~~oil~~replaced ~~field~~with ~~drilling~~two ~~fluids~~50,000 ~~50%~~barrel ~~diaphragm grade caustic soda~~tanks, ~~and~~scheduled ~~vegetable~~for ~~oils. At~~completion ~~our~~during ~~Brunswick Terminal~~ the ~~major~~summer ~~product~~of ~~stored is liquid fertilizer and our Salisbury Terminal stores gasoline, diesel and ethanol~~2012.

See the following table for the quarter-to-quarter utilization rate percentages. Management attributes the December 2008-December 2011 increase of 146% in the utilization rate to aggressive marketing of our terminals, the desirable locations of our terminals as distribution hubs, our services offered, available storage capacity, and to management’s industry associations. 16

If considering the six tanks or 45,000 barrels demolished in July and August 2010 as only temporarily unavailable capacity, then the consolidated utilization rate as of December 31, 2011 would be approximately 90% or an increase of 137% from the original acquisition dates.

MONTH	Footnote	CONSOLIDATED BARREL CAPACITY AVAILABLE		CONSOLIDATED UTILIZATION RATE
June-12			1,190,000		79.6%
March-12			1,190,000		93.5%
December-11	*7		1,190,000		93.5%
September-11			1,018,000		94.9%
June-11			1,018,000		86.8%
March-11			1,018,000		85.4%
December-10			1,018,000		69.8%
September-10	4, 5, *6		1,018,000		82.0%
June-10	*3		902,000		77.0%
March-10	*2		852,000		78.0%
December-09			752,000		74.4%
September-09			752,000		71.8%
June-09			752,000		56.4%
March-09			752,000		57.8%
December-08	*1		752,000		38.0%

MONTH	Footnote	CONSOLIDATED BARREL CAPACITY AVAILABLE	CONSOLIDATED UTILIZATION RATE
December-11	*7	1,190,000	93.5%
September-11		1,018,000	94.9%
June-11		1,018,000	86.8%
March-11		1,018,000	85.4%
December-10		1,018,000	69.8%
September-10	4, 5, *6	1,018,000	82.0%
June-10	*3	902,000	77.0%
March-10	*2	852,000	78.0%
December-09		752,000	74.4%
September-09		752,000	71.8%
June-09		752,000	56.4%
March-09		752,000	57.8%
December-08	*1	752,000	38.0%

*1 – Dec 2008, Acquisition of the Westwego Terminal, approximately 752,000 barrels.

*2 – Feb 2010, Completed construction of two 50,000 barrel tanks at the Westwego Terminal.

*3 – Jun 2010, Completed construction of one 50,000 barrel tank at the Westwego Terminal.

*4 – Jul 2010, Acquisition of the Brunswick Terminal, approximately 161,000 barrels.

*5 – Jul 2010, Demolished four tanks at the Westwego Terminal, approximately 30,000 barrels.

*6 – Aug 2010, Demolished two tanks at the Westwego Terminal, approximately 15,000 barrels.

*7 – Dec 2011, Acquisition of the Salisbury Terminal, approximately 172,000 barrels.

Revenues-Ancillary Services. Ancillary revenues are earned based on a customer’s particular needs; and, therefore, by their nature fluctuate from month to month. These services include blending and packaging of our customer’s products for distribution to their customers, excess throughput, docking, truck weighing, steam and other services. The Company’s ancillary revenues for the three-month period ended ~~December~~June 3130, ~~2011~~2012 totaled approximately $~~590~~606,~~300~~000 and for the three-month period ended ~~December~~June 3130, ~~2010~~2011 totaled approximately $~~487~~701,~~700~~000. The comparative three-month to three-month ending periods is approximately a 2114% ~~increase~~decrease in ancillary revenues. See the table presented in the following Operating Expenses section for a summary of packaging revenues.

~~The~~Operating ~~Company’s~~Expenses. Our ~~ancillary~~operating ~~revenues~~expenses ~~for~~consist ~~the~~mainly ~~nine-month~~of ~~period~~direct ~~ended~~and ~~December~~contract 31labor, ~~2011~~associated ~~totaled~~payroll ~~approximately~~taxes ~~$1,764,100~~ and ~~for~~labor ~~the~~burden ~~nine-month~~expenses, ~~period~~terminal ~~ended~~materials ~~December~~and 31supplies, ~~2010~~subcontractors, ~~totaled~~depreciation ~~approximately $833~~expenses,~~000~~ and other expenses. ~~The~~Our ~~comparative~~operating ~~nine-month~~expenses have increased ratably from period to ~~nine-month~~period ~~ending~~due ~~periods~~to ~~more~~our ~~than~~increased ~~doubled. Part~~storage ofutilization ~~this~~and ~~increase~~services isoffered ~~due~~but tohave historically remained near the ~~addition~~same ofin ~~blending~~percentage ~~and~~when ~~packaging~~compared ~~services~~to ~~which~~total ~~began~~revenue infor ~~August~~all ~~2010~~categories.

For our total activity, the key indicator of labor as a percentage of revenue increased slightly from 10% to 12% for the three-month periods ending June 30, 2011 and 2012, respectively. This increase is entirely due to the two employees at the Salisbury Terminal; which are included in the 2012 totals but not in the 2011 totals; as the Salisbury Terminal was acquired in December 2011. General materials decreased from 13% for the three-month period ending June 30, 2011 to 9% for the three-month period ended June 30, 2012. Depreciation expense increased from 6% to 10%, as a percentage of revenues, respectively for the three-month periods ended June 30, 2011 and 2012. This increase is mainly due to the acquisition of the Salisbury Terminal.

Shown in the following table is a summary of our revenues and operating expenses with our packaging activity segregated from our storage and other ancillary activities for both three-month periods ended June 30th. Packaging activity for the three-month period ended June 30, 2012 has a lower labor costing structure, 9% of revenues, than our other combined labor category, 12% of revenues. The general materials category for our packaging activity shows a much larger percentage of revenues than our ancillary activity-61% to 2%, because for the packaging activity we purchase a large volume of packaging materials; whereas the storage and ancillary activity is mostly service activity.

Our storage and ancillary activity for the three-month period ended June 30, 2012 had a higher overall operating expense of 28% than did the similar period ended June 30, 2011 which was 23%. Most of this difference is due to increased labor expense and depreciation expense, related to the addition of the Salisbury Terminal during the period.

Our packaging activity operating expense decreased from 78% for the three-month period ended June 30, 2011 to 74% for the three-month period ended June 30, 2012. The decrease in packing operating costs is attributable to incorporating additional efficiencies into our procedures and increases in overall revenues. These contributed to an increase in net profit of approximately 4%.

	Three-Month Period Ended June 30, 2012

	Storage & Ancillary Activity					Packaging Activity					Total Activity
Consolidated Revenue	$	2,399,282				$	319,734				$	2,719,016

Cost of Revenues:				% of Revenue					% of Revenue					% of Revenue
Labor	$	(287,216	)		12%	$	(28,619	)		9%	$	(315,835	)		12%
General materials	$	(48,180	)		2%	$	(195,927	)		61%	$	(244,107	)		9%
Subcontractors	$	(11,523	)		1%	$	-			0%	$	(11,523	)		0%
Depreciation	$	(256,809	)		10%	$	(2,742	)		1%	$	(259,551	)		10%
Other costs	$	(63,498	)		3%	$	(9,106	)		3%	$	(72,604	)		2%
Total operating expenses	$	(667,226	)		28%	$	(236,394	)		74%	$	(903,620	)		33%

Net	$	1,732,056			72%	$	83,340			26%	$	1,815,396			67%

	Three-Month Period Ended June 30, 2011

	Storage & Ancillary Activity					Packaging Activity					Total Activity
Consolidated Revenue	$	1,955,194				$	374,436				$	2,329,630

Cost of Revenues:				% of Revenue					% of Revenue					% of Revenue
Labor	$	(210,805	)		11%	$	(26,829	)		7%	$	(237,634	)		10%
General materials	$	(42,584	)		2%	$	(256,115	)		68%	$	(298,699	)		13%
Subcontractors	$	(19,280	)		1%	$	0			0%	$	(19,280	)		1%
Depreciation	$	(140,234	)		7%	$	(2,742	)		1%	$	(142,976	)		6%
Other costs	$	(41,144	)		2%	$	(7,288	)		2%	$	(48,432	)		2%
Total operating expenses	$	(454,047	)		23%	$	(292,974	)		78%	$	(747,021	)		32%

Net	$	1,501,147			77%	$	81,462			22%	$	1,582,609			68%

Selling, General and Administration Expenses (SG&A). Our SG&A expenses include our corporate executive management salaries, executive management non-cash compensation (restrictive stock grants), other non-cash compensation to non-employee consultants, expenses related to being a public company, professional fees, insurance, and other expenses that were not allocated or expensed to the terminals’ operations via our operating expenses. The narrative and the table following outlines these expenses for the three-month period ended June 30, 2012 and the three-month period ended June 30, 2011.

Our consolidated SG&A expenses for the three-month period ended June 30, 2012 were approximately $954,100 or 35% of total revenues, averaging approximately $318,000 per month. Included in the SG&A expense total as of June 30, 2012 are approximately $201,250 for professional fee related to our pending merger agreement, mainly for the fairness opinion. Our consolidated SG&A expenses for the three-month period ended June 30, 2011 were approximately $804,600 or 35% of total revenues, averaging approximately $268,200 per month.

Management is very pleased with the outcome of its efforts to grow the business without proportionally increasing SG&A expenses as a percentage of total revenue. This is evidenced with the reduction of SG&A expenses, as related to revenues, decreasing from 35% for the three-month period as of June 30, 2011 to a core 28% for the three-month period as of June 30, 2012 when not considering the professional fees expenses related to our pending merger agreement.

Non-cash SG&A activity for the three-month periods ended June 30, 2012 and June 30, 2011 includes management non-cash compensation expense for services of approximately $12,500 and $119,000, respectively; approximately $0 and $3,762, respectively for non-cash compensation expense for services reported in professional fees; and $15,900 and $12,300, respectively for depreciation.

The amount expensed for management’s salaries was the same for both three-month periods. Non-cash, share-based compensation expensed for management and non-employee professional fees decreased significantly for the three-month period ended June 30, 2012 as compared to the three-month period ended June 30, 2011, as the Company’s Board extended the vesting dates of various management share grants, decreasing the amount to be expensed in the current three-month period.

As per the Agreement and Plan of Merger signed on June 29, 2012 (see Note 9), upon stockholder approval of the merger, the vesting schedules of the stock-based management compensation grants will be accelerated to coincide with the merger change in control date.

Professional fees for the comparative three-month periods remained relatively the same. During the three-month period ended June 30, 2012, the Company recorded professional fees directly related to the Company’s recently announced pending merger agreement of approximately $201,250. The Company did not record any similar merger related expenses during the period ended June 30, 2011.

Business related insurance expenses increased approximately 17% during the period ended June 30, 2012 as compared to the three-month period ended June 30, 2011 due to the Company’s acquisition of the Salisbury Terminal in December 2011. The Other SG&A expense category increased mainly due to additional employees qualifying to be enrolled in the Company’s group insurance programs and other company benefits, and increases in property taxes due to increased property assessments.

	For the Three-Month			For the Three-Month
	Period Ended			Period Ended
Selling, General & Administrative (SG&A) Expenses:	June 30, 2012			June 30, 2011
Management Salaries	$	248,000	26%	$	248,000	31%

Management & Service Share-Based Compensation, non-cash		12,500	1%		119,000	15%

Professional Fees		104,750	11%		100,600	13%

Professional Fees-Related to the Pending Merger Agreement		201,250	21%		-	-%

Insurance-Other		121,300	13%		103,700	13%

Depreciation-Office Fixtures & Equipment, non-cash		15,900	2%		12,300	1%

Other SG&A Expenses		250,400	26%		221,000	27%

Total SG&A Expenses	$	954,100	100%	$	804,600	100%

~~Ancillary~~Gain ~~services~~/ ~~are~~Loss ~~expected~~on toDisposal ~~continue~~of toAssets. The ~~grow~~Company inrecorded no gain or loss on the ~~coming~~disposal ~~months~~of assets during the three-month period ended June 30, ~~due~~2012. On toApril ~~expected~~14, ~~excess~~2011 ~~throughput~~the ~~fees~~Company ~~and~~entered into an ~~ever-increasing~~agreement ~~array~~with ofRiver ~~ancillary~~Construction ~~services~~to transfer the Company’s isbarge ~~offering~~dock and related equipment to ~~customers,~~the ~~specifically~~vendor ~~blending~~in ~~and~~exchange ~~packaging~~for ~~and~~$115,000 ~~throughput~~to ~~fees~~be ~~generated~~offset atagainst amounts then owed by the ~~Salisbury~~Company ~~Terminal~~to River Construction. ~~See~~As a result, the ~~table~~Company ~~presented~~recorded ina loss of $362,110 on the ~~following~~disposal ~~Cost~~of assets. William Weidner, who was appointed to the Company’s Board of ~~Revenue~~Directors ~~section~~in ~~for~~June a2011, ~~summary~~is the owner of ~~packaging~~River ~~revenues~~Construction.

~~Cost~~Interest ~~of Revenue~~Expense. ~~Our~~We ~~cost~~recorded ofnet ~~revenue~~interest ~~consist~~expense ~~mainly~~ of ~~direct~~approximately ~~and contract labor~~$310,100 ~~associated~~for ~~payroll~~the ~~taxes~~three-month ~~and~~period ~~labor~~ended ~~burden~~June ~~expenses~~30, ~~terminal~~2012 ~~materials~~ and ~~supplies,~~approximately ~~subcontractors~~$277,800 ~~depreciation~~for ~~expenses,~~the ~~and~~three-month ~~other~~period ~~expenses. Our~~ended ~~costs~~June of30, ~~revenue~~2011. This ~~have~~increase ~~increased~~is ~~ratably~~primarily ~~from~~related ~~period~~ to ~~period~~the ~~due~~amount toexpensed from our ~~increased~~convertible ~~storage~~debt ~~utilization~~discounts and ~~services~~increases ~~offered~~due ~~revenues~~to ~~but~~the ~~have~~interest ~~historically~~being ~~remained~~expensed related to the ~~same~~Salisbury orTerminal ~~decreased~~acquisition loan in ~~percentage~~December ~~when~~2011 ~~compared~~and toour ~~total~~two ~~revenue~~construction ~~for~~loans ~~all~~currently ~~categories~~underway.

~~Our~~The ~~costs~~following oftable ~~revenues~~summarizes ~~operating~~the ~~expenses~~Company’s ~~totaled~~interest ~~approximately~~expense ~~$863,100~~incurred ~~for~~and interest expense capitalized during the three-month ~~period~~periods ended ~~December~~June ~~31,~~30th. Bank ~~2011,~~Loans orrefer ~~approximately~~to ~~34%~~our ofloan ~~revenue;~~agreements aswith ~~compared~~JPM. Convertible Debt Loans refer to ~~approximately~~our ~~$786,900~~loan ~~for~~agreements ~~the~~with ~~three-month~~investors ~~period~~as ~~ended~~per ~~December~~our ~~31,~~2009 Notes and our 2010 orNotes ~~41%~~private ofofferings ~~revenue. The~~wherein ~~monthly~~we ~~average~~pay ~~cost~~quarterly interest payments, and Amortization of ~~revenue~~Deferred ~~operating~~Financing ~~expenses~~Charges ~~for~~and Convertible Debt Discounts relate to the ~~three~~non-~~month~~cash ~~period~~financing ~~ended~~costs ~~December~~and ~~31,~~discount ~~2011~~amortizations ~~was~~pertaining ~~approximately~~to ~~$287~~our convertible debt loans,~~700~~ which were extinguished in June 2011 and ~~for~~replaced with monthly allocations to the ~~three-month~~convertible ~~period~~debt ~~ended~~discounts. The ~~December~~Company ~~31,~~capitalizes ~~2010~~interest itcosts ~~was~~while ~~$262,300~~construction in process projects are under construction.

The ~~key~~following ~~indicator~~table ofsummarizes ~~labor~~the asCompany’s anet ~~percentage~~interest ofexpense ~~revenue decreased slightly from 11% to 10.7%~~ for the three-month periods ~~ending~~ended ~~December~~June 3130, ~~2010~~2012 and ~~2011,~~June ~~respectively~~30, even when considering increased activities and services, adding one employee at the Salisbury Terminal for 10 days in December and the granting of year-end bonuses to operations employees. General materials decreased from 19% to approximately 15% for the three month periods ending December 31, 2010 and 2011~~, respectively~~. ~~Depreciation expense remained relatively the same at between 6% to 7%, as a percentage of revenues, respectively for the three-month periods ended December 31, 2011 and 2010.~~

Our costs of revenues operating expenses totaled approximately $2,378,000 for the nine-month period ended December 31, 2011, or approximately 33% of revenue; as compared to approximately $1,716,800 for the nine-month period ended December 31, 2010 or 34% of revenue. The monthly average cost of revenue operating expenses for the nine-month period ended December 31, 2011 was approximately $264,200 and for the nine-month period ended December 31, 2010 it was approximately $190,800.

	For the Three-Month Period Ended June 30, 2012			For the Three-Month Period Ended June 30, 2011
Bank Loans	$	58,722		$	49,137
Convertible Debt Loans		118,776			118,776
Amortization of Deferred Financing Charges and Convertible Debt Discounts Related to Convertible Debt Loans (non-cash)		161,221			124,965
Other Interest & Interest Income, Net		2,172			1,263
Total Interest Incurred	$	340,891		$	294,141

Less Interest Capitalized to Construction in Process Projects	$	(30,799	)	$	(16,372	)
Net Interest Expense	$	310,092		$	277,769

~~The~~Gain ~~key~~on ~~indicator~~Extinguishment of ~~labor~~Convertible asDebt aLoans ~~percentage~~and ofGain ~~revenue~~on ~~decreased~~Change ~~from~~in ~~10.8% to 10.5% for~~ the ~~nine-month~~Fair ~~periods~~Market ~~ending~~Value ~~December~~of ~~31,~~Derivative ~~2010~~Liabilities. In ~~and~~June 2011, ~~respectively,~~the ~~even~~Board ~~when~~of ~~considering~~Directors ~~increased~~of ~~activities~~the ~~and~~Company ~~service. General~~passed ~~materials~~a ~~increased~~resolution ~~from 13%~~ to ~~approximately~~seek ~~14%~~written ~~for~~consent from the ~~nine-month~~holders ~~periods~~of ~~ending~~the ~~December~~Company’s ~~31,~~2009 ~~2010~~ and ~~2011,~~2010 ~~respectively,~~Convertible asPromissory weNotes ~~consumed~~to ~~materials~~amend ~~and~~the ~~supplies~~note’s ~~utilized~~maturity bydates ~~our~~from ~~new~~October ~~packaging activities which began in August 2010. Additionally~~15, ~~during~~2011 ~~the~~to ~~nine-month~~October ~~period ended December 31~~15, ~~2011,~~2013 ~~the~~for ~~Company made various infrastructure improvements at~~ the ~~Westwego~~2009 ~~Terminal;~~Notes ~~which~~and ~~were~~from ~~not~~March ~~capitalized. Depreciation~~31, ~~expense~~2012 ~~remained relatively the same at between 6%~~ to ~~7%,~~September ~~as a percentage of revenues~~30, ~~respectively~~2013 for the ~~nine-month periods ended December 31, 2011 and~~ 2010 Notes.

~~Shown~~These inchanges to the ~~following~~maturity ~~table~~dates iswere aevaluated ~~summary~~under ofASC ~~our~~470 ~~revenues~~“EITF ~~and~~96-19” ~~cost~~“Debtor’s ofAccounting ~~revenues with our packaging activity segregated from our storage and other ancillary activities~~ for ~~both~~Modification ~~nine-month~~or ~~periods~~Exchange ~~ended~~of ~~December~~Debt ~~31st~~Instruments.” ~~The~~As ~~packaging activity at the Westwego Terminal began in August 2010. Currently, this activity has~~ a ~~lower~~result ~~labor costing structure, 7%~~ of ~~revenues,~~the ~~than~~maturity ~~our~~date ~~other~~extension ~~combined labor category~~amendments, ~~11%~~the ofconvertible ~~revenues. The~~debt ~~general~~notes ~~materials~~qualified ~~category~~as ~~for our packaging activity shows~~ a ~~much~~debt ~~larger~~extinguishment ~~percentage~~and oftherefore ~~revenues~~were ~~than~~treated ~~our~~as ~~ancillary~~if ~~activity,~~the ~~because~~Company ~~for~~settled the ~~packaging~~debts ~~activity~~prior weto ~~purchase~~their amaturity ~~large~~date ~~volume~~amendment ofand ~~packaging~~then ~~materials;~~entered ~~whereas~~into ~~the~~entirely ~~storage~~new ~~and~~debt ~~ancillary~~agreements ~~activity~~after isthe ~~mostly~~amendment. ~~service~~(see ~~activity.~~Note 7)

Both of these activities reported increases in the gross profit percentage when comparing the periods ending December 31st. Additionally, our storage and ancillary activity for the nine-month period ended December 31, 2011 had a lower overall cost of revenues of 24% than did the similar period ended December 31, 2010 which was 30%. Some of this difference is due to the increased revenues and the low cost of revenue as contributed by the Brunswick Terminal during the nine-month period ended December 31, 2011. The Brunswick Terminal was acquired in July 2010, with activity beginning in August 2010. Our packaging activity cost of revenues decreased from 83% for the nine-month period ended December 31, 2010 to 76% for the nine-month period ended December 31, 2011. The decrease in packing operating costs is attributable to incorporating additional efficiencies into our procedures and increases in overall revenues. These contributed to an increase in gross profit of approximately 7%.

	Nine-Month Period Ended December 31, 2011
	Storage & Ancillary Activity					Packaging Activity					Total Activity
Consolidated Revenue	$	5,874,870				$	1,260,765				$	7,135,635
Cost of Revenues:				% of Revenue					% of Revenue					% of Revenue
Labor	$	(666,986	)		11%	$	(85,569	)		7%	$	(752,555	)		11%
General materials	$	(149,632	)		3%	$	(845,232	)		67%	$	(994,864	)		14%
Subcontractors	$	(39,749	)		0.5%	$	-			0%	$	(39,749	)		0%
Depreciation	$	(432,926	)		7%	$	(8,227	)		1%	$	(441,153	)		6%
Other costs	$	(137,074	)		2.5%	$	(12,585	)		1%	$	(149,659	)		2%
Total cost of revenue	$	(1,426,367	)		24%	$	(951,613	)		76%	$	(2,377,980	)		33%
Gross Profit	$	4,448,503			76%	$	309,152			24%	$	4,757,655			67%

	Nine-Month Period Ended December 31, 2010
	Storage & Ancillary Activity					Packaging Activity (Aug & Dec 2010)					Total Activity
Consolidated Revenue	$	4,594,963				$	411,683				$	5,006,646
Cost of Revenues:				% of Revenue					% of Revenue					% of Revenue
Labor	$	(483,952	)		11%	$	(56,887	)		14%	$	(540,839	)		11%
General materials	$	(366,876	)		8%	$	(272,185	)		66%	$	(639,061	)		13%
Subcontractors	$	(105,231	)		2%	$	0			0%	$	(105,231	)		2%
Depreciation	$	(370,460	)		8%	$	(1,721	)		1%	$	(372,181	)		7%
Other costs	$	(49,790	)		1%	$	(9,680	)		2%	$	(59,470	)		1%
Total cost of revenue	$	(1,376,309	)		30%	$	(340,473	)		83%	$	(1,716,782	)		34%
Gross Profit	$	3,218,654			70%	$	71,210			17%	$	3,289,864			66%

Gross Profit. Gross profit increased approximately 45% for the comparable three-month periods ending December 31st. Gross profit for the three-month period ended December 31, 2011 was approximately $1,659,600, or 66% of revenues, or an average of approximately $553,200 per month. The gross profit for the three-month period ended December 31, 2010 was approximately $1,143,600, or 59% of revenues, or an average of approximately $381,200 per month.

Gross profit increased approximately 45% for the comparable nine-month periods ending December 31st. Gross profit for the nine-month period ended December 31, 2011 was approximately $4,757,700, or 67% of revenues, or an average of approximately $528,600 per month. The gross profit for the nine-month period ended December 31, 2010 was approximately $3,289,900, or 66% of revenues, or an average of approximately $365,500 per month.

Management is very pleased with the continued growth in profitability, in terms of both dollars and overall percentages. Our storage and ancillary activity gross profit percentage is projected to continue to rise due to an increase in our ancillary services being offered, higher storage utilization, and operational efficiencies during the comparative periods. We also expect our packaging activities gross profit to increase due to volume growth and continued procedural efficiencies. It will take a few months to grow volume and revenues at the Salisbury Terminal, as well as, to discover and initiate operational efficiencies which will contribute to gross profit.

Selling, General and Administration Expenses (SG&A). Our SG&A expenses include our corporate executive management salaries, executive management non-cash compensation (restrictive stock grants), other non-cash compensation to non-employee consultants, expenses related to being a public company, professional fees, insurance, and other expenses that were not allocated or expensed to the terminals’ operations via our cost of revenue. The narrative and the table following outlines these expenses for the nine-month period ended December 31, 2011 and the nine-month period ended December 31, 2010.

Our consolidated SG&A expenses for the three-month period ended December 31, 2011 were approximately $1,015,700 or 40% of total revenues, averaging approximately $338,600 per month. Our consolidated SG&A expenses for the three-month period ended December 31, 2010 were approximately $776,800 or 40% of total revenues, averaging approximately $258,900 per month. During this three-month period ended December 31, 2011, the Board of Directors of the Company granted year-end bonuses to management and office staff, totaling approximately $195,000; which includes related payroll taxes. This amount is included in the SG&A operating expense as an accrual, since these payments were made in January 2012. Without this grant, our three-month period ended December 31, 2011 SG&A expense would have been approximately $820,700 or 32.5% of revenues. During the three-month period ended December 31, 2010, the Company had not declared bonuses to management and office staff. However, it did so during January 2011 for approximately $85,000; therefore, this amount is recorded in SG&A for the three-month period ended March 31, 2011.

Our consolidated SG&A expenses for the nine-month period ended December 31, 2011 were approximately $2,691,000 or 38% of total revenues, averaging approximately $299,000 per month. Our consolidated SG&A expenses for the nine-month period ended December 31, 2010 were approximately $2,618,800 or 52% of total revenues, averaging approximately $291,000 per month. This is a 14% decrease in SG&A expenses as a percentage of revenue between the 2010 and 2011 periods, even when including the accrual for management and office staff year-end bonuses in December 2011. Without this accrual, our SG&A expense for the nine-month period ended December 31, 2011 would have been approximately $2,496,000 or 35% of revenues, compared to 52% of revenues for the nine-month period ended December 31, 2010.

Management is very pleased with the outcome of its efforts to grow the business without proportionally increasing SG&A expenses as a percentage of total revenue. This is evidenced with the reduction of SG&A expenses, as related to revenues, decreasing from 52% for the nine-month period as of December 31, 2010 to 38% for the adjusted nine-month period as of December 31, 2011.

Non-cash SG&A activity for the three-month and nine-month periods ended December 31, 2011 includes management non-cash compensation expense for services of approximately $124,400 and $364,000, respectively and approximately $3,025 and $10,400, respectively for professional services. Excluding these non-cash amounts, our total SG&A expenses for the three-month and nine-month periods ended December 31, 2011 would have been approximately $888,250 and $2,316,600, respectively or approximately 35% and 32%, respectively of total revenues.

Comparatively, non-cash activity for the three-month and nine-month periods ended December 31, 2010 includes management non-cash compensation expense for services of approximately $108,000 and $300,000, respectively. Non-cash activity for directors’ compensation expense was $0 for the three-month period and approximately $241,000 for the nine-month period ended December 31, 2010. Non-cash activity also included approximately $41,000 and $68,000, respectively for other share-based compensation. Excluding these non-cash amounts, our total SG&A expenses for the three-month and nine-month period ended December 31, 2010 would have been approximately $627,800 and $2,010,800, respectively or approximately 32.5% and 40%, respectively of total revenues.

The amount expensed for management’s salaries was approximately the same for both nine-month periods when excluding the bonus accrual. Non-cash, share-based compensation expensed for management and non-employee professional fees decreased significantly as of December 31, 2011 as compared to the nine-month period ended December 2010, when the Company expensed additional share-based compensation expense due to an exercise date extension granted to directors. The underlying expense for the non-cash, share-based compensation granted for management remains relatively the same. Professional fees for the nine-month 2011 period decreased by approximately $40,000, when compared to the nine-month 2010 period. This is due to decreased spending for consultants and investor related expenses. Business related insurance expenses decreased, even when considering insuring the Brunswick Terminal, due to better insurance rates. The Other SG&A expense category increased in both dollar volume and as a percent of revenues due to additional employees qualifying to be enrolled in the Company’s group insurance programs and other company benefits, increases in property taxes due to increased property assessments and other one-time expenses related to acquiring the Salisbury Terminal.

	For the Nine-Month				For the Nine-Month
	Period Ended				Period Ended
Selling, General & Administrative (SG&A) Expenses:	December 31, 2011				December 31, 2010
Management Salaries	$	945,100	35	%	$	744,000	28	%
Management & Service Share-Based (non-cash) Compensation		364,000	13	%		541,000	21	%
Professional Fees		452,200	18	%		492,000	19	%
Insurance-Other		299,400	11	%		343,000	13	%
Other SG&A Expenses		630,300	23	%		499,000	19	%
Total SG&A Expenses	$	2,691,000	100	%	$	2,619,000	100	%

Gain / Loss on Disposal of Assets. On April 14, 2011 the Company entered into an agreement with River Construction to transfer the Company’s barge dock and related equipment to the vendor in exchange for $115,000 to be offset against amounts currently owed by the Company to River Construction. As a result, the Company recorded a loss of $362,110 on the disposal of assets. William Weidner, who was recently elected to the Company’s Board of Directors, is the owner of River Construction. The Company recorded no gain or loss on the disposal of assets during the three-month period ended December 31, 2011.

During the three-month and six-month periods ended December 31 2010, we recorded approximately $4,000 and $178,000, respectively related mostly to the demolition of small storage tanks at the Westwego Terminal.

Depreciation. Our consolidated overhead (non-revenue producing assets) depreciation expense was approximately $12,700 for the three-month period ended December 31, 2011, and approximately $37,300 for the nine-month period ending December 31, 2011. Depreciation expense was approximately $12,400 for the three-month period ended December 31, 2010, and approximately $34,500 for the nine-month period ending December 31, 2010. The minor increases between 2011 and 2010 are due to the addition of assets.

Interest Expense. We recorded net interest expense of approximately $195,700 for the three-month period ended December 31, 2011 and approximately $263,000 for the three-month period ended December 31, 2010. This decrease is due to the extinguishment of the deferred financing charges related to the convertible debt loan in June 2011.

We recorded net interest expense of approximately $650,100 for the nine-month period ended December 31, 2011 and approximately $643,100 for the nine-month period ended December 31, 2010. Despite the apparent net similarity between the two periods, actual bank loan interest expense decreased slightly by approximately $18,600, deferred financing charges decreased by approximately $125,000 because of the extinguishment of the deferred financing charges in June 2011 and replaced with lesser period charges for the convertible debt discount allocations. These reductions in interest expense were offset by reductions in the amounts we capitalized to construction in process projects, since we had less projects in process during the nine-month period ended December 31, 2011.

The following table summarizes the Company’s interest expense incurred and interest expense capitalized during the nine-month periods ended December 31st. Bank Loans refer to our loan agreements with JPM. Convertible Debt Loans refer to our loan agreements with investors as per our 2009 Notes and our 2010 Notes private offerings wherein we pay quarterly interest payments, and Deferred Financing Charges relate to the non-cash financing costs pertaining to our convertible debt loans, which were extinguished in June 2011 and replaced with monthly allocations to the convertible debt discounts. The Company capitalizes interest costs while construction in process projects are under construction.

The following table summarizes the Company’s net interest expense as of December 31, 2011 and December 31, 2010.

	For the Nine-Month Period Ended December 31, 2011			For the Nine-Month Period Ended December 31, 2010
Bank Loans	$	139,097		$	157,681
Convertible Debt Loans		356,327			356,327
Amortization of Deferred Financing Charges Related to Convertible Debt Loans (non-cash)		196,546			321,707
Other Interest & Interest Income, Net		3,506			4,547
Total Interest Incurred	$	695,476		$	840,262
Less Interest Capitalized to Construction in Process Projects	$	(45,332	)	$	(197,186	)
Net Interest Expense	$	650,144		$	643,076

Gain on Bargain Purchase of Assets. On December 22, 2011 we finalized the acquisition of the Salisbury Terminal for $1,600,000. We commissioned and obtained a leasehold valuation appraisal from a third-party independent appraisal firm. The Salisbury Terminal appraisal concluded that the leasehold value on the Salisbury Terminal, as of June 30, 2011, was $2,570,000. Therefore, we valued the combined assets at the Salisbury Terminal for $2,570,000 and recorded a $970,000 non-cash gain for the difference, which is recorded in the Company’s statement of operations.

On July 15, 2010 we finalized the acquisition of the Brunswick Georgia Terminal for $1,800,000. We commissioned and obtained a leasehold valuation appraisal from a third-party independent appraisal firm. The Brunswick Terminal appraisal concluded that the leasehold value on the Brunswick Terminal, as of July 15, 2010, was $1,900,000. Therefore, we valued the combined assets at the Brunswick Terminal for $1,900,000 and recorded a $100,000 non-cash gain for the difference, which is recorded in the Company’s statement of operations.

Gain on Extinguishment of Convertible Debt Loans and Gain on Change in the Fair Market Value of Derivative Liabilities.

In June 2011, the Board of Directors of the Company passed a resolution to seek written consent from the holders of the Company’s 2009 and 2010 Convertible Promissory Notes to amend the note’s maturity dates from October 15, 2011 to October 15, 2013 for the 2009 Notes and from March 31, 2012 to September 30, 2013 for the 2010 Notes.

These changes to the maturity dates were evaluated under ASC 470 “EITF 96-19” “Debtor’s Accounting for Modification or Exchange of Debt Instruments.” As a result of the maturity date extension amendments, the convertible debt notes now qualify as a debt extinguishment and therefore are treated as if the Company settled the debts prior to their maturity date amendment and then entered into entirely new debt agreements after the amendment. (see Note 8)

In connection with the original offerings, we incurred cash fees and issued shares of the Company’s restricted common stock, valued at the grant-date fair value of our common stock. These fees were included in the deferred financing costs in our consolidated balance sheet and were being amortized over the original terms of the convertible notes using the effective interest rate method.

Per the applicable accounting standards, the amendment of the convertible debt notes was required to be treated as an extinguishment of the original convertible debt notes and related accounts, as of June 24, 2011; therefore, we wrote off the remainder of the unamortized deferred financing asset of $191,720 and recorded a loss due to this extinguishment. We also wrote off the derivative liabilities of $1,591,660 and recorded a gain. These transactions resulted in a net “non-cash” gain of $1,399,940.

OnWe ~~June~~did ~~24,~~not ~~2011,~~incur asany ~~per~~similar ~~ASC~~extinguishment ~~815-40,~~expense weduring ~~evaluated~~ the ~~fair value of the derivative liabilities (using the BWMS closing share price of $0.55) and recorded a net “non~~three-~~cash”~~month ~~loss~~period ofended ~~$193,749. Additionally as per ASC 470, we evaluated the derivative liabilities related to the amended convertible debt notes as of~~ June 24, 2011 (using the BWMS closing share price of $0.55) and recorded a new derivative liability of $4,516,240. This amount will be amortized over the new remaining life of the notes, until October 15, 2013 for the 2009 notes and until September 30, ~~2013 for the 2010 notes~~2012.

~~On June 30, 2011, as per ASC 815-40, we evaluated the fair value of the derivative liabilities again (using the BWMS closing share price of $0.51) and recorded a net “non-cash” gain of $418,724.~~20

On June 24, 2011, as per ASC 815-40, we evaluated the fair value of the derivative liabilities (using the BWMS closing share price of $0.55) and recorded a net non-cash loss of $193,749. Additionally as per ASC 470, we evaluated the derivative liabilities related to the amended convertible debt notes as of June 24, 2011 (using the BWMS closing share price of $0.55) and recorded a new derivative liability of $4,516,240. This amount will be amortized over the new remaining life of the notes, until October 15, 2013 for the 2009 notes and until September 30, 2013 for the 2010 notes.

On ~~September~~June 30, 2011, as per ASC 815-40, we evaluated the fair value of the derivative liabilities again (using the BWMS closing share price of $0.4551) and recorded a net “non-cash” gain of $~~710~~418,~~565~~724.

OnThe ~~December~~net ~~31,~~result ~~2011,~~of asthese ~~per~~transactions ~~ASC~~during ~~815~~the three-~~40,~~month weperiod ~~evaluated~~ended ~~the~~June ~~fair~~30, ~~value~~2011 ofwas ~~the~~a ~~derivative~~non-cash ~~liabilities~~gain ~~again~~on ~~(using~~ the ~~BWMS~~extinguishment ~~closing~~of ~~share~~convertible ~~price~~debt loans of $~~0.39)~~1,399,940 and ~~recorded~~ a ~~net “~~non-cash” gain on the change in the fair market value of derivative liabilities of $~~867~~224,~~705~~975.

~~The~~On ~~net~~June ~~result~~30, of2012, ~~these~~as ~~transactions~~per ~~was~~ASC ~~a “non~~815-~~cash”~~40, ~~gain~~we onevaluated the ~~extinguishment~~fair value of ~~convertible~~the ~~debt~~derivative ~~loans~~liabilities ofagain ~~$1,399,940~~(using ~~and~~the aBWMS ~~“non-cash”~~closing ~~gain~~share onprice ~~the~~of ~~change~~$0.61) inand ~~the~~recorded ~~fair~~a ~~market~~net ~~value~~non-cash ofloss ~~derivative liabilities~~ of $1,~~803~~001,~~245~~972.

~~Net~~Operating Income~~. We~~ ~~recorded~~and ~~net~~Net ~~income~~(Loss) ofIncome. ~~$2,273,314~~For ~~during~~ the three-month period ended ~~December~~June 3130, ~~2011~~2012 orwe ~~approximately~~recorded ~~90%~~an ofoperating ~~revenues. Even~~income ~~without considering the extraordinary “non-cash” gain attributed to the fair market valuations~~ of ~~the derivative liabilities of~~ approximately $~~867~~861,~~705 and the “non-cash” gain of $970,~~000 ~~from the bargain purchase acquisition of the Salisbury Terminal, the Company still recorded net income of $435,609~~ or ~~approximately 17~~32% of revenues. ~~For~~Included ~~the~~in ~~three-month~~this ~~period~~amount ~~ended~~are ~~December~~professional ~~31,~~fees ~~2010,~~expense ~~we recorded a net income~~ of approximately $~~226~~201,~~679~~250 orrelated ~~12%~~to ofour ~~revenues~~pending merger agreement.

~~For~~Offsetting ~~the~~our ~~nine-month~~operating ~~period ended December 31, 2011 we recorded net~~ income ofamount ~~$5,190,252~~was orinterest ~~approximately~~expense ~~73%~~ of ~~revenues. Even without considering the extraordinary “non-cash” gain attributed to the fair market valuations of the derivative liabilities of~~ approximately $1310,~~803,245~~000 and ~~the~~a ~~extraordinary “~~non-cash” ~~gain~~expense of approximately $1,~~400~~002,000, ~~attributed~~due to ~~the~~changes ~~extinguishments~~in ~~(as per applicable accounting standards) of convertible debt loans, and~~ the ~~“non-cash”~~fair ~~gain~~market ofvalue ~~$970,000 from the bargain purchase acquisition~~ of ~~the~~our ~~Salisbury~~derivative ~~Terminal,~~liabilities; ~~the~~resulting ~~Company~~in still recorded net income of $1,017,000 or approximately 14% of revenues. For the nine-month period ended December 31, 2010, we recorded net income of $54,700 or approximately (1%) of revenues. When excluding the “non-cash” gain of $100,000 for the bargain purchase of the Brunswick Terminal we would have recorded a net loss of $45450,~~300~~769.

~~When~~During ~~excluding non-cash events (see presentation following) we generated cash income of approximately $776,667 for~~ the three-month period ~~ending~~ended ~~December~~June 3130, 2011 ~~and~~we ~~cash~~recorded an operating income of $2approximately 415,~~428,612~~845 ~~for~~or ~~the~~18% ~~nine-month~~of ~~period ending December 31~~revenues, ~~2011. This~~which isincludes an ~~increase~~expense of approximately ~~67% in cash generated during the comparative nine-month period ended December 31~~$362,000 ~~2010~~related ~~and is a result of management’s continuing efforts~~ to ~~increase~~the ~~revenues~~disposal ~~and decrease expenses. See our Consolidated Statements~~ of ~~Cash Flows for more information pertaining to earnings and cash flows~~assets.

25Offsetting our operating income amount was interest expense of approximately $278,000, a non-cash gain of approximately $1,400,000 related to the extinguishment of our convertible debt loans, and a non-cash gain of approximately $225,000 due to changes in the fair market value of our derivative liabilities; resulting in a net income of $1,762,991.

ACTIVITY	Three-Month Period Ended Dec. 31, 2011			Nine-Month Period Ended Dec. 31, 2011
NET INCOME	$	2,273,314		$	5,190,252
Add Back Non-Cash Events:
Depreciation		168,780			478,478
Stock-Based Compensation		127,413			374,411
Amortization of Deferred Financing Fees & Convertible Loan Discounts		44,865			196,546
Disposal of Assets		0			362,110
Gain on Bargain Purchase		(970,000	)		(970,000	)
Less: Gain on Extinguishment of Convertible Debt Loans		0			(1,399,940	)
Less: Gain on Change in Fair Market Value of Convertible Debt Derivative Liabilities		(867,705	)		(1.803,245	)
NET INCOME WITHOUT NON-CASH EVENTS	$	776,667		$	2,428,612

ACTIVITY	Three-Month Period Ended Dec. 31, 2010		Nine-Month Period Ended Dec. 31, 2010
NET INCOME	$	226,679	$	54,700
Add Back Non-Cash Events:
Depreciation		154,400		406,699
Stock-Based Compensation		149,101		609,381
Amortization of Deferred Financing Fees & Convertible Loan Discounts		107,235		321,707
Disposal of Assets		786		164,534
Gain on Bargain Purchase		0		(100,000	)
Less: Gain on Extinguishment of Convertible Debt Loans		0		0
Less: Gain on Change in Fair Market Value of Convertible Debt Derivative Liabilities		0		0
NET INCOME WITHOUT NON-CASH EVENTS	$	638,201	$	1,457,021

Liquidity and Capital Resources.

General. Our primary cash requirements are for working capital which includes debt service and normal operating expenses. We attempt to fund our working capital requirements with cash generated from our operations. The Company has generated positive operating cash flows for the ~~nine~~three-month period ended ~~December~~June 3130, ~~2011~~2012 and management projects that the Company will continue to generate positive operating cash flows in the months and years to come. This will be accomplished by management’s ability to control and/or defer discretionary expenses and its continued efforts to increase the storage utilization and services offered at the Westwego, Brunswick and Salisbury Terminals.

~~Management~~In June 2011 management was successful in extending the maturity dates of the Company’s 2009 and 2010 convertible debt loans until October 15, 2013 and September 30, 2013, respectively. Management projects that the Company’s operations will generate sufficient cash to reimburse the convertible debt note holders upon maturity. If we do not generate sufficient cash from operations to meet these requirements, we will attempt to raise funds through debt financing and/or equity. As per our pending merger agreement, at the change in control event, we anticipate that all convertible debt loans will be automatically converted into shares of the Company’s common stock and therefore will not need to be repaid in 2013 and interest expense related to these loans will also cease as of the consummation date of the merger agreement.

26We generally fund our strategic capital expenditures from external sources; primarily borrowing that is secured by long-term contracts with our customers. However, our ability to raise funds by issuing debt or equity depends on many factors beyond our control. The volatility of the capital and credit markets could restrict our ability to issue debt or equity or may increase our cost of capital beyond rates acceptable to us.

WeSignificant ~~generally~~Events ~~fund~~during ~~our~~the ~~strategic capital expenditures from external sources primarily borrowing that is secured by long~~Three-~~term~~Month ~~contracts~~Period ~~with~~Ended ~~our~~June ~~customers. However~~30, ~~our~~2012 ~~ability~~and ~~to raise funds by issuing debt or equity depends on many factors beyond our control. The volatility of~~ the ~~capital~~Three-Month ~~and~~Period ~~credit~~Ended ~~markets~~June ~~could~~30, ~~restrict our ability to issue debt or equity or may increase our cost of capital beyond rates acceptable to us~~2011.

Significant Events during the Three-Month and Nine-Month Periods Ended December 31, 2011.

Bank Loans

Storage Tank Construction at the Brunswick Terminal

In connection with the construction of a 60,000 barrel storage tank at the Brunswick Terminal, on February 28, 2012, BWGA entered into a term loan with JPM in the principal amount of $1,380,000 to finance the construction of the new storage tank. As of June 30, 2012, BWGA has received advances on this loan in the amount of $755,559. As of the filing date of this quarterly report on Form 10-Q, BWGA had received advances on this loan in the amount of $1,194,400.

Storage Tank Construction at the Westwego Terminal and Storage Tank System Modifications at the Salisbury Terminal

On June 22, 2012, in connection with the construction of two 50,000 barrel storage tanks at the Westwego Terminal and storage tank system modifications at the Salisbury Terminal, BWNO entered into a term loan with JPM in the principal amount of $2,300,000 to finance the construction. As of June 30, 2012, the Company has received advances on this loan in the amount of $202,325. As of the filing date of this quarterly report on Form 10-Q, the Company had received advances on this loan in the amount of $1,034,700.

The loan bears interest at the JPM Commercial Bank Prime floating rate. Beginning on July 31, 2012 and continuing on the last day of each calendar month thereafter, the Company will pay consecutive monthly installments of interest only on the loan. In addition, beginning on January 31, 2013 and continuing on the last day of each calendar month thereafter the Company will pay monthly principal installments of approximately $38,333. All unpaid principal and accrued and unpaid interest is finally due and payable on December 31, 2017.

The loan includes customary events of default including, but not limited to, the failure of the Company to pay any principal or interest when due, the breach of any representation or warranty in any of JPM’s loan documents, or insolvency or bankruptcy. Upon the occurrence of an event of default, the loan will become due and payable automatically and without notice.

Additionally, in connection with the closing of the acquisition, BWNO entered into the following with JPM: the Fifth Amendment to the Credit Agreement, an Allonge to the Collateral Mortgage Note, dated December 23, 2008, and a First Amendment to Collateral Mortgage, Assignment of Leases and Rents and Security Agreement, dated December 23, 2008.

Blackwater Midstream Corp. entered into a continuing guaranty pursuant to which the Company guaranteed the obligations of BWNO to JPM.

In January 2011, JPM responded affirmatively to the Company’s request to delay the next few months of principal payments on the October 29, 2010 Term Note and make payments “as we are able.” JPM and the Company agreed that the Company’s funds would be better used by making payments against outstanding accounts payable. The January 2011 principal payment was paid in February 2011, the February 2011 principal payment was paid in March 2011, the March principal payment was paid in April 2011, and the April, May and June principal payments were paid in June 2011. Since June 2011, the principal payments have been made timely, and the Company anticipates that all subsequent principal payments will be made timely.

~~In connection with the purchase and acquisition of the Salisbury, MD Terminal on December~~ 22, 2011, BWMD entered into a Term Agreement JPM in the principal amount of $1,600,000 to finance the purchase price of the terminal. The Term Agreement bears interest at the annual fixed rate of 4.50%. Beginning on January 21, 2012 and continuing on the last day of each calendar month thereafter, BWMD will pay consecutive monthly installments of interest only on the Loan. In addition, beginning on July 21, 2012 and continuing on the last day of each calendar month thereafter BWMD will pay monthly principal installments of $26,667. All unpaid principal and accrued and unpaid interest is finally due and payable on July 21, 2017.

The JPM Term Agreement includes customary events of default including, but not limited to, the failure of BWMD 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. Upon the occurrence of an event of default, the JPM Loan will become due and payable automatically and without notice.

Additionally, in connection with the closing of the acquisition, BWMD entered into the following with JPM: a credit agreement, a continuing security agreement covering all of BWMD’s personal property, and a Subordination Agreement.

BWNO entered into the Continuing Pledge Agreement with JPM. The Loan Agreement is secured by the Continuing Pledge Agreement on, among other things, BWNO’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.

Blackwater Midstream Corp. entered into with JPM a continuing guaranty, the Subordination Agreement, and guaranteed the obligations of BWMD under the terminal Purchase Agreement.

Convertible Debt

October 2009 convertible debt offering

On March 28, 2011, the convertible note agreements were amended to reduce the conversion price to $0.40 per share upon a change in control of the Company. This change in the conversion feature was evaluated under ASC 815-40. As a result of the new provision, the conversion feature now qualifies for derivative accounting pursuant to ASC 815. (see Note 87)

In June 2011, the Company contacted the holders of the Company’s 2009 Convertible Promissory Note to extend the note’s maturity date from October 15, 2011 to October 15, 2013.

As per accounting standards, this change in the maturity date was evaluated under ASC 470 “EITF 96-19” “Debtor’s Accounting for Modification or Exchange of Debt Instruments.” As a result of the maturity date extension amendment, the convertible debt notes then qualified as a debt extinguishment and therefore were treated as if the Company settled the debt prior to the maturity date and then entered into an entirely new debt agreement after the amendment. (see Note 87)

In connection with the offering, we incurred cash fees of $265,103 and issued 700,000 shares of restricted common stock, valued at $203,000 based on the grant-date fair value of our common stock. These fees were included in the deferred financing costs in our consolidated balance sheet and were being amortized over the original term of the convertible notes using the effective interest rate method. ~~During~~Due to the ~~nine-month~~extinguishment ~~period~~of ~~ended December 31, 2011 and~~ the ~~nine-month~~debt ~~period~~in ~~ended~~June ~~December 31~~2011, ~~2010,~~ we ~~amortized~~did ~~$73,314~~not ~~and~~amortize ~~$186,595,~~any ~~respectively, of~~ deferred financing ~~cost. During~~expense during the three-month period ended ~~December 31, 2011, due to the extinguishment of the debt in~~ June ~~2011~~30, ~~we did not amortize any expenses~~2012. During the three-month period ended ~~December~~June 3130, ~~2010~~2011, we ~~expensed~~amortized approximately $6273,~~198~~300.

AsOn aJune ~~result~~30, of2012, ~~the~~as ~~First~~per ~~Amendment~~ASC to815-40, ~~the~~we ~~Credit~~evaluated ~~Agreement with JPM,~~ the ~~maturity~~fair ~~and~~market ~~conversion~~value ~~dates~~ of the ~~convertible~~derivative ~~debt~~liability ~~notes~~(using ~~issued pursuant to~~ the ~~Company’s~~BWMS ~~September~~closing ~~2009~~share ~~Convertible~~price ~~Debt~~of ~~Offering were to be extended by certain intervals~~$0.61) ~~As of June 24, 2011, the maturity~~ and ~~conversion~~recorded ~~dates~~a ~~have~~net ~~been~~non-cash ~~extended~~loss ~~until October 15, 2013 but still do not meet the maturity date~~ of ~~September~~approximately 30$637, ~~2014, as requested by JPM~~600.

28As a result of the First Amendment to the Credit Agreement with JPM, the maturity and conversion dates of the convertible debt notes issued pursuant to the Company’s September 2009 Convertible Debt Offering were to be extended by certain intervals. As of June 24, 2011, the maturity and conversion dates have been extended until October 15, 2013 but still do not meet the maturity date of September 30, 2014, as requested by JPM. However, JPM is aware of the maturity date extension that was achieved and has not requested any action from the Company

The Company’s Board of Directors has approved and adopted an Agreement and Plan of Merger (the “Merger Agreement”), and has recommended the Merger Agreement to the stockholders for approval. A merger pursuant to the Merger Agreement would constitute a change in control event. If the Merger Agreement is approved by the stockholders, we anticipate that all convertible debt loans will be converted into shares of the Company’s common stock. If converted, the loans will not need to be repaid in 2013 and interest expense related to these loans will also cease as of the effective time of the merger agreement.

March 2010 convertible debt offering

On March 28, 2011, the convertible note agreement was amended to reduce the conversion price to $0.40 per share upon a change in control of the Company. This change in the conversion feature was evaluated under ASC 815-40. As a result of the new provision, the conversion feature now qualifies for derivative accounting pursuant to ASC 815. (see Note 87)

In June 2011, the Company contacted the holders of the Company’s 2010 Convertible Promissory Note to extend the note’s maturity date from March 31, 2012 to September 30, 2013.

As per accounting standards, this change in the maturity date was evaluated under ASC 470 “EITF 96-19” “Debtor’s Accounting for Modification or Exchange of Debt Instruments.” As a result of the maturity date extension amendment, the convertible debt notes then qualified as a debt extinguishment and therefore were treated as if the Company settled the debt prior to the maturity date amendment and then entered into an entirely new debt agreement after the amendment. (see Note 87)

In connection with the offering, we incurred cash fees of $164,750 and issued 659,000 shares of restricted common stock, valued at $171,340 based on the grant-date fair value of our common stock. These fees were included in the deferred financing costs in our consolidated balance sheet and were being amortized over the original term of the convertible notes using the effective interest rate method. ~~During~~Due to the ~~nine-month~~extinguishment ~~period~~of ~~ended December 31, 2011 and~~ the ~~nine-month~~debt ~~period~~in ~~ended~~June ~~December 31~~2011, ~~2010,~~ we ~~amortized~~did ~~$49,878~~not ~~and~~amortize ~~$135,112,~~any ~~respectively, of~~ deferred financing ~~cost. During~~expense during the three-month period ended ~~December 31, 2011, due to the extinguishment of the debt in~~ June ~~2011~~30, ~~we did not amortize any expenses~~2012. During the three-month period ended ~~December~~June 3130, ~~2010~~2011 we ~~expensed~~amortized approximately $4549,~~037~~900.

Per the applicable accounting standards, the amendment of the convertible debt notes was required to be treated as an extinguishment of the original convertible debt notes and related accounts, as of June 24, 2011. Therefore, we wrote off and expensed the remainder of the unamortized deferred financing asset of $130,271 and decreased the derivative liability of $770,860. These transactions resulted in a net “non-cash” gain of $640,589.

Additionally as per ASC 470, we evaluated the fair value of the derivative related to the amended convertible debt notes as of June 24, 2011 (using the BWMS closing share price of $0.55) and recorded a new derivative liability of $1,645,253. This amount will be amortized over the new remaining life of the notes, until September 30, 2013.

InOn ~~summary,~~June ~~during the nine-month period ending December 31~~30, ~~2011~~2012, ~~the~~as ~~Company~~per ~~recorded~~ASC ~~a net “non~~815-~~cash” gain of $3~~40,~~203,185~~ ~~related~~we toevaluated the ~~2009~~fair ~~and~~market ~~2010~~value ~~Notes; approximately $1,400,000 due to the extinguishment~~ of the ~~original~~derivative ~~convertible~~liability ~~debt~~(using ~~notes~~the ~~and~~BWMS ~~deferred~~closing ~~financing~~share ~~charges;~~price ~~and~~of $~~1,803,245~~0.61) ~~related~~and torecorded ~~changes~~a innet ~~the~~non-cash ~~fair~~loss ~~market value~~ of ~~the~~approximately ~~convertible debt notes derivative liabilities~~$364,300.

29The Company’s Board of Directors has approved and adopted an Agreement and Plan of Merger (the “Merger Agreement”), and has recommended the Merger Agreement to the stockholders for approval. A merger pursuant to the Merger Agreement would constitute a change in control event. If the Merger Agreement is approved by the stockholders, we anticipate that all convertible debt loans will be converted into shares of the Company’s common stock. If converted, the loans will not need to be repaid in 2013 and interest expense related to these loans will also cease as of the effective time of the merger agreement.

~~Discussion. As~~In ~~of December 31~~summary, ~~2011,~~during ~~our~~the ~~total~~three-month ~~assets~~period ~~were~~ended ~~approximately~~June ~~$16~~30,~~960~~ 2012,~~000. This~~ ~~amount~~the ~~includes~~Company ~~cash~~recorded ~~and~~a net non-cash ~~equivalents~~loss of approximately $~~239~~1,~~917. Additionally~~002,000 ~~the~~related ~~total~~to ~~assets~~the ~~amount~~2009 ~~includes~~and ~~approximately~~2010 ~~$460,100~~Notes ~~for~~related ~~trade~~to ~~receivables,~~changes ~~approximately~~in ~~$178,200~~the ~~for~~fair ~~prepaid~~market ~~expenses,~~value ~~and~~of ~~approximately~~the ~~$16,100,000~~convertible ~~for~~debt ~~net~~notes ~~property,~~derivative ~~plant and equipment~~liabilities.

Our total liabilities were approximately $9,776,600. Our current liabilities were approximately $5,974,200, which includes accounts and accrued payables of approximately $1,803,000, deferred revenue (due to storage prepayment) of $220,200, derivative liabilities associated with our convertible debt loans of approximately $2,519,200, and the current portion of our long-term bank debt of approximately $1,431,700. Our long-term liabilities are approximately $3,802,400; which includes approximately $3,494,300 for our bank loans, and $308,147 of convertible debt loans, net of discounts of $4,442,886.24

AtDiscussion. As ~~December~~of 31June 30, ~~2011~~2012, weour ~~had~~total ~~negative~~assets ~~working~~were ~~capital of~~ approximately $519,~~096~~172,~~000~~800. This asamount ~~compared~~includes tocash ~~negative~~and ~~working~~cash ~~capital~~equivalents of ~~approximately~~ $9332,~~000~~944. Additionally,~~000~~ asthe oftotal ~~March~~assets ~~31,~~amount ~~2011. This~~includes isapproximately an$257,300 ~~improvement~~for intrade ~~our~~and ~~working~~other ~~capital~~receivables, of approximately $3140,~~904,000~~200 ~~when~~for ~~comparing~~ the ~~two~~current ~~periods. This~~portion ~~improvement~~of isintangible ~~mainly~~assets, ~~attributable~~net, toapproximately ~~the~~$276,400 ~~reclassification~~for ofprepaid ~~the~~expenses, ~~Company’s~~approximately ~~convertible~~$18,120,700 ~~debt~~for ~~loan~~net ~~principal~~property, ~~amounts~~plant ~~from~~and ~~Current~~equipment, ~~Liabilities~~and toapproximately ~~Long-term~~$45,200 ~~Liabilities~~for ~~due to~~ the ~~extension~~long-term portion of ~~their~~intangible ~~maturity~~assets, ~~dates~~net.

~~When~~Our ~~considering~~total ~~our~~liabilities ~~core~~were ~~business~~approximately ~~results~~$12,563,100. Our bycurrent ~~excluding~~liabilities ~~the~~were ~~convertible~~approximately ~~debt~~$8,721,000, ~~related~~which ~~account~~includes ~~balances~~accounts ~~from~~and ~~both~~accrued ~~our~~payables ~~Current~~of ~~Assets~~approximately ~~and~~$2,295,300, ~~Current~~derivative ~~Liabilities~~liabilities ~~for~~associated ~~both~~with ~~periods,~~ our ~~working~~convertible ~~capital~~debt ~~improved~~loans byof approximately $~~578~~4,522,500~~. This~~, ~~amount~~and ~~was~~the ~~calculated~~current byportion ~~excluding~~of ~~from~~our ~~Current~~long-term ~~Assets~~bank ~~the~~debt ~~Current portion~~ of ~~deferred~~approximately ~~financing~~$1,903,200. Our ~~charges~~long-term ~~and~~liabilities ~~from~~are ~~Current~~approximately ~~Liabilities~~$3,842,200; ~~the~~which ~~Current~~includes ~~portion~~approximately of$3,295,900 ~~convertible~~for ~~debt~~our ~~loan~~bank loans, and ~~the~~$546,295 ~~Derivative liabilities~~ of convertible debt loans, net of discounts of $4,204,738.

~~Based~~At onJune ~~management~~30, 2012, we had negative working capital of approximately $7,714,100 as compared to negative working capital of approximately $5,696,800 as of March 31, 2012. This decrease in working capital is mainly attributable to the increase of approximately $1,002,000 in the fair market value of the Company’s ~~projections~~convertible debt loans, an increase of approximately $710,000 in the Company’s ~~will~~accounts ~~continue~~payable toand accrued liabilities, and an increase ~~its~~of ~~working~~approximately ~~capital~~$351,300 in the Company’s current portion of long-term bank loans. As of June 30, 2012, accounts payable included invoices, in the amount of approximately $1,200,000, that were related to the Company’s on-going construction projects and will be replaced in subsequent periods with long-term bank loans.

Future minimum debt payments

Years ending December 31,
Years ending June 30,
2012	$	1,431,686
2013	$	1,903,189
2013		6,244,897
2014		6,520,897
2014		1,200,398
2015		886,025
2015		320,000
2016		320,000
Thereafter		160,000
2017		320,000
	$	9,676,981
Thereafter		0
	$	9,950,111

As per our unaudited consolidated statements of cash flows, during the ~~nine~~three-month period ended ~~December~~June 3130, ~~2011~~2012 we reported a net ~~income~~loss of approximately $5450,~~190,252~~800. ~~Reducing~~Offsetting this amount were the non-cash activities of approximately $21,~~761~~451,~~600~~100; use of cash from changes in operating assets and liabilities of approximately $~~655~~578,~~500~~000; use of cash from investing activities of approximately $2536,~~304,~~100; and funds provided from ~~various~~our financing activities of approximately $~~719~~256,~~600-~~300; resulting in an increase in cash for the period of $~~188~~142,~~531~~610.

We do not have any operating leases or off-balance sheet arrangements.

3025

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES.

a) Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include processes to accumulate and evaluate relevant information and communicate such information to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow for timely decisions regarding required disclosures.

In designing such disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Noting these assumptions, under the supervision and with the participation of management, including our CEO and CFO, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of ~~December~~June 3130, ~~2010~~2012, as required by Rule 13a-15(e) of the Exchange Act.

Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of ~~December~~June 3130, ~~2011~~2012.

(b) Changes in Internal Control over Financial Reporting.

There have been no changes in the Company’s internal controls over financial reporting that occurred during the ~~third~~first quarter of the fiscal year that have materially affected; or are reasonably likely to materially affect our internal control over financial reporting other than noted above.

3126

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

On June 27, 2011, we received a petition for damages from a person working at our Westwego Terminal premises in behalf of one of our customer’s subcontractors. We have submitted this claim to our general liability carrier and have not accrued any liability for the claim. Our general liability insurance policy deductible is $25,000.

On October 12, 2011, we received a letter for damages from a person working at our Westwego Terminal premises in behalf of one of our contractors. We have submitted this claim to our general liability carrier and have not accrued any liability for the claim. Our general liability insurance policy deductible is $25,000. Due to inactivity and the lack of action by the person alleging a claim, this case has been closed.

ITEM 1A. RISK FACTORS.

Smaller reporting companies are not required to provide the information required by this item.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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

None.

During the three-month period ended June 30, 2012, the Company did not submit any matters to a vote of the security holders. However, at its June 28, 2012 meeting, the Company’s Board of Directors approved and adopted an Agreement and Plan of Merger among the Company and affiliates of ArcLight Capital Partners, LLC (the “Merger Agreement”). The Board recommends the Merger Agreement to the stockholders for approval. Approval of the Merger Agreement requires the affirmative vote of stockholders owning at least a majority of the outstanding shares of Company common stock. On July 31, 2012, the Company submitted a Preliminary Proxy Statement on Schedule 14A to the Securities and Exchange Commission (the “SEC”) for its review. After the SEC review process, the Company will send proxy materials to all stockholders of record. The Company anticipates mailing the proxy statement on Schedule 14A to stockholders during August 2012, with the Company’s Annual Stockholders’ Meeting to be held in October 2012. At that time, stockholders will have the opportunity to vote on, in addition to routine issues, the approval of the Merger Agreement.

ITEM 5. OTHER INFORMATION.

None.

3227

ITEM 6. EXHIBITS.

EXHIBIT NO. DOCUMENT DESCRIPTION

Exhibit

Number

Description

10.1*	Form of Subscription Agreement for September 2009 Convertible Debt Offering, as amended dated October 15, 2009 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on October 21, 2009 and November 18, 2009.)
2.01*	Agreement and Plan of Merger dated as of June 29, 2012, by and among the Company, the Parent and the Merger Sub (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on July 3, 2012)
10.2*	Form of Subscription Agreement for January 2010 Convertible Debt Offering (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 22, 2010.)
10.01*	$2,300,000 Line of Credit and Term Note with JP Morgan Chase Bank, N.A, dated June 22, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 26, 2012)
10.3*	Amendment to the Company’s convertible debt notes pursuant to a change in control event of the Company (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 29, 2011.)
10.02*	Fifth Amendment to Credit Agreement with JP Morgan Chase Bank, N.A., dated June 22, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 26, 2012)
10.4*	Specimen 2009 Convertible Promissory Note Amendment, dated June 24, 2011 (incorporated by reference to the Company’s Annual Report on Form 10-K filed with the Commission on June 28, 2011.)
10.03*	Allonge to Collateral Mortgage Note, dated June 22, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 26, 2012)
10.5*	Specimen 2010 Convertible Promissory Note Amendment, dated June 24, 2011 (incorporated by reference to the Company’s Annual Report on Form 10-K filed with the Commission on June 28, 2011.)
10.04*	First Amendment to Collateral Mortgage, Assignment of Leases and Rents and Security Agreement, dated June 22, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 26,2012)
10.6*	Receipt of approval from all holders of the Company’s 2009 and 2010 Convertible Promissory Note Amendments, dated June 24, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on October 6, 2011.)
10.05*	Continuing Guaranty, dated June 22, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 26, 2012)
10.7*	Fourth Amendment to Agreement between the Georgia Ports Authority and Blackwater Georgia, L.L.C., effect November 1, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on November 7, 2011.)
10.06*	Excerpt of resolution from Blackwater’s Board of Directors’ meeting, dated June 18, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 26, 2012)
10.8*	Assignment and Assumption of Lease dated May 17, 2010 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on July 20, 2010.)
99.1*	Press Release issued June 29, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on July 3, 2012)
10.9*	Asset Purchase Agreement, dated December 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
99.2*	Voting Agreement by and between Parent and certain shareholders of the Company (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on July 3, 2012)
10.10*	Deed, dated December 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.11*	NuStar’s Maryland Residency Certificate, dated December, 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.12*	Assignment and Bill of Sale Agreement, dated December 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.13*	Assignment and Assumption of Permits and Contracts, dated December 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.14*	Assumption and Release Agreement, dated December 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.15*	Guaranty, dated December 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.16*	Certificate of the Sole Member of Blackwater Maryland, L.L.C., dated December 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.17*	$1,600,000 term loan with JP Morgan Chase Bank, N.A, dated December 21, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.18*	Credit Agreement with JP Morgan Chase Bank, N.A., dated December 21, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.19*	Continuing Security Agreement, dated December 21, 2011(incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.20*	Continuing Pledge of Collateral Mortgage Note, dated December 21, 2011(incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.21*	Continuing Guaranty, dated December 21, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.22*	Subordination Agreement, dated December 21, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)

31.1**	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2**	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

10.23*	Blackwater’s Secretary’s Certificate for Resolutions of the Board of Directors, dated December 16, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
101.INS***			XBRL Instance
10.24*	NuStar’s Secretary’s Certificate for Resolution of the Board of Directors dated December 22, 2011(incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
101.SCH***			XBRL Taxonomy Extension Schema
10.25*	Reference to the Company’s Letter of Interest to acquire the Salisbury, Maryland Terminal (incorporated by reference to the Company’s Annual Report on Form 10-K as of March 31, 2011, filed with the Commission on June 28, 2011.)
101.CAL***			XBRL Taxonomy Extension Calculation
10.26*	Reference to the Company’s pending acquisition of the Salisbury, Maryland Terminal (incorporated by reference to the Company’s Quarterly Reports on Form 10-Q as of June 30, 2011 and September 30, 2011, filed with the Commission on August 12, 2011 and November 9, 2011, respectively.)
101.DEF***			XBRL Taxonomy Extension Definition
10.27*	Reference to the Company’s operational and financial projections including the potential acquisition of the Salisbury Storage Terminal (incorporated by reference to the Company’s Current Reports on Form 8-K and 8-K/A, filed with the Commission on April 8, 2011, April 11, 2011 and November 7, 2011.)
101.LAB***			XBRL Taxonomy Extension Labels
10.28*	Press Release, dated December 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
101.PRE***			XBRL Taxonomy Extension Presentation
31.1**	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2**	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS***		XBRL Instance
101.SCH***		XBRL Taxonomy Extension Schema
101.CAL***		XBRL Taxonomy Extension Calculation
101.DEF***		XBRL Taxonomy Extension Definition
101.LAB***		XBRL Taxonomy Extension Labels
101.PRE***		XBRL Taxonomy Extension Presentation

* Incorporated by reference to prior filings.

** Filed herewith.

*** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, ~~asamended~~as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

3428

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 8th day of ~~February~~August, 2012.

	BLACKWATER MIDSTREAM CORP.


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


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

3529

EXHIBIT INDEX

Exhibit

Number

Description

10.1*	Form of Subscription Agreement for September 2009 Convertible Debt Offering, as amended dated October 15, 2009 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on October 21, 2009 and November 18, 2009.)
10.2*	Form of Subscription Agreement for January 2010 Convertible Debt Offering (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 22, 2010.)
10.3*	Amendment to the Company’s convertible debt notes pursuant to a change in control event of the Company (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 29, 2011.)
10.4*	Specimen 2009 Convertible Promissory Note Amendment, dated June 24, 2011 (incorporated by reference to the Company’s Annual Report on Form 10-K filed with the Commission on June 28, 2011.)
10.5*	Specimen 2010 Convertible Promissory Note Amendment, dated June 24, 2011 (incorporated by reference to the Company’s Annual Report on Form 10-K filed with the Commission on June 28, 2011.)
10.6*	Receipt of approval from all holders of the Company’s 2009 and 2010 Convertible Promissory Note Amendments, dated June 24, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on October 6, 2011.)
10.7*	Fourth Amendment to Agreement between the Georgia Ports Authority and Blackwater Georgia, L.L.C., effect November 1, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on November 7, 2011.)
10.8*	Assignment and Assumption of Lease dated May 17, 2010 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on July 20, 2010.)
10.9*	Asset Purchase Agreement, dated December 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.10*	Deed, dated December 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.11*	NuStar’s Maryland Residency Certificate, dated December, 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.12*	Assignment and Bill of Sale Agreement, dated December 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.13*	Assignment and Assumption of Permits and Contracts, dated December 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.14*	Assumption and Release Agreement, dated December 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.15*	Guaranty, dated December 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.16*	Certificate of the Sole Member of Blackwater Maryland, L.L.C., dated December 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.17*	$1,600,000 term loan with JP Morgan Chase Bank, N.A, dated December 21, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.18*	Credit Agreement with JP Morgan Chase Bank, N.A., dated December 21, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.19*	Continuing Security Agreement, dated December 21, 2011(incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.20*	Continuing Pledge of Collateral Mortgage Note, dated December 21, 2011(incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.21*	Continuing Guaranty, dated December 21, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.22*	Subordination Agreement, dated December 21, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
10.23*	Blackwater’s Secretary’s Certificate for Resolutions of the Board of Directors, dated December 16, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)

Exhibit

Number

Description

2.01*	Agreement and Plan of Merger dated as of June 29, 2012, by and among the Company, the Parent and the Merger Sub (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on July 3, 2012)
10.01*	$2,300,000 Line of Credit and Term Note with JP Morgan Chase Bank, N.A, dated June 22, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 26, 2012)
10.02*	Fifth Amendment to Credit Agreement with JP Morgan Chase Bank, N.A., dated June 22, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 26, 2012)
10.03*	Allonge to Collateral Mortgage Note, dated June 22, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 26, 2012)
10.04*	First Amendment to Collateral Mortgage, Assignment of Leases and Rents and Security Agreement, dated June 22, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 26,2012)
10.05*	Continuing Guaranty, dated June 22, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 26, 2012)
10.06*	Excerpt of resolution from Blackwater’s Board of Directors’ meeting, dated June 18, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on June 26, 2012)
99.1*	Press Release issued June 29, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on July 3, 2012)
99.2*	Voting Agreement by and between Parent and certain shareholders of the Company (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on July 3, 2012)

10.24*	NuStar’s Secretary’s Certificate for Resolution of the Board of Directors dated December 22, 2011(incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
31.1**	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
10.25*	Reference to the Company’s Letter of Interest to acquire the Salisbury, Maryland Terminal (incorporated by reference to the Company’s Annual Report on Form 10-K as of March 31, 2011, filed with the Commission on June 28, 2011.)
31.2**	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
10.26*	Reference to the Company’s pending acquisition of the Salisbury, Maryland Terminal (incorporated by reference to the Company’s Quarterly Reports on Form 10-Q as of June 30, 2011 and September 30, 2011, filed with the Commission on August 12, 2011 and November 9, 2011, respectively.)
32.1**	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
10.27*	Reference to the Company’s operational and financial projections including the potential acquisition of the Salisbury Storage Terminal (incorporated by reference to the Company’s Current Reports on Form 8-K and 8-K/A, filed with the Commission on April 8, 2011, April 11, 2011 and November 7, 2011.)
32.2**	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
10.28*	Press Release, dated December 22, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on December 23, 2011.)
31.1**	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2**	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS***		XBRL Instance
101.SCH***		XBRL Taxonomy Extension Schema
101.CAL***		XBRL Taxonomy Extension Calculation
101.DEF***		XBRL Taxonomy Extension Definition
101.LAB***		XBRL Taxonomy Extension Labels
101.PRE***		XBRL Taxonomy Extension Presentation

101.INS***			XBRL Instance
101.SCH***			XBRL Taxonomy Extension Schema
101.CAL***			XBRL Taxonomy Extension Calculation
101.DEF***			XBRL Taxonomy Extension Definition
101.LAB***			XBRL Taxonomy Extension Labels
101.PRE***			XBRL Taxonomy Extension Presentation

* Incorporated by reference to prior filings.

** Filed herewith.

37 30

Filing Compare · Blackwater Midstream Corp.