-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VUVfJa4kiDqb/xteCcBPgjDCdfJLw5ZVx534oezBWt7sbupReYf0Zi50krGj8gbZ bgkxfGr6CK6w+xPZaVbVYQ== 0001019687-08-003792.txt : 20080819 0001019687-08-003792.hdr.sgml : 20080819 20080819171531 ACCESSION NUMBER: 0001019687-08-003792 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20080630 FILED AS OF DATE: 20080819 DATE AS OF CHANGE: 20080819 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Blackwater Midstream Corp. CENTRAL INDEX KEY: 0001292518 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 000000000 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-51403 FILM NUMBER: 081028387 BUSINESS ADDRESS: STREET 1: 4006 HIGHWAY 44 CITY: GARYVILLE STATE: LA ZIP: 70076 BUSINESS PHONE: 604-689-1453 MAIL ADDRESS: STREET 1: 4006 HIGHWAY 44 CITY: GARYVILLE STATE: LA ZIP: 70076 FORMER COMPANY: FORMER CONFORMED NAME: Laycor Ventures Corp. DATE OF NAME CHANGE: 20040602 10-Q 1 blackwater_10q-063008.txt FORM 10-Q =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 2008 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ COMMISSION FILE NUMBER 000-51403 BLACKWATER MIDSTREAM CORP. (Name of Small Business Issuer in Its Charter) 26-2590455 NEVADA (Small Business Issuer (State of Incorporation) I.R.S. Employer I.D. Number) 4006 HIGHWAY 44 GARYVILLE, LOUISIANA 70051 (Address of principal executive offices) (zip code) (985) 535-8500 (Issuer's Telephone Number, Including Area Code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. YES [X] NO [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer, "accelerated filer," "non-accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. LARGE ACCELERATED FILER [ ] ACCELERATED FILER [ ] NON-ACCELERATED FILER [ ] SMALLER REPORTING COMPANY [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of August 14, 2008, there were 26,948,036 shares of Common Stock, $.001 par value per share, outstanding. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Balance Sheets 1 Statements of Operations 2 Statements of Cash Flows 3 NOTES TO FINANCIAL STATEMENTS 5
BLACKWATER MIDSTREAM CORP. (FORMERLY LAYCOR VENTURES CORP.) (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS (STATED IN U.S. DOLLARS) JUNE 30 MARCH 31 2008 2007 UNAUDITED Audited ----------- ----------- ASSETS CURRENT Cash and cash equivalents $ 345,986 $ 3,574 Prepaid expenses and deposits 4,710 1,898 ----------- ----------- $ 350,696 $ 5,472 Investment 1,500,000 -- Other Equipment Office Equipment 92,873 -- Less: Accumulated Depreciation (7,739) -- ----------- ----------- 85,134 -- ----------- ----------- 1,935,830 5,472 =========== =========== LIABILITIES CURRENT Accounts payable and accrued liabilities $ 288,305 $ 7,942 ----------- ----------- STOCKHOLDERS' (DEFICIENCY) EQUITY SHARE CAPITAL Authorized: 200,000,000 common shares with a par value of $0.001 per share 20,000,000 "blank check" preferred shares, issuable in one or more series. Issued: 24,034,500 common shares 24,035 24,035 ADDITIONAL PAID-IN CAPITAL 131,540 131,540 SHARE SUBSCRIPTION RECEIVED 1,864,444 -- DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (372,494) (158,045) ----------- ----------- 1,647,525 (2,470) ----------- ----------- $ 1,935,830 $ 5,472 =========== =========== The accompanying notes are an integral part of these financial statements. 1 BLACKWATER MIDSTREAM CORP. (FORMERLY LAYCOR VENTURES CORP.) (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS (STATED IN U.S. DOLLARS) CUMULATIVE PERIOD FROM INCEPTION MARCH 23 QUARTER ENDED 2004 TO JUNE 30 JUNE 30 2008 2007 2008 ------------ ------------ ------------ REVENUE $ -- $ -- $ -- ------------ ------------ ------------ EXPENSES Advertising 211 -- 253 Consulting 30,000 -- 35,500 Filing fees 7,562 -- 11,562 Management salaries 121,027 -- 121,027 General and administrative 2,467 35 4,024 Interest and bank charges 500 43 995 Mineral property acquisition and exploration -- -- 44,503 Office expenses 2,346 -- 2,411 Professional fees 32,476 1,706 132,871 Promotion and entertainment -- -- 954 Depreciation 7,739 -- 7,739 Travel 10,394 -- 15,559 ------------ ------------ ------------ 214,722 1,784 377,398 ------------ ------------ ------------ LOSS BEFORE OTHER INCOME (214,722) (1,784) (377,398) OTHER INCOME 273 294 4,904 ------------ ------------ ------------ NET LOSS FOR THE PERIOD $ (214,449) $ (1,490) $ (372,494) ============ ============ ============ BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.00) $ (0.00) ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 24,034,500 8,011,500 ============ ============ The accompanying notes are an integral part of these financial statements. 2 BLACKWATER MIDSTREAM CORP. (FORMERLY LAYCOR VENTURES CORP.) (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS (STATED IN U.S. DOLLARS) CUMULATIVE PERIOD FROM INCEPTION MARCH 23 QUARTER ENDED 2004 TO JUNE 30 JUNE 30 2008 2007 2008 ----------- ----------- ----------- CASH FLOW PROVIDED BY (USED IN): OPERATING ACTIVITIES Net loss for the period $ (214,449) (1,490) $ (372,494) Adjustments to reconcile net (loss) to net cash generated (used) in operating activities: Depreciation 7,739 -- 7,739 Changes in operating assets and liabilities: Prepaid expenses (2,812) -- (4,710) Accounts payable and accrued liabilities 280,363 (1,741) 288,305 ----------- ----------- ----------- 70,841 (251) (81,160) ----------- ----------- ----------- CASH FLOWS FROM (USED BY) INVESTING ACTIVITIES Investment (1,500,000) -- (1,500,000) Purchase of office equipment & software (92,873) -- (92,873) ----------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (1,592,873) -- (1,592,873) ----------- ----------- ----------- 3 BLACKWATER MIDSTREAM CORP. (FORMERLY LAYCOR VENTURES CORP.) (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS (STATED IN U.S. DOLLARS) (Continued) CASH FLOWS FROM FINANCING ACTIVITIES Issue of capital stock -- -- 155,575 Share subscription received 1,864,444 -- 1,864,444 ----------- ----------- ----------- 1,864,444 2,020,019 ----------- ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FOR THE PERIOD 342,412 (251) 345,986 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,574 32,045 -- ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 345,986 $ 32,296 $ 345,986 =========== =========== =========== CASH AND CASH EQUIVALENTS ARE COMPRISED OF: Cash $ 349,560 $ 1,871 Short term deposit -- 30,425 ----------- ----------- $ 349,560 $ 32,296 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ -- $ -- $ -- Income taxes paid $ -- $ -- $ -- =========== =========== =========== NON-CASH FINANCING ACTIVITY: Stock dividend $ -- $ -- $ 16,023 =========== =========== =========== The accompanying notes are an integral part of these financial statements.
4 BLACKWATER MIDSTREAM CORP. (FORMERLY LAYCOR VENTURES CORP.) (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 AND 2007 (STATED IN U.S. DOLLARS) 1. BASIS OF PRESENTATION The unaudited financial statements as of June 30, 2008 included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustment (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. It is suggested that these financial statements be read in conjunction with the March 31, 2008 audited financial statements and notes thereto. The results of the operations for the three months ended June 30, 2008 are not indicative of the results that may be expected for the year. 1. OPERATIONS AND GOING CONCERN Organization The Company was incorporated in the State of Nevada, U.S.A., on March 23, 2004. The year end of the Company is March 31. On March 18, 2008, the Company changed its name to Blackwater Midstream Corp. from Laycor Ventures Corp. Development (Exploration) Stage Activities The Company has changed its business objective to become an independent developer of fuel and chemical storage facilities. The Company has been in the exploration stage since its formation and was primarily engaged in the acquisition and exploration of mining claims. Upon location of a commercial minable reserve, the Company expects to actively prepare the site for its extraction and enter a development stage. The company has not yet realized any revenues from its planned operations Going Concern The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has incurred a net loss of $372,494 for the period from March 23, 2004 (inception) to June 30, 2008, and has no revenue. The future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of its mineral properties. Management has plans to seek additional capital through a private placement and public offering of its common stock. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence. 5 BLACKWATER MIDSTREAM CORP. (FORMERLY LAYCOR VENTURES CORP.) (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 AND 2007 (STATED IN U.S. DOLLARS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgement. The financial statements have, in management's opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below: a) Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents. Cash consists of cash on deposit with a bank. The Company places its cash with a high quality financial institution and, to date, has not experienced losses on any of its balances. b) Exploration Stage Enterprise The Company's financial statements are prepared using the accrual method of accounting and according to the provisions of Statement of Financial Accounting Standards No. 7 ("SFAS 7"), "Accounting and Reporting for Development Stage Enterprises," as it devotes substantially all of its efforts to acquiring and exploring mineral properties. Until such properties are acquired and developed, the Company will continue to prepare its financial statements and related disclosures in accordance with entities in the exploration stage c) Mineral Rights The Company capitalizes acquisition and option costs of mineral property rights. The amount capitalized represents fair value at the time the mineral rights were acquired. The accumulated costs of acquisition for properties that are developed to the stage of commercial production will be amortized using the unit-of-production method. d) Exploration Costs Mineral exploration costs are expensed as incurred. d) Investments The cost method is used to account for the Company's investments in limited liability companies where the Company holds an interest of 10% or less and does not have control of the limited liability company 6 BLACKWATER MIDSTREAM CORP. (FORMERLY LAYCOR VENTURES CORP.) (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 AND 2007 (Stated in U.S. Dollars) d) Property and Equipment Property and equipment, comprised of office furniture and computer software, are recorded at cost and amortized using the straight balance method at 33.33% per annum. e) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from these estimates. f) Foreign Currency Translation The Company's functional and reporting currency is the U.S. dollar. Transactions in foreign currency are translated into U.S. dollars as follows: i) monetary items at the rate prevailing at the balance sheet date; ii) non-monetary items at the historical exchange rate; iii) revenue and expense at the average rate in effect during the applicable accounting period. g) Income Taxes The Company has adopted guidance established in Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 109 - "Accounting for Income taxes" ("SFAS 109"). This standard requires the use of an asset and liability approach for financial accounting, and reporting on income taxes. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. h) Asset Impairment Long-lived assets are tested for recoverability whenever events or changes in circumstances indicate the carrying amount may not be recoverable, pursuant to guidance established in Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-lived Assets". The Company determines impairment by comparing the undiscounted future cash flows estimated to be generated by its assets to their respective carrying amounts. If impairment is deemed to exist, the assets will be written down to fair value. 7 BLACKWATER MIDSTREAM CORP. (FORMERLY LAYCOR VENTURES CORP.) (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 AND 2007 (STATED IN U.S. DOLLARS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) i) Asset Retirement Obligations The Company has adopted Statement of Financial Accounting Standards No. 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations", which requires that an asset retirement obligation ("ARO") associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset. The cost of the tangible asset, including the initially recognized ARO, is depleted, such that the cost of the ARO is recognized over the useful life of the asset. The ARO is recorded at fair value, and accretion expense is recognized over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO is measured using expected future cash flow, discounted at the Company's credit-adjusted risk-free interest rate. To date, no significant asset retirement obligation exists due to the early stage of exploration. Accordingly, no liability has been recorded. j) Basic and Diluted Loss Per Share In accordance with SFAS No. 128 - "Earnings Per Share", the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. At March 31, 2008, the Company has no stock equivalents that were anti-dilutive and excluded in the earnings per share computation. j) Stock-Based Compensation The Company records stock-based compensation in accordance with SFAS No. 123R, "Share- Based Payments", using the fair value method. The Company also complies with the provisions of FASB Emerging Issues Task Force ("EITF") Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services ("EITF 96-18"). All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued. 8 BLACKWATER MIDSTREAM CORP. (FORMERLY LAYCOR VENTURES CORP.) (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 AND 2007 (STATED IN U.S. DOLLARS) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) l) Environmental Protection and Reclamation Costs The operations of the Company have been, and may in the future be affected from time to time in varying degrees by changes in environmental regulations, including those for future removal and site restorations costs. Both the likelihood of new regulations and their overall effect upon the Company may vary from region to region and are not predictable. Environmental expenditures that relate to ongoing environmental and reclamation programs are charged against Statements of Operations as incurred or capitalized and amortized depending upon their future economic benefits. The Company does not currently anticipate any material capital expenditures for environmental control facilities because its property holding is at an early stage of exploration m) Financial Instruments The Company's financial instruments consist of cash and cash equivalents, and accounts payable and accrued liabilities. It is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying values. n) Comprehensive Income The Company has adopted SFAS No. 130 ("SFAS 130"), "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. When applicable, the Company would disclose this information on its Statement of Stockholders' Equity. Comprehensive income comprises equity except those resulting from investments by owners and distributions to owners. 4. INVESTMENT On June 26, 2008, the Company purchased a 7% membership interest (comprising 70,000 class A units) in Safeland Storage L.L.C., a Louisiana limited liability company for a purchase consideration of $1.500, 000. Concurrently, on June 26, 2008, the Company entered into a Property Purchase Agreement with Safeland Storage L.L.C. and it's wholly owned subsidiary company, Future Energy Investments LLC for the purchase of 435 acres of land in St. John the Baptist Parish, Louisiana, for a purchase price of $20,500,000. The closing of this agreement is 120 days from June 26, 2008. 9 BLACKWATER MIDSTREAM CORP. (FORMERLY LAYCOR VENTURES CORP.) (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS JUNE 30, 2008 AND 2007 (STATED IN U.S. DOLLARS) 4. MINERAL CLAIM INTEREST On June 27, 2008, the Company abandoned its mining claim in British Columbia, Canada, with no further costs or obligations to the Company. The decision to abandon the claim was based upon an independent geologist's report indicating that it is unlikely that the claim contains enough volume of mineralized materials to form an economic body of mineralization. The former President held, on behalf of the Company, 100% interest in two mineral claims located in the Rock Creek area of the Greenwood Mining Division, British Columbia, Canada. Exploration activity of one of the mineral claims was suspended due to government regulation. In fiscal year 2005, the Company spent $40,000 on the exploration of the Rock Creek, BC Project. 5. SHARE CAPITAL Authorized: In January 2008, the Company increased the number of authorized capital stock of the corporation from 200,000,000 shares to 220,000,000 shares consisting of 200,000,000 shares of common stock, par value $0.001 and 20,000,000 shares of preferred stock, par value $0.001 Issued: In March 2004, the Company issued 5,000,000 common shares at $0.001 per share, for cash proceeds of $5,000. In April 2005, the Company issued 3,011,500 common shares at $0.05 per share, for cash proceeds of $150,575. In February 2008, the Company issued 16,023,000 common shares as a result of a common stock dividend. This was recorded at par value of $0.001 per share. 6. COMMITMENTS AND CONTRACTUAL OBLIGATIONS In May 2008, the Company entered into employment agreements with the directors and officers of the company for management services. The terms of these agreements range from one to five years with minimum cumulative cash remuneration of $792,500 per annum. Non-cash remuneration includes the granting of 821,036 shares of common stock at $0.01, which vest at the end of six months of employment (issued July 7, 2008) and 2,303,278 common stock options with exercise prices ranging from $2.20 to $3.77, which options shall vest over the term of the employment agreement. On June 9, 2008 the Company entered into a consulting Agreement (the "Agreement") with Lotus Fund Inc. for operational, financial and management services. Per the Agreement, the Company is required to pay $30,000 per month, commencing June 9, 2008 and terminating on June 9, 2009 unless terminated by either party in the event of a material breach by providing 15 days notice. The Agreement is renewable for a further period of one year at the option of the Company. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. 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 our 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. There is no historical financial information about us upon which to base an evaluation of our performance. We are a development stage corporation and have not generated or realized any revenues from our business operations. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in the exploration of the property, and possible cost overruns due to the price and cost increases in services. We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations. Equity financing could result in additional dilution to existing shareholders. We may seek equity financing to provide capital for further exploration. OVERVIEW Until we changed our business plan in May 2008, we were exploring one property containing two claims relating to mineral rights in British Columbia, Canada. The claims were initially purchased in March 2004 by our former president, Robert Wayne Morgan, for $1,118. However, we suspended exploration pending a resolution of the Ministry of Environment's condemnation plan. No resolution was ever received, and the board of directors abandoned the claims in June 2008. Commencing in May 2008 we hired new management and changed our business plan to become an independent developer of bulk liquid fuel and chemical storage facilities. On June 26, 2008, we purchased a seven percent (7%) interest in Safeland Storage, L.L.C. a Louisiana limited liability company ("Safeland"), represented by 70,000 Class A units for a purchase price of $1.5 million, pursuant to a Membership Interest Purchase Agreement with Safeland. Safeland is an unrelated party. Contemporaneously therewith, on June 26, 2008, we entered into a Purchase and Sale Agreement (the "Purchase and Sale Agreement") for the purchase of 435 acres of land in St. John the Baptist Parish, Louisiana, from Safeland, for a purchase price of $20,500,000.00. The closing of the Purchase and Sale Agreement is to take place within 120 days from June 26, 2008. We are exploring several options to raise money to close the acquisition, but as of the date of the filing of this Quarterly Report on form 10-Q we have not entered into any definitive agreements to raise any such funds. Safeland has completed preliminary engineering and design and obtained state-regulated environmental permits for the facility. We intend to develop the facility in three phases with a resulting total of approximately 10 million barrels of capacity. Phase I is anticipated to be approximately 3.5 million barrels of storage with an expected completion date of the first quarter of 2010. Phase II is expected to add 3.4 million barrels coming on line in the first quarter of 2011, followed by phase III with 3.0 million barrels in the first quarter of 2012. Our proposed site is located in the heart of South Louisiana's petroleum refining and chemical manufacturing corridor that has a refining capacity of approximately 2 million barrels per day. This represents approximately ten percent of the total U.S. refining capacity, including existing world-scale crude oil refineries such as Marathon Garyville (adjacent to the Company's property), Valero St. Charles and Shell Norco (the first two of which are undergoing major capacity expansions). The site is located within 15 miles of the U.S. Strategic Petroleum Reserves at St. James and the LOOP (Louisiana Offshore Oil Production). It is strategically located for connectivity to the Colonial and Plantation pipelines via the Bengal pipeline. The Colonial and Plantation pipelines serve the U.S. as major refined product arteries from the Gulf Coast to the Eastern Seaboard of the U.S., providing approximately 42% of the East Coast refined product demand. The site offers complete intermodal logistics capabilities including deep water access on the 11 Mississippi River for ships and barges and access to major highways (U.S. Highway 61 to the north and the Mississippi River and East Jefferson highways to the south). Two railroads, Kansas City Southern and Canadian National, currently have infrastructure on the property, which is expected to enable the Company to attract rail-served storage positions. In order to effectuate our business plan and build the facilities described above, we will need to raise up to approximately $500 Million. As of August 15, 2008, we have not entered into any definitive agreements to raise any portion of such amount, although we are exploring alternatives to do so. Bulk liquid terminals store a range of products including crude oil, bunker fuel, gasoline, distillate, diesel, jet fuel, chemicals, agricultural products and biodiesel. For example, on the refined product segment of oil, in the United States, approximately 300 million barrels of refined products, blendstock and intermediate products are stored within the refined product value chain in facilities located between refinery processing units and product tank trucks (out of an estimated 700 million total barrels of storage including crude oil and other liquid products). Refiner storage accounts for about 40 percent of total product inventory while refined product pipelines typically containing less than 20 percent. The remainder, accounting for approximately 100 million barrels of inventory, is stored in bulk storage terminals that provide facilities for aggregation, distribution, finished produce blending, imports offloading and pipeline staging. The importance of bulk terminal facilities in the refined product segment supply chain has grown significantly over the past decade as the nation's product supply patterns have become increasingly more complex. The number of operating refineries in the U.S. has declined in the period, resulting in fewer refinery sites that produce higher volumes of more grades of finished and unfinished products. Bulk storage facilities have expanded to accommodate the growth in output from the surviving refineries, the increase in the complexity of finished product blending, and the staging flexibility required by refined product pipelines. In addition, the change in supply patterns, including the increase of Brazilian crude and the decreases in the availability of Venezuelan crude, have driven the need for more storage and blending capacity. These services are essential in order to effect timely and efficient operation of the U.S.'s fuel distribution system. Third-party terminalling businesses are generally independent operations that support many different commercial customers including refiners, blenders, traders and marketers. Income is derived from tank leasing, operational charges associated with blending services and throughput charges for receipt and delivery options. The primary strategic drivers of the business include location and connectivity to logistics infrastructure. Capital investment in terminalling assets is generally supported by long-term (five years or more) contracts with major oil and gas, chemical and agricultural companies. Investments resulting in incremental expansion of existing capacity through tank additions and increased utilization of existing infrastructure such as docks, pipeline origin pumps, truck racks, etc. have been the focus of the industry over the past two decades. Over the past few years, the underlying infrastructure and in some cases the real estate associated with many bulk terminals has been exhausted. As such, industry fee structures have evolved with costs for additional capacity today increasing over historical levels to recoup the total cost for real estate, new tanks and the addition of related terminal infrastructure as well. RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2008 THE FOLLOWING TABLE SETS FORTH, FOR THE PERIODS INDICATED, CERTAIN OPERATING INFORMATION EXPRESSED AS A PERCENTAGE OF REVENUE: 12 THREE MONTHS ENDED JUNE 30, 2008 COMPARED TO THREE MONTHS ENDED JUNE 30, 2007 --------------------------- Three months ended June 30, -------------------------- 2008 2007 --------- --------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues $ 0 $ 0 --------- --------- Costs and Expenses: Costs of revenues 0 0 Research and development 0 0 Selling, general and administrative 214,722 1,784 --------- --------- Total costs and expenses 214,722 1,784 --------- --------- Operating loss (214,722) (1,784) Interest expense 0 0 Interest and dividend income 273 294 Other income, net 0 Equity in loss of affiliates 0 --------- --------- Net Loss/Gain $(214,449) $ (1,490) ========= ========= REVENUES. We had no revenues for the three months ended June 30, 2008 or the three months ended June 30, 2007. We had no operational activity during the first quarter of fiscal years 2007 or 2008. We currently expect to begin generating revenues in the 1st quarter of 2010. OTHER INCOME. Other income was $273 in the three months ended June 30, 2008 compared to $294 in the three months ended June 30, 2007. Other income for both periods is from interest generated from bank accounts. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $214,722 in the three months ended June 30, 2008 compared to $1,784 in the three months ended June 30, 2007. This increase of over $212,000 was primarily attributable to Blackwater Midstream hiring members of its management team during May and June 2008 which accounts for approximately 56% of total SG&A Expenses. Other significant expenses during this period were professional fees of over $60,000, accounting for approximately 29% of total SG&A expenses and travel related expenses of over $10,000, accounting for about 5% of total SG&A expenses. 13 NET LOSS Net loss was $214,449 in the three months ended June 30, 2008 compared to $1,490 in the three months ended June 30, 2007. This increase in the period's loss was attributable to start up expenses related to the new line of business and management terms. LIQUIDITY AND CAPITAL RESOURCES We issued 5,000,000 shares of common stock through a Section 4(2) offering in March 2004. This was accounted for as a purchase of shares of common stock. We issued 3,011,500 shares of common stock through our public offering declared effective on February 11, 2005 and raised $150,575. This was accounted for as a purchase of shares of common stock. Beginning on June 4, 2008, the Company entered into certain subscription agreements (collectively, the "Purchase Agreement") with certain investors (the "Investors") for the sale of an aggregate of 2,500,000 shares of its common stock, par value $.001 per share (the "Shares"), at a purchase price of $2.00 per share (the "Offering"). Each Purchase Agreement sets forth certain rights and obligations of the parties, as well as customary representations and warranties by the Company and the Investors. As of August 13, 2008, the Company had consummated transactions resulting in the aggregate sale of 2,092,500 Shares for gross proceeds of $4,185,000. In connection with the Offering, the Company engaged Falcon International Consulting Limited to act as placement agent. Falcon International received a fee of $418,500, or 10% of the gross proceeds of the Offering, in addition to 83,700 Shares. As of June 30, 2008, our total assets were $1,935,830 and our total liabilities were $288,305. We had cash and cash equivalents of $345,986. At June 30, 2008, we had working capital of $362,391 compared to a working capital of $23,055 June 30, 2007. Operating Expenses for the quarter ended June 30, 2008 were $214,722. Our operating expenses consisted primarily of management salaries, professional fees and other administrative expenses. We are currently exploring options to raise additional capital, although as of the date of the filing of this Quarterly Report we have not entered into any definitive agreements for such capital. We can make no assurances that the Company will find additional financing on favorable terms, or at all. We have no long-term debt. OFF BALANCE-SHEET ARRANGEMENTS None. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not required for smaller reporting companies. ITEM 4. CONTROLS AND PROCEDURES. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES - Our Principal Executive Officer and Principal Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report, have concluded that, based on the evaluation of these controls and procedures, that our disclosure controls and procedures were effective. 14 There have been no changes in our internal controls over financial reporting that occurred during the quarter ended June 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 1A. RISK FACTORS There have been no changes to our risk factors from those disclosed in our Annual Report on Form 10-KSB filed on June 15, 2008, for the year ended March 31, 2008. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Unregistered sales of Equity Securities Beginning on June 4, 2008, the Company entered into certain subscription agreements (collectively, the "Purchase Agreement") with certain investors (the "Investors") for the sale of an aggregate of 2,500,000 restricted shares of its common stock, par value $.001 per share (the "Shares"), at a purchase price of $2.00 per share (the "Offering"). Each Purchase Agreement sets forth certain rights and obligations of the parties, as well as customary representations and warranties by the Company and the Investors. As of August 13, 2008, the Company had consummated transactions resulting in the aggregate sale of 2,092,500 Shares for gross proceeds of $4,185,000. The issuance of the Shares was exempt from registration under Regulation S and/or Regulation D and Section 4(2) of the Securities Act of 1933, as amended. In connection with the Offering, the Company engaged Falcon International Consulting Limited to act as placement agent. Falcon International received a fee of $418,500, or 10% of the gross proceeds of the Offering, in addition to 83,700 shares of restricted common stock. Use of Proceeds On February 11, 2005, the Securities and Exchange Commission declared our Form SB-2 registration statement effective (SEC file no. 333-116229). Under the terms of our Form SB-2 registration statement, we offered, without the assistance of an underwriter, up to a total of 4,000,000 shares of common stock on a self-underwritten basis, 2,000,000 shares minimum, 4,000,000 shares maximum. The offering price was $0.05 per share. On April 5, 2005, we completed our public offering by raising $150,575 and sold 3,011,500 shares of our common stock at an offering price of $0.05 per share. From the period February 11, 2005 to June 30, 2008, we spent the following: Consulting Services $ 31,750 Core Drilling $ 5,400 Analyzing Samples $ 5,350 Accounting $ 34,818 Legal $ 24,217 Services $ none -------------------------------------------------------- TOTAL $ 101,535 ======================================================== ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION. (a) On August 12, 2008, by unanimous written consent, the Company's Board of Directors appointed Mr. Mathijs van Houweninge to the position of director of the Company to fill a vacancy. The acceptance by Mr. Mathijs van Howeninge as a director of the Company is effective as of August 12, 2008. Mr. van Houweninge has served as the managing partner of Falcon Capital, LLP ("Falcon"), a Venture Capital firm based in London, since February 2008. In 1990, Mr. Houweninge started iEffective, a Netherlands-based software company specializing in consultancy and software development for the financial industry which was sold in 2000. He also serves on the board of directors of SkyPostal, Inc., Cybercity, Inc. IonIP bv, and a school in Utrecht in the Netherlands. Mr. van Houweninge studied at Utrecht University in the Netherlands during the 1990's in Computer Science, specializing in artificial intelligence. Falcon Capital is an affiliate of Falcon International Consulting Limited, the Company's financial advisor, and holder of 83,700 shares of the Company's common stock. During 2008, the Company paid Falcon International Consulting Limited approximately $418,000 and 83,700 shares of common stock as commissions earned during the Company's $5 million private placement of common stock. As managing partner of Falcon Capital, Mr. van Houweninge can influence how Falcon votes and disposes of its stock in the Company and is considered a Company affiliate. Additionally, as managing partner of Falcon, Mr. van Houweninge has a direct financial interest in Falcon's past and future financial arrangements with the Company. ITEM 6. EXHIBITS. The following documents are included herein: EXHIBIT NO. DOCUMENT DESCRIPTION - -------------------------------------------------------------------------------- 4.1 Form of private placement common stock purchase agreement 10.1 Services Agreement with Christopher Wilson dated May 5, 2008 (1) 10.2 Employment Agreement with Michael Suder, dated May 7, 2008 (2) 10.3 Employment Agreement with Dale T. Chatagnier, dated May 14, 2008 (3) 10.4 Placement agent's agreement with Falcon International Consulting Limited, dated May 28, 2008 10.5 Membership Interest Purchase Agreement with Safeland Storage, LLC (4) 10.6 Purchase and Sale Agreement between Safeland Storage LLC, Future Energy Investments and Blackwater Midstream Corp., dated June 25, 2008 (5) 31.1 Certification of Principal Executive Officer pursuant to Rule 13a-15(e) and 15d-15(e), promulgated under the Securities and Exchange Act of 1934, as amended. 31.2 Certification of Principal Financial Officer pursuant to Rule 13a-15(e) and 15d-15(e), promulgated under the Securities and Exchange Act of 1934, as amended. 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer). 32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer). 16 99.1 Press release announcing private placement - ------------------------- (1) Previously filed as an exhibit to the Company's Current Report on Form 8-K filed May 6, 2008 (2) Previously filed as an exhibit to the Company's Current Report on Form 8-K filed May 9, 2008 (3) Previously filed as an exhibit to the Company's Current Report on Form 8-K filed May 16, 2008 (4) Previously filed herewith as exhibit 10.6 to the Company's Annual Report on Form 10-KSB filed July 15, 2008. (5) Previously filed herewith as exhibit 10.7 to the Company's Annual Report on Form 10-KSB filed July 15, 2008. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 14th day of August, 2008. BLACKWATER MIDSTREAM CORP. (REGISTRANT) BY: /s/ MICHAEL D. SUDER ---------------------- Michael D. Suder Chief Executive Officer BY: /s/ DONALD ST. PIERRE --------------------- Donald St. Pierre Chief Financial Officer EXHIBIT INDEX EXHIBIT NO. DOCUMENT DESCRIPTION - -------------------------------------------------------------------------------- 4.1 Form of private placement common stock purchase agreement 10.1 Services Agreement with Christopher Wilson dated May 5, 2008 (1) 10.2 Employment Agreement with Michael Suder, dated May 7, 2008 (2) 10.3 Employment Agreement with Dale T. Chatagnier, dated May 14, 2008 (3) 10.4 Placement agent's agreement with Falcon International Consulting Limited, dated May 28, 2008 10.5 Membership Interest Purchase Agreement with Safeland Storage, LLC (4) 10.6 Purchase and Sale Agreement between Safeland Storage LLC, Future Energy Investments and Blackwater Midstream Corp., dated June 25, 2008 (5) 31.1 Certification of Principal Executive Officer pursuant to Rule 13a-15(e) and 15d-15(e), promulgated under the Securities and Exchange Act of 1934, as amended. 31.2 Certification of Principal Financial Officer pursuant to Rule 13a-15(e) and 15d-15(e), promulgated under the Securities and Exchange Act of 1934, as amended. 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer). 32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer). 99.1 Press release announcing private placement - -------------- (1) Previously filed as an exhibit to the Company's Current Report on Form 8-K filed May 6, 2008 (2) Previously filed as an exhibit to the Company's Current Report on Form 8-K filed May 9, 2008 (3) Previously filed as an exhibit to the Company's Current Report on Form 8-K filed May 16, 2008 (4) Previously filed herewith as exhibit 10.6 to the Company's Annual Report on Form 10-KSB filed July 15, 2008. (5) Previously filed herewith as exhibit 10.7 to the Company's Annual Report on Form 10-KSB filed July 15, 2008. EX-4.1 2 blackwater_10q-ex401.txt FORM OF PRIVATE PLACEMENT COMMON STOCK PURCHASE AGREEMENT Exhibit 4.1 THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO PURCHASE ANY OF THE SECURITIES REFERRED TO HEREIN. SUBSCRIPTION AGREEMENT This SUBSCRIPTION AGREEMENT (this "Subscription Agreement") is entered into by and between the Investor signing the Signature Page attached hereto and Blackwater Midstream Corp., a Nevada corporation (the "Corporation"). The Corporation is offering for the sale of restricted shares of Common Stock at a price of $2.00 per share. The Investor subscribes for and agrees to purchase the following: Name of Investor: ____________ Number of Shares Subscribed For: ____________ Cash Purchase Price ($2.00/ share): ____________ Address of Investor: ____________________________ ____________________________ The amount of cash or good funds as tender of the purchase price for the Shares is enclosed (in the case of a check, the check should be payable to the order of "Blackwater Midstream Corp.") or will he sent via wire transfer to the Corporation's account. INVESTOR RIGHTS 1. ANTI-DILUTION RIGHTS. Except for "Excluded Securities" described below, in the event that the Corporation conducts any private placement of shares of common stock for cash consideration at a price of less than 52.00 per share, as adjusted for splits, combinations and similar events (the "Base Price"), during the first year following the Investor's purchase of the Shares (a "Dilutive Issuance"), so long as the Investor currently owns the Shares, then Investor shall be entitled to receive for each Share purchased hereunder owned as of the date of the Dilutive Issuance (the "Base Shares"), and for no additional consideration; an additional amount of shares of common stock of the Corporation equal to (i) the number of Base Shares divided by (ii) (X +Y)/(X+Z) minus (iii) the number of Base Shares, where: X equals the number of common shares outstanding prior to the Dilutive Issuance; Y equals the gross proceeds to the Corporation in the Dilutive Issuance divided by the Base Price; and Z equals the number of shares sold in the Dilutive Issuance. The anti-dilution provision of this Section I shall not apply to the issuance of any shares of capital stock of the Corporation (i) issued upon the exercise of any options, warrants or similar 1 rights outstanding as of the date of this Agreement or to he issued pursuant to the 2008 Employee Incentive Plan to the maximum of the currently reserved issuance thereunder, (ii) issued and sold in any public offering and (iii) issued as a result of this Section 1 (collectively, the "Excluded Securities"). 2. PREEMPTIVE RIGHTS. In the event that the Corporation conducts any private placement sale of shares of common stock during the first year following the Investor's purchase of the Shares, and provided the Investor is still the owner of all Shares purchased hereunder, the Investor shall be entitled to purchase his pro rata portion of the shares offered for sale in the private placement. An Investor's pro rata share shall be equal to the number of shares offered for sale in the private placement multiplied by the Investor's percentage ownership of the outstanding shares of common stock immediately prior to such private placement. The Corporation shall provide the Investor fifteen (15) days advance notice, including the material terms of such offering, and the Investor shall provide its binding commitment to purchase its pro rata portion no later than the 10th day following receipt of such notice. The Investor's rights hereunder are subject to the completion of the private placement by the Corporation and in the event the Corporation decides to abandon the private placement for any reason the Investor's rights and commitment to purchase such shares shall become null and void. The provisions of this Section 2 shall not apply to the issuance of any Excluded Securities. INVESTOR REPRESENTATIONS The Investor hereby represents and warrants to, and covenants with, the Corporation as follows, recognizing that the Corporation will rely to a material degree on such representations, warranties and covenants, each of which shall survive any acceptance of this subscription in whole or in part by the Corporation and the issuance and sale of any Shares to the Investor: 1. ORGANIZATION AND GOOD STANDING. The Investor, if the Investor is a corporation, partnership, trust or other entity, is duly organized, validly existing AND IN good standing under the laws of the jurisdiction of its organization and has full power, authority and legal right to execute, deliver and perform its obligations under this Subscription Agreement. 2. AGREEMENT DULY AUTHORIZED. The execution, delivery and performance by the Investor of this Subscription Agreement has been duly authorized by all necessary action, this Subscription Agreement has been duly executed and delivered, and, when executed and delivered by the Corporation, this Subscription Agreement will constitute the legal, valid, binding and enforceable obligation of the Investor, subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws, regulations or procedures of general applicability now or hereafter in effect relating to or affecting creditors' or other obligees' rights generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 3. SOPHISTICATION OF INVESTOR. The Investor either (i) has a pre-existing personal or business relationship with the Corporation or its controlling persons, such as would enable a reasonably prudent purchaser to be aware of the character and general business and financial circumstances of the Corporation or its controlling persons, or (ii) by reason of the Investor's business or Financial experience, individually or in conjunction with the 2 Investor's unaffiliated professional advisors who are not compensated by the Corporation or any affiliate or selling agent of the Corporation, directly or indirectly, is capable of evaluating the merits and risks of an investment in the Shares, making an informed investment decision and protecting the Investor's own interests in connection with the transactions contemplated hereby. 4. STATEMENTS OF INVESTOR TRUE AND ACCURATE. All statements and representations glade in Annex I attached hereto ("Nature of Investor; Form of Ownership"), which has been or is being furnished concurrently herewith to the Corporation by the Investor, continue to be and are true, accurate and complete as of the date hereof The Investor agrees to provide such additional information as reasonably may be required by the Corporation for compliance with the securities laws of the state in which the Investor is located. 5. INVESTOR AWARE OF RISKS. The Investor has been informed and is aware that an investment in the Shares involves a high degree of risk and speculation, and the Investor has read carefully and considered any information provided by the Corporation and its affiliates in their entirety. The Investor has read and understands the "Risk Factors" attached hereto as Exhibit A. 6. INVESTOR RELYING UPON OWN ADVISORS. The Investor confirms that the Investor has been advised that the Investor should rely on, and that the Investor has consulted and relied on, the Investor's own accounting, legal and financial advisors with respect to this investment in the Shares. The Investor and the Investor's professional advisor(s), if any, have been afforded an opportunity to meet with the officers and directors of the Corporation and to ask and receive answers to all questions about this offering and the proposed business and affairs of the Corporation and to obtain any additional information that the Corporation possesses or can acquire without unreasonable effort or expense, and the Investor and the Investor's professional advisor(s) therefore have obtained, in the judgment of the Investor and/or the Investor's professional advisor(s), sufficient information to evaluate the merits and risks of investment in the Shares. 7. SUITABILITY. The Investor understands and has fully considered for purposes of this investment the risks of this investment and understands that (i) this investment is suitable only for an investor who is able to bear the economic consequences of losing the Investor's entire investment; (ii) the Corporation is a starting a new business and has no significant operating history in such business: (iii) the purchase of the Shares is a speculative investment which involves a high degree of risk of loss by the Investor of the Investor's entire investment, and (iv) there are substantial restrictions on the transferability of, and there will he no public market for, the Shares, and accordingly, it may not be possible for the Investor to liquidate the Investor's investment in the Shares. 8. ACCREDITED INVESTOR. The Investor is an "Accredited Investor" within the meaning of Rule: 501 of Regulation D. 9. LACK OF LIQUIDITY. The Investor is able (i) to bear the economic risk of this investment, (ii) to hold the Shares for an indefinite period of time, and (iii) to afford a complete loss of the Investor's investment; and represents that the Investor has sufficient liquid assets so that the lack of liquidity associated with this investment will not cause any undue financial difficulties or affect the investor's ability to provide for the Investor's current needs and possible financial contingencies. 3 10. INVESTMENT INFORMATION. At the request of the Investor, the Corporation may provide to the Investor various offering documents related to the Corporation and the terms of the offer and sale of the Common Stock (the "Offering Documents"). The Investor acknowledges that such Offering Documents, if any, contain the views of the management of the Corporation, and that the analysis of the market and of the Corporation's strategy contained therein represents a subjective assessment about which reasonable persons could disagree. 11. ACCESS TO INFORMATION. The Investor, in making the Investor's decision to purchase the Shares, has relied solely upon independent investigations made by the Investor and the representations and warranties of the Corporation contained herein and the Investor has been given (i) access to all material hooks and records of the Corporation; (ii) access to all material contracts and documents relating to this offering; and (iii) an opportunity to ask questions of, and to receive answers from, the appropriate executive officers and other persons acting on behalf of the Corporation concerning the Corporation and the terms and conditions of this offering, and to obtain any additional information, to the extent such persons possess such information or can acquire it without unreasonable effort or expense, necessary to verify the accuracy of the information set forth in the Offering Documents. The Investor acknowledges that no valid request to the Corporation by the Investor for information of any kind about the Corporation has been refused or denied by the Corporation or remains unfulfilled as of the date thereof. The Investor has carefully read the Offering Documents, including without limitation this Subscription Agreement. In evaluating the suitability of an investment in the Corporation, the Investor has not relied upon any representations or other information (whether oral or written) other than as set forth in the Offering Documents or as contained in any documents or answers to questions furnished by the Corporation. 12. NO ENDORSEMENT BY FEDERAL OR STATE AGENCIES. The Investor understands and acknowledges that no federal or state agency has made any finding or determination as to the fairness or suitability for investment in, or any recommendation or endorsement of, the Corporation or the Shares. 13. INVESTOR HAS EVALUATED RISKS. Based on the review of the materials and information described above, and relying solely thereon and on the knowledge and experience of the Investor and/or the Investor's professional advisor(s), if any, in business and financial matters, the Investor has evaluated the merits and risks of investing in the Shares and has determined that the Investor is both willing and able to undertake the economic risk of this investment. 14. SHARES ACQUIRED FOR PERSONAL ACCOUNT. NO VIEW TO DISTRIBUTION. The Investor is acquiring the Shares for the personal account of the Investor for investment and not with a view to, or for resale in connection with, any distribution thereof or of any interest therein, and no one else has any beneficial ownership or interest in the Shares being acquired by the Investor, nor is any of the Shares being acquired by the Investor to be subject to any lien or pledge. The Investor has no present obligation, indebtedness or commitment pending, nor is any circumstance in existence, that will compel the Investor to secure funds by the sale, transfer or other distribution of any of the Shares or any interest therein. 15. RESTRICTED SECURITIES. The Investor understands and acknowledges that the Shares will be offered and sold, if at all, pursuant to one or more exemptions from the registration and 4 qualification requirements of the Securities Act of 1933, as amended, and the securities laws of the various states in which the Shares are sold, the availability of which depend (in part) on the truth and completeness of the information provided to the Corporation in Annex I attached hereto and the BONA FIDE nature of the foregoing representations and warranties. With such realization, the Investor hereby authorizes the Corporation to act as the Corporation may see fit in reliance on such information, representations and warranties, including the placement of the following or any substantially similar legend on any stock certificate issued to the Investor in addition to any other legend that may be imposed thereon that, in the opinion of the Corporation's counsel, may be required by applicable securities laws: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER. THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER APPLICABLE STATE SECURITIES LAWS, RULES AND REGULATIONS. THESE SECURITIES MAY NOT BE PLEDGED, SOLD OR TRANSFERRED IN THE. ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACTS COVERING THE SECURITIES OR AN OPINION OF QUALIFIED COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED." 16. INDEMNIFICATION. "The Investor hereby indemnifies and holds harmless the Corporation and the Corporation's respective officers, directors, shareholders, employees, attorneys and agents, as the case may be, from and against all damages suffered and liabilities of any kind incurred by any of them (including costs of investigation and defense and attorneys' fees) arising out of any inaccuracy in the agreements, representations, covenants and warranties made by the Investor in this Subscription Agreement. 17. FIDUCIARY REPRESENTATIONS. If the Investor is purchasing the Shares subscribed for hereby in a fiduciary capacity, then all of the foregoing representations, warranties and covenants shall be deemed to have been made on behalf of the person or persons for whom the Investor is so purchasing. 18. SUBSCRIPTION IRREVOCABLE. The Investor hereby acknowledges and agrees that the Investor is not entitled to cancel, terminate or revoke this subscription or any agreement of the Investor hereunder and that such subscription and agreement shall survive the death or disability of the Investor. 19. Acceptance OR REJECTION BY CORPORATION. The Investor understands and acknowledges that this subscription may be accepted or rejected by the Corporation in its sole and absolute discretion, together with a completed and executed Annex I attached hereto and all information required by the provisions hereof and payment of the full amount of the subscription price for the Shares subscribed for. All amounts tendered in excess of the total amount payable as the purchase price for Shares as to which this subscription has been accepted thereafter will be delivered to the Investor as soon as practicable (without interest). The Corporation shall signify its rejection by returning to the Investor this Subscription Agreement and all funds (without interest or deduction) submitted by the Investor. 5 NEITHER THE CORPORATION NOR ANY OFFICER, DIRECTOR, SHAREHOLDER, EMPLOYEE, ATTORNEY OR AGENT OF ANY OF THEM SHALL BE LIABLE TO ANY PERSON FOR THE REJECTION, IN WHOLE OR IN PART, OF ANY OFFER TO SUBSCRIBE TO PURCHASE SHARES, NOTWITHSTANDING THAT THE INVESTOR MAY OTHERWISE BE QUALIFIED AS A PROSPECTIVE INVESTOR. 20. CHANGES IN STATUS. If, before the sale of any Shares to the Investor, the Investor's investment intent as expressed herein materially changes, or if any change occurs that would make either the representations or warranties made by the Investor herein or the information provided by the Investor in any of the forms attached hereto (including Annex I attached hereto) materially untrue or misleading, then the Investor shall immediately so notify the Corporation, and any prior acceptance of the subscription of the Investor shall be voidable at the option of the Corporation in its sole and absolute discretion. 21. FORWARD LOOKING STATEMENTS. The Offering Documents to the Investor contain forward-looking statements within the meaning of Section 27A of the Securities Act. Such forward-looking statements are indicated by the use of such words as "intends," "expects," "may," "anticipates," "estimates," "desires," "believes," "projections" and similar expressions. Actual results may differ from those described by forward-looking statements as a result of many risks and uncertainties. 22. MATERIAL NON-PUBLIC INFORMATION: NO TRADING. The Investor acknowledges and agrees that he or she may have received material non-public information that has been disclosed to the Investor for the purpose of evaluating the Corporation and the Shares. The Investor agrees that he or she shall not purchase or sell any securities of the Corporation until such time as all material information provided to the Investor has been made publicly available. 6 IN WITNESS WHEREOF, the Investor executes and agrees to be bound by this Subscription Agreement by executing the Signature Page attached hereto to be effective as of the date therein indicated. INDIVIDUAL INVESTOR - --------------------------------- -------------------------------- Print Name of Purchaser Signature of Purchaser - --------------------------------- -------------------------------- Print Name of Spouse Signature of Spouse (if funds are to be invested (if funds are to be in joint name or are invested in joint name or community property) are community property) - --------------------------------- -------------------------------- Number of Shares purchased Amount of immediately available funds transferred herewith - -------------------------------------------------------------------------- Please PRINT the exact name(s) {registration)(7) desire(s) for the Shares - ---------------------------------- ( )___- ___________________ Occupation Tel. No. - ------------------------------- Social Security or Tax I.D., No. - -------------------------------- Street Address - ------------------------------------------------------------------------------- City State Zip SUBSCRIPTION ACCEPTED: BLACKWATER MIDSTREAM CORP.: Dated: By: ________________________________ Its: ____________________________ 7 IN WITNESS WHEREOF, the Investor executes and agrees to he hound by this Subscription Agreement by executing the Signature Page attached hereto to be effective as of the date therein indicated. ENTITY INVESTOR I have checked the appropriate boxes in Annex I ("Nature of Investor; Form of Ownership") as a qualifying entity and have completed the purchasing entity representation letter. - --------------------------------- ------------------------------------- Print Name of Partnership, Signature of authorized representative Corporation or Trust - --------------------------------- ------------------------------------- Signature of authorized Capacity of authorized representative representative - --------------------------------- $__________________________________ Number of Shares purchased Amount of immediately available funds transferred herewith - -------------------------------------------------------------------------------- Please PRINT the exact name(s) (registration) investor(s) desire(s) for the Shares ( ) ___-______ Tel. No. - -------------- Tax I.D. No. - ------------------------------------------------------------------------------- Street Address - ------------------------------------------------------------------------------- City State Zip - ---------------------- SUBSCRIPTION ACCEPTED: BLACKWATER MIDSTREAM CORP.: Dated:_______________ , 2008 BY:_________________________ Its: _______________________ 8 Annex I. Accredited Investor Form Each prospective investor in Shares of Common Stock of Blackwatcr Midstream Corp. that is a US resident must meet one or more of the standards enumerated below. By your signature below, you certify that you are an Accredited Investor as defined by Regulation D of the Act: I If you are not a US resident, indicate by initialing here: (a) You are a natural person whose individual net worth or joint net worth with your spouse at the time of your purchase of the Securities exceeds S1,000,000.00; - ----------------------- (Signature of Investor) (b) You are a natural person who had an individual income in excess of $200,000.00 in each of the two most recent years or joint income with your spouse in excess of $300,000.00 in each of those years and you have a reasonable expectation of reaching the same income level in the current year; - ------------------------ (Signature of Investor) (c) You are a trustee for a trust that is revocable by the grantor a-. any time (including an IRA) and the grantor qualified under either (a) or (b) above. A copy of the declaration of trust or trust agreement and a representation as to the net worth or income of the grantor is enclosed; - ---------------------- (Signature of Investor) (d) You are a trustee of a trust, with total assets in excess of 55,000,000.00, not formed for the specific purpose of acquiring the securities offered whose purchase is directed by a sophisticated person as described in Rule 506 (BX2Xii) of the Act; - ----------------------- (Signature of Investor) (e) You are an organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000.00; - ------------------------ Signature of Investor) (f) You are a director or officer of Blackwater Midstream Corp.; or - ----------------------- (Signature of Investor) (g) Investor is an employee benefit plan within the meaning of ERISA having total assets in excess of Five Million Dollars ($5,000,000.00). - ------------------------ (Signature of Investor) 9 (h) Investor is a self-directed employee benefit plan within the meaning of ERISA with investment decisions made solely by persons who arc accredited investors as defined in Rule 501(a) of Regulation D. - ----------------------- (Signature of Investor) (i) Investor is an entity all the equity owners of which are "accredited investors" within one or more of the above categories, other than Category (e). If relying upon this category alone, each equity owner must complete a separate copy of this Subscription Agreement - ----------------------- (Signature of Investor) (j) You represent and warrant that (i) if you are an individual or individuals, none of you have been convicted of a felony: or (ii) if you are a corporation, partnership, limited liability company, trust or other entity, none of the beneficial owners thereof have been convicted of a felony. - ----------------------- (signature of Investor) The Investor is/are (INITIAL AND CHECK. ALL APPLICABLE ANSWERS): -------------------------------------------- INITIAL CHECK ____1. [ ] Individual (one signature required) ____2. [ ] Joint Tenants with right of survivorship (both parties must sign) _____3. [ ] Tenants in Common (both parties must sign) _____4. [ ] Community Property (one signature required if the Shares are held in one name, I.E., managing spouse; two signatures required if the Shares are held in both names or if purchaser is a resident of California) _____5. [ ] Corporation (signature of authorized party or parties required) _____6. [ ] Partnership (signature of general partner required and all additional signatures required by Partnership Agreement) _____7. [ ] Trust (Trust must sign as follows: [UNREADABLE] _____8. [ ] Other Entities (signatures as required by applicable organization documents) DATE:_____________________ _____________________________________________________________________ PRINT NAME PRINT NAME _____________________________________________________________________ SIGNATURE SIGNATURE 10 EXHIBIT A RISK FACTORS YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THE INVESTMENT MEMORANDUM DATED JUNE 2008 BEFORE DECIDING WHETHER TO INVEST IN SHARES OF OUR COMMON STOCK (THE "SHARES'). THE OCCURRENCE OF ANY OF THE FOLLOWING RISKS COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS. IN ANY SUCH CASE, YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT. Risks Inherent in Our Business Our success depends on the viability of our business model, which is unproven and may he unfeasible. Our revenue and income potential are unproven, and our business model is new. We have not commenced any development operations. Our activities to date have been primarily negotiating the acquisition of real property, selecting management and developing a business strategy. Our business model is based on a variety of assumptions relating to our ability to develop fuel storage facilities, the revenue and cost assumptions for our facility and our operating costs and expenses. These assumptions may not reflect the business and market conditions that we actually face. As a result, our operating results could differ materially from those projected under our business model, and our business model may prove to he less profitable than we anticipate. We expect to experience losses initially. Our initial operations will he to design and construct the facility. During this period, we will incur operating and net losses. We intend to increase our operating expenses substantially as we: o Acquire real property; O Continue to build our management team and corporate infrastructure; and o Design and construct our fuel storage facilities. Because we will spend these amounts before we receive any significant revenue from these efforts, our losses will he substantial. In addition, we may find that these efforts are more expensive than we currently anticipate which would further increase our losses. We are unable to provide ANY assurance or guarantee that our Corporation will become profitable or generate positive cash flow at any time in the future. We must accomplish a number of critical business objectives to be successful. In order to succeed, we must do most, if not all, of the following: o raise additional corporate equity and/or debt to have sufficient funds to construct the facility: o obtain all required zoning, permitting and other entitlements to construct the facility; o design and construct the facility; o attract, integrate, retain and motivate qualkified management and technical personnel; o attract long-term customers; o respond appropriately and timely to competitive developments; and o develop, enhance, promote and carefully manage our corporate identity. 11 Our business will suffer if we are unable to accomplish these and other important business objectives. We may be forced to curtail or discontinue operations if we are unable to obtain, on commercially acceptable terms, additional equity capital that we may require from time to time in the Future to finance our operations and growth. The proceeds of the current Offering are expected to be sufficient to sustain pre-development activities for ;approximately 18 months. However, we need additional capital to construct the facility. We do not currently have sufficient cash reserves or revenue from operations to do so. Without additional capital we will not be able to construct the facility. We are unable to provide any assurance or guarantee that additional capital will he available when needed by our Corporation, or that such capital will be available under terms acceptable to our Corporation or on a timely basis. This limitation could harm substantially our business, results of operations and financial condition. We MAY BE UNABLE TO COMPETE SUCCESSFULLY AGAINST EXISTING AND FUTURE COMPETITORS, WHICH COULD HARM OUR MARGINS AND MAR BUSINESS, The fuel and chemical storage business is highly competitive. We expect the competitive environment to continue in the future. We face competition from a number of existing storage facilities. We believe that with relatively strong FINANCIAL PERFORMANCE OF FUEL and related industries, this industry will continue to attract new competitors and encourage existing competitors to increase their involvement. We can provide no assurance that we will be able to compete successfully against current or potential competitors. Many of our current and potential competitors have longer operating histories, better brand recognition and significantly greater financial, technical and marketing resources than we do. Many of these competitors may have well-established relationships with customers and other key partners and can devote substantially more resources to marketing and sales. As a result, they may be able to secure customers on more favorable terms. Larger competitors may enjoy significant competitive advantages that result from, among other things, a tower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for customers may increase. This will result in reduced prices and increased cost of sales, Our profitability may he reduced and you may experience a lower return on your investment, OUR INABILITY TO RETAIN OUR EXECUTIVE OFFICERS AND OTHER key personnel may harm our business and impede the implementation OF OUR BUSINESS STRATEGY. Our future success depends to a significant degree on the skills, experience and efforts of our key management personnel. Our principal managers are Michael Slider, Dale Chatagnier and Frank Marrocco. We have executed five-year employment agreements with each of them and have granted them substantial equity incentives to remain with the Corporation. However, we cannot guarantee that they will remain employees. The toss of their services could harm our business and operations. In addition, we have riot obtained key person life insurance on any of our key employees as of the date of this memorandum. If any of our executive officers or key employees left, died or was seriously injured and unable to work and we were unable to find a qualified replacement and/or to obtain adequate compensation for such loss, we may be unable to manage our business, which could harm our operating results and financial condition. However, we believe that qualified replacement personnel could be found to continue to execute the business plan. Our development activities could result in losses. Our facility is a new development from ground up. Development of new facilities always entails risks, such as the risks associated with delays in development; inability to obtain required permits and licenses, cost overruns, insufficient capital to complete construction, and other problems that may cause our properties not to perform as expected. The economic performance and value of our facility depend on many factors beyond our control. 12 The economic performance and value of our facility can he affected by many factors, including the following: o economic downturns and recessions; o declines in revenue due to loss of customers or reduced volume; o reduced demand in the surrounding geographic regions due to general economic conditions: o construction of competitive properties nearby and competition from other available facilities; o increased operating COSTS and expenses; and o availability of long term financing at reasonable rates. Our facility is subject to environmental laws and environmental risks. Under various federal, state and local laws, ordinances and regulations, we are considered to be an owner or operator of real property or to have arranged for the disposal or treatment of hazardous or toxic substances. As a result, we could become liable for the costs of removal or remediation of certain hazardous substances released on or in our property. We could also be liable for other costs that relate to hazardous or toxic substances (including governmental fines and injuries to persons and property). Many if not all of the chemicals and fuels we intend to store are considered to be hazardous materials. Inadvertent releases or spills can subject us to costly remediation expenses and/or fines. RISKS Relating to This Offering Our management has broad discretion regarding how to use the proceeds from this offering. We intend to use the proceeds from this offering to commence pre-construction activities and as working capital and operating expenses. Although we intend to spend the proceeds to in the best interests of the Corporation, we will have broad discretion over how we use these proceeds. We may spend these proceeds in ways with which you disagree. You will experience immediate and substantial dilution in the value of your Shares following this offering. If you purchase Shares in this offering, you will experience immediate and substantial book value dilution, in that the price you pay per Share will be substantially greater than our net tangible hook value per share or the per share value of our assets after subtracting our liabilities. Your ownership percentage will he diluted by future issuances of capital stock. Our business strategy requires us to raise additional equity capital through the sale of common stock or preferred stock, or the issuance of debt which may he convertible into equity securities. Your percentage of ownership will become diluted as we issue new shares of stock, unless you exercise any applicable preemptive rights set forth above. We may issue common stock, convertible debt or common stock pursuant to a public offering or a private placement, upon exercise of warrants or options, or to sellers of properties we directly or indirectly =wire instead of, or in addition to, cash consideration. Investors purchasing common Stock in this offering who do not participate in any future stock issues will experience dilution IN THE percentage of the issued and outstanding stock they own. The offering price of the Shares is arbitrary. The offering price of the Shares we are offering was arbitrarily determined by us, the management of our Corporations, and hears no relationship to earnings, asset values, book value or any other recognized criteria of value. 13 THE SHARES ARE RESTRICTED AND TRANSFERABILITY IS LIMITED. The Shares are offered and sold pursuant to one or more exemptions from registration under the Securities Act and without qualification or registration under the securities laws of the various states. Consequently, the Shares that you would he purchasing are restricted and may not be sold, transferred or hypothecated without registration under the Securities Act and applicable state laws or without an exemption from such registration or qualification. The Shares you will receive will bear a legend restricting their transfer accordingly. We HAVE SET NO MINIMUM INVESTMENT AND HAVE NOT ESTABLISHED AN ESCROW. WE HAVE NOT ESTABLISHED a minimum number of Shares that must be sold in this offering. As a result, all subscriptions accepted by us will be deposited into our Corporation's accounts and will be available for immediate use. We have rot established an escrow to hold any of the proceeds of this offering. IF FEWER THAN ALL of the Shares we are offering are sold, the proceeds may be insufficient to complete our business strategy. 14 EX-10.4 3 blackwater_10q-ex1004.txt EXHIBIT 10.4 Exhibit 10.4 FALCON INTERNATIONAL CONSULTING LIMITED PO BOX 173 KINGSTON CHAMBERS ROADTOWN TORTOLA BRITISH VIRGIN ISLANDS Blackwater Midstream. 28 May 2008 Gentlemen: 1. INTRODUCTION 1.1 This letter confirms the basis on which Blackwater Midstream. has engaged us, Falcon International Consulting Limited, to provide services with respect to introducing you to potential investors, and raising capital for you on a best efforts basis. 2. DEFINITIONS In this letter, the following expressions shall have the following meanings: "Closing" means the date on which a Transaction is completed. If funding is received and accepted by you in more than one tranche, there may be multiple Closings. "FSA" means Financial Services Authority. "Letter" means this letter and any appendices and schedules attached. "BWMS" means Blackwater Midstream., a Louisiana (USA) corporation "Relevant Person" means subsidiaries, affiliates, directors, officers, employees, consultants, agents of subsidiaries and affiliates and agents of successors and assigns of Falcon International Consulting Ltd. "Selling Memorandum" means a private placement memorandum or other offer document prepared on behalf of BWMS. "Transaction" means a raising of capital for BWMS. "UK Falcon" means Falcon Capital LLP, the UK affiliate of Falcon International Consulting Ltd. 3. OUR SERVICES 3.1 We agree to perform such of the following advisory services as you may reasonably and specifically request, including: 3.1.1 familiarising ourselves to the extent we deem it appropriate and feasible with your business, management, operations, finances and prospects; 3.1.2 assessing the strengths, weaknesses and opportunities available to you which may include an examination of the demand of the market for your goods and services; 3.1.3 undertaking an evaluation of your management; 3.1.4 preparing budget projections and developing financial models with you; 3.1.5 identifying and evaluating with you candidates for a potential Transaction; 3.1.6 assisting you in preparing a Selling Memorandum describing yourselves and your business for distribution to potential parties to a Transaction, which may involve the preparation of specific additional documents individually tailored for each potential party to a Transaction; 3.1.7 contacting potential candidates which we together have agreed may be appropriate for a potential Transaction, whether it be a specific candidate or a class of candidates; in rendering such services, we may meet with representatives of such candidates and provide such representatives with such information about you as may be appropriate, subject to the confidentiality provisions of Section 5 and provided that no information we provide will be inconsistent with any information contained in the Selling Memorandum; 3.1.8 developing strategies with you to inform and educate potential candidates for parties to a Transaction; 3.1.9 working on your behalf with potential candidates for parties to a Transaction to ensure they have a full understanding of the potential value of you and your business; 3.1.10 advising and assisting you in considering the desirability of effecting a Transaction and, if you believe such a Transaction to be desirable, in developing and implementing a general strategy for accomplishing a Transaction or, if more than one, a series of Transactions; 3.1.11 advising and assisting your senior management in making presentations to potential parties to Transactions; 3.1.12 advising and assisting you in the course of the negotiation of a Transaction, and actively participating in such negotiations and in the drafting of suitable sale and purchase agreements, in each case if appropriate; and 3.1.13 assisting you, where appropriate, after the completion of a Transaction (or Transactions), in your ongoing relationship with and obligations to investors and/or any other relevant parties to the Transaction(s), including (without limit) assisting you in meeting the conditions and objectives agreed pursuant to the Transaction(s). 3.2 We will not be required to provide services other than those referred to above, and in particular, we will not be responsible for providing or arranging loan facilities or underwriting services. Any other services or specialist advice (such as, without limit, advice on legal, regulatory, accounting, actuarial or taxation matters) shall be specifically arranged by you with other specialist advisers and we will not have any responsibility or liability in respect of any services or advice provided to you by any other person but we will be responsible for any services provided to you by our subsidiaries and affiliates. 3.3 You will furnish us, and if you enter into negotiations with a counterparty regarding a possible Transaction, request such a counterparty to furnish to us, such information as we reasonably request in connection with the performance of our services hereunder. You understand and agree that, in performing our services hereunder, we will use and rely on the information you have provided, as well as publicly available information relating to you and any potential counterparty, and we do not assume responsibility for independent verification of any information whether publicly available or otherwise furnished to us relating to you or any potential counterparty, including, without limitation, all financial information, forecasts or projections considered by us in connection with the rendering of our services. Accordingly, we shall be entitled to assume and rely on the accuracy and completeness of all such information and we are not required to conduct a physical inspection of any property or assets or prepare or obtain any independent evaluation or appraisal of any of your assets or liabilities or those of any potential counterparty. With respect to any financial forecast and projections made available to us by you or any counterparty and used by us in our analysis, we shall be entitled to assume that such forecast and projections have been reasonably prepared on a basis reflecting the best currently available estimates and judgements of your management or the management of any potential counterparty to a Transaction as the case may be. 4. ASSOCIATES AND AFFILIATES 4.1 In providing our services, we will make use of associate and affiliate companies. In particular, we will utilise the services of our UK affiliate, Falcon Capital LLP (UK FALCON), authorised and regulated by the FSA in the UK to transmit a Selling Memorandum on your behalf. We will instruct UK Falcon as appropriate. You will become the indirect customer of UK Falcon and will have the benefit of the obligations they owe you as a regulated entity. Your attention is drawn to the schedule attached which sets out various matters which UK Falcon is required to bring to your attention pursuant to the rules and guidance of the FSA (FSA RULES). 4.2 You authorise UK Falcon as your representative to transmit the Selling Memorandum to potential parties to a Transaction (if appropriate, after completion of a confidentiality agreement in a form acceptable to you). You hereby acknowledge that all information contained in the Selling Memorandum has been provided by you or based on information provided by you or third parties on your behalf, and you will be solely responsible for the contents thereof unless it is found in a final judicial determination or a settlement equivalent thereto that we have acted in a manner which is found to constitute bad faith or wilful misconduct on our part or the part of any of our affiliates or subsidiaries. 5. CONFIDENTIALITY 5.1 All material non-public information concerning you or your business which is given to us by or on your behalf will be used solely in the course of the performance of our services hereunder and will be treated confidentially by us so long as it remains non-public. Neither we nor any other Relevant Person will trade in the securities of SKYP while we are in possession of such material non-public information. We will not disclose such information to any third party, except (i) disclosure to candidates for a potential Transaction who have agreed to retain such information in confidence and who have agreed not to trade in the securities of SKYP while in possession of such material non-public information, and (ii) as otherwise required by law or by applicable regulations or by judicial or regulatory process (in which case we will first obtain your consent, which you will not unreasonably withhold). The obligations under this paragraph shall terminate on the second anniversary of the date of the termination of our engagement under this agreement. 6. FEES 6.1 You will pay us for our services fees equal to the following amounts, calculated solely with respect to the cash proceeds of Transactions with counterparties that we have introduced to you: 6.1.1 A CASH FEE EQUAL TO (I) 10% CASH ON CASH ($4,000,000 RAISED = $400,000 CASH FEE) 6.1.2 an equity fee paid in BWMS restricted common stock (EQUITY FEE SHARES), calculated at $2.00 per share, equal to (i) 10% of cash funded into your designated account ($5,000,000 raised = $500,000 in Equity Fee Shares at offering price), or 250,000 shares Falcon has the right to assign one Board Seat 6.2 The Equity Fee Shares will not be registered under the Securities Act of 1933, as amended. We represent and acknowledge that we have read and understand all of the matters contained under the heading "Risk Factors" in the Selling Memorandum, and that we are acquiring the Equity Fee Shares as an investment for our own account, and not for the purpose of a distribution. We also acknowledge that certificates representing the Equity Fee Shares will bear a legend substantially as follows: "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THIS CORPORATION, IS AVAILABLE." 7. TRANSACTIONS 7.1 The offering will commence on 1 June 2008, and will run through 31 July 2008. The offering can be extended with the mutual consent of both parties. 7.2 Upon agreement of this letter BWMS authorises Falcon International Consulting Limited to undertake a Transaction for up to $5,000,000, at a valuation of $53 million post money, which amount can be expanded with the mutual consent of both parties. The offering will have no fixed minimum 8. EXPENSES 8.1 In addition to any fees that may be payable to us hereunder and regardless of whether any Transaction is proposed or closed, you hereby agree from time to time to reimburse us for all our reasonable travel and other out of pocket expenses incurred in connection with any actual or proposed Transaction arising out of or in connection with our engagement by you on the terms of this letter, for which we receipts will be submitted. Expenses will be capped at 2% of the transaction 9. TERMINATION 9.1 Our engagement hereunder may be terminated by either party at any time with or without cause by written notice given by one party to the other. In the event that our engagement is terminated by you without a Closing having occurred and, at any time prior to the expiration of one year after such termination by you, a Transaction is closed with a counterparty introduced by us or you enter into a definitive agreement which leads to a Transaction with a counterparty introduced by us, we shall be entitled to our Advisory Fee; and the provisions of this Section and of Sections 6 and 10 -13 shall survive such termination. 10. PUBLICITY 10.1 In the event of the Closing of any Transaction we shall have the right at our own expense to disclose our participation in such Transaction, subject to your consent with respect to both the content and timing of that disclosure, which consent will not be unreasonably withheld. 11. SCOPE OF RESPONSIBILITY 11.1 We and any Relevant Persons shall not be liable to you, or any person claiming through you, for any claim, loss, damage, liability, cost or expense suffered by you or any such other person arising out of or related to our engagement hereunder, except for any claim, loss or expense that arises primarily out of or is based primarily upon any action or failure to act by us (other than an action or failure to act undertaken at your request or with your express written consent) that is found in the final judicial determination (or a settlement equivalent thereto) to constitute bad faith, wilful misconduct or gross negligence on our part or a breach of any obligation owed to you by UK Falcon pursuant to the FSA Rules or the regulatory system. 12. INDEMNITY 12.1 You agree to indemnify and hold harmless each and every Relevant Person to the full extent lawful against any and all claims, losses, damages, liabilities, costs and expenses as incurred (including all reasonable fees and expenses of counsel and all reasonable travel and other out of pocket expenses incurred) in connection with the investigation of, preparation for, and defence of any pending or threatened claim or any litigation or other proceedings arising therefrom, whether or not litigation is filed and whether or not any Relevant Person is made a party, arising out of or related to any actual or proposed Transaction or our engagement hereunder; provided there shall be excluded from such indemnification any claims, losses, damages, liabilities, costs or expenses that arise primarily out of or are based primarily upon any action or failure to act by us (other than an action or failure to act undertaken at your request or with your express written consent) that is found in a final judicial determination (or a settlement equivalent thereto) to constitute our bad faith, wilful misconduct or gross negligence. 12.2 You will not without our prior written consent settle any litigation relating to our engagement hereunder unless such settlement includes an express, complete and unconditional release of each Relevant Person with respect to all claims asserted in such litigation or relating to our engagement hereunder, such release to be set forth in any instrument signed by all the parties to such settlement. 13. GOVERNING LAW AND JURISDICTION 13.1 This agreement shall be governed by and construed in accordance with the laws of the British Virgin Islands without regard to the conflicts of laws provisions thereof. You agree to submit to the non-exclusive jurisdiction of the courts of the British Virgin Islands located in Roadtown, Tortola, British Virgin Islands in connection with any dispute relating to the terms of this letter or any of the matters contemplated by it and waive to the fullest extent permitted by law the right to move to dismiss or transfer any action brought in such court on the basis of any objection to jurisdiction or venue. 13.2 You hereby irrevocably consent to the service of process in any such proceeding by the mailing of copies of such process to you at the last address you have provided to us. 14. OUR DUTIES 14.1 You agree and understand that we have been engaged by you and you alone and our engagement is not to be deemed to be on behalf of and nor is it intended to confer rights upon any other person including any shareholder, partner or other owner of you or any person not a party to the agreement set out in this letter as against us or any Relevant Person. Unless otherwise expressly agreed, no one other than you is authorised to rely on your engagement of us in any statements, advice, opinions or conduct by us and you will not disclose such statements, advice, opinions or conduct to others (except your professional advisers or as required by law). Without limiting the foregoing, any opinions or advice rendered to your board or management in the course of your engagement of us are for the purposes of assisting your board and management as the case may be in evaluating a Transaction and do not constitute a recommendation to any person concerning action that such person might or should take in connection with the Transaction. Our role herein is that of an independent contractor, nothing herein is intended to create or shall be construed as creating any fiduciary relationship between us or any partnership between us. 15. DISCLOSURE 15.1 You agree and acknowledge that we may have and may continue to have relationships with other parties in the course of which we may acquire information which is of interest or benefit to you. We have no obligation to disclose any information to you. You shall have no entitlement to share or participate in any revenues we derive from any engagement we may undertake. 16. MISCELLANEOUS 16.1 This letter contains the entire agreement between us and supersedes all prior agreements, arrangements and understanding (both written and oral) and cannot be amended or otherwise modified except in writing and signed by both of us. The provisions of this agreement shall be binding on the successors and the assigns of each of us. All fees and other amounts to be paid to us pursuant to the terms of this letter shall be paid in U.S. dollars or NCOA shares, as specified, free and clear of and without deductions or withholding on account of, taxes of any kind, provided that we shall have provided you such information as you may reasonably request in order that you may comply with applicable laws and regulations. 17. ACCEPTANCE 17.1 Can you please confirm your acceptance of our engagement on the terms set out in this letter by signing, dating and returning the attached copy. The top copy is for you to keep for your records. Yours truly For FALCON INTERNATIONAL CONSULTING LIMITED By: ______________________________ We hereby confirm your engagement on and subject to the terms and conditions set out in this letter. For BLACKWATER MIDSTREAM By: ______________________________ Michael Suder EX-31.1 4 blackwater_10q-ex3101.txt CERTIFICATION EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A)/15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. I, Michael D. Suder, Chief Executive Officer (Principal Executive Officer), certify that: (1) I have reviewed this quarterly report on Form 10-Q of Blackwater Midstream Corp.; (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; (4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant 's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and (5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ Michael D. Suder --------------------------------------- Michael D. Suder, Chief Executive Officer August 19, 2008 EX-31.2 5 blackwater_10q-ex3102.txt CERTIFICATION EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A)/15D-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. I, Donald St. Pierre, the Chief Financial Officer (Principal Financial Officer), certify that: (1) I have reviewed this quarterly report on Form 10-Q of Blackwater Midstream Corp.; (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; (4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant 's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and (5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ Donald St. Pierre -------------------------------- Donald St. Pierre Chief Financial Officer August 19, 2008 EX-32.1 6 blackwater_10q-ex3201.txt CERTIFICATION EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of BLACKWATER MIDSTREAM CORP. (the "Company") on Form 10-Q for the quarter ended June 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael D. Suder, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. August 19, 2008 By: /s/ Michael D. Suder ----------------------------------- Michael D. Suder Chief Executive Officer EX-32.2 7 blackwater_10q-ex3202.txt CERTIFICATION EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of BLACKWATER MIDSTREAM CORP. (the "Company") on Form 10-Q for the quarter ended June 30, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Donald St. Pierre, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. August 19, 2008 By: /s/ Donald St. Pierre ----------------------------------- Donald St. Pierre Chief Financial Officer EX-99.1 8 blackwater_10q-ex9901.txt PRESS RELEASE Exhibit 99.1 Blackwater Midstream Announces Completion of $4.2 Million Common Stock Offering Blackwater Midstream Corp. (OTCBB:BWMS), a liquid petroleum and chemical terminal storage company, announced today that it has completed the private placement of approximately $4.2 million of common stock to accredited and offshore investors. Falcon Securities (UK) Limited, a member of the London Stock Exchange and a company regulated by the Financial Services Authority of England, acted as placement agent. The proceeds of the offering will be used to commence design and construction of the first phase of a planned total of 10 million barrels of liquid petroleum storage terminal capacity in the lower Mississippi region. Additionally, Blackwater Midstream is pursuing the acquisition of existing terminal storage facilities and will use a portion of the proceeds to prepare for its anticipated listing on the NASDAQ Capital Market. Michael Suder, CEO of Blackwater Midstream, said, "This initial investment indicates that investors have confidence in our business strategy and management team. We believe this offering will allow us to execute on our plans and dramatically grow the enterprise." Crystal Parzik artfix media CRYSTAL@ARTFIXMEDIA.COM -----END PRIVACY-ENHANCED MESSAGE-----