Best Energy Services 10Q 2009 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended July 31, 2008

o Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period to

Commission File Number: 000-53260

Best Energy Services, Inc.

(Exact name of small business issuer as specified in its charter)

Nevada	02-0789714
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

1010 Lamar St., Suite 1200, Houston Texas 77002

(Address of Principal Executive Offices) (Zip Code)

(713) 933-2600

(Issuer’s Telephone Number, including Area Code)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, par value $0.001 per share

(Title of Class)

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

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

Large Accelerated filer o Accelerated filer o Non-Accelerated filer o (Do not check if a smaller reporting company) Smaller Reporting Company x

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 20,216,366 common shares as of August 31, 2008.

Transitional Small Business Disclosure Format (check one): Yes o No x

BEST ENERGY SERVICES, INC.

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	Page

PART I. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements	3
Unaudited Consolidated Balance Sheets as of July 31, 2008 and January 31, 2008	3
Unaudited Consolidated Statements of Operations for the Six Months and Three Months Ended July 31, 2008 and 2007	4
Unaudited Consolidated Statements of Cash Flow for the Six Months Ended July 31, 2008 and 2007	5
Unaudited Consolidated Statement of Stockholders’ Equity for the Six Months Ended July 31, 2008	6
Notes to Unaudited Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3. Quantitative and Qualitative Disclosures About Market Risk	29
Item 4. Controls and Procedures	29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	30
Item 1A. Risk Factors	30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 4. Submission of Matters to a Vote of Security Holders	30
Item 5. Other Information	30
Item 6. Exhibits	31
Signatures	32

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PART I

Item 1. Financial Statements

Best Energy Services , Inc.

Consolidated Balance Sheets

(Unaudited)

ASSETS	July 31, 2008			January 31, 2008
Current assets
Cash	$	884,403		$	5
Accounts receivable, net of allowance for doubtful accounts		2,715,780			-
Prepaid and other current assets		349,953			-
Total current assets		3,950,136			5

Property and equipment, net		30,639,642			-
Deferred financing costs, net		833,314			-
Goodwill and other intangible assets		8,867,745			-

TOTAL ASSETS	$	44,290,837		$	5

LIABILITIES AND STOCKHOLDER’S EQUITY

Current liabilities
Accounts payable and accrued liabilities	$	224,657		$	10,141
Accrued officer compensation		925,000			22
Preferred dividends payable		340,338			-
Current portion of loans payable		1,405,992			-
Total current liabilities		2,895,987			10,163

Loans payable		20,206,402			-
Deferred income taxes		9,305,996			-
TOTAL LIABILITIES		32,408,385			10,163

STOCKHOLDERS’ EQUITY (DEFICIT)
Series A Preferred Stock, 2,250,000 shares authorized, 1,458,592 shares issued and outstanding, at redemption value of $10 per share.		14,585,920			-
Common stock, $0.001 par value per share; 90,000,000 shares authorized; 20,216,366 and 9,685,000 shares issued and outstanding, respectively		20,216			9,685
Additional paid-in capital		1,928,536			98,109
Retained deficit		(4,652,220	)		(117,952	)
Total stockholders’ equity (deficit)		11,882,452			(10,158	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	44,290,837		$	5

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

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Best Energy Services, Inc.

Consolidated Statements of Operations

For the six and three months ended July 31, 2008 and 2007

(Unaudited)

	Six months ended July 31,						Three months ended July 31,
		2008			2007			2008			2007

Revenues
Well service revenue	$	8,502,681		$	-		$	4,628,882		$	-
Drilling service revenue		1,843,500			-			1,542,413			-
Portable rig housing revenue		373,877			-			263,035			-
Total revenue		10,720,058			-			6,434,330			-

Costs and expenses:
Cost of operations		4,690,805			-			2,746,647			-
Depreciation and amortization		1,611,170			-			891,649			-
General and administrative expense		5,743,421			23,152			2,553,587			11,006
Total operating costs and expenses		12,045,396			23,152			6,191,883			11,006

Net operating income (loss)		(1,325,338	)		(23,152	)		242,447			(11,006	)

Other income (expense):
Interest income		19,697			-			586			-
Interest expense		(3,221,834	)		-			(364,347	)		-
Loss on sales of property and equipment		(6,793	)		-			(6,793	)		-

Loss before provision for income taxes		(4,534,268	)		(23,152	)		(128,107	)		(11,006	)
Income tax		-			-			-			-
Net loss from continuing operations		(4,534,268	)		(23,152	)		(128,107	)		(11,006	)
Loss from discontinued operations		-			(4,541	)		-			(86	)
Net loss		(4,534,268	)		(27,693	)		(128,107	)		(11,092	)

Preferred dividend		(466,858	)		-			(466,858	)		-
Net loss attributable to common shareholders	$	(5,001,126	)	$	(27,693	)	$	(594,965	)	$	(11,092	)

Per common share data:
Loss from continuing operations – basic and diluted	$	(0.27	)	$	(0.00	)	$	(0.03	)	$	(0.00	)
Discontinued operations – basic and diluted		-			(0.00	)		-			(0.00	)
Net loss – basic and diluted	$	(0.27	)	$	(0.00	)	$	(0.03	)	$	(0.00	)

Weighted average common shares outstanding – basic and diluted		18,604,444			9,685,000			20,216,366			9,685,000

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

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Best Energy Services, Inc.

Consolidated Statements of Cash Flow

For the six months ended July 31, 2008 and 2007

(Unaudited)

		2008			2007
Cash flow from operating activities:
Net loss		$	(4,534,268	)	$	(27,693	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation			1,611,170			-
Stock based compensation			202,106			-
Non-cash interest expense			2,587,752			-
Loss on sale of property and equipment			6,793			-
Changes in operating assets and liabilities:
Accounts receivable			(392,729	)		-
Prepaid expenses	��		(254,423	)		-
Accounts payable and accrued liabilities			1,179,730			(11,446	)
Net cash used by operating activities, before discontinued operations			406,131			(39,139	)
Net cash flow from discontinued operations			-			(16,369	)

Net cash used by operating activities			406,131			(55,508	)

Cash flows from investing activities:
Acquisition of businesses, net of cash acquired			(31,385,943	)		-
Capital expenditures, net			(267,662	)		-
Proceeds from disposal of property and equipment			17,412			-

Net cash used by investing activities			(31,636,193	)		-

Cash flows from financing activities:
Proceeds from issuance of Term Loan			5,850,000			-
Repayments of Term Loan			(487,500	)		-
Net borrowings under Revolving Advances			15,863,055			-
Net repayments of other notes payable			(38,109	)		-
Proceeds from issuance of Units in private placement			11,848,080			-
Payment of deferred financing costs			(921,066	)		-

Net cash provided by financing activities			32,114,460			-

Increase (decrease) in cash cash and equivalents			884,398			(55,508	)
Cash and cash equivalents, beginning of period			5			108,054
Cash and cash equivalents, end of period		$	884,403		$	52,546

Supplemental disclosures of cash flow information:
Cash paid for interest		$	616,704		$	-
Cash paid for taxes		$	150,000		$	-
Noncash investing and financing activities:
Units issued in exchange for collateral agreements		$	2,500,000			-
Shares issued for the purchase of assets from ARH and DSS			2,321,500			-
Shares issued for the purchase of BWS			100,000			-
Retirement of common shares			6,080			-
Preferred stock issued in payment of preferred stock dividends			126,520			-
Accrued dividends on preferred stock			340,338			-

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

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Best Energy Services, Inc.

Consolidated Statement of Stockholders’ Equity

For the six months ended July 31, 2008

(Unaudited)

	Series A Convertible Redeemable Preferred Stock				Common Stock						Paid-in			Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount			Capital			Deficit			Equity

Balance - January 31, 2008		-	$	-		9,685,000		$	9,685		$	98,109		$	(117,952	)	$	(10,158	)

Shares retired		-		-		(6,080,000	)		(6,080	)		6,080			-			-
Units issued for cash, net		1,220,940		12,209,400		8,478,750			8,478			(369,798	)		-			11,848,080
Units issued for services, net		225,000		2,250,000		1,562,500			1,563			(51,563	)		-			2,200,000
Shares issued for BWS acquisition		-		-		46,744			47			99,953			-			100,000
Shares issued for ARH acquisition		-		-		6,200,000			6,200			2,265,300			-			2,271,500
Shares issued for DSS acquisition		-		-		23,372			23			49,977			-			50,000
Preferred stock dividends paid in-kind		12,652		126,520		-			-			(126,520	)		-			-
Accrued preferred dividends		-		-		-			-			(340,338	)		-			(340,338	)
Shares issued for services		-		-		300,000			300			74,700			-			75,000
Share based compensation		-		-		-			-			222,636			-			222,636
Net loss		-		-		-			-			-			(4,534,268	)		(4,534,268	)

Balance - July 31, 2008		1,458,592		14,585,920		20,216,366			20,216			1,928,536			(4,652,220	)		11,882,452

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

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Best Energy Services, Inc.

Notes to Unaudited Consolidated Financial Statements

July 31, 2008

Note 1 - Organization and Basis of Presentation

Nature of Business

Best Energy Services, Inc. was incorporated in Nevada on October 31, 2006 as Hybrook Resources Corp. Hybrook was formed for the purpose of acquiring exploration and development stage mineral properties. On February 14, 2008, Hybrook changed its name to Best Energy Services, Inc.

We are an energy services company engaged in well service, drilling services and related complimentary activities. We own a total of 25 Workover rigs and 12 drilling rigs, and we conduct our workover, completion and drilling services in the Rocky Mountain and Mid-Continent regions of the United States. We also provide housing accommodations to the oil and gas drilling industry principally in Texas.

Since inception on October 31, 2006 through our year end January 31, 2008, as Hybrook Resources Corp., we were a development stage company with an option to purchase an 85% interest in a mineral claim in British Columbia. We did not exercise our option and no minerals have been discovered. As a result of the acquisitions discussed below, all mineral activities have been discontinued. The results of these activities have been included in discontinued operations in the accompanying consolidated financial statements.

On February 14, 2008, we completed the acquisition of two companies, Best Well Service, Inc. (“BWS”), a Kansas corporation, and Bob Beeman Drilling Company (“BBD”), a Utah corporation. On February 27, 2008, we acquired certain assets from American Rig Housing, Inc. (“ARH”), Robert L. Beeman d/b/a BB Drilling Co. (“BB Drilling”), and Drill Site Services & Investments, LLC (“DSS”).

As a result of these acquisitions, we operate in one segment, oilfield services, which includes well services, drilling services and the housing accommodations sectors.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Basis of Presentation and Principles of Consolidation

Our unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission as they pertain to Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The unaudited financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations for the interim periods on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. We believe that the disclosures contained herein are adequate to make the information presented not misleading. The consolidated balance sheet at January 31, 2008, as presented herein, is derived from the January 31, 2008 audited consolidated financial statements. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended January 31, 2008. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

These consolidated financial statements include the accounts of Best Energy and its wholly-owned subsidiaries BWS and BBD. All significant inter-company balances and transactions have been eliminated.

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Note 2-Summary of Significant Accounting Policies

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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

We consider all highly liquid investments with maturities from date of purchase of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit with domestic banks and, at times, may exceed federally insured limits. As of July 31, 2008, we had cash balances of approximately $497,000 in excess of federally insured limits.

Accounts Receivable

We provide for an allowance for doubtful accounts on trade receivables based on historical collection experience and a specific review of each customer’s trade receivable balance. Based on these factors we have established an allowance for doubtful accounts of $48,281 at July 31, 2008. No accounts were written off during the six months ended July 31, 2008 and 2007, respectively.

Credit Risk

We are subject to credit risk relative to our trade receivables. However, credit risk with respect to trade receivables is minimized due to the nature of our customer base.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the respective assets, generally four to ten years. Leasehold improvements are amortized on a straight-line basis over the shorter of the assets’ useful lives or lease terms.

Classification	Estimated Useful Life
Rigs and related equipment	10 years
Vehicles	5 years
Heavy trucks and trailers	7 years
Leasehold improvements	5 years
Office equipment	3 years

The cost of asset additions and improvements that extend the useful lives of property and equipment are capitalized. Routine maintenance and repair items are charged to current operations. The original cost and accumulated depreciation of asset dispositions are removed from the accounts and any gain or loss is reflected in the statement of operations in the period of disposition.

Impairment of Long-Lived Assets

Long-lived assets, including property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If it is determined that an impairment loss has occurred, the loss is measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value.

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Goodwill

Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible assets of businesses acquired. These business acquisitions include BWS, BBD, BB Drilling and DSS in February 2008. We evaluate goodwill for impairment utilizing undiscounted projected cash flows in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” As of July 31, 2008, we believe that no such impairment has occurred. Goodwill has been adjusted for purchase price adjustments recognized during the current fiscal year.

Financial Instruments

The carrying value of our financial instruments, consisting of cash, recoverable advances, accounts payable and accrued liabilities and due to related party approximate their fair value due to the short maturity of such instruments. Unless otherwise noted, it is management’s opinion that Best Energy is not exposed to significant interest, exchange or credit risks arising from these financial instruments.

Best Energy follows FASB Statement of Financial Accounting Standards No. 150 (FAS-150), Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. FAS 150 establishes standards for issuers of financial instruments with characteristics of both liabilities and equity related to the classification and measurement of those instruments and Best Energy applies the provisions of this statement in the determination of whether its mandatorily redeemable preferred stock is properly classified as a liability or equity.

Income Taxes

We use the asset and liability method of accounting for income taxes pursuant to FAS No. 109 “Accounting for Income Taxes ”. Under the asset and liability method of FAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and loss carryforwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Revenue Recognition

We recognize service revenue based on rate agreements in effect with customers as the service is provided and realization is assured. We recognize equipment sales revenue when risk of loss has transferred to the purchaser and collectability is reasonably assured.

Stock based compensation

We account for stock based compensation in accordance with SFAS No. 123 (R), Share—Based Payment, which establishes accounting for stock-based payment transactions for employee services and goods and services received from non-employees. Under the provisions of SFAS No. 123(R), stock-based compensation cost is measured at the date of grant, based on the calculated fair value of the award, and is recognized as expense over the employee’s or non-employee’s service period, which is generally the vesting period of the equity grant.

Income (Loss) per Share

We report basic loss per share in accordance with FAS No. 128, “Earnings per Share”. Basic loss per share is computed using the weighted average number of shares outstanding during the period. Fully diluted earnings (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of common stock equivalents (primarily outstanding options and warrants). Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon Best Energy’s net income (loss) position at the calculation date. Diluted loss per share has not been provided as it is antidilutive.

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Recent Accounting Pronouncements

We do not believe that the adoption of recent accounting pronouncements will have a material effect on our consolidated results of operations, financial position, or cash flows.

Note 3- Business Combinations and Acquisitions

Best Well Service, Inc.

We have arranged to obtain additional information regarding certain asset valuations related to this acquisition, thus, the allocation of the purchase price is preliminary and subject to refinement.

We have included the operating results of BWS in our consolidated financial statements from the date of acquisition.

As part of this transaction, we have entered into a three year lease with Mr. Bruce for an equipment yard located in Liberal, Kansas at $3,500 per month plus related expenses that we anticipate will additionally cost approximately $1,500 per month over the term of the lease. BWS continues to operate as our wholly-owned subsidiary. In addition, as part of the Acquisition Agreement, we also entered into a one year employment agreement with Mr. Bruce under which he will serve as a Vice President of our Central Division for an annual salary of $150,000. Mr. Bruce has also agreed to join our board of directors. Prior to the execution of the foregoing agreements with Mr. Bruce, there was no material relationship between us and Mr. Bruce.

Our acquisition of BWS brings us a strong footprint in the hydrocarbon rich Hugoton basin. BWS operates 25 well service rigs in the Mid-Continent region of the United States. BWS has distinguished itself over the years in its service to major oil companies and large independents, as well as an employee retention history that we believe is among the best in the industry.

Bob Beeman Drilling Company

On February 14, 2008, we acquired BBD by acquiring all of its issued and outstanding stock from its sole shareholder, Robert L. Beeman, for a total purchase price of $4,750,000, payable as follows: (i) a note for $4,050,000 was issued to Mr. Beeman at closing which was paid off shortly thereafter through funding provided by our Credit Facility more fully described in Note 5 below; (ii) $200,000 in a previously paid deposit; and (iii) funds in the amount of $500,000 were delivered to an escrow agent to be held as security for Mr. Beeman’s indemnification obligations under the acquisition agreement for a period of six months. The Acquisition has been accounted for using the purchase method in accordance with SFAS No. 141, Business Combinations , which has resulted in the recognition of goodwill and other intangibles in Best Energy’s consolidated financial statements.

We have included the operating results of BBD’s in our consolidated financial statements from the date of acquisition.

As part of this transaction, we have entered into a one year lease with Mr. Beeman for equipment yards located in Moab, Utah and Wellington, Utah at $6,000 per month plus related expenses that we anticipate will additionally cost approximately $1,500 per month over the term of the lease. BBD continues to operate as our wholly-owned subsidiary. Prior to the execution of the foregoing agreements with Mr. Beeman, there was no material relationship between us and Mr. Beeman.

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Our acquisition of BBD and the assets of its affiliates described below established us in three separate markets, which currently are in the Rocky Mountain region:

· Core hole drilling for delineating mineral deposits;

· Water well drilling in five states; and

· Oil and gas drilling capability.

BBD operates 12 drilling and core rigs in the Rocky Mountain region of the United States. We believe that the BBD acquisition helps establish our presence with these three customer bases, but we also have a large surplus of underutilized equipment which we believe can be redeployed which would increase utilization rates and cash flows to us.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed from BWS and BBD at the date of acquisition. We are in the process of obtaining third-party valuations of certain intangible assets; thus, the allocation of the purchase price is subject to refinement.

	BWS			BBD
Accounts receivable	$	1,785,985		$	434,989
Property and equipment		20,710,670			8,098,499
Goodwill		6,692,728			-
Total assets acquired		29,189,383			8,533,488
Vehicle notes payable		(424,952	)		-
Deferred income tax		(6,251,175	)		(2,714,603	)
Total liabilities assumed		(6,676,127	)		(2,714,603	)
Net assets acquired	$	22,513,256		$	5,818,885

Deferred income tax liabilities were created in accordance with FASB Interpretation No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method .

Asset Purchases

On February 27, 2008, we acquired certain assets of ARH in exchange for 6,200,000 shares of our common stock. These assets consist of oil field rig houses, motor vehicles, rolling stock and related tools and equipment. We assumed no liabilities of ARH in connection with this transaction. We have valued this transaction at $2,271,500 based on a third-party appraisal of the assets. ARH is owned and controlled by Mr. Larry Hargrave, our chief executive officer and a director. As part of this transaction, we have entered into a three year lease with Mr. Hargrave for an equipment yard located in Cleveland, Texas at $6,000 per month plus related expenses that we anticipate will additionally cost approximately $1,500 per month over the term of the lease. We intend to continue the operations as a division, using the name American Rig Housing. In addition, ARH has agreed to not compete with us for a period of five years and to not solicit our customers, suppliers, or employees for a period of three years.

Our acquisition of the assets of ARH established our presence in the fabrication and/or rental of crew quarters for the drilling sector. ARH provides living quarters, field offices and ancillary equipment to support remote field operations. Our operations in this division are located near our corporate headquarters in Houston, Texas.

Also on February 27, 2008, we acquired certain assets of BB Drilling from its owner, Robert L. Beeman, for a cash purchase price of $2,000,000, and certain assets of Drill Site Services (“DSS”) from its owner, Todd Beeman, for a purchase price of $1,000,000 paid in cash plus common stock valued at $50,000 based on a 10-day volume weighted average price, commencing with the first day of trading (23,372 shares). These assets consist of drilling rigs, motor vehicles, rolling stock, pumps and related tools and equipment. We assumed no liabilities of BB Drilling or DSS in connection with this transaction. We contributed the assets acquired from BB Drilling and DSS into BBD which will utilize them in its operations. As part of the transaction, the former owners have agreed to restrict the disclosure of confidential information pertaining to our business, and will not compete with our business or solicit our customers, suppliers or employees for a period of five years. We have entered into an employment agreement with Todd Beeman to act as our General Manager of Western Operations for an annual salary of $150,000.

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Note 4 - Property and equipment, net

Property and equipment consists of the following at July 31, 2008:

Rigs, pumps, compressors, rig houses and related equipment	$	28,784,366
Heavy trucks, trailers, dirt equipment		1,805,837
Vehicles and other equipment		1,514,160
Office and computer equipment		47,914
Leasehold improvements		97,587
Total property and equipment		32,249,864
Less: accumulated depreciation		(1,610,222	)
Property and equipment, net	$	30,639,642

Depreciation expense was $1,611,170 for the six months ended July 31, 2008. No depreciation expense was recognized during the six months ended July 31, 2007.

Note 5 – Loans payable

The following table summarizes loans payable as of July 31, 2008:

Revolving advances	$	15,863,055
Term loan		5,362,500
Vehicle notes payable		386,839
Total loans payable		21,612,394
Current portion of loans payable		1,405,992
Loans payable, net of current portion	$	20,206,402

On February 14, 2008, we entered into a Revolving Credit, Term Loan and Security Agreement with PNC Bank, N.A. (“Credit Facility”) to borrow up to $25,000,000 at approximately prime plus one percent. The revolving credit portion of the debt, equal to $19,150,000, may be borrowed and re-borrowed until maturity on February 14, 2012. Monies borrowed against the term loan portion of the total debt agreement, equal to $5,850,000, are amortized and must be repaid on a 60 month amortization schedule, with an annual 25% recapture of excess cash flow applied to the principal balance. The Credit Facility is secured by all of the assets and equipment of BWS and BBD and is due on February 14, 2012.

In order to fund our acquisition of BWS and BBD we drew $15,114,627 on the Revolving Advances and $2,850,000 on the Term Loan. We drew and additional $3,000,000 in order to close the acquisition of BB Drilling and DSS. We drew on the Revolving Advances as necessary for working capital purposes and repaid principal on the note with collections on accounts receivable.

We have entered into various note agreements for the purchase of vehicles used in our business. The notes bear interest at rates between 1.90% and 9.10%, require monthly payments of principal and interest and are generally secured by the specific vehicle being financed. The notes typically have original terms of three to four years. The majority of these notes were assumed by us in the acquisition of BWS.

Future minimum payments under existing notes payable are as follows:

For the twelve months ending July 31,
2009	$	1,405,992
2010		1,289,218
2011		1,201,629
2012		17,715,555

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Note 6 - Stock Options and Warrants

Stock Options

Incentive and non-qualified stock options issued to directors, officers, employees and consultants are issued at an exercise price equal to or greater than the fair market value of the stock at the date of grant. The stock options vest over a period from zero to one year, and expire five years from the date of grant. Compensation cost related to stock options is recognized on a straight-line basis over the vesting or service period and is net of forfeitures.

The fair value of each stock option granted is estimated on the date of grant using a Black-Scholes option pricing model. The following table presents the assumptions used in the option pricing model for options granted during the six months ended July 31, 2008. The expected life of the options represents the period of time the options are expected to be outstanding. The expected term of options granted was derived based on a weighting between the average midpoint between vesting and the contractual term. Our expected volatility is based on the historical volatility of comparable companies for a period approximating the expected life, due to the limited trading history of our common stock. The risk-free interest rate is based on the observed U.S. Treasury yield curve in effect at the time the options were granted. The dividend yield is based on the fact that we do not anticipate paying any dividends on common stock in the near term.

Expected life (years)	2.5 - 3.0		-
Risk-free interest rate	2.23 - 2.81	%
Volatility	120	%
Dividend yield	0	%

A summary of our stock option activity and related information is presented below:

		Weighted
		Average
	Number of	Exercise Price
	Options	Per Option
Options outstanding at January 31, 2008	—		—
Granted	1,350,000	$	0.39
Exercised	—		—
Forfeited	—		—
Options outstanding at July 31, 2008	1,350,000	$	0.39

Options vested and exercisable at July 31, 2008	450,000	$	0.16

During the six months ended July 31, 2008, 1,350,000 options were granted with a weighted average grant date fair value of $0.20. During the six months ended July 31, 2008 no options were exercised, forfeited or expired. As of July 31, 2008, there was approximately $77,500 of total unrecognized compensation cost related to non-vested stock options which is expected to be recognized over a weighted-average period of approximately five months. We recognized $192,200 of stock based compensation expense related to stock options during the six months ended July 31, 2008.

The aggregate intrinsic value of stock options outstanding at July 31, 2008 was approximately $2,853,000, of which approximately $1,053,000 relates to awards vested and exercisable. The intrinsic value for stock options outstanding is calculated as the amount by which the quoted price of our common stock as of July 31, 2008 exceeds the exercise price of the option.

Warrants

On March 5, 2008, we issued warrants to purchase 200,000 shares of common stock to Elite Financial Communications Group, LLC, in partial payment for services to be provided under a one-year services agreement. The warrants expire two years after registration of the underlying shares of common stock and are exercisable in four tranches of 50,000 shares each at prices of $0.20, $0.24, $0.28, and $0.32 per share, subject to certain adjustments. We valued these warrants using the Black-Scholes option pricing model with the following assumptions: stock price on the grant date of $0.25, expected life of two years, expected volatility of 120%, risk-free interest rate of 2.59%, and expected dividend rate of 0.00. The total value of the options of $30,436 is being recognized over the vesting period of nine months.

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Note 7 - Stockholders’ Equity

Share retirement

Prior to the closing of the acquisition of BWS and BBD, certain stockholders returned a total of 6,080,000 shares of common stock to Best Energy which were retired.

Private placement

During the six months ended July 31, 2008, we completed a private placement of 13,566 Units at a price of $1,000 per unit. Each Unit consists of 90 shares of Series A Convertible Redeemable Preferred Stock (“Series A Preferred Stock”) and 625 shares of common stock. As a part of the private placement, we have agreed to use our best efforts to file a registration statement for the underlying shares of common stock with liquidated damages if we did not file within 90 days of the closing of the offering, or June 29, 2008. We filed the required registration statement on June 11, 2008.

The Series A Preferred Stock has a stated face value of $10 per share, which shall be redeemed by us using not less than 25% of our net income after tax each year. The unredeemed portion of the face value of the Series A Preferred Stock will receive dividends at an annual rate of 7%, payable quarterly in kind at the then-current market price or in cash at our option. The unredeemed face value of the Series A Preferred Stock may be converted into common stock (i) by the holder at a conversion price of $4.00 per share or (ii) by us at a conversion price of $4.00 per share in the event that our common stock closes at a market price of $9.60 per share or higher for more than twenty consecutive trading days. Best Energy evaluated this financial instrument under SFAS 150: Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity to determine if it more closely resembles a liability or equity. Because the redemption of the Series A Preferred Stock is contingent upon our achieving positive net income, the redemption is conditional and not certain. Accordingly, it has been included in equity on the balance sheet at July 31, 2008. We evaluated the terms of the Series A Preferred Stock and determined that it is not a derivative in accordance with EITF 00-19.

In addition, we issued 2,500 Units in exchange for an investor posting cash collateral in the amount of $2,500,000 with our lender to ensure that we had adequate available credit to complete the acquisitions of BWS, BBD and the acquisition of assets from ARH, BB Drilling and DSS. The value of these Units was included in deferred financing costs and amortized over the period in which the additional collateral was available. As of July 31, 2008, the collateral has been released and returned to the investor or is unused, pending release.

In connection with the private placement, we paid cash commissions of 12% and issued warrants to purchase a total of 1,507 Units, each consisting of 90 shares of Series A Preferred Stock and 625 shares of common stock. The warrants expire on December 24, 2013 and are exercisable at a price of $1,000 per unit, subject to certain adjustments.

Our common stock was first quoted under the symbol “HYBK” on the OTC Bulletin Board sponsored by the NASD during 2007, but there had initially been no trades made in our common stock. On February 27, 2008, our symbol became “BEYS.” The first trade of our common stock on the OTC Bulletin Board occurred on March 18, 2008.

Dividends

On May 30, 2008 we declared a dividend of $0.0875 per share of Series A Preferred Stock to be paid in kind with shares of Series A Preferred Stock at a rate of $10 per share. The total amount of the dividend of $126,520 was paid by the issuance of 12,652 shares of Series A Preferred Stock. It represented accrued dividends through March 31, 2008. As of July 31, 2008, there was $340,338 of accrued and unpaid dividends on the Series A Preferred Stock.

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We have not paid or declared any dividends on our common stock and currently intend to retain earnings to redeem the Series A Preferred Stock and to fund our working capital needs and growth opportunities. Any future dividends on common stock will be at the discretion of our board of directors after taking into account various factors it deems relevant, including our financial condition and performance, cash needs, income tax consequences and the restrictions Nevada and other applicable laws and our credit facilities then impose. Our debt arrangements include provisions that generally prohibit us from paying dividends, other than dividends in kind, on our preferred stock.

Shares issued to employees

On February 22, 2008, we issued 150,000 shares of common stock to each of James Carroll and Charles Daniels in accordance with their employment agreements. These shares were valued at a total of $75,000 based on the market value of the stock on the date of issuance. This amount was recorded in prepaid expenses and is being amortized over the one year term of each of the agreements.

Note 8 - Income Tax

We have recorded a deferred tax liability in the amount of $9,305,996 which represents the difference in the tax basis and book basis of property and equipment acquired in the BWS and BBD acquisitions.

As of July 31, 2008, we have net operating losses in the amount of approximately $5,000,000 which will begin to expire in the year 2028. We have a deferred tax asset of approximately $1.8 million related to the net operating losses which has been reduced to zero by a valuation allowance due to our uncertainty of our ability to realize that asset.

Note 9 - Related Party Transactions

As a result of the successful completion of the acquisitions described in Note 1, Larry Hargrave, our CEO, was awarded a bonus of $1,000,000 to be paid $15,000 per month beginning in March 2008. As of July 31, 2008, $925,000 remains unpaid.

On February 14, 2008, we agreed to lease certain real property from Mr. Tony Bruce, our director and employee, for a period of three years for $3,500 per month in base rent.

On February 27, 2008, we agreed to lease real property necessary to run our rig housing operations from Mr. Larry Hargrave, our CEO, for a period of three years for $6,000 per month in base rent.

One of our directors, Mark Harrington, was formerly affiliated with Andrew Garrett, Inc. which acted as our placement agent in the private placement completed in March 2008. Mr. Harrington acted as a consultant to Andrew Garrett in the transaction. In addition, Joel Gold, one of our directors, is Director of Investment Banking at Andrew Garrett. We paid Andrew Garrett as placement agent a total of $2,330,420 in commissions, management fees, and unaccountable expenses for all financings, both equity and debt, related to our acquisitions. We also issued 112,500 common shares as placement agent shares and 1,507 Unit Warrants.

Note 10 – Segment information

Our operations are both product and services based, and the reportable operating segments presented below include our well services operations, drilling services operations and construction of portable rig housing for rig sites ..

Our reportable segment information is as follows:

	Well Services Division		Drilling Services		Portable Rig Housing		Reportable segments
Revenues from external customers:
Six months ended July 31, 2008	$	8,502,681	$	1,843,500	$	373,877	$	10,720,058
Three months ended July 31, 2008		4,628,882		1,542,413		263,035		6,434,330

Gross profit:
Six months ended July 31, 2008	$	5,322,489	$	579,846	$	126,918	$	6,029,253
Three months ended July 31, 2008	$	2,914,493	$	681,780	$	91,410	$	3,687,683

*Segment Information is not shown for 2007. Businesses were not owned before 2008.

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The following table reconciles gross profit from reportable segments to our consolidated income from continuing operations before income taxes for the six months ended July 31, 2008:

Gross profit from reportable segments	6,029,253

General and administrative expenses	(5,743,421	)
Depreciation	(1,611,170	)
Operating Loss	(1,325,338	)
Other expense, net	(3,208,930	)

Net loss from continuing operations before income taxes	(4,534,268	)

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SELECTED UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated statements of operations and related notes are presented to show the pro forma effects of the acquisition of BWS and BBD. The pro forma condensed consolidated statement of operations for the six months ended July 31, 2008 and 2007 is presented to show income from continuing operations as if the BWS and BBD acquisitions occurred as of the beginning of the period.

Pro forma data are based on assumptions and include adjustments as explained in the notes to the unaudited pro forma condensed consolidated financial statements. The pro forma data are not necessarily indicative of the financial results that would have been attained had the acquisition of BWS and BBD occurred on the dates referenced above and should not be viewed as indicative of operations in future periods. The unaudited pro forma condensed consolidated statements of operations should be read in conjunction with notes thereto, the financial statements as of and for the six months ended July 31, 2008 for Best Energy Services, Inc. included in this Form 10-Q, the financial statements as of and for the year ended January 31, 2008 for Best Energy Services, Inc. as filed on Form 10-K on May 2, 2008 and the financial statements as of and for the year ended December 31, 2007 for BWS and BBD included in Form 8-K/A filed February 14, 2008.

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the six months ended July 31, 2008

	Actual for the six months ended July 31, 2008			Actual for the period from February 1, 2008 through February 14, 2008					Pro Forma				Pro Forma
	Best Energy			BWS		BBD			Adjustments				Consolidated
Revenues	$	10,720,058		$	775,498	$	10,000		$	-			$	11,505,556
Operating expenses:
Cost of operations		4,690,805			142,156		37,068			-				4,870,029
Depreciation and amortization		1,611,170			45,610		9,433			88,861		(a)		1,755,074
General and administrative		5,743,421			50,194		6,273			(18,218	)	(b)		5,781,670
Total operating expenses		12,045,396			237,960		52,774							12,406,773
Operating income (loss)		(1,325,338	)		537,538		(42,774	)						(901,217	)
Other income (expense):
Investment income (loss)		-			-		444			(444	)	(c )		-
Loss on sale of property and equipment		(6,793	)		-		-							(6,793	)
Interest income		19,697			1,389		-			-				21,086
Interest expense		(3,221,834	)		400		-			(58,702	)	(d)		(3,280,136	)
Total other income (expense)		(3,208,930	)		1,789		444							(3,265,843	)
Income (loss) before income taxes		(4,534,268	)		539,327		(42,330	)						(4,167,060	)
Income tax (expense) recovery		-			188,764		(14,816	)						173,949
Net income (loss)		(4,534,268	)		728,091		(57,146	)						(3,993,111	)

Net income per share:
Basic and diluted	$	(0.24	)										$	(0.20	)
Weighted average shares outstanding:
Basic and diluted		18,604,444								1,611,922				20,216,366

See notes to unaudited pro forma condensed consolidated financial statements.

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the six months ended July 31, 2007

	Actual for the six months ended July 31, 2007			Actual for the six months ended June 30, 2007						Pro Forma				Pro Forma
	Best Energy			BWS			BBD			Adjustments				Consolidated
Revenues	$	-		$	8,468,077		$	1,058,809		$	-			$	9,526,886
Operating expenses:
Cost of operations		-			2,846,658			583,124			-				3,429,782
Depreciation and amortization		-			506,426			123,671			1,127,543		(a)		1,757,640
General and administrative		23,152			2,708,779			688,267			(182,183	)	(b)		6,275,120
											3,037,105		(c)
Total operating expenses		23,152			6,061,863			1,395,062							11,462,542
Operating income (loss)		(23,152	)		2,406,214			(336,253	)						(1,935,656	)

Other income (expense):
Gain on sale of property and equipment		-			-			50,000			-				50,000
Investment income		-			-			1,722,928			(1,722,928	)	(d)		-
Interest income		-			69,167			26,311			(95,478	)	(d)		-
Interest expense		-			(4,419	)		(10,290	)		(3,281,754	)	(e)		(3,296,463	)
Total other income (expense)		-			64,748			1,788,949							(3,246,463	)
Income (loss) before income taxes		(23,152	)		2,470,962			1,452,696							(5,182,119	)
Income tax expense		-			(864,837	)		(508,444	)		1,373,280		(f)		-
Net income (loss) from continuing operations	$	(23,152	)	$	1,606,125		$	944,252						$	(5,182,119	)

Net income per share:
Basic and diluted	$	(0.00	)											$	(0.26	)
Weighted average shares outstanding:
Basic and diluted		9,685,000									10,531,366				20,216,366

See notes to unaudited pro forma condensed consolidated financial statements.

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BEST ENERGY SERVICES, INC.

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

1. Pro Forma Adjustments:

The unaudited pro forma condensed consolidated financial statements reflect the following adjustments:

(a)	Record incremental depreciation on property and equipment as a result of the acquisition of BWS and BBD.
(b)	Eliminate related party expenses incurred by BWS and BBD which will not be incurred acquisitions.
(c)	Record additional general and administrative expense incurred as a result of the acquisition of BWS and BBD.
(d)	Reverse investment income (loss) as trading securities will not be included in acquisition of BWS and BBD.
(e)	Record interest expense on Credit Facility and amortization of deferred financing costs.
(f)	Adjust income tax expense for the changes in pro forma net income.

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

Statements we make in the following discussion that express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results, performance or achievements, or industry results, could differ materially from those we express in the following discussion as a result of a variety of factors, including general economic and business conditions and industry trends, the continued strength or weakness of the contract land drilling and well service industry in the geographic areas in which we operate, decisions about onshore exploration and development projects to be made by oil and gas companies, the highly competitive nature of our business, the availability, terms and deployment of capital, the availability of qualified personnel, and changes in, or our failure or inability to comply with, government regulations, including those relating to the environment. We have discussed many of these factors elsewhere in this report, including under the headings “Disclosure Regarding Forward-Looking Statements” below, in this Item 2. These factors are not necessarily all the important factors that could affect us. Unpredictable or unknown factors we have not discussed in this report could also have material adverse effects on actual results of matters that are the subject of our forward-looking statements. All forward-looking statements speak only as of the date on which they are made and we undertake no duty to update or revise any forward-looking statements. We advise our shareholders that they should (1) be aware that important factors not referred to above could affect the accuracy of our forward-looking statements and (2) use caution and common sense when considering our forward-looking statements.

Company Overview

You should read the following discussion and analysis together with our consolidated financial statements and notes thereto and the discussion in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended January 31, 2008. The following information contains forward-looking statements that involve risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, our actual results may differ from those expressed or implied by the forward-looking statements. See “Disclosure Regarding Forward-Looking Statements” below.

General

We are an energy services company engaged in well service, drilling services and related complimentary activities. We own a total of 25 workover rigs and 12 drilling rigs, and we conduct our well service and drilling services in the Rocky Mountain and Mid-Continent regions of the United States. We also provide housing accommodations to the oil and gas drilling industry principally in Texas.

Since inception on October 31, 2006 through February 14, 2008, as Hybrook Resources Corp., we were a development stage company with an option to purchase an 85% interest in a mineral claim in British Columbia. We did not exercise our option and no minerals have been discovered.

As a result of these acquisitions, we operate in one industry segment, oilfield services, which includes well service, drilling services and the housing accommodations sectors.

In the Well Service Division, our acquisition of BWS brings us a strong footprint in the hydrocarbon rich Hugoton basin. BWS has distinguished itself over the years in its service to major oil companies and large independents, as well as an employee retention history that is among the best in the industry.

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In the Drilling Services Division, our acquisition of BBD, and the assets of its affiliates established us in three separate markets, which currently are in the Rocky Mountain region:

Core hole drilling in minerals;

Water well drilling in five states; and

Oil and gas drilling capability.

We believe that the BBD acquisition helps establish our presence with these three customer bases, but we also have a large surplus of underutilized equipment which we believe can be redeployed which would increase utilization rates and cash flows to us.

In the Housing Accommodations Division, our acquisition of the assets of ARH established our presence in the fabrication and/or rental of crew quarters for the drilling sector. Our operations in this division are located near our corporate headquarters in Houston, Texas.

Significant Developments

2008 Acquisitions

On February 14, 2008,we acquired BWS by purchasing all of its issued and outstanding stock from its sole shareholder, Tony Bruce, for a total purchase price of $20,600,000, payable as follows: (i) a note for $20,000,000 was issued to the seller at closing which was paid off shortly thereafter through funding provided by our Credit Facility; (ii) funds in the amount of $500,000 were delivered to an escrow agent to be held as security for seller’s indemnification obligations under the acquisition agreement for a period of six months; and (iii) we agreed to issue to Mr. Bruce common stock valued at $100,000 based on a 10 day volume weighted average price, commencing with the first day of trading (46,744 shares). As part of this transaction, we have entered into a three year lease with Mr. Bruce for an equipment yard located in Liberal, Kansas at $3,500 per month plus related expenses that we anticipate will additionally cost approximately $1,500 per month over the term of the lease. BWS continues to operate as our wholly-owned subsidiary. In addition, as part of the Acquisition Agreement, we also entered into a one year employment agreement with Mr. Bruce under which he will serve as a Vice President of our Central Division for an annual salary of $150,000. Mr. Bruce has also agreed to join our board of directors. Prior to the execution of the foregoing agreements with Mr. Bruce, there was no material relationship between us and Mr. Bruce.

On February 14, 2008, we acquired BBD by acquiring all of its issued and outstanding stock from its sole shareholder, Robert L. Beeman, for a total purchase price of $4,750,000, payable as follows: (i) a note for $4,050,000 was issued to Mr. Beeman at closing which was paid off shortly thereafter through funding provided by our Credit Facility; (ii) $200,000 in a previously paid deposit; and (iii) funds in the amount of $500,000 were delivered to an escrow agent to be held as security for Mr. Beeman’s indemnification obligations under the acquisition agreement for a period of six months. As part of this transaction, we have entered into a one year lease with Mr. Beeman for equipment yards located in Moab, Utah and Wellington, Utah at $6,000 per month plus related expenses that we anticipate will additionally cost approximately $1,500 per month over the term of the lease. BBD continues to operate as our wholly-owned subsidiary. Prior to the execution of the foregoing agreements with Mr. Beeman, there was no material relationship between us and Mr. Beeman.

On February 27, 2008, we acquired certain assets of ARH in exchange for 6,200,000 shares of our common stock. These assets consist of oil field rig houses, motor vehicles, rolling stock and related tools and equipment. We assumed no liabilities of ARH in connection with this transaction. We have valued this transaction at $2,271,500 based on a third-party appraisal of the assets. ARH was owned and controlled by Mr. Larry Hargrave, our chief executive officer and a director. As part of this transaction, we have entered into a three year lease with Mr. Hargrave for an equipment yard located in Cleveland, Texas at $6,000 per month plus related expenses that we anticipate will additionally cost approximately $1,500 per month over the term of the lease. We intend to continue the operations as a division, using the name American Rig Housing. In addition, ARH has agreed to not compete with us for a period of five years and to not solicit our customers, suppliers, or employees for a period of three years.

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Also on February 27, 2008, we acquired certain assets of BB Drilling from its owner, Robert L. Beeman, for a cash purchase price of $2,000,000, and certain assets of DSS from its owner, Todd Beeman, for a total purchase price of $1,050,000 paid in cash except for common stock valued at $50,000 based on a 10 day volume weighted average price, commencing with the first day of trading (23,372 shares). These assets consist of drilling rigs, motor vehicles, rolling stock, pumps and related tools and equipment. We assumed no liabilities of BB Drilling or DSS in connection with this transaction. We contributed the assets acquired from BB Drilling and DSS into BBD which will utilize them in its operations. As part of the transaction, the former owners have agreed to restrict the disclosure of confidential information pertaining to our business, and will not compete with our business or solicit our customers, suppliers or employees for a period of five years. We have entered into an employment agreement with Todd Beeman to act as our General Manager of Western Operations for an annual salary of $150,000.

2008 Financing

In order to finance the acquisitions described above and to provide us with working capital, on February 14, 2008, we completed the initial closing of a private placement resulting in gross proceeds to us of $8,640,000. Units consisting of 625 shares of our common stock and 90 shares of our Series A Preferred Stock were purchased by accredited investors at a purchase price of $1,000 per Unit. In total, we sold a total of 13,566 Units, consisting of 8,478,750 shares of our common stock and 1,220,940 shares of Series A Preferred Stock, for total gross proceeds of $13.566 million. None of the Units or the underlying shares of common or Series A Preferred Stock sold in the Offering has been registered under the Securities Act or under any state securities laws. The issuance and sale of said securities was made in reliance upon exemptions from registration pursuant to Rule 506 of Regulation D under the Securities Act and certain private placements under the state securities laws.

We retained Andrew Garrett, Inc. of New York as our exclusive placement agent. Pursuant to our agreement, we paid Andrew Garrett a cash commission of 10% of the gross proceeds of the Offering, plus a non-allocable expense allowance of 2%, and warrants to purchase 10% of Units sold at any time over the next five years at an exercise price of $1,000 per Unit. We have agreed to include the common and Series A Preferred Stock that underlie the Units in the Warrants in any registration statement we file.

In connection with the Offering, we agreed with the purchasers of the Units that we would use our best efforts to file a resale registration statement with the SEC covering all shares of Common Stock and Series A Preferred Stock included in the Units sold in the Offering (“Registrable Securities”) with liquidated damages if we did not file within 90 days after closing the Offering. Under this Registration Rights Agreement we will maintain the effectiveness of the “resale” registration statement from the effective date until the earlier of (i) the date on which all of the Registrable Securities have been sold or (ii) the date on which all of the Registrable Securities held by an investor may be sold without restriction pursuant to Rule 144(k) under the Securities Act, subject to our right to suspend or defer the use of such registration statement in certain events. We have also agreed to use our reasonable best efforts to have such “resale” registration statement declared effective by the SEC as soon as possible after the initial filing date. On June 11, 2008, we filed a resale a registration covering all shares of Common Stock and Series A Preferred Stock included in the Units sold in the Offering (“Registrable Securities”).

On February 14, 2008, we also entered into a Revolving Credit, Term Loan and Security Agreement with PNC Bank, N.A. (“Credit Facility”) pursuant to which we may borrow up to a maximum amount of $25,000,000 at an interest rate to be determined at the time of the particular draws, but generally equal to the PNC Base Rate plus 1% over the Alternate Base Rate or 3% over the Eurodollar Rate, as those terms are defined in the Credit Facility. The revolving credit portion of the debt, equal to $19,150,000, may be borrowed and re-borrowed until maturity on February 14, 2012. Monies borrowed against the term loan portion of the total debt agreement, equal to $5,850,000, are amortized and must be repaid on a 60 month amortization schedule, with an annual 25% recapture of Excess Cash Flow applied to the principal balance. Excess Cash Flow is defined as EBITDA less principal and interest payments made against the Credit Facility, cash tax payments, non-financed capital expenditures and payments to our holders of Series A Preferred Stock.

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We drew upon a substantial portion of our Credit Facility in order to close our acquisitions of BWS and BBD, and our acquisitions of assets from BB Drilling and DSS. Draws against the Credit Facility are secured by all of our assets and equipment and by all of the assets and equipment of BWS and BBD, and the assets acquired from BB Drilling, DSS, and ARH.

We made further draws against the Credit Facility for general working capital purposes. Any equipment and assets purchased in the future will, once acquired, also be subject to the security interest in favor of PNC Bank, N.A, and may be used to increase our available funds under the terms of the Credit Facility.

Leases

In connection with our acquisition of BWS, we executed an agreement to lease certain real property owned by Tony Bruce for a period of 3 years at $3,500 per month, plus related expenses that we anticipate will additionally cost approximately $1,500 per month over the term of the lease. The leased property consists of approximately 5 acres in Liberal, Kansas. We anticipate using the leased property to house the equipment necessary to run BWS’s business over the term of the lease.

In connection with our acquisition of BBD, we leased two parcels of real property owned by Robert Beeman for a period of one year at $6,000 per month plus related expenses that we anticipate will additionally cost approximately $1,500 per month over the term of the lease. The first leased property consists of approximately 7 acres in Moab, Utah. The second leased property consists of approximately 10 acres in Wellington, Utah. We anticipate using the leased properties to house the equipment necessary to run BBD’s business over the term of the lease.

In connection with our acquisition of assets from ARH, we executed an agreement to lease certain real property owned by Larry Hargrave, our CEO and owner of ARH, for a period of 3 years at a rate of $6,000 per month, plus related expenses that we anticipate will cost approximately an additional $1,500 per month over the term of the lease. The leased property consists of approximately 11 acres in Cleveland, Texas. We anticipate using the leased property to house the equipment and perform the fabrication necessary to run our rig housing operation over the term of the lease.

Cash Collateral Agreement

On February 14, 2008, PNC Bank, National Association entered into a Cash Collateral Agreement with an individual investor in which the investor agreed to put up cash in the amount of $2,500,000 as additional required security for our obligations under the Credit Facility. In exchange for the agreement of such investor to enter into the Cash Collateral Agreement, we agreed to issue to such investor 1,562,500 shares of our common stock and 225,000 shares of our Series A preferred stock. We will be obligated to repay any funds drawn on the Credit Facility without regard to the consideration given to the investor. The value of the stock issued to the investor was included in deferred financing costs and amortized in our first quarter.

Market Conditions in Our New Industry

The United States contract land drilling services industry is highly cyclical. Volatility in oil and natural gas prices can produce wide swings in the levels of overall drilling activity in the markets we now serve and affect the demand for our drilling services and the day rates we can charge for our rigs. The availability of financing sources, past trends in oil and natural gas prices and the outlook for future oil and natural gas prices strongly influence the number of wells oil and natural gas exploration and production companies decide to drill.

Natural gas accounts for over 80% of the drilling rig activity in the U.S. We believe capital spent on incremental natural gas production will be driven by an increase in hydrocarbon demand as well as changes in supply of natural gas. The Energy Information Administration estimated that U.S. consumption of natural gas exceeded domestic production by 16% in 2005 and forecasts that U.S. consumption of natural gas will exceed U.S. domestic production by 24% in 2010. In addition, a study published by the National Petroleum Council in September 2003 concluded from drilling and production data over the preceding ten years that average “initial production rates from new wells have been sustained through the use of advanced technology; however, production declines from these initial rates have increased significantly; and recoverable volumes from new wells drilled in mature producing basins have declined over time.” The report went on to state that “without the benefit of new drilling, indigenous supplies have reached a point at which U.S. production declines by 25% to 30% each year” and predicted that in ten years eighty percent of gas production “will be from wells yet to be drilled.” We believe all of these factors tend to support a higher natural gas price environment, which should create strong incentives for natural gas exploration and production companies to increase drilling activity in the U.S. Sustained high oil prices have increased oil drilling activity as well. Consequently, these factors may result in higher rig day rates and rig utilization.

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Our drilling activities are not solely dependent on oil and gas. Most of the wells drilled by BBD in the last two years have been for mineral exploration companies. The level of drilling activity for these wells is influenced by price expectations for the underlying mineral commodity, e.g., uranium, copper, and molybdenum. Also, BBD has drilled and expects to continue to drill large diameter municipal water source wells in Utah, Nevada, Arizona, New Mexico, and Colorado.

Our well service operations at BWS are less price sensitive. BWS operates workover rigs that are used to restore production from existing wells when they develop a mechanical problem or to complete new wells after they have been drilled and evaluated as potentially productive. Prices would have to drop severely to cause a change in a production company’s willingness to work over an existing well to repair a production problem. In addition, Kansas has more wells permitted to be drilled to a depth of 5,000 feet or shallower than any other state. As these wells are drilled, the BWS rigs can be used for completion work and subsequent well repair work on these additional wells.

Critical Accounting Policies

This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts. On an ongoing basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, assets held for sale, long-lived assets, income taxes, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions and factors that we believe to be reasonable under the circumstances. Based on our ongoing review, we make adjustments we consider appropriate under the facts and circumstances. The accompanying condensed consolidated financial statements are prepared using the critical accounting policies discussed in Note 2 to the Consolidated Financial Statements for the period ended July 31, 2008 on this report.

Results from Operations

Six months Ended July 31, 2008 compared with the Six Months Ended July 31, 2007

Revenues were $10,720,058 for the six months ended July 31, 2008 compared with no revenue for the six months ended July 31, 2007. The increase of $10,720,058 was primarily the result of the acquisitions of BWS and BBD in February 2008.

Operating Expenses were approximately $12,045,396 for the six months ended July 31, 2008 compared with $23,152 for the six months ended July 31, 2007 resulting in an increase of $12,022,244. This increase was primarily as result of the acquisitions of BWS and BBD in February 2008 and non-recurring or non-cash costs incurred in assuming control of their operations.

Net loss from operations was $1,325,338 for the six months ended July 31, 2008 compared with a net loss of $23,152 for the six months ended July 31, 2007 resulting in an increased loss of $1,302,186. Because significant operations commenced in 2008 with the acquisitions of BWS and BBD in February 2008, no meaningful comparison can be made between the periods.

General and administrative expenses for the six month period ended July 31, 2008 were $5,743,421 compared with no expense for the six month period ended July 31, 2007. Because significant operations commenced in 2008 with the acquisitions of BWS and BBD in February 2008, no meaningful comparison can be made between the periods. Costs in the 2008 period included over $400,000 in non-recurring costs and approximately $1,200,000 in non-cash costs associated with assuming control of the BWS and BBD operations.

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Interest expense increased by $3,221,834 for the six month period ended July 31, 2008, compared with the six month period ended July 31, 2007. This increase is primarily due to the utilization of the PNC Bank credit facility and the amortization of deferred financing costs. This includes a one-time non-cash charge of $2,500,000 for the amortization of financing costs resulting from the stock issuance required by the Cash Collateral Agreement.

Net Loss was $4,534,268 or $0.27 per share for the six months ended July 31, 2008 compared with a net loss of $27,692 or $0.00 per share for the six months ended July 31, 2007 resulting in an increased loss of $4,506,576. This loss was primarily related to non-recurring and non-cash charges associated with assuming control of the operations of BWS and BBD. Included in the loss is the amortization of $2,500,000 in stock costs caused by the Cash Collateral Agreement, $1,000,000 in deferred compensation granted to our CEO upon the commencement of combined operations but to be paid over time ($925,000 remained unpaid as of July 31, 2008), and approximately $200,000 in stock-based compensation costs. Excluding these non-cash costs, the net loss would be approximately $800,000. In addition, we incurred over $400,000 of non-recurring cash costs; excluding these charges our net loss would be approximately $400,000. Still included in the net loss is depreciation expense of $1,611,170.

While non-recurring and non-cash costs were the primary cause for a loss, income suffered from the initial low utilization rates at BBD and ARH. However, operations at BWS continued to be robust. The table below shows utilization rates for BWS, BBD and ARH:

	February	March	April	May	June	July

Best Well Service	100%	100%	100%	100%	100%	100%
Beeman Drilling	3%	8%	11%	24%	30%	30%
American Rig Housing	15%	15%	15%	23%	26%	28%

The annualized sales for Best Well Service are approximately $18.6 million, ahead of the $17.7 million in sales that it earned in the year 2007 (prior to its acquisition by Best Energy). Beeman Drilling’s municipal water well and mineral core hole drilling exhibit seasonal lows in the first quarter. Even with very low initial utilization rates, Beeman earned $1,843,500 in revenue during the six months ended July 31, 2008 compared with approximately $1,058,000 in the period last year (prior to its acquisition by Best Energy). Further, sales and refurbishment orders already in hand for ARH are expected to produce revenue from unit sales in the year 2008 equal to revenue from unit sales in 2007. Therefore, the loss in our first six months appears to be driven by one-time costs and seasonal factors.

Three months Ended July 31, 2008 compared with the Three Months Ended July 31, 2007

Revenues were $4,628,882 for the three months ended July 31, 2008 compared with no revenue for the three months ended July 31, 2007. The increase of $4,628,882 was primarily the result of the acquisitions of BWS and BBD in February 2008.

Operating Expenses were $6,191,883 for the three months ended July 31, 2008 compared with $11,006 for the three months ended July 31, 2007 resulting in an increase of $6,180,877. This increase was primarily as result of the acquisitions of BWS and BBD in February.

Net income (loss) from operations was net income of $242,447 for the three months ended July 31, 2008 compared with a net loss of $11,006 for the three months ended July 31, 2007 resulting in increased income of $253,453. Because significant operations commenced in 2008 with the acquisitions of BWS and BBD in February 2008, no meaningful comparison can be made between the periods.

General and administrative expenses for the three month period ended July 31, 2008 were $2,553,587 compared with no expense for the three month period ended July 31, 2007. Because significant operations commenced in 2008 with the acquisitions of BWS and BBD in February 2008, no meaningfulcomparison can be made between the periods.

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Interest expense increased by $364,347 for the three month period ended July 31, 2008, compared with the three month period ended July 31, 2007. This increase is primarily due to the utilization of the PNC Bank credit facility and the amortization of deferred financing costs.

Net Loss was $128,107 or $0.03 per common share after preferred dividends, paid in kind, for the three months ended July 31, 2008 compared with a net loss of $11,092 or $0.00 per share for the three months ended July 31, 2007 resulting in an increased loss of $117,015. Included in the loss is the amortization of deferred financing costs of $43,750 and stock based compensation of $45,000. Excluding these non-cash costs the loss is approximately $39,357. In addition, depreciation expense of $891,649 is included in the net loss.

Liquidity and Capital Resources

On February 14, 2008, we completed the initial closing of a private placement producing gross proceeds to us of $8,640,000. Units consisting of 625 shares of our common stock and 90 shares of our Series A Preferred Stock, were purchased by accredited investors at a purchase price of $1,000 per Unit. In total, as of April 14, 2008, we sold a total of 13,566 Units, consisting of 8,478,750 shares of our common stock and 1,220,940 shares of Series A Preferred Stock, for total gross proceeds of $13.566 million.

We do not anticipate the need for any additional capital to implement our business plan and grow our acquired operations. However, additional capital, if available, could be useful in acquiring additional assets for our company and accelerating our growth under our business plan.

Under our credit facility, we are subject to customary covenants, including certain financial covenants and reporting requirements. We are required to maintain a fixed charge coverage ratio (defined as the ratio of EBITDA minus capital expenditures (except capital expenditures financed by lenders other than under the Credit Facility) made during such period minus cash taxes paid during such period minus all dividends and distributions paid during such period (including, without limitation, all payments to the holders of the Series A Convertible Preferred Stock) to all senior debt payments during such period, of not less than 1.10 to 1.00 and a leverage ratio of funded debt to EBITDA of not greater than the amount set forth in the table below for such period:

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Fiscal Quarter		Leverage Ratio:
Ending:
March 31, 2008		3.5 to 1.0
June 30, 2008		3.5 to 1.0
September 30, 2008		3.5 to 1.0
December 31, 2008		3.5 to 1.0
March 31, 2009		3.0 to 1.0
June 30, 2009		3.0 to 1.0
September 30, 2009		3.0 to 1.0
December 31, 2009		3.0 to 1.0
March 30, 2010 and each fiscal quarter ending thereafter		2.50 to 1.0

Due primarily to non-recurring costs incurred in the assumption of operations immediately after closing our acquisitions in February and the reoccurrence of very low seasonal utilization of rigs by BBD, PNC Bank has agreed to amend the ratio tests in the loan documents and therewith waive the ratio test results for the initial quarters, to reflect our actual and expected results. As of June 30, 2008, our fixed charge coverage ratio was 2.0 and our leverage ratio was 4.1, prior to applying any amendments to the loan documents.

Under the terms of our credit facility, we may not pay cash dividends on our common stock or our preferred stock or redeem any shares of our common stock or preferred stock except that we may make payments (i) utilizing up to 25% of our net income to the holders of the Series A Preferred Stock in accordance with the provisions of the Certificate of Designation therefore, so long as after giving effect to such payment (x) we have at least $1,500,000 of undrawn availability and (y) we demonstrate to PNC’s reasonable satisfaction pro forma compliance with financial covenants set forth above.

In addition to the foregoing and other customary covenants, our credit facility contains a number of covenants that, among other things, will restrict our ability to:

• incur or guarantee additional indebtedness;

• transfer or sell assets;

• create liens on assets;

• engage in transactions with affiliates other than on an "arm's-length" basis; and

• make any change in the principal nature of our business; and

Our credit facility also contains customary events of default, including nonpayment of principal or interest, violations of covenants, cross default and cross acceleration to certain other indebtedness, bankruptcy, a change of control and material judgments and liabilities.

We have made all scheduled principal and interest payments under our credit facility. As of July 31, 2008, we have repaid $487,500 on our term loan.

Off-Balance Sheet Arrangements

As of July 31, 2008, we had no transactions, agreements or other contractual arrangements with unconsolidated entities or financial partnerships, often referred to as special purpose entities, which generally are established for the purpose of facilitating off-balance sheet arrangements.

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Contractual Obligations

Tabular Disclosure of Contractual Obligations

	Over the Next
	Five Years		12 Months
Long - Term Debt	$	21,612,394	$	1,405,992
Operating Leases		558,000		155,000
Employment/Consultant Contracts		450,000		450,000
Total	$	22,620,394	$	2,010,992

Our Series A Preferred Stock shall be redeemed using not less than 25% of our net income after tax each year. For the six months ended July 31, 2008, we did not have positive net income after tax.

Disclosure Regarding Forward-Looking Statements

We caution that this document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in or incorporated by reference into this Form 10-Q which address activities, events or developments which we expect, believe or anticipate will or may occur in the future are forward-looking statements. The words “believes,” “intends,” “expects,” “anticipates,” “projects,” “estimates,” “predicts,” “plans” and similar expressions, or the negative thereof, are also intended to identify forward-looking statements. In particular, statements, expressed or implied, concerning future operating results, the ability to increase utilization or redeply rigs, or the ability to generate income or cash flows are by nature, forward-looking statements. These statements are based on certain assumptions and analyses made by management in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. However, forward-looking statements are not guarantees of performance and no assurance can be given that these expectations will be achieved.

Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include, but are not limited to any of the following: the timing and extent of changes in commodity prices for crude oil, natural gas and related products, interest rates, inflation, the availability of goods and services, operational risks, availability of capital resources, legislative or regulatory changes, political developments, and acts of war and terrorism. A more detailed discussion on risks relating to the oilfield services industry and to us is included in our Annual Report on Form 10-K for the year ended January 31, 2008.

In light of these risks, uncertainties and assumptions, we caution the reader that these forward-looking statements are subject to risks and uncertainties, many of which are beyond our control, which could cause actual events or results to differ materially from those expressed or implied by the statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements. We undertake no obligations to update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as of July 31, 2008 (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In particular, we found control weaknesses in financial statement disclosures, the consolidation of subsidiaries’ general ledgers, segregation of duties in the field and home offices, expenditure approval limits and documentation, and variance analysis. As recently acquired operations are assimilated, we intend to address these weaknesses.

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Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

(b) Changes in Internal Control over Financial Reporting

During the quarter ended July 31, 2008, we continued the consolidation of control over the financial reporting originating in our operations that we acquired in February 2008. None of these changes in internal control over financial reporting materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1. Legal Proceedings

We are from time to time subject to litigation arising in the normal course of business. As of the date of this Quarterly Report on Form 10-Q, there are no pending or threatened proceedings which are currently anticipated to have a material adverse effect on our business, financial condition or results of operations.

Item 1A. Risk Factors

Not required for smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

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Item 6. Exhibits

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002. (Filed herewith)

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes - Oxley Act of 2002. (Filed herewith)

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. (Filed herewith)

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. (Filed herewith)

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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.

Date: September 22, 2008

	BEST ENERGY SERVICES, INC.


	/s/ Larry Hargrave
	Larry Hargrave
	President and Chief Executive Officer

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Best Energy Services (BEYS) Inactive 10-Q2009 Q2 Quarterly report

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