UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
February 14, 2008
Date of Report (Date of earliest event reported)
BEST ENERGY SERVICES, INC.
(Exact name of registrant as specified in its charter)
Nevada | 333-142350 | 02-0789714 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification Number) |
1010 Lamar Street, Suite 1200
Houston, Texas 77002
(713) 933-2600
(Address of principal executive offices and Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
[ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
[ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
[ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
As described on the Current Report on Form 8-K of Best Energy Services, Inc. filed on February 21, 2008 (the “Initial 8-K”), on February 14, 2008, Best Erergy Services, Inc., acquired two companies, Best Well Service, Inc. (“BWS”), a Kansas corporation, and Bob Beeman Drilling Company (“BBD”), a Utah corporation (the “Acquisitions”).
The purposes of this amendment to the Initial 8-K are to (1) incorporate as part of the Initial 8-K the information set forth below under Item 9.01 as required by Item 9.01 of Form 8-K, and (2) correct the description of the Company’s Change in Fiscal Year to reflect the actions of the Board as stated below under Item 5.03
Change in Fiscal Year
Prior to the Acquisitions, our fiscal year end was January 31. As a result of the Acquisitions, on February 14, 2008, our board of directors elected to change our year end to December 31 effective in the fourth calendar quarter of 2008, to match the year end of the acquired companies. Accordingly, we intend to file an annual report on Form 10-K for the year ended January 31, 2008 and subsequently file quarterly reports in 2008 on Form 10-Q for the quarters ended April 30, July 31, and October 31. We intend to file a transition Form 10-K for the eleven months ended December 31, 2008.
Item 9.01 Financial Statements and Exhibits.
· | (a)Financial statements of businesses acquired. |
· | (b)Pro Forma Financial Statements |
· | (1)Unaudited Pro Forma Condensed Consolidated Balance Sheet as of January 31, 2008. |
· | (2)Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended January 31, 2008. |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Best Well Service, Inc.
Liberal, Kansas
We have audited the accompanying balance sheets of Best Well Service, Inc. (“Best Well”) as of December 31, 2007 and 2006, and the related statements of operations, stockholder’s equity and cash flows for the years then ended. These financial statements are the responsibility of Best Well’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. Best Well is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Best Well’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Best Well as of December 31, 2007 and 2006, and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Malone & Bailey, PC
www.malone-bailey.com
Houston, Texas
April 29, 2008
Best Well Service, Inc.
Balance Sheets
December 31, 2007 and 2006
ASSETS | 2007 | 2006 | ||||||
Current assets | ||||||||
Cash | $ | 1,869,542 | $ | 2,297,829 | ||||
Trade securities, at market | 772,765 | 705,801 | ||||||
Accounts receivable, net | 1,882,757 | 1,631,600 | ||||||
Prepaid taxes | 650,152 | - | ||||||
Total current assets | 5,175,216 | 4,635,230 | ||||||
Property and equipment, net | 4,563,400 | 4,335,287 | ||||||
TOTAL ASSETS | $ | 9,738,616 | $ | 8,970,517 | ||||
LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 390,460 | $ | 653,268 | ||||
Income taxes payable | - | 816,285 | ||||||
Current portion of notes payable | 267,040 | 230,431 | ||||||
Total current liabilities | 657,500 | 1,699,984 | ||||||
Long-term liabilities: | ||||||||
Notes payable | 201,942 | 211,466 | ||||||
Deferred taxes | 520,592 | 362,183 | ||||||
TOTAL LIABILITIES | 1,380,034 | 2,273,633 | ||||||
STOCKHOLDER’S EQUITY | ||||||||
Common stock, $100 par value per share; 10,000 shares authorized; 300 shares issued and outstanding | 30,000 | 30,000 | ||||||
Additional paid-in capital | 41,540 | 41,540 | ||||||
Retained earnings | 8,287,042 | 6,625,344 | ||||||
Total stockholder’s equity | 8,358,582 | 6,696,884 | ||||||
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY | $ | 9,738,616 | $ | 8,970,517 | ||||
The Accompanying Notes are an Integral Part of the Financial Statements
Best Well Service, Inc.
Statements of Operations
For the Years Ended December 31, 2007 and 2006
2007 | 2006 | |||||||
Revenues | $ | 17,746,048 | $ | 17,182,055 | ||||
Cost of revenues | 9,718,964 | 8,908,447 | ||||||
Gross margin on drilling operations | 8,027,084 | 8,273,608 | ||||||
Operating expenses: | ||||||||
General and administrative expense | 4,279,082 | 4,060,436 | ||||||
General and administrative expense – Related-party | 39,365 | 42,300 | ||||||
Total operating expenses | 4,318,447 | 4,102,736 | ||||||
Net operating income | 3,708,637 | 4,170,872 | ||||||
Other income (expense): | ||||||||
Investment income | 66,960 | 133,759 | ||||||
Interest (expense)/ income, net | 106,539 | (15,202) | ||||||
Income before provision for income taxes | 3,882,136 | 4,289,429 | ||||||
Income tax expense | 1,430,374 | 1,831,058 | ||||||
Net income | $ | 2,451,762 | $ | 2,458,371 | ||||
Per Share Data | ||||||||
Basic diluted net income per share | $ | 8,172.54 | $ | 8,194.57 | ||||
Weighted average shares outstanding | 300 | 300 | ||||||
The Accompanying Notes are an Integral Part of the Financial Statements
Best Well Service, Inc.
Statements of Stockholder’s Equity
For the Years Ended December 31, 2007 and 2006
Common Stock | Retained | |||||||||||||||||||
Shares | Amount | Paid In Capital | Earnings | Total | ||||||||||||||||
Balance, December 31, 2005 | 300 | $ | 30,000 | $ | 41,540 | $ | 4,206,973 | $ | 4,278,513 | |||||||||||
Net income | - | - | - | 2,458,371 | 2,458,371 | |||||||||||||||
Dividends | - | - | - | (40,000 | (40,000 | ) | ||||||||||||||
Balance, December 31, 2006 | 300 | $ | 30,000 | $ | 41,540 | $ | 6,625,344 | $ | 6,696,884 | |||||||||||
Net income | - | - | - | 2,451,762 | 2,451,762 | |||||||||||||||
Dividends | - | - | - | (790,064 | (790,064 | ) | ||||||||||||||
Balance, December 31, 2007 | 300 | $ | 30,000 | $ | 41,540 | $ | 8,287,042 | $ | 8,358,582 |
The Accompanying Notes are an Integral Part of the Financial Statements
Best Well Service, Inc.
Statements of Cash Flow
For the Years Ended December 31, 2007 and 2006
2007 | 2006 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 2,451,762 | $ | 2,458,371 | ||||
Adjustments to reconcile net income to net cash provided (used) by operating activities: | ||||||||
Depreciation | 1,094,645 | 811,131 | ||||||
Gain on sale of fixed assets | (50,000) | - | ||||||
Deferred income tax expense | 158,409 | 125,371 | ||||||
Non cash investment income (loss) | (66,960) | (117,995) | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (251,157) | (594,438) | ||||||
Prepaid Expenses | - | 22,823 | ||||||
Accounts payable and accrued liabilities | 259,830 | 291,213 | ||||||
Income taxes payable | (1,466,437) | 330,552 | ||||||
Net cash provided by operating activities | 1,610,432 | 3,327,028 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures, net | (2,050,822) | (1,404,399) | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from long-term debt | 313,292 | 373,801 | ||||||
Payments on long term debt | (289,189) | (293,143) | ||||||
Proceeds of related party loans | - | (104,590) | ||||||
Payment of dividends | (12,000) | (40,000) | ||||||
Net cash used in financing activities | 12,103 | (63,932) | ||||||
Increase in cash and equivalents | (428,287) | 1,858,697 | ||||||
Cash and equivalents, beginning of year | 2,297,829 | 439,132 | ||||||
Cash and equivalents, end of year | $ | 1,869,542 | $ | 2,297,829 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 13,615 | $ | 15,202 | ||||
Cash paid for taxes | $ | 1,619,997 | $ | 2,043,827 | ||||
Noncash investing and financing activities: | ||||||||
Dividend – transfer of property and equipment | 778,064 | - |
The Accompanying Notes are an Integral Part of the Financial Statements.
Best Well Service, Inc.
Notes to Financial Statements
December 31, 2007 and 2006
Note 1: Description of Business
Best Well Service, Inc. (“Best Well”), a Kansas corporation, was formed in 1992. Best Well operates twenty-four workover rigs in Kansas, Oklahoma, and Texas. It derives its income from workovers on existing producing wells and completing newly drilled wells.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation.
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 Equivalents
Best Well considers all highly liquid investments with maturities from date of purchase of three months or less to be cash equivalents. Cash and equivalents consist of cash on deposit with domestic banks and, at times, may exceed federally insured limits.
Accounts Receivable
Best Well provides 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, Best Well has established an allowance for doubtful accounts of $72,648 as of December 31, 2007. No allowance was provided as of December 31, 2006.
Credit Risk
Best Well is subject to credit risk relative to its trade receivables. However, credit risk with respect to trade receivables is minimized due to the nature of its customer base.
Best Well maintains cash balances at one bank and one financial institution. Accounts at the bank are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. Best Well had uninsured cash balances of approximately $1,770,000 as of December 31, 2007 and $2,200,000 as of December 31, 2006.
Trading Securities
Best Well classifies its investments as trading based upon the nature of the investment. Trading securities are primarily marketable equity securities which are reported at estimated fair value with realized and unrealized gains and losses included in other income (loss) in the statement of operations. The estimated fair values of investments are based on quoted market prices or dealer quotes.
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 | |
Workover Rigs and Equipment | 10 Years | |
Vehicles | 5 Years | |
Buildings and 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.
Revenue Recognition
Best Well recognizes service revenue based on rate agreements in effect with customers as the service is provided and realization is assured.
Income Taxes
Best Well has adopted the provisions of SFAS No. 109, “Accounting for Income Taxes” which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The differences are primarily differences in depreciation methods used for tax and reported for GAAP.
Dividends
Best Well has no formal dividend policy or obligations. Dividends are paid solely at the discretion of management.
Basic and Diluted Net Income per Share
Basic net income per common share is computed using the weighted average number of common shares outstanding during the year. Diluted net income per common share includes the dilutive effects of common stock equivalents on an “as if converted” basis. Dilutive potential common shares consist of stock options, stock warrants and redeemable convertible stock and are calculated using the treasury stock method. As of December 31, 2007 and 2006, there were no dilutive potential common shares outstanding.
Recent Accounting Pronouncements
Best Well does not expect that adoption of recently issued accounting pronouncements will have a material impact on its financial position, results of operations or cash flows.
Note 3: Trading Investments
The aggregate amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value, trading securities by major security type at December 31, 2007 and 2006 respectively are as follows:
Description | Cost | Gross Unrealized Gains | Estimated Fair Value |
Trading 2007 | $ 705,805 | $ 66,960 | $ 772,765 |
Trading 2006 | $ 470,005 | $ 235,796 | $ 705,801 |
Note 4: Property and Equipment
Property and equipment consisted of the following as of December 31, 2007 and 2006:
2007 | 2006 | |
Workover rigs and Equipment | $ 5,016,282 | $ 4,114,764 |
Vehicles | 3,571,533 | 3,324,241 |
Buildings and Improvements | 278,882 | 278,882 |
Office Equipment | 74,509 | 72,674 |
Total | 8,941,206 | 7,790,561 |
Less: Accumulated depreciation | 4,377,806 | 3,455,274 |
Property and equipment, net | $ 4,563,400 | $ 4,335,287 |
Depreciation expense was $1,094,645 and $811,131 for the years ended December 31, 2007 and 2006, respectively.
Note 5: Concentrations
As of December 31, 2007, two of Best Well’s customers accounted for 24% and 14% of total accounts receivable (24% and 16% of total 2007 revenues, respectively). As of December 31, 2006, two of Best Well’s customers accounted for 16% and 11% of total accounts receivable (21% and 15% of total 2006 revenues, respectively).
As of December 31, 2007 two of Best Well’s vendors accounted for 29% and 15% of total accounts payable (15% and 2% of total 2007 expenditures, respectively). There were no significant vendors as of December 31, 2006.
Note 6: Income Taxes
Best Well files its income tax returns using the accrual method of accounting having converted from the cash method in 2003. Cumulative timing differences resulting from the conversion to the accrual method of accounting for income tax purposes as well as differences in accounting methods for depreciation among others result in a net deferred tax liability and amounted to approximately $1,308,000 and $861,000 as of December 31, 2007 and 2006 respectively.
A reconciliation of the differences between the effective and statutory income tax rates are as follows for years ended December 31, 2007 and 2006:
Description | 2007 | 2006 |
Federal Statutory Rate-34% | $ 1,319,926 | $ 1,458,406 |
State Tax rate – 8% | 311,811 | 343,154 |
Permanent Differences | (201,363) | 29,498 |
Income tax provision | $ 1,430,374 | $ 1,831,058 |
Deferred income tax expense (recovery) amounted to approximately $167,000 and $125,000 for years ended December 31, 2007 and 2006, respectively.
Note 7: Fair Value of Financial Instruments
The estimated fair value of Best Well’s financial instruments is as follows at December 31, 2007 and 2006 respectively:
The carrying amounts of cash and equivalents, accounts receivable and accounts payable - The carrying amounts approximated fair value due to the short-term maturity of these instruments.
Marketable securities are presented at estimated market value of $772,765 and $705,801 as of December 31, 2007 and 2006 respectively.
Long term debt as of December 31, 2007 and 2006 consists of the following:
Description | 2007 | 2006 |
Notes payable to a financial institution secured by transportation and rig equipment, bear interest rates from 0% to 9.1% per annum, due in monthly installments totaling $25,250 maturing at various dates through December 2010 | $ 468,982 | $ 441,897 |
Less Current Maturities | 267,040 | 230,431 |
Long-Term Portion | $ 201,942 | $ 211,466 |
The aggregate annual maturities under long-term Debt as of December 31, 2007, are as follows:
Year Ending December 31, | Amount |
2008 | $ 267,040 |
2009 | 161,794 |
2010 | 40,148 |
Total | $ 468,982 |
Best Well is renting a shop that is owned by Tony Bruce, owner of the company. Rent expense related to this transaction was $39,365 and $42,300 for the year end December 31, 2007 and 2006, respectively.
Note 10: Subsequent Events
Best Well was acquired in a purchase transaction on February 14, 2008, for cash and securities by Best Energy Services, Inc.
Best Energy acquired Best Well by purchasing all of our issued and outstanding stock from our current 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 Sellers at closing which was paid off shortly thereafter through funding provided by a permanent 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 Best Well Acquisition Agreement for a period of six months; and (iii) Best Energy 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. In addition, as part of the Acquisition Agreement, Best Energy also entered into a one year employment agreement with Mr. Bruce under which he will serve as a Vice President of Best Energy’s Central Division for an annual salary of $150,000. Mr. Bruce has also agreed to join Best Energy’s board of directors.
Prior to the execution of the foregoing agreements with Mr. Bruce, there was no material relationship between Best Energy and Mr. Bruce.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Bob Beeman Drilling Co.
Moab, Utah
We have audited the accompanying balance sheets of Bob Beeman Drilling Co. (“Beeman Drilling”) as of December 31, 2007 and 2006, and the related statements of operations, stockholder’s equity and cash flows for the years then ended. These financial statements are the responsibility of Beeman Drilling’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. Beeman Drilling is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Beeman Drilling’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Beeman Drilling as of December 31, 2007 and 2006, and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 3 to the financial statements, the financial statements presented herein as of and for the year ended December 31, 2006 have been restated for an error in the determination of Beeman Drilling’s current and deferred federal and state income tax liabilities.
Malone & Bailey, PC
www.malone-bailey.com
Houston, Texas
April 29, 2008
Bob Beeman Drilling Company
Comparative Balance Sheets as of
December 31, 2007 and 2006
ASSETS | ||||||||
2007 | 2006 | |||||||
Current assets: | ||||||||
Cash | $ | 53,898 | $ | 1,430,257 | ||||
Trading Securities | 8,895,754 | 4,318,984 | ||||||
Accounts Receivable | 716,116 | 813,776 | ||||||
Prepaid expenses and other current assets | 6,077 | 306,995 | ||||||
Total current assets | 9,671,845 | 6,870,012 | ||||||
Property and equipment, net | 977,959 | 1,204,339 | ||||||
TOTAL ASSETS | $ | 10,649,804 | $ | 8,074,351 | ||||
LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 351,733 | $ | 130,799 | ||||
Due to related party | 55,210 | 54,500 | ||||||
Cash overdraft | - | 74,400 | ||||||
Income taxes payable | - | 418,241 | ||||||
Deferred income taxes payable | 1,774,342 | 669,482 | ||||||
Margin Loan Payable | 202,554 | - | ||||||
Total current liabilities | 2,383,839 | 1,347,422 | ||||||
TOTAL LIABILITIES | 2,383,839 | 1,347,422 | ||||||
STOCKHOLDER’S EQUITY | ||||||||
Common stock, $1.00 par value per share; 100,000 shares authorized; 100,000 shares issued and outstanding | $ | 100,000 | $ | 100,000 | ||||
Retained earnings | 8,165,965 | 6,626,929 | ||||||
Total stockholder’s Equity | 8,265,965 | 6,726,929 | ||||||
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY | $ | 10,649,804 | $ | 8,074,351 | ||||
The Accompanying Notes are an Integral Part of the Financial Statements
Bob Beeman Drilling Company
Statements of Operations
For the years ended December 31, 2007 and 2006
2007 | 2006 | |||||
(as restated ) | ||||||
Revenues | $ | 4,650,567 | $ | 5,687,402 | ||
Cost of revenues: | ||||||
Drilling costs | ||||||
Related party | 79,557 | 129,700 | ||||
Non-related party | 2,367,530 | 3,187,635 | ||||
Depreciation | 220,733 | 348,662 | ||||
Total cost of revenue | 2,667,820 | 3,665,997 | ||||
Gross margin on drilling operations | 1,982,747 | 2,021,405 | ||||
Operating expenses: | ||||||
Selling, general and administrative | ||||||
Related party | 325,000 | 301,359 | ||||
Non-related party | 2,013,129 | 1,060,800 | ||||
Total general and administrative expense | 2,338,129 | 1,362,159 | ||||
Depreciation | 5,647 | 9,512 | ||||
Total operating expenses | 2,343,776 | 1,371,671 | ||||
Income (loss) from operations | (361,029 | ) | 649,734 | |||
Other income (expense): | ||||||
Investment income (loss) | 2,985,420 | (1,193,423) | ||||
Interest expense | (21,759 | ) | (76,043) | |||
Income (loss) before provision for income taxes | 2,602,632 | (619,732) | ||||
Income tax expense (recovery) | 1,063,596 | (253,261) | ||||
Net income (loss) | $ | 1,539,036 | $ | (366,471) | ||
Per Share Data: | ||||||
Basic and diluted net income (loss) per share | $ | 15.39 | $ | (3.66) | ||
Weighted average shares outstanding | 100,000 | 100,000 |
The Accompanying Notes are an Integral Part of the Financial Statements
Bob Beeman Drilling Company
Statements of Stockholder’s Equity
For the years ended December 31, 2007 and 2006
Common Stock | ||||||||||||||||
Shares | Amount | Retained Earnings | Total | |||||||||||||
Balance, December 31, 2005 – as restated | 100,000 | $ | 100,000 | $ | 6,993,400 | $ | 7,093,400 | |||||||||
Net Loss | - | - | (366,471 | ) | (366,471 | ) | ||||||||||
Balance, December 31, 2006 – as restated | 100,000 | 100,000 | 6,626,929 | 6,726,929 | ||||||||||||
Net Income | - | - | 1,539,036 | 1,539,036 | ||||||||||||
Balance, December 31, 2007 | 100,000 | $ | 100,000 | $ | 8,165,965 | $ | 8,265,965 |
The Accompanying Notes are an Integral Part of the Financial Statements
Bob Beeman Drilling Company
Statements of Cash Flow
For the years ended December 31, 2007 and 2006
2007 | 2006 | ||||||
(as restated) | |||||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | 1,539,036 | $ | (366,471) | |||
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: | |||||||
Depreciation | 226,380 | 358,174 | |||||
Gain on sale of property & equipment | (50,000) | - | |||||
Deferred income tax expense (recovery) | - | 119,577 | |||||
Unrealized investment (income) loss | (2,936,849) | 1,356,703 | |||||
Changes in assets and liabilities: | |||||||
Accounts receivable | 97,660 | 398,772 | |||||
Accounts payable and accrued liabilities | 165,290 | (536,070) | |||||
Prepaid expenses and other current assets | 306,995 | (203,368) | |||||
Income taxes payable | 680,542 | (504,259) | |||||
Net cash provided by operating activities | 29,054 ) | 623,058 | |||||
Cash flows from investing activities: | |||||||
Capital expenditures | - | (752,658 | ) | ||||
Investments in equity securities | (9,709,260) | (6,302,631 | ) | ||||
Sale of equity securities | 8,050,583 | 11,265,968 | |||||
Cash received from sale of property and equipment | 50,000 | - | |||||
Net cash provided by (used in ) investing activities | (1,608,677) | 4,210,679 | |||||
Cash flow from financing activities: | |||||||
Bank overdraft | - | 74,400 | |||||
Payments on related party debt | (202,000) (202,000) | (49,127 | ) | ||||
Proceeds from related party debt capital | 202,710 | - | |||||
Proceeds from (payments of ) margin loan | 202,554 | (3,580,507 | ) | ||||
Net cash provided by (used in) financing activities | 203,264 | (3,555,234 | ) | ||||
Net increase (decrease) in cash and cash equivalents | (1,376,359) | 1,278,503 | |||||
Cash and equivalents, beginning of the year | 1,430,257 | 151,754 | |||||
Cash and equivalents, end of year | $ | 53,898 | $ | 1,430,257 | |||
Supplemental disclosures | |||||||
Cash paid for interest | $ | - | $ | - | |||
Cash paid for taxes | $ | 379,154 | $ | 220,497 |
The Accompanying Notes are an Integral Part of the Financial Statements
Bob Beeman Drilling Company
Notes to Financial Statements
December 31, 2007 and 2006
Note 1: Description of Business
Bob Beeman Drilling Company, a Utah corporation, was formed in 1966. Beeman Drilling operates twelve drilling and core rigs in Utah, New Mexico, Nevada, Arizona and Colorado. It derives its income from mineral core sampling, deep water well drilling and oil and gas drilling.
Restatements arising from errors resulting in an understatement in retained earnings at December 31, 2006 of $319,960, overstatement in income tax recovery for the year ended December 31, 2006 of $45,220, and understatement in retained earnings at December 31, 2005 of $365,180 were made. See Note 3 for details.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation.
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 Equivalents
Beeman Drilling considers all highly liquid investments with maturities from date of purchase of three months or less to be cash equivalents. Cash and equivalents consist of cash on deposit with domestic banks and, at times, may exceed federally insured limits.
Accounts Receivable
Beeman Drilling provides an allowance for doubtful accounts on trade receivables based on historical collection experience and a specific review of each customer’s trade receivable balance. As of December 31, 2007, there was no allowance provided on accounts receivable due to management’s assessment of the collectability of these items.
Credit Risk
Beeman Drilling is subject to credit risk relative to its trade receivables. However, credit risk with respect to trade receivables is minimized due to the nature of its customer base.
Beeman Drilling maintains cash balances at one bank and one financial institution. Accounts at the bank are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. Beeman Drilling also had $1,413,037 invested in an overnight repurchase agreement account as of December 31, 2007.
Trading securities
Beeman Drilling classifies its investments as trading based upon the nature of the investment. Trading securities are primarily marketable equity securities which are reported at estimated fair value with realized and unrealized gains and losses included other income (loss). The estimated fair values of investments are based on quoted market prices or dealer quotes.
Property and Equipment
Property and equipment are carried at cost. Depreciation of property and equipment is provided using the straight-line method for financial reporting purposes at rates based on the following estimated useful lives:
Classification | Estimated Useful Life | |
Drilling Rigs & Equipment | 5-10 Years | |
Heavy trucks & trailers | 5 Years | |
Automobiles | 3-5 Years | |
Buildings and Improvements | 10 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.
Revenue Recognition
Beeman earns contract drilling revenue under daywork contracts. Revenues on daywork contracts are recognized based on the days completed at the dayrate each contract specifies. Mobilization revenues and costs for daywork contracts are recognized over the days of actual drilling.
Income Taxes
Beeman Drilling recognizes deferred income tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred income tax liabilities and assets are determined based on the difference between the financial statement and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The company recognizes deferred tax assets if it is more likely than not that the assets will be realized in future years.
Net Income per Common Share
Basic net income (loss) per common share amounts are computed using the weighted average number of common shares outstanding during the year. Diluted per common share amounts are computed using the weighted average number of common shares outstanding during the year and dilutive potential common shares. Dilutive potential common shares consist of stock options, stock warrants and redeemable convertible preferred stock and are calculated using the treasury stock method. As of December 31, 2007, there were no dilutive potential common shares outstanding.
Recent Accounting Pronouncements
Beeman Drilling does not expect that adoption of recently issued accounting pronouncements will have a material impact on its financial position, results of operation or cash flows.
Note 3 : Restatement of Previously Issued Financial Statements
The financial statements presented herein as of and for the year ended December 31, 2006 have been restated for an error in the determination of the Company’s current and deferred federal and state income tax liabilities.
Beeman Drilling identified errors related to the determination of the it’s current and deferred federal and state income tax liabilities previously reported in its financial statements as of and for the year ended December 31, 2006 in the course of preparing financial statements for the year ended December 31, 2007. These errors relate to the Company’s failure to account for a deferred tax liability from unrealized investment gains on marketable securities and the determination of its current provision for income tax expense. In order to correct the errors described above, the Beeman Drilling has restated its financial statements as of and for the year ended December 31, 2006.
The effects of the restatement are summarized as follows:
As Previously Reported | Adjustments | As Restated | ||||
Income tax recovery | $ | (298,481 ) | $ | 45,220 | $ | (253,261) |
Retained earnings, December 31, 2006 | 6,306,969 | 319,960 | 6,626,929 | |||
Retained earnings, December 31, 2005 | 6,628,220 | 365,180 | 6,993,400 |
Note 4: Trading Securities
The aggregate amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of trading securities at December 31, 2007 and 2006, is as follows:
Date | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||
December 31, 2006 | $ | 3,745,968 | $ | 573,016 | $ | - | $ | 4,318,984 |
December 31, 2007 | $ | 5,741,686 | $ | 3,418,943 | $ | (264,875) | $ | 8,895,754 |
The trading securities collateralize a margin loan account totaling $202,554 and $-0- as of December 31, 2007 and 2006, respectively. This account is reflected as a current liability in the balance sheet.
Note 5: Property and Equipment
Property and equipment consisted of the following as of December 31, 2007 and 2006:
2007 | 2006 | |||||||
Description | Amount | Amount | ||||||
Drilling rigs & equipment | $ | 2,757,213 | $ | 2,854,696 | ||||
Heavy trucks & trailers | 368,400 | 368,400 | ||||||
Automobiles | 499,730 | 499,730 | ||||||
Buildings and improvements | 25,633 | 25,633 | ||||||
Total | 3,650,976 | 3,748,459 | ||||||
Less: Accumulated depreciation | 2,728,017 | 2,599,120 | ||||||
Net depreciable assets | 922,959 | 1,149,339 | ||||||
Land | 55,000 | 55,000 | ||||||
Property and equipment, net | $ | 977,959 | $ | 1,204,339 |
Depreciation expense was $226,380 and $358,174 for 2007 and 2006, respectively.
Note 6: Concentrations
The Company maintains cash balances at one bank. Accounts at the institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. The Company had uninsured cash balances in the amount of $1,413,037 at December 31, 2007.
As of December 31, 2007, three customers accounted for 47%, 17%, and 10% of total accounts receivable, respectively. During 2007, these three largest customers accounted for 30%, 22%, and 10% of total revenues, respectively.
As of December 31, 2006, four customers accounted for 61%, 14% , 12% and 8% of total accounts receivable, respectively. During 2006, the four largest customers accounted for 26%, 24%, 15% and 9% of total revenues, respectively.
Note 7: Income Taxes
Beeman Drilling files its income tax returns using the cash method of accounting. Cumulative timing differences resulting from the use of the cash method of accounting for income tax purposes result in a net deferred tax liability and amounted to approximately $1,200,000 and $4,400,000 as of December 31, 2006 and 2007, respectively.
A reconciliation of the differences between the effective and statutory income tax rates are as follows for the years ended December 31, 2007 and 2006:
2007 | 2006 | |||||||
Federal statutory rate- 34% | $ | 884,895 | (210,709 | ) | ||||
State tax rate - 6% | 156,158 | (37,184 | ) | |||||
Change in anticipated applicable rates | 22,543 | (5,368 | ) | |||||
Income tax Provision | $ | 1,063,596 | (253,261 | ) |
Deferred income tax expense amounted to approximately $750,000 and $120,000 for 2007 and 2006, respectively.
Note 8: Related Party Transactions
Related parties provided services to Beeman Drilling and were employed by Beeman Drilling during 2006 and 2007. Beeman Drilling owed related parties $55,210 as of December 31, 2007. Interest has not been accrued or imputed on the amounts owed to related parties as they settled on a current basis. Beeman Drilling paid related parties $79,557and $129,700 in the nature of services charged to cost of revenues, during 2007 and 2006, respectively. Beeman Drilling paid related parties $325,000 and $ 301,359 in the nature of services charged to selling, general and administrative expenses, during 2007 and 2006, respectively.
Note 9: Margin Loan Payable
Beeman Drilling has an outstanding margin loan due to a financial institution totaling $202,554 at December 31, 2007. Interest is applied to the average daily balance and is at 8.125% as of December 31, 2007.
Item 9.01 Financial Statements and Exhibits.
(b) Pro Forma Financial Statements |
SELECTED UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet and statement of operations and related notes are presented to show the pro forma effects of the acquisition of Best Well Services, Inc. (“BWS”) and Bob Beeman Drilling Company (“BBD”). The pro forma condensed consolidated statement of operations for the year ended January 31, 2008 is presented to show income from continuing operations as if the BWS and BBD acquisitions occurred as of the beginning of the period. The pro forma condensed consolidated balance sheet as of January 31, 2008 is presented to show the financial position as if the BWS and BBD acquisitions occurred as of January 31, 2008.
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 balance sheet and statement of operations should be read in conjunction with notes thereto and 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 above in this Form 8-K/A.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
[
Best | Pro Forma | Pro Forma | |||||||||||||||||||
Energy | BWS | BBD | Adjustments | Consolidated | |||||||||||||||||
Assets | |||||||||||||||||||||
Cash | $ | 5 | $ | 1,869,542 | $ | 53,898 | $ | 7,603,200 | (a) ** | $ | 8,205 | ||||||||||
15,135,000 | (c) | ||||||||||||||||||||
2,850,000 | (e) | ||||||||||||||||||||
(22,369,542 | ) | (g) | |||||||||||||||||||
(4,603,898 | ) | (h) | |||||||||||||||||||
(530,000 | ) | (i) | |||||||||||||||||||
Trading securities | - | 772,765 | 8,895,754 | (772,765 | ) | (g) | - | ||||||||||||||
(8,895,754 | ) | (h) | |||||||||||||||||||
Accounts receivable and other current assets | - | 2,532,909 | 722,193 | (2,032,909 | ) | (g) | 500,000 | ||||||||||||||
(722,193 | ) | (h) | |||||||||||||||||||
Total current assets | 5 | 5,175,216 | 9,671,845 | 508,205 | |||||||||||||||||
Deferred financing cost | - | - | - | 2,200,000 | (a) | 2,450,000 | |||||||||||||||
250,000 | (c) | ||||||||||||||||||||
Property and equipment, net | - | 4,563,400 | 977,959 | 15,536,600 | (g) | 24,850,000 | |||||||||||||||
3,772,041 | (h) | ||||||||||||||||||||
Goodwill | - | - | - | 530,000 | (i) | 530,000 | |||||||||||||||
Total assets | 5 | 9,738,616 | 10,649,804 | 7,949,780 | 28,338,205 | ||||||||||||||||
Liabilities and stockholders' equity | |||||||||||||||||||||
Accounts payable and accrued expenses | 10,141 | 390,460 | 351,733 | (390,460 | ) | (g) | 10,141 | ||||||||||||||
(351,733 | ) | (h) | |||||||||||||||||||
Due to related party | 22 | - | 55,210 | (55,210 | ) | (h) | 22 | ||||||||||||||
Due to American Rig Housing | - | - | - | 200,000 | (h) | 200,000 | |||||||||||||||
Deferred income taxes | - | - | 1,774,342 | (1,774,342 | ) | (k) | - | ||||||||||||||
Current portion of notes payable | - | 267,040 | 202,554 | (267,040 | ) | (g) | - | ||||||||||||||
(202,554 | ) | (h) | |||||||||||||||||||
Total current liabilities | 10,163 | 657,500 | 2,383,839 | 210,163 | |||||||||||||||||
Revolving note payable | - | - | - | 15,385,000 | (c) ** | 15,385,000 | |||||||||||||||
Term note payable | - | - | - | 2,850,000 | (e) | 2,850,000 | |||||||||||||||
Notes payable | - | 201,942 | - | (201,942 | ) | (g) | - | ||||||||||||||
Deferred income taxes | - | 520,592 | - | (520,592 | ) | (g) | - | ||||||||||||||
Redeemable Series A Preferred Stock | - | - | - | 10,026,000 | (a) | 10,026,000 | |||||||||||||||
Total liabilities | 10,163 | 1,380,034 | 2,383,839 | 28,471,163 | |||||||||||||||||
Stockholders' equity | |||||||||||||||||||||
Common stock | 9,685 | 30,000 | 100,000 | 6,963 | (a) | 17,273 | |||||||||||||||
(29,375 | ) | (g) | |||||||||||||||||||
(100,000 | ) | (h) | |||||||||||||||||||
Additional paid-in capital | 98,109 | 41,540 | - | (229,763 | ) | (a) | (32,279 | ) | |||||||||||||
57,835 | (g) | ||||||||||||||||||||
Retained earnings (deficit) | (117,952 | ) | 8,287,042 | 8,165,965 | (8,287,042 | ) | (g) | (117,952 | ) | ||||||||||||
(8,165,965 | ) | (h) | |||||||||||||||||||
Total stockholders' equity | (10,158 | ) | 8,358,582 | 8,265,965 | (132,958 | ) | |||||||||||||||
Total liabilities and stockholders' equity | 5 | 9,738,616 | 10,649,804 | 7,949,780 | 28,338,205 | ||||||||||||||||
** Unused available borrowing capacity of $2,500,000 |
See notes to unaudited pro forma condensed consolidated financial statements.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Actual | Pro Forma | Pro Forma | |||||||||||||||||||
Best Energy | BWS | BBD | Adjustments | Consolidated | |||||||||||||||||
Revenues | $ | - | $ | 17,746,048 | $ | 4,650,567 | $ | 22,396,615 | |||||||||||||
Cost of revenues | - | 8,624,319 | 2,447,087 | (79,557 | ) | (l) | 10,991,849 | ||||||||||||||
Cost of revenues-depreciation | - | 1,094,645 | 220,733 | 1,134,148 | (j)** | 2,449,526 | |||||||||||||||
Gross margin on drilling operations | - | 8,027,084 | 1,982,747 | 8,955,240 | |||||||||||||||||
Operating expenses: | |||||||||||||||||||||
General and administrative | 97,826 | 4,279,082 | 2,013,129 | (1,778,000 | ) | (l) | 4,612,037 | ||||||||||||||
General and administrative-depreciation | 5,647 | 5,647 | |||||||||||||||||||
General and administrative - related party | - | 39,365 | 325,000 | (364,365 | ) | (l) | - | ||||||||||||||
Total operating expenses | 97,826 | 4,318,447 | 2,343,776 | 4,617,684 | |||||||||||||||||
Operating income (loss) | (97,826 | ) | 3,708,637 | (361,029 | ) | 4,337,556 | |||||||||||||||
Other income (expense): | |||||||||||||||||||||
Investment income (loss) | - | 66,960 | 2,985,420 | (3,052,380 | ) | (k) | - | ||||||||||||||
Amortization of deferred financing cost | - | - | - | (2,262,500 | ) | (d) | (2,262,500 | ) | |||||||||||||
Interest expense | - | 106,539 | (21,759 | ) | (701,820 | ) | (b) | (1,893,490 | ) | ||||||||||||
(199,500 | ) | (f) | |||||||||||||||||||
(1,076,950 | ) | (d) | |||||||||||||||||||
Total other income (expense) | - | 173,499 | 2,963,661 | (4,155,990 | ) | ||||||||||||||||
Income (loss) before income taxes | (97,826 | ) | 3,882,136 | 2,602,632 | 181,566 | ||||||||||||||||
Income tax (expense) recovery | - | (1,430,374 | ) | (1,063,596 | ) | 2,426,896 | (m) | (67,074 | ) | ||||||||||||
Net income (loss) | (97,826 | ) | 2,451,762 | 1,539,036 | 114,492 | ||||||||||||||||
Net income per share: | |||||||||||||||||||||
Basic and diluted | $ | (0.01 | ) | $ | 0.01 | ||||||||||||||||
Weighted average shares outstanding: | |||||||||||||||||||||
Basic and diluted | 9,685,000 | 882,500 | 10,567,500 | ||||||||||||||||||
Total Depreciation is $2,455,173 |
See notes to unaudited pro forma condensed consolidated financial statements.
BEST ENERGY SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. Basis of Presentation
The acquisition of BWS and BBD is described elsewhere in this annual report on Form 10−K. The unaudited pro forma condensed consolidated balance sheet as of January 31, 2008 is based on the financial statements of Best Energy Services as of January 31, 2008 and the financial statements of BWS and BBD as of December 31, 2007 and the adjustments and assumptions described below. The unaudited pro forma condensed consolidated statements of operations for the year ended January 31, 2008 are based on the financial statements of Best Energy Services for the year ended January 31, 2008 and the financial statements of BWS and BBD for the year ended December 31, 2007 and the adjustments and assumptions described below.
2. Pro Forma Adjustments:
The unaudited pro forma condensed consolidated financial statements reflect the following adjustments:
(a) | Record the net proceeds from the $8,640,000 private offering of units, net of cash placement agent fees of $1,036,800. The Company also issued an additional 2,500 units valued at $2,500,000 in exchange for the counterparty providing additional cash collateral for the Revolving Notes. The value of these units, net of cash placement agent fees of $300,000, has been recorded as deferred financing costs and will be amortized over the period in which the cash collateral is available. | |
(b) | Record redemption of preferred stock interest on preferred stock. | |
(c) | Record borrowing $15,385,000 under Revolving Note Agreement to fund acquisitions. | |
(d) | Record interest expense on Revolving Note Agreement and amortization of deferred financing costs. | |
(e) | Record borrowing $2,850,000 under Term Note Agreement to fund acquisitions and provide for working capital. | |
(f) | Record interest expense on Term Note Agreement. | |
(g) | Record acquisition of BWS and allocation of purchase price. | |
(h) | Record acquisition of BBD and allocation of purchase price. | |
(i) | Record transaction costs associated with acquisition and financing. | |
(j) | Record incremental depreciation on property and equipment as a result of the acquisition of BWS and BBD. | |
(k) | Reverse investment income (loss) as trading securities will not be included in acquisition of BWS and BBD. | |
(l) | Eliminate related party expenses incurred by BWS and BBD which will not be incurred acquisitions. | |
(m) | Adjust tax expense based on income statement adjustments. |
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: May 2, 2008 | Best Energy Services, Inc. |
By: /s/Larry W. Hargrave | |
Larry W. Hargrave | |
Chief Executive Officer |