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 September 30, 2009
 
 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.)
 
 5433
Westheimer Road, Suite 825, Houston, Texas 77056
 (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 daysxYes  oNo
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).        Yes ̈
   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
      fileroNon-Accelerated
      filer   o (Do not
      check if a smaller reporting company)
              
              Smaller
      Reporting Company x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yeso   
Nox
 
 State the
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date: 21,010,109 common shares as of November 23,
2009.
  
 1
  BESTENERGY SERVICES, INC.
 
 
 Table
of Contents
 
 
 PagePART
      I. FINANCIAL INFORMATIONItem 1. Financial
      Statements
              
              3Unaudited Consolidated Balance
      Sheets as of September 30, 2009 and December 31,
      2008
              
              3Unaudited Consolidated Statements
      of Operations for the Three  and Nine Months EndedSeptember  30, 2009 and October 31,
      2008
              
              4Unaudited Consolidated Statements
      of Cash Flow for the Nine Months Ended September 30,2009 and October 31,
    2008
              
              5Notes to Unaudited Consolidated
      Financial Statements
              
              6Item 2. Management’s Discussion and
      Analysis of Financial Condition andResults of
      Operations
              
              18Item 4. Controls and
      Procedures
              
              23PART
      II. OTHER INFORMATIONItem 1. Legal
      Proceedings
              
              24Item 2. Unregistered Sales of Equity
      Securities and Use of Proceeds
              
              24Item 3. Defaults Upon Senior
      Securities
              
              25Item 4.T. Submission of Matters to a
      Vote of Security Holders
              
              25Item 5. Other
      Information
              
              25Item 6. Exhibits
              
              25
 
  2
 Table of Contents
 
 PART
I
 Item1. Financial Statements
 BestEnergy Services, Inc.
 Consolidated Balance Sheets
 (Unaudited)
 
 
 ASSETSSeptember
      30, 2009
              
              
              December
      31,
                2008Current
      assetsCash
              
              $
              -
              
              
              $
              249,330Accounts
      receivable, net of allowance for doubtful accountsof $120,518 and
      $106,237, respectively
              
              
              1,182,147
              
              
              
              3,602,118Prepaid
      and other current assets
              
              
              114,524
              
              
              
              123,053Total
      current assets
              
              
              1,296,671
              
              
              
              3,974,501Property
      and equipment, net
              
              
              20,188,250
              
              
              
              22,225,905Deferred
      financing costs, net
              
              
              661,008
              
              
              
              -Goodwill
      and other intangible assets
              
              
              5,641,786
              
              
              
              5,582,842Assets
      of discontinued operations
              
              
              5,000,000
              
              
              
              10,626,034TOTAL
      ASSETS
              
              $
              32,787,715
              
              
              $
              42,409,282LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities
              
              $
              1,017,713
              
              
              $
              678,834Bank
      overdraft
              
              
              63,568
              
              
              
              -Current
      portion of accrued officer compensation
              
              
              410,000
              
              
              
              140,000Preferred
      stock dividends payable
              
              
              1,531,522
              
              
              
              765,761Current
      portion of loans payable
              
              
              21,108,667
              
              
              
              21,802,193Total
      current liabilities
              
              
              24,131,470
              
              
              
              23,386,788Accrued
      officer compensation, net of current portion
              
              
              125,000
              
              
              
              410,000Loans
      payable, net of current portion
              
              
              130,265
              
              
              
              134,836Convertible
      notes payable, net of discount of $510,396 and $0,
      respectively
              
              
              577,604
              
              
              
              -Deferred
      income taxes
              
              
              5,238,685
              
              
              
              5,653,633Liabilities
      related to discontinued operations
              
              
              1,228,350
              
              
              
              3,054,821TOTAL
      LIABILITIES
              
              
              31,431,374
              
              
              
              32,640,078STOCKHOLDERS'
      EQUITYSeries
      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
              
              
              
              14,585,920Common
      stock, $0.001 par value per share; 90,000,000 shares authorized;
      21,010,109 and 20,891,366 shares issued and outstanding,
      respectively
              
              
              21,010
              
              
              
              20,891Additional
      paid-in capital
              
              
              2,700,276
              
              
              
              2,452,350Retained
      deficit
              
              
              (15,950,865
              )
              
              
              (7,289,957
              )Total
      stockholders’ equity
              
              
              1,356,341
              
              
              
              9,769,204TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
              
              $
              32,787,715
              
              
              $
              42,409,282
 
 The
accompanying notes are an integral part of these financial
statements.
 
 3
 Table of Contents
 
 BestEnergy Services, Inc
 Consolidated
Statements of Operations
 For
the three and nine months ended September 30, 2009 and October 31,
2008
 (Unaudited)
 
 
 Three
      Months Ended
              
              
              Nine
      Months EndedSeptember
      30,2009
              
              
              October
      31, 2008
              
              
              September
      30, 2009
              
              
              October
      31, 2008Revenues:Well
      service revenue
              
              $
              854,938
              
              
              $
              5,152,177
              
              
              $
              3,572,240
              
              
              $
              13,654,858Drilling
      service revenue
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Geological
      services revenue
              
              
              -
              
              
              
              514,444
              
              
              
              191,026
              
              
              
              888,321Total
      revenue
              
              
              854,938
              
              
              
              5,666,621
              
              
              
              3,763,266
              
              
              
              14,543,179Costs
      and expenses:Direct
      cost of revenue
              
              
              608,444
              
              
              
              1,164,781
              
              
              
              2,484,021
              
              
              
              5,914,248Business
      unit operating expenses
              
              
              446,657
              
              
              
              3,584,512
              
              
              
              1,617,598
              
              
              
              4,043,392Depreciation
      and amortization
              
              
              685,228
              
              
              
              664,119
              
              
              
              2,055,686
              
              
              
              1,830,941Loss
      on property sales
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              6,793General
      and administrative expense
              
              
              435,498
              
              
              
              1,183,635
              
              
              
              1,678,756
              
              
              
              4,177,209Total
      operating costs and expenses
              
              
              2,175,827
              
              
              
              6,597,047
              
              
              
              7,836,061
              
              
              
              15,972,583Net
      operating loss
              
              
              (1,320,889
              )
              
              
              (930,426
              )
              
              
              (4,072,795
              )
              
              
              (1,429,404
              )Other
      income (expense):Other
      Income
              
              
              -
              
              
              
              92
              
              
              
              874
              
              
              
              19,970Interest
      income
              
              
              -
              
              
              
              -
              
              
              
              -Interest
      expense
              
              
              (383,317
              )
              
              
              (873,326
              )
              
              
              (819,366
              )
              
              
              (3,289,702
              )Loss
      before provision for income taxes
              
              
              (1,704,206
              )
              
              
              (1,803,660
              )
              
              
              (4,891,287
              )
              
              
              (4,699,136
              )Deferred
      income tax benefit
              
              
              88,001
              
              
              
              -
              
              
              
              264,948
              
              
              
              -Net
      loss from continuing operations
              
              
              (1,616,205
              )
              
              
              (1,803,660
              )
              
              
              (4,626,339
              )
              
              
              (4,699,136
              )Income
      (loss) from discontinued operations
              
              
              (3,816,817
              )
              
              
              74,323
              
              
              
              (4,034,569
              )
              
              
              (1,564,110
              )Net
      loss
              
              
              (5,433,022
              )
              
              
              (1,729,337
              )
              
              
              (8,660,908
              )
              
              
              (6,263,246
              )Preferred
      dividends
              
              
              (255,254
              )
              
              
              (255,254
              )
              
              
              (765,761
              )
              
              
              (722,112
              )Net
      loss attributable to common shareholders
              
              $
              (5,688,276
              )
              
              $
              (1,984,591
              )
              
              $
              (9,426,669
              )
              
              $
              (6,985,358
              )Income
      (loss) per share, basic and fully dilutedLoss
      from continuing operations
              
              $
              (0.09
              )
              
              $
              (0.10
              )
              
              $
              (0.26
              )
              
              $
              (0.28
              )Income
      (loss) from discontinued operations
              
              
              (0.18
              )
              
              
              0.00
              
              
              
              (0.19
              )
              
              
              (0.08
              )Net
      loss
              
              $
              (0.27
              )
              
              $
              (0.10
              )
              
              $
              (0.45
              )
              
              $
              (0.36
              )Weighted
      average common shares outstanding,basic
      and fully diluted
              
              
              21,010,109
              
              
              
              20,216,366
              
              
              
              20,971,937
              
              
              
              19,145,674
 
 The
accompanying notes are an integral part of these financial
statements.
  4
 Table of Contents
  BestEnergy Services, Inc.
 Consolidated
Statements of Cash Flow
 For
the nine months ended September 30, 2009 and October 31, 2008
 (Unaudited)
 
 
 September
      30,
              
              
              October
      31,2009
              
              
              2008Cash
      flow from operating activities:Net
      loss
              
              $
              (8,660,908
              )
              
              $
              (6,263,246
              )Net
      loss from discontinued operations
              
              
              4,034,569
              
              
              
              1,564,110Net
      loss from continuing operations
              
              
              (4,626,339
              )
              
              
              (4,699,136
              )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Deferred
      income tax benefit
              
              
              (264,948
              )
              
              
              -Depreciation
              
              
              2,055,686
              
              
              
              2,519,555Stock-based
      compensation
              
              
              462,888
              
              
              
              224,723Non-cash
      interest expense
              
              
              134,206
              
              
              
              3,421,066Loss
      on sale of property and equipment
              
              
              -
              
              
              
              6,793Changes
      in operating assets and liabilities:
              
              
              -
              
              
              
              -Accounts
      receivable
              
              
              2,419,971
              
              
              
              (1,071,319
              )Prepaid
      expenses
              
              
              8,529
              
              
              
              (378,743
              )Accounts
      payable and accrued liabilities
              
              
              338,879
              
              
              
              720,535Bank
      overdraft
              
              
              63,568
              
              
              
              -Accrued
      officer compensation
              
              
              (15,000
              )
              
              
              880,000Net
      cash provided by operating activities
              
              
              577,440
              
              
              
              1,623,474Cash
      flows from investing activities:Acquisition
      of businesses, net of cash acquired
              
              
              (58,944
              )
              
              
              (23,360,971
              )Capital
      expenditures, net
              
              
              (267,612
              )
              
              
              (784,710
              )Proceeds
      from disposal of property and equipment
              
              
              -
              
              
              
              17,412Net
      cash used in investing activities
              
              
              (326,556
              )
              
              
              (24,128,269
              )Cash
      flows from financing activities:Proceeds
      from issuance of Term Loan
              
              
              -
              
              
              
              5,850,000Repayments
      of Term Loan
              
              
              (877,500
              )
              
              
              (780,000
              )Net
      borrowings under Revolving Advances
              
              
              187,125
              
              
              
              16,326,622Net
      repayments of other notes payable
              
              
              (141,932
              )
              
              
              (5,809
              )Proceeds
      from issuance of Units in private placement
              
              
              1,088,000
              
              
              
              11,848,080Payment
      of deferred financing costs
              
              
              (643,693
              )
              
              
              (921,066
              )Net
      cash provided by (used in) financing activities
              
              
              (388,000
              )
              
              
              32,317,827Net
      cash provided by (used in) discontinued operations
              
              
              (112,214
              )
              
              
              (9,582,821
              )Increase
      (decrease) in cash and cash equivalents
              
              
              (249,330
              )
              
              
              230,211Cash
      and cash equivalents, beginning of period
              
              
              249,330
              
              
              
              5Cash
      and cash equivalents, end of period
              
              $
              -
              
              
              $
              230,216
 
 (Continued)
 The
accompanying notes are an integral part of these financial
statements.
  5
 Table of Contents
  Best
Energy Services, Inc.
 Consolidated
Statements of Cash Flow (Continued)
 For
the nine months ended September 30, 2009 and October 31, 2008
 (Unaudited)
 
 Supplemental
      disclosures of cash flow information:Cash
      paid for interest
              
              $
              819,366
              
              
              $
              965,203Cash
      paid for income taxes
              
              $
              -
              
              
              $
              150,000Noncash
      investing and financing activities:Units
      issued in exchange for collateral agreements
              
              $
              -
              
              
              $
              2,500,000Shares
      issued for the purchase of assets from ARH and DSS
              
              
              -
              
              
              
              2,321,500Shares
      issued for the purchase of BWS
              
              
              -
              
              
              
              100,000Retirement
      of common shares
              
              
              -
              
              
              
              6,080Preferred
      stock issued in payment of preferred stock dividends
              
              
              -
              
              
              
              126,520Accrued
      dividends on preferred stock
              
              
              765,761
              
              
              
              595,592Stock
      options exercised
              
              
              76
              
              
              
              -Warrants
      issued for debt modification
              
              
              25,656
              
              
              
              -Warrants
      issued for deferred financing costs
              
              
              42,971
              
              
              
              -Discount
      on convertible notes payable
              
              
              533,603
              
              
              
              -
 
 
 The
accompanying notes are an integral part of these financial
statements.
  6
 Table of Contents
  BestEnergy Services, Inc.
 Notes
to Unaudited Consolidated Financial Statements
 
 Note
1 - Basis of Presentation
 
 The
accompanying unaudited interim consolidated financial statements have been
prepared pursuant to accounting principles generally accepted in the United
States of America and the rules and regulations of the Securities and Exchange
Commission and should be read in conjunction with the audited financial
statements and notes thereto contained on Form 10-K/A for the transition period
from February 1, 2008 to December 31, 2008 filed with the SEC on June 10,
2009.  In the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation
of financial position and the results of operations for the interim periods
presented have been reflected herein. The results of operations for interim
periods are not necessarily indicative of the results to be expected for the
full year. Notes to the financial statements which substantially duplicate the
disclosure contained in the audited financial statements for the transition
period from February 1, 2008 to December 31, 2008 as reported in the Form 10-K/A
filed with the SEC on June 10, 2009 have been omitted.  These
unaudited interim consolidated financial statements include the accounts of Best
Energy Services, Inc. (“Best Energy”) and its wholly-owned subsidiaries: Best
Well Services, Inc. (“BWS”), Best Energy Ventures, LLC (“BEV”) and Bob Beeman
Drilling, Inc. (“BBD”).  All significant inter-company balances and
transactions have been eliminated.  Except as otherwise noted, all
references herein to “Best Energy,” the “Company,” “we,” “us,” or “our” means
Best Energy Services, Inc. and its consolidated subsidiaries.
  Change
in Year End
 
 In
February 2008, Best Energy acquired two companies and certain assets from three
other companies, all of which are engaged in well servicing, drilling and
related complementary services for the oil and gas, water and minerals
industries.  Concurrent with these acquisitions, we abandoned our
prior business plan and changed our name to Best Energy Services,
Inc.
 
 Prior to
those 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 filed an Annual Report on Form 10-K for the year ended January 31, 2008 and
subsequently filed quarterly reports in 2008 on Form 10-Q for the quarters ended
April 30, July 31, and October 31.  We then filed a Transition Report
on Form 10-K for the eleven months ended December 31, 2008.  We have
determined that revising our prior year interim financial statements to conform
to the current year quarterly presentation would be unduly cumbersome and
costly.  Consequently, this report includes statements of operations
and cash flow for the three and nine month periods ended September 30, 2009 and
October 31, 2008.  We believe that these periods are generally
comparable other than the seasonal effects of our drilling operations, resulting
from the fact that our operations in Utah are subject to Bureau of Land
Management restrictions on land usage for drilling activity during the winter
months. In addition, weather conditions in Kansas in the first four months of
the year are generally unpredictable due to potentially heavy snow falls and
tornadoes.
 
 Going
Concern
 
 The
Company’s consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern that contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. At current levels, the Company’s established source of revenues is not
sufficient to cover its operating costs, which raises substantial doubt about
its ability to continue as a going concern.  In addition, the Company
is currently in default under the Amended Credit Agreement (see discussion
below), further exacerbating its ability to continue as a going
concern.
 
 
 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.
 
 Reclassifications
 
 Certain
prior year amounts have been reclassified to conform to the current year
presentation.
  7
 Table of Contents
 
 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 September 30, 2009, we had no cash balances in
excess of federally insured limits.
 
 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.
 
 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 a new standard issued by the FASB
related to goodwill and other intangible assets.  Following the
cessation of BBD’s operations on or about October 8, 2009, we determined that
the goodwill recorded on the acquisition of BBD has been impaired and recorded a
100 percent impairment of $1,974,467.  Goodwill has been adjusted by
$58,944 for purchase price adjustments recognized during the current fiscal
year.
 
 Income
Taxes
 
 We
recognize deferred tax assets and liabilities for the future tax consequences
attributed to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
basis.  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.  The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.  If it is more likely than not that some portion of a deferred
tax asset will not be realized, a valuation allowance is
recognized.
 
 The
Company recognized a decrease in deferred income tax liability associated with
the impairment of the values of assets of discontinued operations that are being
held for sale.  The decrease in the liability was
$1,826,271.  See Note Discontinued
Operations.
 
 Segment
Reporting
 
 A new
standard issued by the FASB establishes a standard for reporting information
about operating segments on a basis consistent with the company’s internal
organization structure as well as information about geographical areas, business
segments and major customers in financial statements. In January 2009, the
Company combined the Mud Logging and Rig Housing divisions as Geological
Services Division. Due to lack of profitability, the Company offers only very
limited services in those areas.  Since its inception in July 2009,
BEV has been included in the Geological Services Division.  The
Company continues to have business operations in the well services segments.
Accordingly, the Company operates in two business segments.
 
 The
Company discontinued the operations in the Drilling Services Division, due to
lack of profitability.  Those related assets are now being held for
sale. An impairment in their value has been recorded for $3,271,587, which
increased the Company’s loss for the three and nine months ended September 30,
2009.  See Note Segment Information for further
discussion.
 
 Recently
Issued Accounting Standards and Developments
 
 In May
2009, the FASB issued an amendment which establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. In
particular, this Statement sets forth: (1) the period after the balance sheet
date during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements; (2) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements; and (3) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. In accordance
with the new standard, an entity should apply the requirements to interim or
annual financial periods ending after June 15, 2009. We adopted the new standard
effective June 30, 2009 and the adoption did not have a material impact on our
consolidated financial statements. The date through which subsequent events have
been evaluated is November 23, 2009, the date on which the financial statements
were issued. See NoteSubsequent Events for further discussion.
 
 In June
2009, the FASB issued a new standard, Accounting Standards Codification
(“Codification”), which will become the source of authoritative GAAP recognized
by the FASB to be applied by nongovernmental entities. Rules and interpretive
releases of the SEC under authority of federal securities laws are also sources
of authoritative GAAP for SEC registrants. On the effective date of this new
standard, the Codification will supersede all then-existing non-SEC accounting
and reporting standards. All other non-grandfathered non-SEC accounting
literature not included in the Codification will become non-authoritative. The
new standard is effective for financial statements issued for interim and annual
periods ending after September 15, 2009.  We adopted the requirements
of the new standard in the third quarter of fiscal year 2009, and the adoption
did not have a material impact on our consolidated financial
statements.
  8
 Table of Contents
  Effective
June 30, 2009, the Company adopted a new accounting standard issued by the FASB
related to the disclosure requirements of the fair value of financial
instruments. This standard expands the disclosure requirements of fair value
(including the methods and significant assumptions used to estimate fair value)
of certain financial instruments to interim period financial statements that
were previously only required to be disclosed in financial statements for annual
periods. In accordance with this standard, the disclosure requirements have been
applied on a prospective basis and did not have a material impact on the
Company’s consolidated financial statements.  The new standard had no
material effect on the period ended June 30, 2009.
 
 Note
3 – Loans Payable
 
 On April
15, 2009, we entered into an amendment to our existing credit agreement with PNC
Bank N.A. (“Amended Credit Agreement”). As amended through the date of this
report, the Amended Credit Agreement provides for a term loan and a revolving
credit line.  Under the terms of the Amended Credit Agreement, the
term loan increased from approximately $5.0 million to $19.2 million, as a
result of a portion of the revolving debt being transferred to the term
loan.  The maturity date of the term loan was changed to March 31,
2011.  The term loan requires monthly principal payments beginning May
1, 2009 and on the first day of each month thereafter as follows:
 
 ·
              From
      May 1, 2009 to December 31, 2009 -
$98,500;
 ·
              From
      January 1, 2010 to December 31, 2010 - $125,000;
  and
 ·
              $150,000
      thereafter until March 31, 2011.
 
 The term
loan bears interest at a rate equal to (i) an alternate base rate (which is
generally the greater of the federal funds open rate plus 1⁄2%, PNC’s base
commercial lending rate and the daily LIBOR rate) plus 2.5% or (ii) the greater
of the Eurodollar Rate or 2%  plus  3.75%, as those terms
are defined in the Amended Credit Agreement.  The term loan also
requires an annual 25% recapture of Excess Cash Flow to be applied to the
principal balance. Excess Cash Flow is defined as EBIDTA less cash tax payments,
non-financed capital expenditures and payments of principal on the term loan and
interest on indebtedness for borrowed money.
 
 The
revolving credit line, $2,269,812 outstanding on September 30,2009, may be borrowed
and re-borrowed until maturity on March 31, 2011 and bears interest at the same
rate as the term loan.  As of the date of the report, the amount
available is the lesser of $4.0 million and an amount equal to 85% of eligible
receivables plus 100% of the balance in the cash collateral account plus the
allowable overage of $1,650,000 plus the undrawn amount of letters of credit
minus such reserves as PNC deems appropriate.  At September 30, 2009,
there was $163,821 of additional availability under the Credit
Agreement.
 
 Borrowings
under the Amended Credit Agreement are secured by all of our assets and
equipment.  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.
 
 Under the
Amended Credit Agreement, in effect as of the date of this Report, we are
subject to customary covenants, including certain financial covenants and
reporting requirements. Beginning on March 31, 2010, we are required to maintain
a fixed charge coverage ratio, defined as the ratio of EBITDA minus capital
expenditures (except for capital expenditures financed by lenders other than
under the Amended Credit Agreement) 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 Preferred Stock), to all senior debt payments as follows:
 
 Fiscal
      Quarter Ending:
              
              Fixed
                Coverage
      Ratio:December
      31, 2009
              
              No
      testMarch
      31, 2010
              
              No
      testJune
      30, 2010
              
              1.10
      to 1.0September
      30, 2010
              
              1.10
      to 1.0December
      31, 2010
              
              1.10
      to 1.0March
      31, 2011
              
              1.10
      to 1.0
  9
 Table of Contents
  We also
are required to maintain a minimum EBITDA as follows:
 
 Fiscal
      Quarter Ending:
              
              Minimum
      EBITDA:Three
      months ended September 30, 2009
              
              $     (30,000)Six
      months ended December 31, 2009
              
              880,000Nine
      months ended March 30, 2010
              
              1,640,000Twelve
      months ended June 30, 2010
              
              2,685,000Twelve
      months ended September 30, 2010
              
              3,795,000Twelve
      months ended December 31, 2010
              
              3,990,000Twelve
      months ended March 31, 2011(and
      each twelve month period ending on thefinal
      day of each fiscal quarter thereafter)
              
              4,000,000
 
 We did
not meet the EBITDA requirement for the six months ended June 30, 2009 as it
existed at that time.  We received a waiver from PNC for that covenant
default minimum and entered into an amendment to the credit agreement on August
19, 2009 for the minimum EBITDA covenant going forward.
 
 Under the
terms of the Amended Credit Agreement, 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.
 
 The
Amended Credit Agreement also includes the following minimum rig utilization
requirements for BWS:
 
 Fiscal
      Quarter Ending:
              
              Minimum
                Rig
                Utilization:Three
      months ended September 30,2009
              
              34%Six
      months ended December 31, 2009
              
              39%Nine
      months ended March 31, 2010
              
              40%Twelve
      months ended June 30, 2010
              
              41%Twelve
      months ended September 30, 2010
              
              43%Twelve
      months ended December 31, 2010
              
              43%Twelve
      months ended March 31, 2011(and
      each twelve month period ending on thefinal
      day of each fiscal quarter thereafter)
              
              43%
 
 Our rig
utilization rate was 32% for the three months ended September 30, 2009, which
was less than the required minimum.
 
 In
addition to the foregoing and other customary covenants, the Amended Credit
Agreement 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.
 
 The
Amended Credit Agreement 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.
 
 In
connection with the April 2009 amendment to our credit agreement, we incurred
cash costs associated with the transaction of $303,071.  In addition
we were required to pay PNC a loan modification fee of $125,000 and to issue to
PNC warrants to purchase 250,000 shares of common stock at a strike price of
$0.50 for a period of 5 years.  The warrants were valued using the
Black-Scholes option pricing model at $15,885.   A portion of the loan
modification fee in the amount of $33,333 remained unpaid as of September 30,
2009.
  10
 Table of Contents
  On August
19, 2009, we entered into a second amendment to our existing credit agreement
with PNC (the “2nd
Amendment”).  The 2nd
Amendment revised certain covenants of our credit agreements as follows: (i)
minimum rig utilization was amended to cover longer periods at lower utilization
rates, (ii) the term loan interest rates were increased by twenty-five (25)
basis points, (iii) the fixed charge coverage ratio was eliminated for the
periods ended March 31, 2010 and June 30, 2010 and was reduced for subsequent
periods to 1.10 and 1.00 and (iv) the minimum EBITDA covenant was amended to
reset the periods covered by such covenant and reset the minimum EBITDA levels
for such periods.  In addition the 2nd
Amendment waived the existing default that had occurred and was continuing as a
result of our violation of the minimum EBITDA covenant.  In
consideration of the 2nd
Amendment, we paid PNC a $25,000 amendment fee of which $12,500 was paid on
August 19, 2009 and $12,500 was paid on September 19, 2009.
 
 On
October 18, 2009, we entered into a third amendment to our existing credit
agreement with PNC (the “3rd
Amendment”).  The 3rd
Amendment amended our credit agreement as follows: (i) the amount available
under the revolver was temporarily increased by $1.385 million from the date of
the 3rd
Amendment until November 16, 2009 at which time this additional availability
will reduce to zero and (ii) the date that certain payments made under our
credit agreements are credited to us was moved back one business
day.  In addition, the 3rd
Amendment clarified that PNC is not waiving our existing events of default,
including our failure to deliver monthly financial statements for the months
ended July 31, 2009 and August 31, 2009 and the aggregate balance of the
revolving advances made by us under the Amended Credit Agreement exceeding the
allowable amount.  In the 3rd
Amendment, PNC expressly reserves all of its rights and remedies under our
credit agreement, the other documents and agreements entered into in connection
with the Amended Credit Agreement and at law.  In addition, the 3rd
Amendment requires us to provide PNC, no later than November 3, 2009, a
letter-of-intent from investors to provide us with up to $2.0 million of
additional equity capital on terms reasonably acceptable to PNC.  In
consideration for entering into the 3rd
Amendment, PNC was paid a $25,000 amendment fee, $5,000 on October 20, 2009 and
$20,000 on November 17, 2009, and was issued a warrant to purchase 250,000
shares of our common stock at an exercise price of $0.25 per share. As of the
date of this report, we have complied with all requirements of the 3rd
Amendment.
 
 On
November 6, 2009, we entered into a fourth amendment to our existing credit
agreement with PNC (the “4th
Amendment”).  The 4th Amendment amended the Amended Credit Agreement,
as amended by the 2ndand
3rd
Amendments as follows: (i) the amount available under the Amended Credit
Agreement was temporarily increased to $1.65 million from the date of the 4th
Amendment until the earlier of (i) December 31, 2009 or (ii) the date upon which
we receive a cash infusion of equity in an amount not less than $2.0 million on
terms and conditions satisfactory to PNC.  In addition, the 4th
Amendment clarifies that PNC is not waiving our existing events of default,
including our failure to deliver monthly financial statements for the months
ended July 31, 2009 and August 31, 2009 and the aggregate balance of the
revolving advances made by us under the Amended Credit Agreement exceeding the
allowable amount.  In the 4th
Amendment, PNC expressly reserves all of its rights and remedies under the
Amended Credit Agreement, the other documents and agreements entered into in
connection with our credit agreement and at law.  The 4th
Amendment contained a condition of effectiveness whereby we were required to
provide PNC with a commitment letter from an investor agreeing to infuse no less
than $150,000 of capital into our controlled joint venture within 7 to 10
calendar days from the effective date of the 4th
amendment on terms and conditions satisfactory to PNC.  We satisfied
this condition of effectiveness on November 9, 2009.   In
addition, the 4th
Amendment contained a condition subsequent whereby the $150,000 infusion was to
have occurred within the 7 to 10 calendar day period subsequent to the November
9, 2009 effective date of the 4th
Amendment.  As of the date of this Report, we have not satisfied this
condition subsequent and are in negotiations with the investor and PNC to
resolve this unsatisfied condition subsequent.  In consideration for
entering into the 4th
Amendment, we agreed to pay PNC a $10,000 amendment fee, $5,000 of which was
paid on November 9, 2009 while the remaining $5,000 is due on December 7, 2009,
and issue a warrant to purchase an additional 250,000 shares of our common stock
at an exercise price of $0.25 per share.
 
 The
Company has paid a total of $560,696 in fees, which are amortized using the
straight-line method through July 2011.  The amortized value as of
September 30, 2009 was $447,903.
 
 Note
4 – Convertible Notes Payable
 
 During
June, July and August 2009, we had several preliminary closings of a private
placement for a total of 1,088 Units and received gross proceeds of $1,088,000
(net proceeds of $946,560 after cash commission of $141,440). Each Unit consists
of a subordinated convertible note payable of $1,000 and warrants to purchase
4,000 shares of common stock at an exercise price of $0.25 per share at any time
until expiration on July 1, 2014.  The notes bear interest at a rate
of 10% per annum, which is payable either in cash semi-annually in arrears on
July 1 and January 2 each year, commencing on January 2, 2010 or in shares of
common stock at a price of $0.25 per share. Under the terms of the Amended
Credit Agreement, we may not pay cash interest on the notes.  The
notes are convertible at the option of the note holder into common stock at the
rate of $0.25 per share (the “Conversion Price”) and mature on July 1,
2011.  If we achieve certain earnings hurdles, we may force the
noteholders to convert all or part of the then outstanding notes at the
Conversion Price.  The notes are unsecured obligations and are
subordinate in right of payment to all of our existing and future senior
indebtedness.
 
 We
evaluated the terms of the notes in accordance with the new standard issued by
the FASB related to the disclosure of derivative instruments and hedging
activities.  Best Energy determined that the conversion feature did
not meet the definition of a liability and therefore did not bifurcate the
conversion feature and account for it as a separate derivative
liability.  We evaluated the conversion feature for a beneficial
conversion feature.  The effective conversion price was compared to
the market price on the date of the notes and was deemed to be less than the
market value of our common stock at the inception of the note. A beneficial
conversion feature was recognized and gave rise to a debt discount of $479,160,
which is amortized over the life of the loans through July 2011 using the
effective-interest-rate method.
  11
 Table of Contents
  In
connection with the private placement, we issued warrants to the placement agent
to purchase 435,200 shares of common stock at an exercise price of $0.25 per
share at any time until expiration on July 1, 2014.  These warrants
were valued at $54,443 and are amortized over the life of the loans through July
2011 using the effective-interest-rate method.
 
 The
amortized value as of September 30, 2009 of the warrants and the beneficial
conversion feature was $510,396.  Additionally, fees totaling $234,518
were paid in cash and amortized over the life of the loans through July 2011
using the straight-line method.  There net amortized value on
September 30, 2009 was $213,105.
 
 Note 5 -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.  Upon exercise of stock options, new shares of common stock are
issued.  Compensation cost related to stock options is recognized on a
straight-line basis over the vesting or service period and is net of expected
forfeitures.
 
 The fair
value of each stock option granted is estimated on the date of grant using the
Black-Scholes option pricing model.  The following table presents the
assumptions used in the option pricing model for options granted during the nine
months ended September 30, 2009.  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)
              2.50
      yearsRisk-free
      interest rate
              0.93
      – 1.35%Volatility
              120.00
      - 169.30%Dividend
      yield
              0.00%
 
 A summary
of our stock option activity and related information is presented
below:
 
 Number of
      Options
              
              
              Weighted
      Average Exercise Price Per OptionOptions
      outstanding at December 31, 2008
              
              
              2,845,000
              
              
              $
              0.30Granted
              
              
              1,570,000
              
              
              
              0.25Exercised
              
              
              (150,000
              )
              
              
              0.50Forfeited
              
              
              -
              
              
              
              -Options
      outstanding at September 30, 2009
              
              
              4,265,000
              
              
              $
              0.28Options
      vested and exercisable at September 30, 2009
              
              
              4,265,000
              
              
              $
              0.28
 
 During
the nine months ended September 30, 2009, 1,570,000 options were granted with a
weighted average grant date fair value of $0.22.  During the nine
months ended September 30, 2009, 150,000 options were exercised in a cashless
exercise which resulted in 75,743 shares being issued.  No options
were forfeited or expired.  As of September 30, 2009, there was no
unrecognized compensation cost related to non-vested stock
options.  We recognized $462,888 of stock-based compensation expense
during the nine months ended September 30, 2009.  As of September 30,
2009, the weighted-average remaining life of the outstanding stock options is
4.15 years.
 
 The
aggregate intrinsic value of stock options outstanding at September 30, 2009 was
$40,500.  The aggregate intrinsic value of stock options outstanding
at December 31, 2008 was approximately $1,603,950, of which $1,450,950 relates
to awards vested and exercisable.
  12
 Table of Contents
 
 Note
6 - Stockholders’ Equity
 
 Dividends
 
 As of
September 30, 2009 there was $1,531,522 of accrued and unpaid dividends on the
Series A Preferred Stock.
 
 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 (to the extent
permissible under the Amended Credit Agreement) 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.
 
 Common
Stock
 
 During
the nine months ended September 30, 2009, 75,743 shares of common stock were
issued as a result of a cashless exercise of options to purchase 150,000 shares
of common stock.
 
 During
the nine months ended September 30, 2009, 43,000 shares of common stock were
issued to employees as compensation.  The stock was valued at the
trading price of $0.12 per share, yielding total compensation expense to the
Company of $5,160.
 
 Note
7 - Related Party Transactions
 
 On
February 14, 2008, we leased certain real property from Mr. Tony Bruce, our
director, Chief Operating Officer and President, for a period of three years for
$3,500 per month in base rent.
 
 On
February 22, 2008, we leased real property necessary to run our rig housing
operations from Mr. Larry Hargrave, our former Chief Executive Officer and a
former director, for a period of three years for $6,000 per month in base
rent.
 
 In
January 2009, as part of a settlement agreement for his termination in October
2008 from the position of chief executive officer, we entered into a consultancy
agreement with Larry Hargrave, the Company’s former Chief Executive Officer,
covering the period January 15, 2009 to June 15, 2009 at $10,000 per
month.
 
 Note
8 – Segment Information
 
 Our
operations have been organized and aligned within the following three reportable
segments:
 
 ·
              Well
      Services (Best Well Service, Inc.);
 ·
              Drilling
      Services (Bob Beeman Drilling
Company);
 ·
              Geological
      Services
 
 Our
operations are both product and services based, and the reportable operating
segments presented below include our well services operations, drilling services
operations, mud logging and construction of portable rig housing for rig
sites.
 
 The
operations for Drilling Services operations have been discontinued and we are
exploring new possibilities for the assets associated with Geological Services.
For the sake of clarity, those segments are still contained
herein.  The only effect shown here from the accounting for
discontinued operations is the loss on the revaluation of the assets associated
with Drilling Services.
 
 Our
reportable segment information is as follows as of and for the three months
ended September 30, 2009:
 
 SegmentsWell
                Services
              
              Drilling
                Services
              Geological
      Services
              Segments
                TotalRevenue
              
              $
              854,938
              
              
              $
              1,095,149
              
              
              $
              -
              
              
              $
              1,950,087Gross
      profit (loss)
              
              $
              (17,363
              )
              
              $
              (208,407
              )
              
              $
              (182,795
              )
              
              $
              (408,565
              )
  13
 Table of Contents
  Our
reportable segment information is as follows as of and for the three months
ended October 31, 2008:
 
 SegmentsWell
                Services
              
              Drilling
                Services
              
              Geological
      Services
              Segments
                TotalRevenue
              
              $
              5,152,177
              
              
              $
              1,361,115
              
              
              $
              514,444
              
              
              $
              7,027,736Gross
      profit (loss)
              
              $
              1,775,947
              
              
              $
              51,255
              
              
              $
              (299,819
              )
              
              $
              1,527,383
 
 Our
reportable segment information is as follows as of and for the nine months ended
September 30, 2009:
 
 SegmentsWell
                Services
              
              
              Drilling
                Services
              
              
              Geological
      Services
              
              
              Segments
                TotalRevenue
              
              $
              3,572,240
              
              
              $
              2,613,943
              
              
              $
              191,026
              
              
              $
              6,377,209Gross
      profit (loss)
              
              $
              293,433
              
              
              $
              146,655
              
              
              $
              (631,784
              )
              
              $
              (191,696
              )
  Our
reportable segment information is as follows as of and for the nine months ended
October 31, 2008:
 
 SegmentsWell
                Services
              
              Drilling
                Services
              
              Geological
                Services
              Segments
                TotalRevenue
              
              $
              13,654,858
              
              
              $
              3,204,615
              
              
              $
              888,321
              
              
              $
              17,747,794Gross
      profit (loss)
              
              $
              5,220,557
              
              
              $
              181,946
              
              
              $
              (602,507
              )
              
              $
              4,799,996
 
 The
following table reconciles gross profit (loss) from reportable segments to our
consolidated net loss for the three months ended September 30, 2009 and October
31, 2008:
 
 Three
      Months EndedSeptember
      30, 2009
              
              
              October
      31,
                2008Gross
      profit (loss) from reportable segments
              
              $
              (408,565)
              
              
              $
              1,527,383Depreciation
              
              
              (934,018
              )
              
              
              (908,385
              )General
      and administrative expenses
              
              
              (441,292
              )
              
              
              (1,183,635
              )Loss
      from operations
              
              
              (1,783,875
              )
              
              
              (564,637
              )Other
      expense, net
              
              
              (515,559
              )
              
              
              (1,164,700
              )Net
      loss from continuing operations before income taxes
              
              
              (2,299,434
              )
              
              
              (1,729,337
              )Federal
      income taxes
              
              
              138,001
              
              
              
              -Loss
      from revaluation of assets held for sale
              
              
              (3,271,589
              )
              
              
              -Net
      loss
              
              $
              (5,433,022
              
              
              $
              (1,729,337)
  14
 Table of Contents
  The
following table reconciles gross profit (loss) from reportable segments to our
consolidated net loss for the nine months ended September 30, 2009 and October
31, 2008:
 
 Nine
      Months EndedSeptember
      30,
                2009
              
              
              December
      31,
                2008Gross
      profit (loss) from reportable segments
              
              $
              (191,696
              )
              
              $
              4,799,996Depreciation
              
              
              (2,833,245
              )
              
              
              (2,519,555
              )General
      and administrative expenses
              
              
              (1,685,349
              )
              
              
              (4,177,209
              )Loss
      from operations
              
              
              (4,710,290
              )
              
              
              (1,896,768
              )Other
      expense, net
              
              
              (1,093,977
              )
              
              
              (4,366,478
              )Net
      loss from continuing operations before income taxes
              
              
              (5,804,267
              )
              
              
              (6,263,246
              )Federal
      income taxes
              
              
              414,948
              
              
              
              -Loss
      from revaluation of assets held for sale
              
              
              (3,271,589
              )
              
              
              -Net
      loss
              
              $
              (8,660,908
              )
              
              $
              (6,263,246
              )
  Assets by
reportable segment as of September 30, 2009 and December 31, 2008 are as
follows:
 
 SegmentsWell
      Services
              
              Drilling
      Services
              Geological
      Services
              Segments
      TotalSeptember
      30, 2009
              
              $
              18,530,710
              
              
              $
              664,036
              
              
              $
              2,180,305
              
              
              $
              21,375,051December
      31, 2008
              
              
              20,778,824
              
              
              
              771,944
              
              
              
              2,613,967
              
              
              
              24,164,735
 
 The
following table reconciles assets from reportable segments to our net
consolidated assets as of September 30, 2009 and December 31, 2008:
  September
      30,
                2009
              
              
              December
      31,
                2008Assets
      from reportable segments
              
              $
              21,375,051
              
              
              $
              24,164,735Goodwill
              
              
              5,641,786
              
              
              
              5,582,842Other
      corporate assets
              
              
              770,878
              
              
              
              2,035,671Assets
      held for sale
              
              
              5,000,000
              
              
              
              10,626,034Total
      consolidated assets
              
              $
              32,787,715
              
              
              $
              42,409,282
  15
 Table of Contents
  Note
9 –Discontinued Operations
 
 On or
about October 8, 2009, the Company discontinued the operations in the Drilling
Services Division, due to lack of profitability.  The discontinuation
of operations resulted in a $1,974,467 loss for the 100 percent impairment of
the goodwill associated with the purchase of the Drilling Service
Division.  The related assets are now being held for sale. Due to the
current depressed market for assets in the drilling industry, an impairment of
$3,123,591 in their value has been recorded, which reduced their value to
$5,000,000.  As a result of the write-down of the fixed assets, the
related deferred tax liability, calculated on the difference between the taxable
basis of the assets and their value for the Company, has been reduced by
$1,826,471. During the nine months ended September 30, 2009, the total loss
associated with discontinued operations was $4,034,569, of which $3,271,587
resulted from the revaluation of assets and liabilities.
 
 The
assets and liabilities of items held for sale associated with discontinued
operations are as follows as of September 30, 2009 and December 31,
2008:
 
 September
      30,
                2009
              
              
              December
      31,
                2008ASSETS:Fixed
      assets
              
              $
              5,000,000
              
              
              $
              9,853,046Goodwill
              
              
              -
              
              
              
              1,974,467LIABILITIES:Deferred
      taxes
              
              $
              1,228,350
              
              
              $
              3,054,821
 
 Note
10 –Fair Value Measurement
 
 The
Company determines fair value measurements used in its consolidated financial
statements based upon the exit price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants exclusive of any transaction costs, as determined by either the
principal market or the most advantageous market. The principal market is the
market with the greatest level of activity and volume for the asset or
liability. Absent a principal market to measure fair value, the Company has used
the most advantageous market, which is the market in which the Company would
receive the highest selling price for the asset or pay the lowest price to
settle the liability, after considering transaction costs. However, when using
the most advantageous market, transaction costs are only considered to determine
which market is the most advantageous and these costs are then excluded when
applying a fair value measurement.
 
 Inputs
used in the valuation techniques to derive fair values are classified based on a
three-level hierarchy. The basis for fair value measurements for each level
within the hierarchy is described below with Level 1 having the highest priority
and Level 3 having the lowest.
 
 Level 1:
Quoted prices in active markets for identical assets or
liabilities.
 
 Level 2:
Quoted prices for similar assets or liabilities in active markets; quoted prices
for identical or similar instruments in markets that are not active; and
model-derived valuations in which all significant inputs are observable in
active markets.
 
 Level 3:
Valuations derived from valuation techniques in which one or more significant
inputs are unobservable.
 
 The
following table provides a summary of the recognized assets and liabilities that
are measured at fair value on a recurring basis.
 
 September
      30, 2009
              
              
              Quoted
      Prices in Active Markets for Identical Assets /
Liabilities
              
              
              Significant
      Other Observable Inputs
              
              
              Significant
      Unobservable InputsAssets:Assets
      held for sale
              
              
              5,000,000
              
              
              
              -
              
              
              
              -
              
              
              
              5,000,000
 
 The fair
value measurements of assets held for sale are calculated based on the expected
realization from selling those assets.
 
 The
carrying amounts of cash and cash equivalents, accounts receivable and accounts
payable, and accrued expenses approximate fair value based on the short
maturities of these instruments. At September 30, 2009, the fair value of the
debt was equal to the carrying value.
  16
 Table of Contents
  Note
10 –Subsequent Events
 
 Subsequent
events through November 23, 2009 are as follows:
 
 The
Company amended its financing two times after September 30, 2009.
 
 On
October 18, 2009, we entered into a 3rd
amendment to our existing credit agreement with PNC (“3rd
Amendment”).  The 3rd
Amendment amended the Amended Credit Agreement, as amended by the 2nd
Amendment as follows: (i) the amount available under the Amended Credit
Agreement was temporarily increased by $1.385 million from the date of the
3rd
Amendment until November 16, 2009 at which time this additional availability
will reduce to zero and (ii) the date that certain payments made under the
Amended Credit Agreement are credited to us was moved back one business
day.  In addition, the 3rd
Amendment clarifies that PNC is not waiving our existing events of default,
including our failure to deliver monthly financial statements for the months
ended July 31, 2009 and August 31, 2009 and the aggregate balance of the
revolving advances made by us under the Amended Credit Agreement exceeding the
allowable amount.  In the 3rd
Amendment, PNC expressly reserves all of its rights and remedies under the
Amended Credit Agreement, the other documents and agreements entered into in
connection with the Amended Credit Agreement and at law.  In addition,
the 3rd
Amendment requires us to provide PNC, no later than November 3, 2009, a
letter-of-intent from investors to provide us with up to $2.0 million of
additional equity capital on terms reasonably acceptable to PNC.  In
consideration for entering into this 3rd
Amendment, PNC was paid a $25,000 amendment fee, $5,000 on October 20, 2009 and
$20,000 on November 17, 2009, and was issued a warrant to purchase 250,000
shares of our common stock at an exercise price of $0.25 per share. As of the
date of this report, we have complied with all requirements of the 3rd
Amendment.
 
 On
November 6, 2009, we entered into a 4th
amendment to our existing credit agreement with PNC (“4th
Amendment”).  The 4th Amendment amended the Amended Credit Agreement,
as amended by the 2ndand
3rd
Amendments as follows: (i) the amount available under the Amended Credit
Agreement was temporarily increased to $1.65 million from the date of the 4th
Amendment until the earlier of (i) December 31, 2009 or (ii) the date upon which
we receive a cash infusion of equity in an amount not less than $2.0 million on
terms and conditions satisfactory to PNC.  In addition, the 4th
Amendment clarifies that PNC is not waiving our existing events of default,
including our failure to deliver monthly financial statements for the months
ended July 31, 2009 and August 31, 2009 and the aggregate balance of the
revolving advances made by us under the Amended Credit Agreement exceeding the
allowable amount.  In the 4th
Amendment, PNC expressly reserves all of its rights and remedies under the
Amended Credit Agreement, the other documents and agreements entered into in
connection with the Amended Credit Agreement and at law.  The 4th
Amendment contained a condition of effectiveness whereby we were required to
provide PNC with a commitment letter from an investor agreeing to infuse no less
than $150,000 of capital into our controlled joint venture within 7 to 10
calendar days from the effective date of the 4th
amendment on terms and conditions satisfactory to PNC.  We satisfied
this condition of effectiveness on November 9, 2009.   In
addition, the 4th
Amendment contained a condition subsequent whereby the $150,000 infusion was to
have occurred within the 7 to 10 calendar day period subsequent to the November
9, 2009 effective date of the 4th
Amendment.  As of the date of this report, we have not satisfied this
condition subsequent and are in negotiations with the investor and PNC to
resolve this unsatisfied condition subsequent.
 
 In
consideration for entering into this 4th
Amendment, we agreed to pay PNC a $10,000 amendment fee, $5,000 of which was
paid on November 9, 2009 while the remaining $5,000 is due on December 7, 2009,
and issue a warrant to purchase an additional 250,000 shares of our common stock
at an exercise price of $0.25 per share.
  On or
about October 8, 2009, the Company discontinued the operations in the Drilling
Services division, due to lack of profitability.  The discontinuation
of operations resulted in a $1,974,467 loss for the 100 percent impairment of
the goodwill associated with the purchase of the Drilling Service
Division.  The related assets are now being held for sale. Due to the
current depressed market for assets in the drilling industry, an impairment of
$3,123,591 in their value has been recorded, which reduced their value to
$5,000,000.  As a result of the write-down of the fixed assets, the
related deferred tax liability, calculated on the difference between the taxable
basis of the assets and their value for the Company, has been reduced by
$1,826,471. During the nine months ended September 30, 2009, the total loss
associated with discontinued operations was $4,034,569, of which $3,271,587
resulted from the revaluation of assets and liabilities.
 
 The
assets and liabilities of items held for sale associated with discontinued
operations are as follows as of September 30, 2009 and December 31,
2008:
 
 September
      30,
                2009
              
              
              December
      31,
                2008ASSETS:Fixed
      assets
              
              $
              5,000,000
              
              
              $
              9,853,046Goodwill
              
              
              -
              
              
              
              1,974,467LIABILITIES:Deferred
      taxes
              
              $
              1,228,350
              
              
              $
              3,054,821
  17
 Table of Contents
  ITEM2. 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 and in our Transition Report on Form 10-K/A for the transition
period from February 1, 2008 to December 31, 2008 filed with the SEC on June 10,
2009.
 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
 
 We are an
energy production equipment and services company engaged in well service,
drilling services and related complementary activities.   We own
a total of 25 workover rigs and nine operating drilling rigs, and we conduct our
well service and drilling services primarily 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 and
geological mud-logging services to our existing business
segments.
 
 We were
incorporated on October 31, 2006 as Hybrook Resources Corp. under the laws of
the state of Nevada.  From inception through our fiscal year ended
January 31, 2008, Hybrook was a development stage company with an option to
purchase an 85% interest in a mineral claim in British
Columbia.  Hybrook did not exercise its option and no minerals were
discovered.  As a result of the acquisitions discussed below, all
mineral exploration activities were discontinued.
 
 In
February 2008, Best Energy acquired two companies and certain assets from three
other companies, all of which are engaged in well servicing, drilling and
related complementary services for the oil and gas, water and minerals
industries.  Concurrent with these acquisitions, we abandoned our
prior business plan and changed our name to “Best Energy Services,
Inc.”  In addition, as a result of these acquisitions, our Board of
Directors elected to change our fiscal year end to December 31, effective
December 31, 2008, to match the calendar year ends of the acquired
companies.
 
 The
following discussion and analysis should be read in conjunction with the
accompanying unaudited condensed consolidated financial statements and related
notes as of September 30, 2009 and for the three and nine months ended September
30, 2009 and October 31, 2008, included elsewhere herein, and the audited
consolidated financial statements and notes thereto included in the Company's
Transition Report on Form 10-K for the period from February 1, 2008 to December
31, 2008.
 
 We
recently relocated our principal executive offices to 5433 Westheimer Road,
Suite 825, Houston, Texas 77056.
 
 Business
Plan
 
 The
implementation of our new business plan began with our three acquisitions that
offered us a footprint in:
 
 ·
              The
      Well Service sector
 
 ·
              The
      Drilling Services sector
 
 ·
              The
      Geological Services sector
 
 As a
result of these acquisitions, we operate in one industry segment, oilfield
services, which includes well service, housing accommodations sectors and until
October 1, 2009, included drilling services and geological mud-logging
sectors.  Owing to the inability of drilling services and mud-logging
to produce sustainable cash flow, those business lines are no longer
offered.
  18
 Table of Contents
 
 In the Well Service Division,
our acquisition of Best Well Service, Inc., or BWS, brought 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 both major oil companies
and large independents, as well as an employee retention history that we believe
is among the best in the industry. BWS also has complete in-house safety
certifications and we rank extremely high within our regional peer
group.
 
 In the Drilling Services
Division, until those operations were discontinued in October 2009, our
acquisition of BBD had operated in three separate markets in the
Rocky Mountain region:
 
 ·
              mining
      and mineral drilling, including potash, precious metals and
      uranium;
 
 ·
              water
      well drilling with licenses to operate in five states;
  and
 
 ·
              oil
      and gas contract drilling in conventional and unconventional target
      areas.
 
 A plan
has been put in place to begin the orderly liquidation of the Drilling Services
assets, with the proceeds to be used to reduce the term loan with
PNC.
 
 In the Geological Services Division,our activities had been in two areas: housing accommodations and
mud-logging. We are no longer offering the mud-logging services owing to the
failure of that unit to produce positive cash flows and revenues. We are
exploring alternatives for the use of our housing accommodations assets in areas
outside of the oil and gas industry.
 
 Significant
Developments
 
 New
Management
 
 In
connection with our acquisition of all the issued and outstanding stock of BWS
from its sole shareholder, Tony Bruce, we entered into a one year employment
agreement with Mr. Bruce under which he agreed to serve as a Vice President of
our Central Division.
Since then, Mr. Bruce has joined our board of directors and on, October 13,
2008, agreed to serve as our President and Chief Operating
Officer.  On February 17, 2009, we entered into a new one year
employment agreement with Mr. Bruce.
 
 On
October 20, 2008, Mark Harrington was named our interim Chief Executive Officer.
On December 19, 2008, Mr. Harrington was appointed as our permanent Chief
Executive Officer.
 
 Market
Conditions in Our Industry
 
 The
United States oil field 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. This volatility also
affects the demand for other oil field services we provide, such
as portable rig housing and mud logging. 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.
 
 Results
of Operations
 
 Three
Months Ended September 30, 2009 compared with the Three Months Ended October 31,
2008
 
 Revenues
were $0.9 million for the three months ended September 30, 2009 compared with
revenues of $5.7 million for the three months ended October 31, 2008. The
decrease of $4.8 million was primarily the result of a severe downturn in
drilling activity caused by low oil and gas prices.
 
 Operating
Expenses were $2.2 million for the three months ended September 30, 2009
compared with $6.6 million for the three months ended October 31, 2008,
resulting in a decrease of $4.4 million.  This decrease was primarily
a result of decreases in business unit operating expenses consequent to a severe
decline in our revenues, coupled with an ongoing cost-cutting program that was
first implemented by management in late 2008.
 
 Net Loss from
Operations was $1.3 million for the three months ended September 30, 2009
compared with a net loss from operations of $0.9 million for the three months
ended October 31, 2008 resulting in an increased loss of $0.4
million.
 
 General and
Administrative Expenses for the three month period ended September 30,
2009 were $0.4 million compared with expense of $1.2 million for the three month
period ended October 31, 2008. Management has made a concerted effort in
2009 to reduce cash corporate overhead through downsizing office space,
reduction in corporate staff and other overhead expenses. Management expects
cash G&A costs to now be under $1 million per year going
forward.
  19
 Table of Contents
  Interest
Expensewas $0.4 million for the three month period ended September
30, 2009 compared with $0.9 million for the three month period ended October 31,
2008.  This decrease was primarily a result of financing costs that
were written off in the three months ending October 31, 2008.
 
 Net Loss
was $5.4 million or $0.27 per common share after accrued preferred dividends for
the three months ended September 30, 2009 compared with a net loss of $1.7
million or $0.10 per common share for the three months ended October 31, 2008
resulting in an increased loss of $3.7 million.  The increase in net
loss for the period was primarily caused by the $3.3 million effect of revaluing
the fixed assets, goodwill and deferred tax liability for discontinued
operations.
 
 Nine
Months Ended September 30, 2009 compared with the Nine Months Ended October 31,
2008
 
 Revenues
were $3.8 million for the nine months ended September 30, 2009 compared with
revenues of $14.5 million for the nine months ended October 31, 2008. The
decrease of $10.7 million was primarily the result of a significant downturn in
drilling activity caused by low oil and gas prices as well as unseasonably
inclement weather that severely impacted our primary service region in April and
May of this year.
 
 Operating
Expenses were $7.8 million for the nine months ended September 30, 2009
compared with $16.0 million for the nine months ended October 31, 2008,
resulting in a decrease of $8.2 million.  This decrease was primarily
a result of the decline in business unit operating revenues and associated
direct variable costs.
 
 Net Loss from
Operations was $4.0 million for the nine months ended September 30, 2009
compared with a net loss of $1.4 million for the nine months ended October 31,
2008, resulting in an increased loss of $2.6 million.
 
 General and
Administrative Expenses were $1.7 million for the nine months ended
September 30, 2009 compare with $4.2 million for the nine months ended October
31, 2008. Included in those periods is stock-based compensation of $0.5 million
and $0.2 million for the periods ended September 30, 2009 and October 31, 2008,
respectively. Management has made a concerted effort in 2009 to reduce cash
corporate overhead through downsizing office space, reduction in corporate staff
and other overhead expenses. Management expects cash G&A costs to now be
under $1 million per year going forward.
 
 Interest Expensedecreased by $2.5 million for the nine month period ended September 30,
2009, compared with the nine month period ended October 31,
2008.  This decrease is primarily due to deferred financing costs
during the nine months ended October 31, 2008.
 
 Net Loss
was $8.7 million or $0.45 per common share after accrued preferred dividends for
the nine months ended September 30, 2009 compared with a net loss of $6.3
million or $0.36 per share for the nine months ended October 31, 2008, resulting
in an increased loss of $2.4 million.  The increase in net loss for
the period was primarily caused by the $3.3 million effect of revaluing the
fixed assets, goodwill and deferred tax liability for discontinued
operations.
  20
 Table of Contents
 
 Liquidity
and Capital Resources
 
 Historical
Cash Flows
 
 The
following table summarizes our cash flows for the nine months ended September
30, 2009 and October 31, 2008:
 
 Nine
      Months EndedSeptember
      30, 2009
              
              
              October
      31, 2008Net
      cash provided by operating activities
              
              $
              577,440
              
              
              $
              1,623,474Cash
      used in investing activities:Capital
      expenditures, net
              
              
              (267,612
              )
              
              
              (784,710
              )Proceeds
      from disposal of property and equipment
              
              
              
              
              
              
              17,412Acquisition
      of businesses , net of cash acquired
              
              
              (58,944
              )
              
              
              (23,360,971
              )Cash
      provided by (used in) financing activities:Proceeds
      from issuance of Term Loan
              
              
              -
              
              
              
              5,850,000Repayments
      of Term Loan
              
              
              (877,500
              )
              
              
              (780,000
              )Net
      borrowings under Revolving Advances
              
              
              187,125
              
              
              
              16,326,622Net
      repayments of other notes payable
              
              
              (141,932
              )
              
              
              (5,809
              )Proceeds
      from issuance of Units in private placement
              
              
              1,088,000
              
              
              
              11,848,080Payment
      of deferred financing costs
              
              
              (643,693
              )
              
              
              (921,066
              )Net
      increase (decrease) in cash from continuing operations
              
              $
              (137,116
              )
              
              $
              9,813,032Net
      increase (decrease) in cash from discontinued operations
              
              $
              (112,214
              )
              
              $
              (9,582,821
              )Net
      increase (decrease) in cash and cash equivalents
              
              $
              (249,330
              )
              
              $
              230,211
 
 Operating
activities during the nine months ended September 30, 2009 provided us $0.6
million of cash compared to providing $1.6 million in the nine months ended
October 31, 2008.  The decrease in cash from operations for the nine
months ended September 30, 2009 resulted from lower revenues.
 
 Investing
activities used $0.3 million for the nine months ended September 30, 2009
compared to $24.0 million for the nine months ended October 31,
2008.  Expenditures for the nine months ended October 31, 2008 were
primarily for the acquisitions of businesses described above.
 
 Financing
activities contributed cash of $0.4 million for the nine months ended September
30, 2009 compared to providing cash of $32.3 million for the nine months ended
October 31, 2008.  Contributions of cash during the nine months ended
September 30, 2009 were primarily the result of the issuance of convertible
debt.  Sources of cash during the nine months ended October 31, 2008
included cash received for the term and revolving portions of the credit
facility and proceeds received from the private placement of Units.
 
 We have
no current commitment from our officers and directors or any of our stockholders
to supplement our operations or provide us with financing in the future. If we
are unable to increase revenues from operations, to raise additional capital
from conventional sources and/or additional sales of stock in the future, and/or
if we are unable to extend or repay our line of credit with PNC Bank, we may be
forced to curtail or cease our operations. In the future, we may be required to
seek additional capital by selling debt or equity securities. The sale of
additional equity or debt securities, if accomplished, may result in dilution to
our then stockholders. We provide no assurance that financing will be available
in amounts or on terms acceptable to us, or at all.  In addition, the
Company is currently in default under its Amended Credit Agreement, further
exacerbating its ability to continue as a going concern.
  21
 Table of Contents
 
 Working
Capital Deficit
 
 At
September 30, 2009, our current liabilities of $24.1 million exceeded our
current assets of $1.3 million resulting in a working capital deficit of $22.8
million.  This compares to a working capital deficit of $19.4 million
at December 31, 2008.  The improvement in the working capital deficit
is primarily the result of a decrease in current liabilities due to the
reclassification of the majority of our loans payable to noncurrent as a result
of the Amended Credit Agreement.  Current liabilities at September 30,
2009, include preferred stock dividends payable of $1.5 million, current
portion of loans payable of $21.1 million and accounts payable of $1.0
million.  Preferred stock dividends are not expected to be paid in
cash.  We expect these dividends to be paid in-kind through the
issuance of additional shares of preferred stock or common stock.
 
 Sources
of Liquidity
 
 Our
sources of liquidity include our current cash and cash equivalents, availability
under the revolving portion of the Amended Credit Agreement, and internally
generated cash flows from operations.  We continue to explore other
sources of financing that are available to us including possible sales of stock
or issuance of subordinated debt.
 
 Our
availability under the Amended Credit Agreement as of September 30, 2009, was
$0.2 million.
 
 Off-Balance
Sheet Arrangements
 
 As of
September 30, 2009, 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.
 
 Contractual
Obligations
 
 Tabular
Disclosure of Contractual Obligations
 
 Over the NextFive Years
              
              
              12
      MonthsNotes
      Payable
              
              $
              22,327,881
              
              
              $
              1,471,265Operating
      Leases
              
              
              425,500
              
              
              
              312,000Employment/Consultant
      Contracts
              
              
              200,000
              
              
              
              212,500Total
              
              $
              22,953,381
              
              
              $
              1,995,765
 
 Subject
to the limitations set forth in the Amended Credit Agreement, our Series A
Preferred Stock must be redeemed using not less than 25% of our net income after
tax each year.  For the nine months ended September 30, 2009, we did
not have positive net income after tax and did not redeem any outstanding shares
of Series A Preferred Stock.
 
 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 redeploy 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 eleven months ended December
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 our forward-looking statements, whether as a result of new information,
future events or otherwise.
  22
 Table of Contents
  Item3. Quantitative and Qualitative Disclosures about Market
Risk
 
 Not
required for smaller reporting companies.
 
 Item4.T 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 September 30, 2009 (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 segregation of duties
in the field and home offices. As recently acquired operations are assimilated,
we intend to address these weaknesses by centrally locating payables, check
writing, and implementing controls regarding segregation of duties related to
cash management.  We plan to have these controls in place by year
end.  In the interim, management has been reviewing all disbursements
and cash account activity.
 
 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 quarterly 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
 
 There
were no changes in internal control over financial reporting during the quarter
ended September 30, 2009.
  23
 Table of Contents
 
 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.
 
 In 2008,
Acer Capital Group sued Best Energy, American Rig Housing, and Larry Hargrave
for breach of contract and fraud.  The contract claims arise from an
agreement entered into between American Rig Housing and Acer Capital (the "Acer
Agreement") concerning a going public transaction and certain alleged agreements
concerning bridge financing for the going public transaction between American
Rig Housing and Pipeline Capital (the "Pipeline Agreements”), which subsequently
assigned those alleged contracts to Acer Capital.  Under the Acer
Agreement, Acer was to assist with taking American Rig Housing public in return
for certain equity considerations in the new company.  The agreement
also purports to contemplate a fee (the "Break-up Fee") to be paid to Acer in
the event the going public transaction was not consummated.  Acer
claims it is owed this fee.  The defendants in the case dispute that
Acer performed its obligations under the agreement and that the Break-up Fee is
owed.
 
 All
parties to the lawsuit captioned Acer Capital Group, Inc. and Acer Capital
Group, LLC, v. Best Energy Services, Inc. et al., pending in the 61st Judicial
District Court of Harris County, Texas, went to court-ordered mediation in
Houston on July 22, 2009.  All legal claims brought in the suit were
settled at the July 22 mediation where the parties signed a valid and
enforceable mediation agreement containing all key provisions of the negotiated
settlement.  Final settlement documents are
pending.  Pursuant to the terms of the mediation agreement, the
Company is not required to make any payments in connection with the settlement
and will receive a full release by Acer of any claims that Acer had, now has, or
may have in the future against the Company based on or related to the subject
matter of the lawsuit.
 
 In
addition, pursuant to the terms of the mediation agreement, American Rig
Housing, Inc. and Larry Hargrave are required to pay a total of $275,000 in cash
over a three-year term, 1,125,000 shares of Company common stock, 300,000
options to purchase Company stock at $0.16 per share over a five-year term, and
300,000 options to purchase Company stock at $0.50 per share over a five-year
term.
 
 
 Item2. Unregistered Sales of Equity Securities and Use of
Proceeds
 
 During
June, July and August 2009, we had several preliminary closings of a private
placement for a total of 1,088 Units and received gross proceeds of $1,088,000
(net proceeds of $946,560 after cash commission of $141,440). Each Unit consists
of a subordinated convertible note payable of $1,000 and warrants to purchase
4,000 shares of common stock at an exercise price of $0.25 per share at any time
until expiration on July 1, 2014.  The notes bear interest at a rate
of 10% per annum, which is payable either in cash semi-annually in arrears on
July 1 and January 2 each year, commencing on January 2, 2010 or in shares of
common stock at a price of $0.25 per share. Under the terms of the Amended
Credit Agreement, we may not pay cash interest on the notes.  The
notes are convertible at the option of the note holder into common stock at the
rate of $0.25 per share (the “Conversion Price”) and mature on July 1,
2011.  If we achieve certain earnings hurdles, we may force the
noteholders to convert all or part of the then outstanding notes at the
Conversion Price.  The notes are unsecured obligations and are
subordinate in right of payment to all of our existing and future senior
indebtedness.
 
 We
evaluated the terms of the notes in accordance with the new standard issued by
the FASB related to the disclosure of derivative instruments and hedging
activities.   Best Energy determined that the conversion feature did
not meet the definition of a liability and therefore did not bifurcate the
conversion feature and account for it as a separate derivative
liability.  We evaluated the conversion feature under the new standard
for a beneficial conversion feature.  The effective conversion price
was compared to the market price on the date of the notes and was deemed to be
less than the market value of our common stock at the inception of the note. A
beneficial conversion feature was recognized and gave rise to a debt discount of
$533,603.
 
 In
connection with the private placement, we issued warrants to the placement agent
to purchase 435,200 shares of common stock at an exercise price of $0.25 per
share at any time until expiration on July 1, 2014.  These warrants
were valued at $42,971.
 
 In
addition, during the nine months ended September 30, 2009, we issued warrants to
PNC to purchase a total of 250,000 shares of our common stock at an exercise
price of $0.50 per share.
 
 Each of
the foregoing issuances of Company securities were made under the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended,
in that such issuances were made via transactions not involving a public
offering.  Facts supporting the applicability of this exemption
include that (i) the investors receiving the Company securities are
sophisticated, knowledgeable and experienced investors and (ii) the Company
securities were issued through direct negotiations and did not involve general
solicitation.
  24
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 Item3. Defaults Upon Senior Securities
 
 The
Company is currently in default under the Credit Agreement, which defaults
include the aggregate balance of the revolving advances exceeding the allowable
amount, our rig utilization rate for the three months ended September 30, 2009
not meeting the minimum requirement, and not having fulfilled the condition
subsequent to the  4th
Amendment relating to timely completing the $150,000 sale of an interest in a
controlled joint venture..
 
 Item4. Submission of Matters to a Vote of Security
Holders
 
 None.
 
 Item5. Other Information
 
 On
November 20, 2009, the Board of Directors of the Company appointed Dennis Irwin
to serve as the Company’s Chief Financial Officer with such appointment to be
effective as of November 30, 2009.  Prior to joining the Company, Mr.
Irwin, age 39, was with the professional services firms Albeck Financial
Services, Inc., Briggs & Veselka Co. and Jarrard, Seibert, Pollard &
Company, LLC, and as controller for Zupan’s Markets. Mr. Irwin received his
post-baccalaureate accounting certificate from Portland State University and is
a certified public accountant.  Mr. Irwin and the Company are
currently in negotiations concerning the compensation and other arrangements
that will be entered into in connection with the appointment of Mr. Irwin as the
Company’s Chief Financial Officer.
 
 Item6. Exhibits
 
 10.
      1
              
              Waiver
      and Amendment No. 2 to Revolving Credit, Term Loan and Security Agreement
      dated as of August 19, 2009 by and among Best Energy Services, Inc., Bob
      Beeman Drilling Company, Best Well Service, Inc. and PNC Bank, National
      Association, as agent for the lenders (incorporated by reference to
      Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the
      SEC on November 18, 2009).10.
      2
              
              Amendment
      No. 3 to Revolving Credit, Term Loan and Security Agreement dated as of
      October 20, 2009 by and among Best Energy Services, Inc., Bob Beeman
      Drilling Company, Best Well Service, Inc. and PNC Bank, National
      Association, as agent for the lenders (incorporated by reference to
      Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the
      SEC on November 18, 2009).10.
      1
              
              Amendment
      No. 4 to Revolving Credit, Term Loan and Security Agreement dated as of
      November 9, 2009 by and among Best Energy Services, Inc., Bob Beeman
      Drilling Company, Best Well Service, Inc. and PNC Bank, National
      Association, as agent for the lenders (incorporated by reference to
      Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the
      SEC on November 19, 2009).31.1
              
              Certification
      of Chief Executive Officer and Principal Accounting Officer pursuant to
      Section 302 of the Sarbanes - Oxley Act of 2002 (Filed
      herewith).32.1
              
              Certification
      of Chief Executive Officer and Principal Accounting Officer pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002 (Filed
      herewith).
  25
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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
      November 23, 2009
              BEST
      ENERGY SERVICES, INC./s/
      Mark HarringtonMark
      HarringtonChief
      Executive Officer and Principal Accounting
  Officer







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