UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549





FORM
10-Q





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


For the
quarterly period ended July 31, 2008





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





For the
transition period   to





Commission File
Number: 000-53260





Best
Energy Services, Inc.


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





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





1010
Lamar St., Suite 1200, Houston Texas 77002


(Address
of Principal Executive Offices)  (Zip Code)


(713)
933-2600


(Issuer’s
Telephone Number, including Area Code)





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





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


Common
Stock, par value $0.001 per share


(Title of
Class)





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





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





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








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





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













BESTENERGY SERVICES, INC.








Table
of Contents








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





Table of Contents





PARTI




Item
1. Financial Statements





Best
Energy Services , Inc.


Consolidated
Balance Sheets


(Unaudited)





ASSETS
            
            July
      31, 2008
            
            
            January
      31, 2008Current
      assetsCash
            
            $
            884,403
            
            
            $
            5Accounts
      receivable, net of allowance for doubtful accounts
            
            
            2,715,780
            
            
            
            -Prepaid
      and other current assets
            
            
            349,953
            
            
            
            -Total
      current assets
            
            
            3,950,136
            
            
            
            5Property
      and equipment, net
            
            
            30,639,642
            
            
            
            -Deferred
      financing costs, net
            
            
            833,314
            
            
            
            -Goodwill
      and other intangible assets
            
            
            8,867,745
            
            
            
            -TOTAL
      ASSETS
            
            $
            44,290,837
            
            
            $
            5LIABILITIES
      AND STOCKHOLDER’S EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities
            
            $
            224,657
            
            
            $
            10,141Accrued
      officer compensation
            
            
            925,000
            
            
            
            22Preferred
      dividends payable
            
            
            340,338
            
            
            
            -Current
      portion of loans payable
            
            
            1,405,992
            
            
            
            -Total
      current liabilities
            
            
            2,895,987
            
            
            
            10,163Loans
      payable
            
            
            20,206,402
            
            
            
            -Deferred
      income taxes
            
            
            9,305,996
            
            
            
            -TOTAL
      LIABILITIES
            
            
            32,408,385
            
            
            
            10,163STOCKHOLDERS’
      EQUITY (DEFICIT)Series
      A Preferred Stock, 2,250,000 shares authorized, 1,458,592 shares issued
      and outstanding, at redemption value of $10 per share.
            
            
            14,585,920
            
            
            
            -Common
      stock, $0.001 par value per share; 90,000,000 shares authorized;
      20,216,366 and 9,685,000 shares issued and outstanding,
      respectively
            
            
            20,216
            
            
            
            9,685Additional
      paid-in capital
            
            
            1,928,536
            
            
            
            98,109Retained
      deficit
            
            
            (4,652,220
            )
            
            
            (117,952
            )Total
      stockholders’ equity (deficit)
            
            
            11,882,452
            
            
            
            (10,158
            )TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
            
            $
            44,290,837
            
            
            $
            5





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





3
 Table of Contents





BestEnergy Services, Inc.


Consolidated
Statements of Operations


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


(Unaudited)





Six
      months ended July 31,
            
            
            Three
      months ended July 31,2008
            
            
            
            2007
            
            
            
            2008
            
            
            
            2007RevenuesWell
      service revenue
            
            $
            8,502,681
            
            
            $
            -
            
            
            $
            4,628,882
            
            
            $
            -Drilling
      service revenue
            
            
            1,843,500
            
            
            
            -
            
            
            
            1,542,413
            
            
            
            -Portable
      rig housing revenue
            
            
            373,877
            
            
            
            -
            
            
            
            263,035
            
            
            
            -Total
      revenue
            
            
            10,720,058
            
            
            
            -
            
            
            
            6,434,330
            
            
            
            -Costs
      and expenses:Cost
      of operations
            
            
            4,690,805
            
            
            
            -
            
            
            
            2,746,647
            
            
            
            -Depreciation
      and amortization
            
            
            1,611,170
            
            
            
            -
            
            
            
            891,649
            
            
            
            -General
      and administrative expense
            
            
            5,743,421
            
            
            
            23,152
            
            
            
            2,553,587
            
            
            
            11,006Total
      operating costs and expenses
            
            
            12,045,396
            
            
            
            23,152
            
            
            
            6,191,883
            
            
            
            11,006Net
      operating income (loss)
            
            
            (1,325,338
            )
            
            
            (23,152
            )
            
            
            242,447
            
            
            
            (11,006
            )Other
      income (expense):Interest
      income
            
            
            19,697
            
            
            
            -
            
            
            
            586
            
            
            
            -Interest
      expense
            
            
            (3,221,834
            )
            
            
            -
            
            
            
            (364,347
            )
            
            
            -Loss
      on sales of property and equipment
            
            
            (6,793
            )
            
            
            -
            
            
            
            (6,793
            )
            
            
            -Loss
      before provision for income taxes
            
            
            (4,534,268
            )
            
            
            (23,152
            )
            
            
            (128,107
            )
            
            
            (11,006
            )Income
      tax
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      loss from continuing operations
            
            
            (4,534,268
            )
            
            
            (23,152
            )
            
            
            (128,107
            )
            
            
            (11,006
            )Loss
      from discontinued operations
            
            
            -
            
            
            
            (4,541
            )
            
            
            -
            
            
            
            (86
            )Net
      loss
            
            
            (4,534,268
            )
            
            
            (27,693
            )
            
            
            (128,107
            )
            
            
            (11,092
            )Preferred
      dividend
            
            
            (466,858
            )
            
            
            -
            
            
            
            (466,858
            )
            
            
            -Net
      loss attributable to common shareholders
            
            $
            (5,001,126
            )
            
            $
            (27,693
            )
            
            $
            (594,965
            )
            
            $
            (11,092
            )Per
      common share data:Loss
      from continuing operations – basic and diluted
            
            $
            (0.27
            )
            
            $
            (0.00
            )
            
            $
            (0.03
            )
            
            $
            (0.00
            )Discontinued
      operations – basic and diluted
            
            
            -
            
            
            
            (0.00
            )
            
            
            -
            
            
            
            (0.00
            )Net
      loss – basic and diluted
            
            $
            (0.27
            )
            
            $
            (0.00
            )
            
            $
            (0.03
            )
            
            $
            (0.00
            )Weighted
      average common shares outstanding – basic and diluted
            
            
            18,604,444
            
            
            
            9,685,000
            
            
            
            20,216,366
            
            
            
            9,685,000





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





4
 Table of Contents





BestEnergy Services, Inc.


Consolidated
Statements of Cash Flow


For
the six months ended July 31, 2008 and 2007


(Unaudited)





2008
            
            
            2007Cash
      flow from operating activities:Net
      loss
            
            $
            (4,534,268
            )
            
            $
            (27,693
            )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Depreciation
            
            
            1,611,170
            
            
            
            -Stock
      based compensation
            
            
            202,106
            
            
            
            -Non-cash
      interest expense
            
            
            2,587,752
            
            
            
            -Loss
      on sale of property and equipment
            
            
            6,793
            
            
            
            -Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (392,729
            )
            
            
            -Prepaid
      expenses
            
            
            (254,423
            )
            
            
            -Accounts
      payable and accrued liabilities
            
            
            1,179,730
            
            
            
            (11,446
            )Net
      cash used by operating activities, before discontinued
      operations
            
            
            406,131
            
            
            
            (39,139
            )Net
      cash flow from discontinued operations
            
            
            -
            
            
            
            (16,369
            )Net
      cash used by operating activities
            
            
            406,131
            
            
            
            (55,508
            )Cash
      flows from investing activities:Acquisition
      of businesses, net of cash acquired
            
            
            (31,385,943
            )
            
            
            -Capital
      expenditures, net
            
            
            (267,662
            )
            
            
            -Proceeds
      from disposal of property and equipment
            
            
            17,412
            
            
            
            -Net
      cash used by investing activities
            
            
            (31,636,193
            )
            
            
            -Cash
      flows from financing activities:Proceeds
      from issuance of Term Loan
            
            
            5,850,000
            
            
            
            -Repayments
      of Term Loan
            
            
            (487,500
            )
            
            
            -Net
      borrowings under Revolving Advances
            
            
            15,863,055
            
            
            
            -Net
      repayments of other notes payable
            
            
            (38,109
            )
            
            
            -Proceeds
      from issuance of Units in private placement
            
            
            11,848,080
            
            
            
            -Payment
      of deferred financing costs
            
            
            (921,066
            )
            
            
            -Net
      cash provided by financing activities
            
            
            32,114,460
            
            
            
            -Increase
      (decrease) in cash cash and equivalents
            
            
            884,398
            
            
            
            (55,508
            )Cash
      and cash equivalents, beginning of period
            
            
            5
            
            
            
            108,054Cash
      and cash equivalents, end of period
            
            $
            884,403
            
            
            $
            52,546Supplemental
      disclosures of cash flow information:Cash
      paid for interest
            
            $
            616,704
            
            
            $
            -Cash
      paid for taxes
            
            $
            150,000
            
            
            $
            -Noncash
      investing and financing activities:Units
      issued in exchange for collateral agreements
            
            $
            2,500,000
            
            
            
            -Shares
      issued for the purchase of assets from ARH and DSS
            
            
            2,321,500
            
            
            
            -Shares
      issued for the purchase of BWS
            
            
            100,000
            
            
            
            -Retirement
      of common shares
            
            
            6,080
            
            
            
            -Preferred
      stock issued in payment of preferred stock dividends
            
            
            126,520
            
            
            
            -Accrued
      dividends on preferred stock
            
            
            340,338
            
            
            
            -





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





5
 Table of Contents





BestEnergy Services, Inc.


Consolidated
Statement of Stockholders’ Equity


For
the six months ended July 31, 2008


(Unaudited)








Series
      A Convertible Redeemable Preferred Stock
            
            
            Common
      Stock
            
            
            Paid-in
            
            
            Accumulated
            
            
            Total
      Stockholders’Shares
            
            
            Amount
            
            
            Shares
            
            
            Amount
            
            
            Capital
            
            
            Deficit
            
            
            EquityBalance
      -January
      31, 2008
            
            
            -
            
            
            $
            -
            
            
            
            9,685,000
            
            
            $
            9,685
            
            
            $
            98,109
            
            
            $
            (117,952
            )
            
            $
            (10,158
            )Shares
      retired
            
            
            -
            
            
            
            -
            
            
            
            (6,080,000
            )
            
            
            (6,080
            )
            
            
            6,080
            
            
            
            -
            
            
            
            -Units
      issued for cash, net
            
            
            1,220,940
            
            
            
            12,209,400
            
            
            
            8,478,750
            
            
            
            8,478
            
            
            
            (369,798
            )
            
            
            -
            
            
            
            11,848,080Units
      issued for services, net
            
            
            225,000
            
            
            
            2,250,000
            
            
            
            1,562,500
            
            
            
            1,563
            
            
            
            (51,563
            )
            
            
            -
            
            
            
            2,200,000Shares
      issued for BWS acquisition
            
            
            -
            
            
            
            -
            
            
            
            46,744
            
            
            
            47
            
            
            
            99,953
            
            
            
            -
            
            
            
            100,000Shares
      issued for ARH acquisition
            
            
            -
            
            
            
            -
            
            
            
            6,200,000
            
            
            
            6,200
            
            
            
            2,265,300
            
            
            
            -
            
            
            
            2,271,500Shares
      issued for DSS acquisition
            
            
            -
            
            
            
            -
            
            
            
            23,372
            
            
            
            23
            
            
            
            49,977
            
            
            
            -
            
            
            
            50,000Preferred
      stock dividends paid in-kind
            
            
            12,652
            
            
            
            126,520
            
            
            
            -
            
            
            
            -
            
            
            
            (126,520
            )
            
            
            -
            
            
            
            -Accrued
      preferred dividends
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (340,338
            )
            
            
            -
            
            
            
            (340,338
            )Shares
      issued for services
            
            
            -
            
            
            
            -
            
            
            
            300,000
            
            
            
            300
            
            
            
            74,700
            
            
            
            -
            
            
            
            75,000Share
      based compensation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            222,636
            
            
            
            -
            
            
            
            222,636Net loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (4,534,268
            )
            
            
            (4,534,268
            )Balance
      -July
      31, 2008
            
            
            1,458,592
            
            
            
            14,585,920
            
            
            
            20,216,366
            
            
            
            20,216
            
            
            
            1,928,536
            
            
            
            (4,652,220
            )
            
            
            11,882,452





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





6
 Table of Contents





BestEnergy Services, Inc.


Notes
to Unaudited Consolidated Financial Statements


July
31, 2008





Note
1 - Organization and Basis of Presentation





Nature
of Business





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





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





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





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





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





Reclassifications





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





Basis
of Presentation and Principles of Consolidation





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





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





7
 Table of Contents





Note
2-Summary of Significant Accounting Policies




Use
of Estimates





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.





Cash
and Cash Equivalents





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





Accounts
Receivable





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





Credit
Risk





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





Property
and Equipment





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





Classification
            Estimated
      Useful LifeRigs
      and related equipment
            10
      yearsVehicles
            5
      yearsHeavy
      trucks and trailers
            7
      yearsLeasehold
      improvements
            5
      yearsOffice
      equipment
            3
      years





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





Impairment
of Long-Lived Assets





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





8
 Table of Contents





Goodwill





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





Financial
Instruments





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





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





Income
Taxes





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





Revenue
Recognition





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





Stock
based compensation





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





Income
(Loss) per Share





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





9
 Table of Contents





Recent
Accounting Pronouncements





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





Note
3- Business Combinations and Acquisitions





Best
Well Service, Inc.





On
February 14, 2008, we acquired BWS by purchasing all of its issued and
outstanding stock from its sole shareholder, Tony Bruce, for a total purchase
price of $20,600,000, payable as follows: (i) a note for $20,000,000 was issued
to the seller at closing which was paid off shortly thereafter through funding
provided by our Credit Facility more fully described in Note 5 below; (ii) funds
in the amount of $500,000 were delivered to an escrow agent to be held as
security for seller’s indemnification obligations under the acquisition
agreement for a period of six months; and (iii) common stock valued at $100,000
based on a 10 day volume weighted average price, commencing with the first day
of trading (46,744 shares). The Acquisition has been accounted for using the
purchase method in accordance with SFAS No. 141,Business
Combinations , which has resulted in the recognition of goodwill and
other intangibles in Best Energy’s consolidated financial
statements.





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





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





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





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





Bob
Beeman Drilling Company





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





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





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





10
 Table of Contents





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




· Core hole drilling
for delineating mineral deposits;





· Water well drilling
in five states; and





· Oil and gas
drilling capability.





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





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





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





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





Asset
Purchases





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





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





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





11
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Note
4 - Property and equipment, net





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





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





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





Note
5 – Loans payable





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





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





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





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





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





Future
minimum payments under existing notes payable are as follows:





For
      the twelve months ending July 31,2009
            
            $
            1,405,9922010
            
            
            1,289,2182011
            
            
            1,201,6292012
            
            
            17,715,555





12
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Note 6 -Stock Options and
Warrants





Stock
Options





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





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





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





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





WeightedAverageNumber of
            
            Exercise PriceOptions
            
            Per OptionOptions
      outstanding at January 31, 2008
            —
            
            
            —Granted
            1,350,000
            
            $
            0.39Exercised
            —
            
            
            —Forfeited
            —
            
            
            —Options
      outstanding at July 31, 2008
            1,350,000
            
            $
            0.39Options
      vested and exercisable at July 31, 2008
            450,000
            
            $
            0.16





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





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





Warrants





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





13
 Table of Contents





Note
7 - Stockholders’ Equity





Share
retirement





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





Private
placement





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





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





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





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





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





Dividends





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





14
 Table of Contents





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





Shares
issued to employees





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





Note
8 - Income Tax





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





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





Note
9 - Related Party Transactions





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





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





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





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





Note
10 – Segment information





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





Our
reportable segment information is as follows:





Well
      Services Division
            
            
            Drilling
      Services
            
            
            Portable
      Rig Housing
            
            
            Reportable
      segmentsRevenues
      from external customers:Six
      months ended July 31, 2008
            
            $
            8,502,681
            
            
            $
            1,843,500
            
            
            $
            373,877
            
            
            $
            10,720,058Three
      months ended July 31, 2008
            
            
            4,628,882
            
            
            
            1,542,413
            
            
            
            263,035
            
            
            
            6,434,330Gross
      profit:Six
      months ended July 31, 2008
            
            $
            5,322,489
            
            
            $
            579,846
            
            
            $
            126,918
            
            
            $
            6,029,253Three
      months ended July 31, 2008
            
            $
            2,914,493
            
            
            $
            681,780
            
            
            $
            91,410
            
            
            $
            3,687,683





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





15
 Table of Contents





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





Gross
      profit from reportable segments
            
            
            6,029,253General
      and administrative expenses
            
            
            (5,743,421
            )Depreciation
            
            
            (1,611,170
            )Operating
      Loss
            
            
            (1,325,338
            )Other
      expense, net
            
            
            (3,208,930
            )Net
      loss from continuing operations before income taxes
            
            
            (4,534,268
            )





16
 Table of Contents





SELECTED
UNAUDITED PRO FORMA CONDENSED


CONSOLIDATED
FINANCIAL INFORMATION





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





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





17
 Table of Contents





UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS


For the
six months ended July 31, 2008








Actual
      for the six months ended July 31, 2008
            
            
            Actual
      for the period from February 1, 2008 through February 14,
      2008
            
            
            Pro
      Forma
            
            
            
            Pro
      FormaBest
      Energy
            
            
            BWS
            
            
            BBD
            
            
            Adjustments
            
            
            
            ConsolidatedRevenues
            
            $
            10,720,058
            
            
            $
            775,498
            
            
            $
            10,000
            
            
            $
            -
            
            
            
            $
            11,505,556Operating
      expenses:Cost
      of operations
            
            
            4,690,805
            
            
            
            142,156
            
            
            
            37,068
            
            
            
            -
            
            
            
            
            4,870,029Depreciation
      and amortization
            
            
            1,611,170
            
            
            
            45,610
            
            
            
            9,433
            
            
            
            88,861
            
            (a)
            
            
            1,755,074General
      and administrative
            
            
            5,743,421
            
            
            
            50,194
            
            
            
            6,273
            
            
            
            (18,218
            )
            (b)
            
            
            5,781,670Total
      operating expenses
            
            
            12,045,396
            
            
            
            237,960
            
            
            
            52,774
            
            
            
            
            
            
            
            
            12,406,773Operating
      income (loss)
            
            
            (1,325,338
            )
            
            
            537,538
            
            
            
            (42,774
            )
            
            
            
            
            
            
            
            (901,217
            )Other
      income (expense):Investment
      income (loss)
            
            
            -
            
            
            
            -
            
            
            
            444
            
            
            
            (444
            )
            (c
      )
            
            
            -Loss
      on sale of property and equipment
            
            
            (6,793
            )
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            
            
            (6,793
            )Interest
      income
            
            
            19,697
            
            
            
            1,389
            
            
            
            -
            
            
            
            -
            
            
            
            
            21,086Interest
      expense
            
            
            (3,221,834
            )
            
            
            400
            
            
            
            -
            
            
            
            (58,702
            )
            (d)
            
            
            (3,280,136
            )Total
      other income (expense)
            
            
            (3,208,930
            )
            
            
            1,789
            
            
            
            444
            
            
            
            
            
            
            
            
            (3,265,843
            )Income
      (loss) before income taxes
            
            
            (4,534,268
            )
            
            
            539,327
            
            
            
            (42,330
            )
            
            
            
            
            
            
            
            (4,167,060
            )Income
      tax (expense) recovery
            
            
            -
            
            
            
            188,764
            
            
            
            (14,816
            )
            
            
            
            
            
            
            
            173,949Net
      income (loss)
            
            
            (4,534,268
            )
            
            
            728,091
            
            
            
            (57,146
            )
            
            
            
            
            
            
            
            (3,993,111
            )Net
      income per share:Basic
      and diluted
            
            $
            (0.24
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (0.20
            )Weighted
      average shares outstanding:Basic
      and diluted
            
            
            18,604,444
            
            
            
            
            
            
            
            
            
            
            
            1,611,922
            
            
            
            
            20,216,366





See notes
to unaudited pro forma condensed consolidated financial statements.





18
 Table of Contents





UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS


For the
six months ended July 31, 2007








Actual
      for the six months ended
              July 31,
      2007
            
            
            Actual
      for the six months ended June 30, 2007
            
            
            Pro
      Forma
            
            
            
            Pro
      FormaBest
      Energy
            
            
            BWS
            
            
            BBD
            
            
            Adjustments
            
            
            
            ConsolidatedRevenues
            
            $
            -
            
            
            $
            8,468,077
            
            
            $
            1,058,809
            
            
            $
            -
            
            
            
            $
            9,526,886Operating
      expenses:Cost
      of operations
            
            
            -
            
            
            
            2,846,658
            
            
            
            583,124
            
            
            
            -
            
            
            
            
            3,429,782Depreciation
      and amortization
            
            
            -
            
            
            
            506,426
            
            
            
            123,671
            
            
            
            1,127,543
            
            (a)
            
            
            1,757,640General
      and administrative
            
            
            23,152
            
            
            
            2,708,779
            
            
            
            688,267
            
            
            
            (182,183
            )
            (b)
            
            
            6,275,1203,037,105
            
            (c)Total
      operating expenses
            
            
            23,152
            
            
            
            6,061,863
            
            
            
            1,395,062
            
            
            
            
            
            
            
            
            11,462,542Operating
      income (loss)
            
            
            (23,152
            )
            
            
            2,406,214
            
            
            
            (336,253
            )
            
            
            
            
            
            
            
            (1,935,656
            )Other
      income (expense):Gain
      on sale of property and equipment
            
            
            -
            
            
            
            -
            
            
            
            50,000
            
            
            
            -
            
            
            
            
            50,000Investment
      income
            
            
            -
            
            
            
            -
            
            
            
            1,722,928
            
            
            
            (1,722,928
            )
            (d)
            
            
            -Interest
      income
            
            
            -
            
            
            
            69,167
            
            
            
            26,311
            
            
            
            (95,478
            )
            (d)
            
            
            -Interest
      expense
            
            
            -
            
            
            
            (4,419
            )
            
            
            (10,290
            )
            
            
            (3,281,754
            )
            (e)
            
            
            (3,296,463
            )Total
      other income (expense)
            
            
            -
            
            
            
            64,748
            
            
            
            1,788,949
            
            
            
            
            
            
            
            
            (3,246,463
            )Income
      (loss) before income taxes
            
            
            (23,152
            )
            
            
            2,470,962
            
            
            
            1,452,696
            
            
            
            
            
            
            
            
            (5,182,119
            )Income
      tax expense
            
            
            -
            
            
            
            (864,837
            )
            
            
            (508,444
            )
            
            
            1,373,280
            
            (f)
            
            
            -Net
      income (loss) from continuing operations
            
            $
            (23,152
            )
            
            $
            1,606,125
            
            
            $
            944,252
            
            
            
            
            
            
            
            $
            (5,182,119
            )Net
      income per share:Basic
      and diluted
            
            $
            (0.00
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (0.26
            )Weighted
      average shares outstanding:Basic
      and diluted
            
            
            9,685,000
            
            
            
            
            
            
            
            
            
            
            
            10,531,366
            
            
            
            
            20,216,366





See notes
to unaudited pro forma condensed consolidated financial statements.





19
 Table of Contents





BEST
ENERGY SERVICES, INC.


NOTES
TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS





1.
Pro Forma Adjustments:





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




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





20
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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. These factors are not necessarily all the important factors that could affect
us. Unpredictable or unknown factors we have not discussed in this report could
also have material adverse effects on actual results of matters that are the
subject of our forward-looking statements. All forward-looking statements speak
only as of the date on which they are made and we undertake no duty to update or
revise any forward-looking statements. We advise our shareholders that they
should (1) be aware that important factors not referred to above could affect
the accuracy of our forward-looking statements and (2) use caution and common
sense when considering our forward-looking statements.





Company
Overview





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





General





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





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





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





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





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





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





21
 Table of Contents





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





·
            Core
      hole drilling in minerals;


·
            Water
      well drilling in five states; and


·
            Oil
      and gas drilling capability.





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





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





Significant
Developments





2008
Acquisitions





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





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





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





22
 Table of Contents





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





2008
Financing





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





The
Series A Preferred Stock has a stated face value of $10 per share, which shall
be redeemed by us using not less than 25% of our net income after tax each year.
The unredeemed portion of the face value of the Series A Preferred Stock will
receive dividends at an annual rate of 7%, payable quarterly in kind at the
then-current market price or in cash at our option. The unredeemed face value of
the Series A Preferred may be converted into common stock (i) by the holder
thereof at a conversion price of $4.00 per share or (ii) by us at a conversion
price of $4.00 per share in the event that our common stock closes at a market
price of $9.60 per share or higher for more than twenty consecutive trading
days.





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





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





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





23
 Table of Contents





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





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





Leases





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





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





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





Cash Collateral
Agreement





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





Market
Conditions in Our New Industry





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





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





24
 Table of Contents





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





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





Critical Accounting
Policies





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





Results
from Operations





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





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





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





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





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





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 Table of Contents





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





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





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





February
            March
            April
            May
            June
            JulyBest
      Well Service
            100%
            100%
            100%
            100%
            100%
            100%Beeman
      Drilling
            3%
            8%
            11%
            24%
            30%
            30%American
      Rig Housing
            15%
            15%
            15%
            23%
            26%
            28%





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





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





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





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





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





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





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 Table of Contents





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





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





Liquidity
and Capital Resources





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





The
Series A Preferred Stock has a stated face value of $10 per share, which shall
be redeemed by us using not less than 25% of our net income after tax each year.
The unredeemed portion of the face value of the Series A Preferred Stock will
receive dividends at an annual rate of 7%, payable quarterly in kind at the
then-current market price or in cash at our option. The unredeemed face value of
the Series A Preferred may be converted into common stock (i) by the holder
thereof at a conversion price of $4.00 per share or (ii) by us at a conversion
price of $4.00 per share in the event that our common stock closes at a market
price of $9.60 per share or higher for more than twenty consecutive trading
days.





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





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





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





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





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





27
 Table of Contents




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





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





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





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





• incur
or guarantee additional indebtedness;





•
transfer or sell assets;





• create
liens on assets;





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





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





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





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





Off-Balance
Sheet Arrangements





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





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 Table of Contents





Contractual
Obligations





Tabular
Disclosure of Contractual Obligations





OvertheNextFive Years
            
            
            12
      MonthsLong
      - Term Debt
            
            $
            21,612,394
            
            
            $
            1,405,992Operating
      Leases
            
            
            558,000
            
            
            
            155,000Employment/Consultant
      Contracts
            
            
            450,000
            
            
            
            450,000Total
            
            $
            22,620,394
            
            
            $
            2,010,992





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





Disclosure
Regarding Forward-Looking Statements





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





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





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





Item3. Quantitative and Qualitative Disclosures about Market
Risk





Not
required for smaller reporting companies.





Item4. Controls and Procedures





(a)
Evaluation of Disclosure Controls and Procedures





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





29
 Table of Contents





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





(b) Changes in Internal Control over
Financial Reporting





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







PART
II




Item1. 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.




Item1A. Risk Factors





Not
required for smaller reporting companies.




Item2. Unregistered Sales of Equity Securities and Use of
Proceeds





None.




Item3. Defaults Upon Senior Securities





None.




Item4. Submission of Matters to a Vote of Security
Holders





None.




Item5. Other Information





None.





30
 Table of Contents





Item6. Exhibits








31.1
            
            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes -
      Oxley Act of 2002. (Filed herewith)31.2
            
            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes -
      Oxley Act of 2002. (Filed herewith)32.1
            
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as
      adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.
      (Filed herewith)32.2
            
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as
      adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.
      (Filed herewith)





31
 Table of Contents





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





Date:
      September 22, 2008BEST
      ENERGY SERVICES, INC./s/
      Larry HargraveLarry
      HargravePresident
      and Chief Executive Officer






32