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 June 30, 2009





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





For the
transition period   to





Commission File
Number: 000-53260





Best
Energy Services, Inc.


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





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





10375
Richmond Avenue, Suite 2000, Houston TX 77042


(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 daysx
  Yeso   No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).        Yes    ̈   No  ̈





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




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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes o   No x




State the
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date: 21,010,109 common shares as of August 19,
2009.





-1-




BEST
ENERGY SERVICES, INC.








Table
of Contents








PagePART
      I. FINANCIAL INFORMATIONItem 1.Unaudited Consolidated Financial
      Statements
            3Unaudited Consolidated Balance Sheets as of June 30, 2009 and
      December 31, 2008
            3Unaudited Consolidated Statements of Operations for the
      Three  and Six Months Ended June 30, 2009 and July 31,
      2008
            4Unaudited Consolidated Statements of Cash Flow for the Six
      Months Ended June 30, 2009 and July 31, 2008
            5Notes to Unaudited Consolidated Financial
      Statements
            6Item 2. Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
            15Item 3. Quantitative and Qualitative Disclosures About
      Market Risk
            23Item 4. Controls and Procedures
            23PART
      II. OTHER INFORMATIONItem 1. Legal Proceedings
            24Item 1A. Risk Factors
            24Item 2. Unregistered Sales of Equity Securities and Use
      of Proceeds
            24Item 3. Defaults Upon Senior
    Securities
            25Item 4. Submission of Matters to a Vote of Security
      Holders
            25Item 5. Other Information
            25Item 6. Exhibits
            25Signatures
            25







-2-


PART I


Item
1. Financial Statements





Best Energy Services, Inc.


Consolidated
Balance Sheets


(Unaudited)





ASSETS
            June
      30, 2009
            
            December
      31, 2008CurrentassetsCash
            $
            107,600
            
            $
            249,330Accounts receivable, net of allowance for doubtful accounts of $120,518
      and $106,237, respectively
            
            1,461,806
            
            
            3,602,118Pepaid and other current assets
            
            71,434
            
            
            123,053Total
      current assets
            
            1,640,840
            
            
            3,974,501Property
      and equipment, net
            
            29,173,537
            
            
            30,877,472Deferred
      financing costs, net
            
            556,500
            
            
            -Goodwill
      and other intangible assets
            
            7,616,254
            
            
            7,557,309TOTAL
      ASSETS
            $
            38,987,131
            
            $
            42,409,282LIABILITIES
      AND STOCKHOLDER’S EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities
            $
            488,631
            
            $
            678,834Bank
      overdraft
            
            219,172
            
            
            -Current
      portion of accrued officer compensation
            
            185,000
            
            
            140,000Preferred
      stock dividends payable
            
            1,276,268
            
            
            765,761Current
      portion of loans payable
            
            1,395,778
            
            
            21,802,193Total
      current liabilities
            
            3,564,849
            
            
            23,386,788Accrued
      officer compensation, net of current portion
            
            350,000
            
            
            410,000Loans
      payable, net of current portion
            
            19,315,525
            
            
            134,836Convertible
      notes payable, net of discount of $405,492 and $-,
      respectively
            
            412,508
            
            
            -Deferred
      income taxes
            
            8,431,507
            
            
            8,708,454TOTAL
      LIABILITIES
            
            32,074,389
            
            
            32,640,078STOCKHOLDERS’
      EQUITYSeries
      A Preferred Stock, 2,250,000 shares authorized, 1,458,592 shares issued
      and outstanding, at redemption value of $10 per share
            
            14,585,920
            
            
            14,585,920Common
      stock, $0.001 par value per share; 90,000,000 shares authorized;
      21,010,109 and 20,891,366 shares issued and outstanding,
      respectively
            
            21,010
            
            
            20,891Additional
      paid-in capital
            
            2,823,655
            
            
            2,452,350Retained
      deficit
            
            (10,517,843
            )
            
            (7,289,957
            )Total
      stockholders’ equity
            
            6,912,742
            
            
            9,769,204$
            38,987,131
            
            $
            42,409,282





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





-3-











Best
Energy Services, Inc.


Consolidated Statements of Operations


For
the three and six months ended June 30, 2009 and July 31, 2008


(Unaudited)





Three
      Months Ended
            
            
            Six
      Months endedJune
      30, 2009
            
            
            July
      31, 2008
            
            
            June
      30,2009
            
            
            July
      31, 2008RevenuesWell
      service revenue
            
            $
            839,913
            
            
            $
            4,628,882
            
            
            $
            2,717,302
            
            
            $
            8,502,681Drilling
      service revenue
            
            
            690,235
            
            
            
            1,542,413
            
            
            
            1,518,794
            
            
            
            1,843,500Geological
      services revenue
            
            
            70,614
            
            
            
            263,035
            
            
            
            191,025
            
            
            
            373,877Total
      revenue
            
            
            1,600,762
            
            
            
            6,434,330
            
            
            
            4,427,121
            
            
            
            10,720,058Costs
      and expenses:Direct
      cost of revenue
            
            
            612,197
            
            
            
            2,746,647
            
            
            
            2,348,137
            
            
            
            4,690,805Business
      unit operating expenses
            
            
            1,321,915
            
            
            
            1,859,108
            
            
            
            1,862,115
            
            
            
            4,556,233Depreciation
      and amortization
            
            
            965,210
            
            
            
            891,649
            
            
            
            1,899,227
            
            
            
            1,611,170Loss
      on sale on property and equipment
            
            
            -
            
            
            
            6,793
            
            
            
            -
            
            
            
            6,793General
      and administrative expense
            
            
            564,751
            
            
            
            694,479
            
            
            
            1,244,057
            
            
            
            1,187,188Total
      operating costs and expenses
            
            
            3,464,073
            
            
            
            6,198,676
            
            
            
            7,353,536
            
            
            
            12,052,189Income
      (Loss) from operations
            
            
            (1,863,311
            )
            
            
            235,654
            
            
            
            (2,926,415
            )
            
            
            (1,332,131
            )Other
      income (expense):Interest
      income
            
            
            122
            
            
            
            586
            
            
            
            874
            
            
            
            19,697Interest
      expense
            
            
            (355,519
            )
            
            
            (364,347
            )
            
            
            (579,292
            )
            
            
            (3,221,834
            )Loss
      before provision for income taxes
            
            $
            (2,218,708
            )
            
            $
            (128,107
            )
            
            $
            (3,504,833
            )
            
            $
            (4,534,268
            )Income
      tax
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Deferred
      income tax benefit
            
            
            138,000
            
            
            
            -
            
            
            
            276,947
            
            
            
            -Net
      loss
            
            $
            (2,080,708
            )
            
            $
            (128,107
            )
            
            $
            (3,227,886
            )
            
            $
            (4,534,268
            )Preferred
      stock dividend
            
            
            (255,253
            )
            
            
            (466,858
            )
            
            
            (510,507
            )
            
            
            (466,858
            )Net
      loss attributable to common shareholders
            
            
            (2,335,961
            )
            
            
            (594,965
            )
            
            
            (3,738,393
            )
            
            
            (5,001,126
            )Net
      loss per share – basic and diluted
            
            
            (0.11
            )
            
            
            (0.03
            )
            
            
            (0.18
            )
            
            
            (0.27
            )Weighted
      average common shares outstanding – basic and diluted
            
            
            20,999,713
            
            
            
            20,216,306
            
            
            
            20,952,535
            
            
            
            18,604,444





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





-4-










Best
Energy Services, Inc.


Consolidated Statements of Cash Flow


For
the six months ended June 30, 2009 and July 31, 2008


(Unaudited)





Six
      months endedJune
      30, 2009
            
            
            July
      31, 2008Cash
      flow from operating activities:Net
      loss
            
            $
            (3,227,886
            )
            
            $
            (4,534,268
            )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Deferred
      income tax benefit
            
            
            (276,947
            )
            
            
            -Depreciation
      and amortization
            
            
            1,899,227
            
            
            
            1,611,170Stock-based
      compensation
            
            
            462,888
            
            
            
            202,106Non-cash
      interest expense
            
            
            568,817
            
            
            
            2,587,752Loss
      on sale of property and equipment
            
            
            -
            
            
            
            6,793Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            2,140,312
            
            
            
            (392,729
            )Prepaid
      expenses and other current assets
            
            
            51,619
            
            
            
            (254,423
            )Accounts
      payable, accrued liabilities and other
            
            
            (190,203
            )
            
            
            254,730Accrued
      officer compensation
            
            
            (15,000
            )
            
            
            925,000Bank
      overdraft
            
            
            219,172
            
            
            
            -Net
      cash provided by operating activities
            
            
            1,631,999
            
            
            
            406,131Cash
      flows from investing activities:Acquisition
      of businesses, net of cash acquired
            
            
            (58,945
            )
            
            
            (31,385,943
            )Capital
      expenditures, net
            
            
            (195,292
            )
            
            
            (267,662
            )Proceeds
      from disposal of property
            
            
            -
            
            
            
            17,412Net
      cash used in investing activities
            
            
            (254,237
            
            
            
            (31,636,193
            )Cash
      flows from financing activities:Proceeds
      from issuance of Term Loan
            
            
            -
            
            
            
            5,850,000Repayments
      of Term Loan
            
            
            (585,000
            )
            
            
            (487,500
            )Net
      borrowings (repayments) under Revolving Advances
            
            
            (1,023,448
            )
            
            
            15,863,055Net
      repayments of other notes payable
            
            
            (120,128
            )
            
            
            (38,109
            )Proceeds
      from issuance of Units in private placement
            
            
            818,000
            
            
            
            11,848,080Payments
      of deferred financing costs
            
            
            (608,916
            )
            
            
            (921,066
            )Net
      cash (used in) provided by financing activities
            
            
            (1,519,492
            )
            
            
            32,114,460Net
      change in cash and cash equivalents
            
            
            (141,730
            )
            
            
            884,398Cash
      and cash equivalents, beginning of period
            
            
            249,330
            
            
            
            5Cash
      and cash equivalents, end of period
            
            $
            107,600
            
            
            $
            884,403Supplemental
      disclosures of cash flow information:Cash
      paid for interest
            
            $
            6,321
            
            
            $
            616,704Cash
      paid for income taxes
            
            $
            -
            
            
            $
            150,000Noncash investing and financing activities:Units
      issued in exchange for collateral agreements
            
            $
            -
            
            
            $
            2,500,000Retirement
      of common shares
            
            
            -
            
            
            
            6,080Shares
      issued  for purchase of BWS and  DSS and ARH
      Assets
            
            
            -
            
            
            
            2,421,500Stock
      options exercised
            
            
            76
            
            
            
            -Preferred
      stock issued in payment of preferred stock dividends
            
            
            -
            
            
            
            126,520Accrued dividends on preferred stock
            
            
            510,507
            
            
            
            340,338Warrants
      issued for debt modification
            
            
            15,885
            
            
            
            -Warrants
      issued for deferred financing costs
            
            
            28,616
            
            
            
            -Discount
      on convertible notes payable
            
            
            408,666
            
            
            
            -




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








-5-





Best
Energy Services, Inc.


Notes to Unaudited Consolidated Financial Statements





Note
1 - Basis of Presentation





The
accompanying unaudited interim consolidated financial statements have been
prepared pursuant to accounting principles generally accepted in the United
States of America and the rules and regulations of the Securities and Exchange
Commission and should be read in conjunction with the audited financial
statements and notes thereto contained in Best Energy’s Annual Report filed with
the SEC on Form 10-K.  In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a
fair presentation of financial position and the results of operations
for the interim periods presented have been reflected herein. The results of
operations for interim periods are not necessarily indicative of the results to
be expected for the full year. Notes to the financial statements which
substantially duplicate the disclosure contained in the audited financial
statements for fiscal 2008 as reported in the Form 10-K have been
omitted.  These consolidated financial statements include the accounts
of Best Energy and its wholly-owned subsidiaries Best Well Service, Inc. (“BWS”)
and Bob Beeman Drilling, Inc. (“BBD”).  All significant inter-company
balances and transactions have been eliminated.





Change
in year end





In
February 2008, Best Energy acquired two companies and certain assets from three
other companies, all of which are engaged in well servicing, drilling and
related complementary services for the oil and gas, water and minerals
industries.  Concurrent with these acquisitions we abandoned our
prior business plan and changed our name to Best Energy Services,
Inc.  In addition, as a result of these acquisitions, our Board of
Directors elected to change our fiscal year-end to December 31, effective
December 31, 2008, to match the calendar year-ends of the acquired
companies.





Prior to
the acquisitions, our fiscal year end was January 31.  As a result of
the acquisitions, on February 14, 2008, our board of directors elected to change
our year end to December 31 effective in the fourth calendar quarter of 2008, to
match the year end of the acquired companies.   Accordingly, we filed
an annual report on Form 10-K for the year ended January 31, 2008 and
subsequently filed quarterly reports in 2008 on Form 10-Q for the quarters ended
April 30, July 31, and October 31.  In addition, we filed a Transition
Report on Form 10-K for the eleven months ended December 31, 2008.  We have
determined that revising our prior year interim financial statements to conform
to the current year quarterly presentation would be unduly cumbersome and
costly.  Consequently, this report includes statements of operations
and cash flow for the three and six month periods ended June 30, 2009 and July
31, 2008.  We believe that these periods are generally comparable
other than the seasonal effects of drilling operations.  Our
operations in Utah are subject to Bureau of Land Management restrictions on land
usage for drilling activity during the winter months. In addition, weather
conditions in Kansas in the first four months of the year are generally
unpredictable due to potentially heavy snow falls and tornadoes.





Note
2-Summary of Significant Accounting Policies





Use
of Estimates





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





Reclassifications





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




-6-


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 June 30, 2009, we had no cash balances in
excess of federally insured limits.





Credit
Risk




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





Goodwill





Goodwill
represents the excess of purchase price and related costs over the value
assigned to the net tangible assets of businesses acquired. These business
acquisitions include BWS, BBD, BB Drilling and DSS in February
2008.  We evaluate goodwill for impairment utilizing undiscounted
projected cash flows in accordance with SFAS No. 142, “Goodwill and Other
Intangible Assets.”  As of June 30, 2009, we believe that no such
impairment has occurred. Goodwill has been adjusted for purchase price
adjustments recognized during the current fiscal year.





Income
Taxes





We
recognize deferred tax assets and liabilities for the future tax consequences
attributed to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
basis.  Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.  Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.  If it is more likely than not that some portion of a deferred
tax asset will not be realized, a valuation allowance is
recognized.





Segment
Reporting





SFAS No.
131, “Disclosures about Segments of an Enterprise and Related Information”
establishes standards for reporting information about operating segments on a
basis consistent with the Company’s internal organization structure as well as
information about geographical areas, business segments and major
customers in financial statements. In January 2009, the Company combined
division Mud Logging and Rig Housing as Geological Service Division. The Company
continues to have business operations in the drilling and well services
segments. Accordingly, the Company operates in three business
segments.





Recently
Issued Accounting Standards and Developments.





In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS
165”). SFAS 165 establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. In particular, this
Statement sets forth: (1) the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements; (2)
the circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; and (3) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. In accordance with SFAS 165, an entity
should apply the requirements to interim or annual financial periods ending
after June 15, 2009. We adopted SFAS 165 effective June 30, 2009 and the
adoption did not have a material impact on our consolidated financial
statements. The date through which subsequent events have been evaluated is
August 19, 2009, the date on which the financial statements were issued. See
Note 9, Subsequent Events,for further discussion.





In June
2009, the FASBissued
SFAS No. 168, “The FASB
Accounting Standards Codification TM and the Hierarchy of Generally Accepted
Accounting Principles – a replacement of FASB Statement No. 162” (“SFAS
168”). The FASB Accounting
Standards Codification TM, (“Codification”) will become the source of
authoritative GAAP recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. On
the effective date of SFAS 168, the Codification will supersede all
then-existing non-SEC accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the Codification
will become non-authoritative. SFAS 168 is effective for financial statements
issued for interim and annual periods ending after September 15,
2009.  We will adopt the requirements of SFAS 168 in the third quarter
of fiscal year 2009.





-7-


Note
3 – Loans payable





On April
15, 2009, we entered into an amendment to our existing credit agreement with PNC
Bank N.A. (“Amended Credit Agreement”).  The Amended Credit Agreement
provides for a term loan and a revolving credit portion.  Under the
terms of the Amended Credit Agreement, the term loan portion increased from
approximately $5.0 million to $19.2 million, as a result of a portion of the
revolving portion of the debt being transferred to the term loan
portion.  The maturity date of the term loan was changed to March 31,
2011.  The term loan requires monthly principal payments beginning May
1, 2009 and on the first day of each month thereafter as follows:




·
            From
      May 1, 2009 to December 31, 2009 - $98,500;·
            From
      January 1, 2010 to December 31, 2010 - $125,000; and·
            $150,000
      thereafter until March 31, 2011.





The term
loan bears interest at a rate equal to an alternate base rate (which is
generally the greater of the federal funds open rate plus 1⁄2%, PNC’s base
commercial lending rate and the daily LIBOR rate) plus 2.5% or the
greater of the Eurodollar Rate or 2% plus 3.75%, as those
terms are defined in the Amended Credit Agreement.  The term loan also
requires an annual 25% recapture of Excess Cash Flow applied to the principal
balance. Excess Cash Flow is defined as EBIDTA less cash tax payments,
non-financed capital expenditures and payments of principal on the term loan and
interest on indebtedness for borrowed money.





The
revolving credit portion of the debt, $1,427,880 on June 30,2009, may be borrowed
and re-borrowed until maturity on March 31, 2011 and bears interest at the same
rate as the term loan.  The amount available is the lesser of $4.0
million and an amount equal to 85% of eligible receivables plus 100% of the
balance in the cash collateral account plus the undrawn amount of letters of
credit minus such reserves as PNC deems appropriate.  At June 30 2009,
there was no additional availability under the Credit Agreement.




Borrowings
under the Amended Credit Agreement 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.  Any equipment and assets
purchased in the future will, once acquired, also be subject to the security
interest in favor of PNC Bank, N.A.




Under our
Amended Credit Agreement, we are subject to customary covenants, including
certain financial covenants and reporting requirements. Beginning on March 31,
2010, we are required to maintain a fixed charge coverage ratio, (defined as the
ratio of EBITDA minus capital expenditures (except capital expenditures financed
by lenders other than under the Amended Credit Agreement) made during such
period minus cash taxes paid during such period minus all dividends and
distributions paid during such period (including, without limitation, all
payments to the holders of the Series A Preferred Stock), to all senior debt
payments as follows:




Fiscal
      Quarter Ending:
            Fixed
              Coverage
      Ratio:March
      31, 2010
            1.05
      to 1.0June
      30, 2010
            1.10
      to 1.0September
      30, 2010
            1.15
      to 1.0December
      31, 2010
            1.20
      to 1.0March
      31, 2011
            1.25 to 1.0






We also
are required to maintain a minimum EBITDA as follows:




Fiscal
      Quarter Ending:
            Minimum
      EBITDA:Three
      months ended March 31, 2009
            $  216,000Six
      months ended June 30, 2009
            902,000Nine
      months ended September 30, 2009
            1,744,000Twelve
      months ended December 31, 2009
            2,385,000





We did
not meet the EBITDA requirement for the six months ended June 30,
2009.  We received a waiver from PNC for the EBITDA covenant default
existing as of June 30, 2009 and an amended loan agreement dated August 19,
2009 for the minimum EBITDA covenant going forward.





Under the
terms of our Amended Credit Agreement, we may not pay cash dividends on our
common stock or our preferred stock or redeem any shares of our common stock or
preferred stock.




-8-


Our
amended credit agreement has set forth minimum rig utilization requirements for
the three-month period then ending for Best Well Service of not less than the
percentage set forth in the table below:




Fiscal
      Quarter Ending
            Minimum
              Rig
              UtilizationMarch
      31, 2009
            25%June
      30, 2009
            30%September
      30,2009
            34%December
      31, 2009
            34%March
      31, 2010
            48%June
      30, 2010
            54%September
      30, 2010
            58%December
      31, 2010
            58%March
      31, 2011
            58%







Our Rig
Utilization rate was 27% for the three months ended June 30, 2009.




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




·
            incur
      or guarantee additional indebtedness;·
            transfer
      or sell assets;·
            create
      liens on assets;·
            engage
      in transactions with affiliates other than on an “arm’s-length” basis;
      and·
            make
      any change in the principal nature of our
  business.




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





In
connection with refinancing the credit facility, we incurred cash costs
associated with the transaction of $303,071.  In addition we were
required to pay PNC a loan modification fee of $125,000 and to issue PNC
warrants to purchase 250,000 shares of common stock at a strike price of $0.50
for a period of 5 years.  The warrants were valued using the
Black-Scholes option pricing model at $15,885.  The above costs have
been capitalized as deferred financing costs and will be amortized over the life
of the Amended Credit Agreement using the straight line method which
approximates the interest method.  A portion of the loan modification
fee in the amount of $33,333 remains unpaid as of June 30, 2009.





The
following table presents the assumptions used in the Black-Scholes option
pricing model for the warrants granted in connection with the loan
modification.  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) 5.00


Risk-free
interest rate 2.34%


Volatility 120.00%


Dividend
yield 0.00%





Future
minimum payments under all notes payable and convertible notes payable are as
follows:





For
      the twelve months
              ending
      June 30,
            
            Amount2010
            
            $    1,395,7782011
            
            20,120,9482012
            
            12,577





-9-


Note
4 – Convertible notes payable





During
June 2009, we had several preliminary closings of a private placement for a
total of 818 Units and received gross proceeds of $818,000 (net proceeds of
$711,660 after cash commission of $106,340). Each Unit consists of a
subordinated convertible note payable of $1,000 and warrants to purchase 4,000
shares of common stock at an exercise price of $0.25 at any time until
expiration on July 1, 2014.  The notes bear interest at a rate of 10%
per annum, which is payable either in cash semi-annually in arrears on July 1
and January 2 each year, commencing on January 2, 2010 or in shares of common
stock at a price of $0.25 per share. Under the terms of our credit facility, we
may not pay cash interest on the notes.  The notes are convertible at
the option of the note holder into common stock at the rate of $0.25 (the
“Conversion Price”) per share and mature on July 1, 2011.  If we
achieve certain earnings hurdles, we may force the noteholders to convert all or
part of the then outstanding notes at the Conversion Price.  The notes
are unsecured obligations and are subordinate in right of payment to all of our
existing and future senior indebtedness.





We
evaluated the terms of the notes in accordance with SFAS No. 133. “Accounting
for Derivative Instruments and Hedging Activities,” and EITF Issue 00-19,.
“Accounting for Derivative Financial Instruments Indexed to and Potentially
Settled in a Company’s Own Stock”.  Best Energy determined that the
conversion feature did not meet the definition of a liability and therefore did
not bifurcate the conversion feature and account for it as a separate derivative
liability.  We evaluated the conversion feature under EITF 98-5 and
EITF 00-27 for a beneficial conversion feature.  The effective
conversion price was compared to the market price on the date of the notes and
was deemed to be less than the market value of our common stock at the inception
of the note. A beneficial conversion feature was recognized and gave rise to a
debt discount of $408,666.





In
connection with the private placement, we issued warrants to the placement agent
to purchase 327,200 shares of common stock at an exercise price of $0.25 at any
time until expiration on July 1, 2014.  These warrants were valued at
$42,083.





On August
11, 2009, we completed the final closing of the private placement
offering.  During the period between July 1, 2009 and the final
closing, we sold an additional 270 Units and received additional gross proceeds
of $270,000.





Note 5 -Stock Options





Stock
Options





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





The fair
value of each stock option granted is estimated on the date of grant using 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 June 30, 2009.  The expected life of the options
represents the period of time the options are expected to be
outstanding.  The expected term of options granted was derived based
on a weighting between the average midpoint between vesting and the contractual
term.  Our expected volatility is based on the historical volatility
of comparable companies for a period approximating the expected life, due to the
limited trading history of our common stock.  The risk-free interest
rate is based on the observed U.S. Treasury yield curve in effect at the time
the options were granted.  The dividend yield is based on the fact
that we do not anticipate paying any dividends on common stock in the near
term.





Expected
      life (years)
            2.50
            yearsRisk-free
      interest rate
            0.93
      – 1.35
            %Volatility
            120.00
      - 169.30
            %Dividend
      yield
            0.00
            %





-10-


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





WeightedAverageNumber of
            
            Exercise PriceOptions
            
            Per OptionOptions
      outstanding at December 31, 2008
            
            
            2,845,000
            
            
            $
            0.30Granted
            
            
            1,570,000
            
            
            
            0.25Exercised
            
            
            (150,000
            )
            
            
            0.50Forfeited
            
            
            -
            
            
            
            -Options
      outstanding at June 30, 2009
            
            
            4,265,000
            
            
            $
            0.28Options
      vested and exercisable at June 30, 2008
            
            
            4,265,000
            
            
            $
            0.28





During
the six months ended June 30, 2009, 1,570,000 options were granted with a
weighted average grant date fair value of $0.22.  During the six
months ended June 30, 2009, 150,000 options were exercised in a cashless
exercise which resulted in 75,743 shares being issued.  No options
were forfeited or expired.  As of June 30, 2009, there was no
unrecognized compensation cost related to non-vested stock
options.  We recognized $462,888 of stock-based compensation expense
during the six months ended June 30, 2009.  As of June 30, 2009, the
weighted-average remaining life of the outstanding stock options is 4.40
years.




The
aggregate intrinsic value of stock options outstanding at December 31, 2008 was
$40,500.  The intrinsic value for stock options outstanding is
calculated as the amount by which the quoted price of our common stock as of
June 30, 2009 exceeds the exercise price of the option.





Note
6 - Stockholders’ Equity





Dividends





As of
June 30, 2009 there was $1,276,268 of accrued and unpaid dividends on the Series
A Preferred Stock.





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





Common
stock





During
the six months ended June 30, 2009, 75,743 shares of common stock were issued as
a result of a cashless exercise of options to purchase 150,000 shares of common
stock.





During
the six months ended June 30, 2009, 43,000 shares of common stock were issued to
employees as compensation.





-11-


Note
7 - Related Party Transactions




On
February 14, 2008, we leased certain real property from Mr. Tony Bruce, our
director, Chief Operating Officer and President, for a period of three years for
$3,500 per month in base rent.





On
February 22, 2008, we leased real property necessary to run our rig housing
operations from Mr. Larry Hargrave, our former CEO and a former director of the
Company, for a period of three years for $6,000 per month in base
rent.





In
January 2009, as part of a settlement agreement for his termination in October,
2008 from the position of CEO of our Company, we entered into a consultancy
agreement with Larry Hargrave, the Company’s former Chief Executive Officer,
covering the period January 15, 2009 to June 15, 2009 at $10,000 per
month.





Note
8 – Segment information





Our
operations have been organized and aligned within the following three reportable
segments:




·
            Well
      Services (Best Well Service, Inc.);·
            Drilling
      Services (Bob Beeman Drilling
Company);





·
            Geological
      Services





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





Our
reportable segment information is as follows as of and for the three months
ended June 30, 2009:




SegmentsWell
      Service
            
            Drilling
      Services
            Geological
      Services
            Segments
      TotalRevenue
            
            $
            839,913
            
            
            $
            690,235
            
            
            $
            70,614
            
            
            $
            1,600,762Gross
      profit
            
            $
            (239,132)
            
            
            $
            (11,121
            )
            
            $
            (83,097
            )
            
            $
            (333,350
            )





Our
reportable segment information is as follows as of and for the three months
ended July 31, 2008:




SegmentsWell
      Service
            
            Drilling
      Services
            Geological
      Services
            Segments
      TotalRevenue
            
            $
            4,628,882
            
            
            $
            1,542,413
            
            
            $
            263,035
            
            
            $
            6,434,330Gross
      profit
            
            $
            1,303,893
            
            
            $
            469,569
            
            
            $
            55,113
            
            
            $
            1,828,575





Our
reportable segment information is as follows as of and for the six months ended
June 30, 2009:





SegmentsWell
              Service
            
            
            Drilling
              Services
            
            
            Geological
      Services
            
            
            Segments
              TotalRevenue
            
            $
            2,717,302
            
            
            $
            1,518,794
            
            
            $
            191,025
            
            
            $
            4,427,121Gross
      profit (loss)
            
            $
            310,796
            
            
            $
            355,062
            
            
            $
            (448,989
            )
            
            $
            216,869





-12-


Our
reportable segment information is as follows as of and for the six months ended
July 31, 2008:




SegmentsWell
      Service
            
            Drilling
      Services
            Geological
      Services
            Segments
      TotalRevenue
            
            $
            8,502,681
            
            
            $
            1,843,500
            
            
            $
            373,877
            
            
            $
            10,720,058Gross
      profit
            
            $
            2,112,732
            
            
            $
            (388,805
            )
            
            $
            (250,907
            )
            
            $
            1,473,020




The
following table reconciles gross profit from reportable segments to our
consolidated income from continuing operations before income taxes for the three
months ended June 30 2009 and July 31, 2008:





Three
      months endedJune
      30, 2009
            
            
            July
      31, 2008Gross
      profit from reportable segments
            
            $
            (333,350
            )
            
            $
            1,828,575Depreciation
            
            
            (965,210
            )
            
            
            (891,649
            )Loss
      on sale of property and equipment
            
            
            -
            
            
            
            (6,793
            )General
      and administrative expenses
            
            
            (564,751
            )
            
            
            (694,479
            )Loss
      from operations
            
            
            (1,863,311
            )
            
            
            235,654Other
      expense, net
            
            
            (355,397
            )
            
            
            (363,761
            )Net
      loss from continuing operations before income taxes
            
            $
            (2,218,708
            
            
            $
            (128,107








The
following table reconciles gross profit from reportable segments to our
consolidated income from continuing operations before income taxes for the six
months ended June 30 2009 and July 31, 2008:





Six
      months endedJune
      30, 2009
            
            
            July
      31, 2008Gross
      profit from reportable segments
            
            $
            216,869
            
            
            $
            1,473,020DeDep     Depreciation
            
            
            (1,899,227
            )
            
            
            (1,611,170
            )Loss     Loss
      on sale of property and equipment
            
            
            -
            
            
            
            (6,793
            )Genera    General
      and administrative expenses
            
            
            (1,244,057
            )
            
            
            (1,187,188
            )Loss
      from operations
            
            
            (2,926,415
            )
            
            
            (1,332,131
            )Other
      e    Other expense, net
            
            
            (578,418
            )
            
            
            (3,202,137
            )Net
      los  Net loss  from continuing operations before
      income taxes
            
            $
            (3,504,833
            )
            
            $
            (4,534,268
            )





-13-


Assets by
reportable segment as of June 30, 2009 and December 31, 2008 are as
follows:





SegmentsWell
      Service
            
            Drilling
      Services
            Geological
      Services
            Segments
      TotalJune
      30, 2009
            
            $
            19,417,076
            
            
            $
            8,883,722
            
            
            $
            2,616,259
            
            
            $
            30,917,057December
      31, 2008
            
            
            20,778,824
            
            
            
            9,423,511
            
            
            
            2,613,967
            
            
            
            32,816,302







The
following table reconciles assets from reportable segments to our consolidated
assets as of June30, 2009 and December 31, 2008:





June
      30, 2009
            
            
            December
      31, 2008Assets
      from reportable segments
            
            $
            30,917,057
            
            
            $
            32,816,302Goodwill
            
            
            7,616,254
            
            
            
            7,557,309Other
      corporate assets
            
            
            453,820
            
            
            
            2,035,671Total
      consolidated assets
            
            $
            38,987,131
            
            
            $
            42,409,282





Note 9 –Subsequent event





Subsequent
events through August 19, 2009 are as follows:





In 2008,
Acer Capital Group sued Best Energy, American Rig Housing, and Larry Hargrave
for breach of contract and fraud.  Best Energy bought assets from
Larry Hargrave in 2008 which were previously a part of American Rig
Housing.  The contract claims arise from an agreement entered into
between American Rig Housing and Acer Capital (the "Acer Agreement") concerning
a going public transaction and certain alleged agreements concerning bridge
financing for the going public transaction between American Rig Housing and
Pipeline Capital (the "Pipeline Agreements), which subsequently assigned those
alleged contracts to Acer Capital.  Under the Acer Agreement, Acer was
to assist with taking American Rig Housing public in return for certain equity
considerations in the new company.  The agreement also purports to
contemplate a fee (the "Break-up Fee") to be paid to Acer in the event the going
public transaction was not consummated.  Acer claims it is owed this
fee.  The defendants in the case dispute that Acer performed its
obligations under the agreement and that the Break-up Fee is
owed.  Acer subsequently amended its petition to add Andrew Garrett,
Inc. and Mark Harrington as defendants and to assert new claims for tortuous
interference with contract and prospective business relations and
conspiracy.





All
parties to the lawsuit captioned Acer Capital Group, Inc. and Acer Capital
Group, LLC, v. Best Energy Services, Inc. et al., pending in the 61st Judicial
District Court of Harris County, Texas, went to court-ordered mediation in
Houston on July 22, 2009.  All legal claims brought in the suit were
settled at the July 22 mediation where the parties signed a valid and
enforceable mediation agreement containing all key provisions of the negotiated
settlement.  Final settlement documents are
pending.  Pursuant to the terms of the mediation agreement, the
Company is not required to make any payments in connection with the settlement
and will receive a full release by Acer of any claims that Acer had, now has, or
may have in the future against the Company based on or related to the subject
matter of the lawsuit.


In
addition, pursuant to the terms of the mediation agreement, ARH, Inc. and Larry
Hargrave are required to pay a total of $275,000 in cash over a three-year term,
1,125,000 shares of Company common stock, 300,000 options to purchase Company
stock at 16 cents per share over a five-year term, and 300,000 options to
purchase Company stock at 50 cents per share over a five-year term.








-14-


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





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








Company
Overview





We are an
energy production equipment and services company engaged in well service,
drilling services and related complementary activities.   We own
a total of 25 workover rigs and nine operating drilling rigs, and we conduct our
well service and drilling services primarily in the Rocky Mountain and
Mid-Continent regions of the United States.  We also provide housing
accommodations to the oil and gas drilling industry principally in Texas and
geological mud-logging services to our existing business
segments.





We were
incorporated on October 31, 2006 as Hybrook Resources Corp. under the laws of
the state of Nevada.  From inception through our year ended January
31, 2008, Hybrook was a development stage company with an option to purchase an
85% interest in a mineral claim in British Columbia.  Hybrook did not
exercise its option and no minerals were discovered.  As a result of
the acquisitions discussed below, all mineral exploration activities were
discontinued.





In
February 2008, Best Energy acquired two companies and certain assets from three
other companies, all of which are engaged in well servicing, drilling and
related complementary services for the oil and gas, water and minerals
industries.  Concurrent with these acquisitions, we abandoned our
prior business plan and changed our name to Best Energy Services,
Inc.  In addition, as a result of these acquisitions, our Board of
Directors elected to change our fiscal year-end to December 31, effective
December 31, 2008, to match the calendar year-ends of the acquired
companies.





The
following discussion and analysis should be read in conjunction with the
accompanying unaudited condensed consolidated financial statements and related
notes as of June 30, 2009 and for the three months ended June 30, 2009 and July
31, 2008, included elsewhere herein, and the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the transition period ended December 31, 2008.





In early
2009, we relocated our principal executive offices to 10375Richmond Ave., Suite
2000, Houston, Texas 77042.




-15-


Business
Plan





The
implementation of our new business plan began with our three acquisitions that
now offer us a footprint in:





·
            The
      Well Service sector


·
            The
      Drilling Services sector


·
            The
      Geological Services sector





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





In the Well Service Division,
our acquisition of Best Well Service, Inc., or BWS, brought us a strong
footprint in the hydrocarbon rich Hugoton basin. BWS operates 25 well service
rigs in the Mid-Continent region of the United States.  BWS has
distinguished itself over the years in its service to both major oil companies
and large independents, as well as an employee retention history that we believe
is among the best in the industry. BWS also has complete in-house safety
certifications and we rank extremely high within our peer group.





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





·
            mining
      and mineral drilling, including potash, precious metals and
      uranium;


·
            water
      well drilling with licenses to operate in five states;
  and


·
            oil
      and gas contract drilling in conventional and unconventional target
      areas.





The
acquisition of BBD brought us a surplus of underutilized equipment which we
believe can be selectively liquidated.





In the Geologic Services Division,
our activities are in two areas: housing accommodations and mud-logging.Our acquisition of certain assets of a housing accommodations
company  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.





For
mud-logging, we have hired an experienced manager, Cody Hembree, to oversee this
new division. Mr. Hembree brought several off-the-shelf technologies and
merged them as one to create a versatile and robust mud-logging system with
capabilities beyond the industry standard.  The mud-logging division
may from time to time refurbish some of the existing well site trailers to use
as on-site mud-logging laboratories.





Significant
Developments





New
Management





In
connection with our acquisition of all the issued and outstanding stock of BWS
from its sole shareholder, Tony Bruce, we entered into a one year employment
agreement with Mr. Bruce under which he agreed to serve as a Vice President of
our Central Division.
  Since then, Mr. Bruce has joined our board of directors and on
October 13, 2008 agreed to serve as our President and Chief Operating
Officer.  On February 17, 2009, we entered into a new one-year
employment agreement with Mr. Bruce.





On
October 20, 2008, Mark Harrington was named our interim Chief Executive Officer.
On December 19, 2008, Mr. Harrington was appointed as our permanent Chief
Executive Officer.







-16-


Credit
Facility





On April
15, 2009, we entered into an amendment to our existing credit agreement with PNC
Bank N.A. (“Amended Credit Agreement”).  The Amended Credit Agreement
provides for a term loan and a revolving credit portion.  Under the
terms of the Amended Credit Agreement, the term loan portion increased from
approximately $5.0 million to $19.2 million, as a result of a portion of the
revolving portion of the debt being transferred to the term loan
portion.  The maturity date of the term loan was changed to March 31,
2011.  The term loan requires monthly principal payments beginning May
1, 2009 and on the first day of each month thereafter as follows:




·
            From
      May 1, 2009 to December 31, 2009 -
$98,500;


·
            From
      January 1, 2010 to December 31, 2010 - $125,000;
  and


·
            $150,000
      thereafter until March 31, 2011.





The term
loan bears interest at a rate equal to an alternate base rate (which is
generally the greater of the federal funds open rate plus 1⁄2%, PNC’s base
commercial lending rate and the daily LIBOR rate) plus 2.5% or the
greater of the Eurodollar Rate or 2% plus 3.75%, as those
terms are defined in the Amended Credit Agreement.  The term loan also
requires an annual 25% recapture of Excess Cash Flow applied to the principal
balance. Excess Cash Flow is defined as EBIDTA less cash tax payments,
non-financed capital expenditures and payments of principal on the term loan and
interest on indebtedness for borrowed money.





The
revolving credit portion of the debt, $928,000 on April 15,2009, may be borrowed
and re-borrowed until maturity on March 31, 2011 and bears interest at the same
rate as the term loan.  The amount available is the lesser of $4.0
million and an amount equal to 85% of eligible receivables plus 100% of the
balance in the cash collateral account plus the undrawn amount of letters of
credit minus such reserves as PNC deems appropriate.




Borrowings
under the Credit Agreement 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.  Any equipment and assets purchased in the
future will, once acquired, also be subject to the security interest in favor of
PNC Bank, N.A.




Under our
Amended Credit Agreement, we are subject to customary covenants, including
certain financial covenants and reporting requirements. Beginning on March 31,
2010, we are required to maintain a fixed charge coverage ratio, (defined as the
ratio of EBITDA minus capital expenditures (except capital expenditures financed
by lenders other than under the Amended Credit Agreement) made during such
period minus cash taxes paid during such period minus all dividends and
distributions paid during such period (including, without limitation, all
payments to the holders of the Series A Preferred Stock), to all senior debt
payments as follows:




Fiscal Quarter Ending:
            Fixed
              Coverage Ratio:March
      31, 2010
            1.05
      to 1.0June
      30, 2010
            1.10
      to 1.0September
      30, 2010
            1.15
      to 1.0December
      31, 2010
            1.20
      to 1.0March
      31, 2011
            1.25
      to 1.0







-17-


We also
are required to maintain a minimum EBITDA as follows:




Fiscal Quarter Ending:
            Minimum EBITDA:Three
      months ended March 31, 2009
            $  216,000Six
      months ended June 30, 2009
            902,000Nine
      months ended September 30, 2009
            1,744,000Twelve
      months ended December 31, 2009
            2,385,000





We did
not meet the EBITDA requirement for the six months ended June 30,
2009.  We received a waiver from PNC for the existing minimum EBITDA
default and a loan amendment for the minimum EBITDA covenant going
forward.





Under the
terms of our Amended Credit Agreement, we may not pay cash dividends on our
common stock or our preferred stock or redeem any shares of our common stock or
preferred stock.




Our
amended credit agreement has set forth minimum rig utilization requirements for
the three-month period then ending for Best Well Service of not less than the
percentage set forth in the table below:




Fiscal Quarter Ending
            Minimum
              Rig
              UtilizationMarch
      31, 2009
            25%June
      30, 2009
            30%September
      30,2009
            34%December
      31, 2009
            34%March
      31, 2010
            48%June
      30, 2010
            54%September
      30, 2010
            58%December
      31, 2010
            58%March
      31, 2011
            58%







Our Rig
Utilization rate was 27% for quarter ended June 30, 2009.




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




·
            incur
      or guarantee additional
indebtedness;




·
            transfer
      or sell assets;




·
            create
      liens on assets;




·
            engage
      in transactions with affiliates other than on an “arm’s-length” basis;
      and




·
            make
      any change in the principal nature of our
  business.




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





The
amounts owed under the credit facility had been classified as current in the
December 31, 2008 balance sheet.  As a result of the loan modification
subsequent to the end of the period, these amounts have been reclassified to
long term debt based on management’s intent and ability to refinance these
amounts into long-term debt.





In
connection with refinancing the credit facility, we incurred cash costs
associated with the transaction of $428,071 and issued warrants to purchase
common stock with a value of $15,885.  These costs have been
capitalized as deferred financing costs and will be amortized over the life of
the Amended Credit Agreement using the interest method.







-18-


Market
Conditions in Our Industry





The
United States oil field services industry is highly cyclical. Volatility in oil
and natural gas prices can produce wide swings in the levels of overall drilling
activity in the markets we now serve and affect the demand for our drilling
services and the day rates we can charge for our rigs. This volatility also
affects the demand for other oil field services we provide, such
as portable rig housing and mud logging. The availability of financing
sources, past trends in oil and natural gas prices and the outlook for future
oil and natural gas prices strongly influence the number of wells oil and
natural gas exploration and production companies decide to drill.





Results
of Operations





Three
months Ended June 30, 2009 compared with the Three Months Ended July 31,
2008





Revenues
were $1.6 million for the three months ended June 30, 2009 compared with revenue
of $6.4 million for the three months ended July 31, 2008. The decrease of $4.8
million was primarily the result of a severe downturn in drilling activity
caused by low oil and gas prices, as well as unseasonably inclement weather that
severely impacted our primary service region in April and May of this
year.





Operating
Expenses were $3.5 million for the three months ended June 30, 2009
compared with $6.2 million for the three months ended July 31, 2008 resulting in
a decrease of $2.7 million.  This decrease was primarily a result of
decreases in business unit operating expenses consequent to a severe decline in
our revenues, coupled with an ongoing cost-cutting program that was first
implemented by management in late 2008.





Net loss from
operations was $1.9 million for the three months ended June 30, 2009
compared with net income of $0.2 million for the three months ended July 31,
2008 resulting in an increased loss of $2.1 million.





General and
administrative expenses for the three month period ended June 30, 2009
were $0.6 million compared with expense of $0.7 million for the three month
period ended July 31, 2008. Management has made a concerted effort in 2009
to reduce cash corporate overhead through downsizing office space, reduction in
corporate staff and other overhead expenses.





Interest
expensewas $0.4 million for both the three month period ended June
30, 2009 and the three month period ended July 31,
2008.





Net Loss
was $2.1 million or $0.11 per common share after accrued preferred dividends for
the three months ended June 30, 2009 compared with a net loss of $0.1 million or
$0.03 per common share for the three months ended July 31, 2008 resulting in an
increased loss of $2.0 million.  The increase in net loss for the
period was a result of significant declines in our gross revenues during 2009
offset by decreased operating, general and administrative expenses.





Six
months Ended June 30, 2009 compared with the Six Months Ended July 31,
2008





Revenues
were $4.4 million for the six months ended June 30, 2009 compared with revenue
of $10.7 million for the six months ended July 31, 2008. The decrease of $6.3
million was primarily the result of a significant downturn in drilling activity
caused by low oil and gas prices, as well as unseasonably inclement weather that
severely impacted our primary service region in April and May of this
year.





Operating
Expenses were $7.4 million for the six months ended June 30, 2009
compared with $12.1 million for the six months ended July 31, 2008 resulting in
a decrease of $4.7 million.  This decrease was primarily a result of
the decline in business unit operating revenues and associated direct variable
costs.





Net loss from
operations was $2.9 million for the six months ended June 30, 2009
compared with a net loss of $1.3 million for the six months ended July 31, 2008
resulting in an increased loss of $1.6 million.





-19-


General and
administrative expenses were $1.2 million for both the six months ended
June 30, 2009 and the six months ended July 31, 2008. Included in those periods
is stock-based compensation of $0.5 million and $0.2 million for the periods
ended June 30, 2009 and July 31, 2008, respectively.





Interest
expensedecreased by $2.6 million for the six month period ended
June 30, 2009, compared with the six month period ended July 31,
2008.  This decrease is primarily due to deferred financing costs
during the six months ended July 31, 2008.





Net Loss
was $3.2 million or $0.18 per common share after accrued preferred dividends for
the six months ended June 30, 2009 compared with a net loss of $4.5 million
$0.27 per share for the six months ended July 31, 2008 resulting in an decreased
loss of $1.3 million.  The improvement in the net loss was primarily
caused by the amortization of deferred financing costs in 2008 of $2.6 million
and the decrease in operating costs of $4.7 million.





Liquidity
and Capital Resources




Historical
Cash Flows




The
following table summarizes our cash flows for the six months ended June 30, 2009
and July 31, 2008:




Six
      months endedJune
      30, 2009
            July
      31, 2008Net
      cash provided by operating activities
            
            $
            1,631,999
            
            $
            406,131Net
      cash used in investing activities:Capital
      expenditures, net
            
            
            (195,292)
            
            
            (267,662)Proceeds
      from sale of property and equipment
            
            
            -
            
            
            17,412Acquisitions
      , net of cash acquired
            
            
            (58,945)
            
            
            (31,385,943)Cash
      provided by (used in) financing activities:Proceeds
      from issuance of term loan
            
            
            -
            
            
            5,850,000Repayments
      of term loan
            
            
            (585,000)
            
            
            (487,500)Net
      borrowings (repayments) under revolving loan
            
            
            (1,023,448)
            
            
            15,863,055Net
      repayments of other notes payable
            
            
            (120,128)
            
            
            (38,109)Proceeds
      from issuance of Units in private placement
            
            
            818,000
            
            
            11,848,080Payment
      of deferred financing costs
            
            
            (608,916)
            
            
            (921,066)Net
      increase (decrease) in cash and cash equivalents
            
            $
            (141,730)
            
            $
            884,398




Operating
activities during the six months ended June 30, 2009 provided us $1.6 million of
cash compared to providing $0.4 million in the six months ended July 31,
2008.  Contributing to the improved cash flow from operations was a
decrease in accounts receivable of $2.1 million for the six months ended June
30, 2009 compared with an increase in accounts receivable of $0.4 million for
the six months ended July 31, 2008.





Investing
activities used $0.3 million for the six months ended June 30, 2009 compared to
$31.6 million for the six months ended July 31, 2008.  Expenditures
for the six months ended July 31, 2008 were primarily for the acquisitions of
businesses described above.





Financing
activities used cash of $1.5 million for the six months ended June 30, 2009
compared to providing cash of $32.1 million for the six months ended July 31,
2008.  Uses of cash during the six months ended June 30, 2009 were
primarily related to the repayment of debt.  Sources of cash during
the six months ended July 31, 2008 included cash received for the term and
revolving portions of the credit facility and proceeds received from the private
placement of Units.





-20-


Working
capital deficit





At June
30, 2009, our current liabilities of $3.6 million exceeded our current assets of
$1.6 million resulting in a working capital deficit of $2.0
million.  This compares to a working capital deficit of $19.4 million
at December 31, 2008.  The improvement in the working capital deficit
is primarily the result of decrease in current liabilities due to the
reclassification of the majority of our loans payable to noncurrent as a result
of the Amended Credit Facility.  Current liabilities at June 30, 2009,
include primarily preferred stock dividends payable of $1.3 million,
current portion of loans payable of $1.4 million and accounts payable of $0.5
million.  Preferred stock dividends are not expected to be paid in
cash.  They will be paid in-kind through the issuance of additional
shares of preferred stock.





Sources
of Liquidity




Our
sources of liquidity include our current cash and cash equivalents, availability
under the revolving portion of our Amended Credit Agreement, and internally
generated cash flows from operations.  We continue to explore other
sources of financing that are available to us including possible sales of stock
or issuance of subordinated debt.




We had no
availability under the Amended Credit Agreement as of June 30,
2009.





Off-Balance
Sheet Arrangements





As of
June 30, 2009, we had no transactions, agreements or other contractual
arrangements with unconsolidated entities or financial partnerships, often
referred to as special purpose entities, which generally are established for the
purpose of facilitating off-balance sheet arrangements.





Contractual
Obligations





Tabular
Disclosure of Contractual Obligations





Over the NextFive Years
            
            
            12
      MonthsNotes
      Payable
            
            $
            21,529,303
            
            
            $
            1,395,778Operating
      Leases
            
            
            315,500
            
            
            
            201,000Employment/Consultant
      Contracts
            
            
            230,000
            
            
            
            230,000Total
            
            $
            22,074,803
            
            
            $
            1,826,778





Subject
to the limitations set forth in the Amended Credit Agreement, our Series A
Preferred Stock must be redeemed using not less than 25% of our net income after
tax each year.  For the six months ended June 30, 2009, we did not
have positive net income after tax and did not redeem any outstanding shares of
Series A Preferred Stock.





-21-


Disclosure
Regarding Forward-Looking Statements





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





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





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








-22-






Item 3. Quantitative and Qualitative Disclosures about Market
Risk




Not
required for smaller reporting companies.





Item 4. Controls and Procedures





(a)
Evaluation of Disclosure Controls and Procedures





We
carried out an evaluation, under the supervision and with the participation of
our management, including our principal executive officer and principal
financial officer, of the effectiveness of our disclosure controls and
procedures as of June 30, 2009 (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)).  Based upon that evaluation, our principal executive
officer and principal financial officer concluded that, as of the end of the
period covered in this report, our disclosure controls and procedures were not
effective to ensure that information required to be disclosed in reports filed
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the required time periods and is accumulated and communicated to
our management, including our principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required
disclosure. In particular, we found control weaknesses in segregation of duties
in the field and home offices. As recently acquired operations are assimilated,
we intend to address these weaknesses by centrally locating payables, check
writing, and implementing controls regarding segregation of duties related to
cash management.  We plan to have these controls in place by year
end.  In the interim, management has been reviewing all disbursements
and cash account activity.





Our
management, including our principal executive officer and principal financial
officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all error or fraud.  A control system,
no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are
met.  Further, the design of a control system must reflect the fact
that there are resource constraints and the benefits of controls must be
considered relative to their costs.  Due to the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, have been
detected.





To
address the material weaknesses, we performed additional analysis and other
post-closing procedures in an effort to ensure our consolidated financial
statements included in this 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





There
were no changes in internal control over financial reporting during the quarter
ended June 30, 2009.










-23-






PART II




Item 1. Legal Proceedings





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





In 2008,
Acer Capital Group sued Best Energy, American Rig Housing, and Larry Hargrave
for breach of contract and fraud.  The contract claims arise from an
agreement entered into between American Rig Housing and Acer Capital (the "Acer
Agreement") concerning a going public transaction and certain alleged agreements
concerning bridge financing for the going public transaction between American
Rig Housing and Pipeline Capital (the "Pipeline Agreements), which subsequently
assigned those alleged contracts to Acer Capital.  Under the Acer
Agreement, Acer was to assist with taking American Rig Housing public in return
for certain equity considerations in the new company.  The agreement
also purports to contemplate a fee (the "Break-up Fee") to be paid to Acer in
the event the going public transaction was not consummated.  Acer
claims it is owed this fee.  The defendants in the case dispute that
Acer performed its obligations under the agreement and that the Break-up Fee is
owed.




All
parties to the lawsuit captioned Acer Capital Group, Inc. and Acer Capital
Group, LLC, v. Best Energy Services, Inc. et al., pending in the 61st Judicial
District Court of Harris County, Texas, went to court-ordered mediation in
Houston on July 22, 2009.  All legal claims brought in the suit were
settled at the July 22 mediation where the parties signed a valid and
enforceable mediation agreement containing all key provisions of the negotiated
settlement.  Final settlement documents are
pending.  Pursuant to the terms of the mediation agreement, the
Company is not required to make any payments in connection with the settlement
and will receive a full release by Acer of any claims that Acer had, now has, or
may have in the future against the Company based on or related to the subject
matter of the lawsuit.


In
addition, pursuant to the terms of the mediation agreement, ARH, Inc. and Larry
Hargrave are required to pay a total of $275,000 in cash over a three-year term,
1,125,000 shares of Company common stock, 300,000 options to purchase Company
stock at 16 cents per share over a five-year term, and 300,000 options to
purchase Company stock at 50 cents per share over a five-year term.








Item 1A. Risk Factors





Not
required for smaller reporting companies.





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





During
June 2009, we had several preliminary closings of a private placement for a
total of 818 Units and received gross proceeds of $818,000 (net proceeds of
$711,660 after cash commission of $106,340). Each Unit consists of a
subordinated convertible note payable of $1,000 and warrants to purchase 4,000
shares of common stock at an exercise price of $0.25 at any time until
expiration on July 1, 2014.  The notes bear interest at a rate of 10%
per annum, which is payable either in cash semi-annually in arrears on July 1
and January 2 each year, commencing on January 2, 2010 or in shares of common
stock at a price of $0.25 per share. Under the terms of our credit facility, we
may not pay cash interest on the notes.  The notes are convertible at
the option of the note holder into common stock at the rate of $0.25 (the
“Conversion Price”) per share and mature on July 1, 2011.  If we
achieve certain earnings hurdles, we may force the noteholders to convert all or
part of the then outstanding notes at the Conversion Price.  The notes
are unsecured obligations and are subordinate in right of payment to all of our
existing and future senior indebtedness.





We
evaluated the terms of the notes in accordance with SFAS No. 133. “Accounting
for Derivative Instruments and Hedging Activities,” and EITF Issue 00-19,.
“Accounting for Derivative Financial Instruments Indexed to and Potentially
Settled in a Company’s Own Stock”.  Best Energy determined that the
conversion feature did not meet the definition of a liability and therefore did
not bifurcate the conversion feature and account for it as a separate derivative
liability.  We evaluated the conversion feature under EITF 98-5 and
EITF 00-27 for a beneficial conversion feature.  The effective
conversion price was compared to the market price on the date of the notes and
was deemed to be less than the market value of our common stock at the inception
of the note. A beneficial conversion feature was recognized and gave rise to a
debt discount of $408,666.





In
connection with the private placement, we issued warrants to the placement agent
to purchase 327,200 shares of common stock at an exercise price of $0.25 at any
time until expiration on July 1, 2014.  These warrants were valued at
$42,083.





On August
11, 2009, we completed the final closing of the private placement
offering.  During the period between July 1, 2009 and the final
closing, we sold an additional 270 Units and received additional gross proceeds
of $270,000.




-24-


Item 3. Defaults Upon Senior Securities





None.




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





None.




Item 5. Other Information





None.





Item 6. Exhibits








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






















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
      August 19, 2009
            BEST
      ENERGY SERVICES, INC./s/
      Mark HarringtonMark
      HarringtonChief
      Executive Officer and Principal Accounting
  Officer
















































-25-