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 October 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 daysx  Yeso  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 November 30,
2008.





Transitional
Small Business Disclosure Format (check one): Yeso Nox
















BEST
ENERGY SERVICES, INC.








Table
of Contents








PagePART
      I. FINANCIAL INFORMATIONItem
      1. Unaudited Consolidated Financial Statements
            3Unaudited Consolidated Balance Sheets as of October 31, 2008
      and January 31, 2008
            3Unaudited Consolidated Statements of Operations for the Nine
      Months and Three Months Ended October 31, 2008 and
2007
            4Unaudited Consolidated Statements of Cash Flow for the
      Nine Months Ended October 31, 2008 and 2007
            5Unaudited Consolidated Statement of Stockholders’ Equity
      for the Nine Months Ended October 31, 2008
            6Notes to Unaudited Consolidated Financial
      Statements
            7Item 2. Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
            17Item 3. Quantitative and Qualitative Disclosures About
      Market Risk
            30Item 4. Controls and Procedures
            30PART
      II. OTHER INFORMATIONItem 1. Legal Proceedings
            31Item 1A. Risk Factors
            31Item 2. Unregistered Sales of Equity Securities and Use of
      Proceeds
            31Item 3. Defaults Upon Senior Securities
            31Item 4. Submission of Matters to a Vote of Security
      Holders
            31Item 5. Other Information
            31Item 6. Exhibits
            31Signatures
            32













PART
I


Item 1. Financial Statements





Best
Energy Services, Inc.


Consolidated
Balance Sheets


(Unaudited)





ASSETS
            
            October
      31, 2008
            
            
            January
      31, 2008Current
      assetsCash
            
            $
            230,216
            
            
            $
            5Accounts
      receivable, net of allowance for doubtful accounts
            
            
            3,394,370
            
            
            
            -Prepaid
      and other current assets
            
            
            453,743
            
            
            
            -Total
      current assets
            
            
            4,078,329
            
            
            
            5Property
      and equipment, net
            
            
            30,358,409
            
            
            
            -Goodwill
      and other intangible assets
            
            
            8,751,380
            
            
            
            -TOTAL
      ASSETS
            
            $
            43,188,118
            
            
            $
            5LIABILITIES
      AND STOCKHOLDER’S EQUITY (DEFICIT)Current
      liabilitiesAccounts
      payable and accrued liabilities
            
            $
            690,459
            
            
            $
            10,141Accrued
      officer compensation
            
            
            880,000
            
            
            
            22Preferred
      stock dividends payable
            
            
            595,592
            
            
            
            -Current
      portion of loans payable
            
            
            21,572,849
            
            
            
            -Total
      current liabilities
            
            
            23,738,900
            
            
            
            10,163Loans
      payable
            
            
            242,916
            
            
            
            -Deferred
      income taxes
            
            
            9,305,996
            
            
            
            -TOTAL
      LIABILITIES
            
            
            33,287,812
            
            
            
            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
            
            
            1,675,369
            
            
            
            98,109Retained
      deficit
            
            
            (6,381,199
            
            
            
            (117,952
            )Total
      stockholders’ equity (deficit)
            
            
            9,900,306
            
            
            
            (10,158
            )TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
            
            $
            43,188,118
            
            
            $
            5





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











Best
Energy Services, Inc.


Consolidated
Statements of Operations


For
the nine and three months ended October 31, 2008 and 2007


(Unaudited)





Nine
      months ended
              October
      31,
            
            
            Three
      months ended
              October
      31,2008
            
            
            
            2007
            
            
            
            2008
            
            
            
            2007RevenuesWell
      service revenue
            
            $
            13,654,858
            
            
            $
            -
            
            
            $
            5,152,177
            
            
            $
            -Drilling
      service revenue
            
            
            3,204,615
            
            
            
            -
            
            
            
            1,361,115
            
            
            
            -Mud
      logging revenue
            
            
            308,256
            
            
            
            -
            
            
            
            308,256
            
            
            
            -Portable
      rig housing revenue
            
            
            580,065
            
            
            
            -
            
            
            
            206,188
            
            
            
            -Total
      revenue
            
            
            17,747,794
            
            
            
            -
            
            
            
            7,027,736
            
            
            
            -Costs
      and expenses:Direct
      cost of revenue
            
            
            8,172,858
            
            
            
            -
            
            
            
            3,440,057
            
            
            
            -Indirect
      cost of revenue
            
            
            4,768,147
            
            
            
            -
            
            
            
            2,060,296
            
            
            
            -Depreciation
      and amortization
            
            
            2,519,555
            
            
            
            -
            
            
            
            908,385
            
            
            
            -General
      and administrative expense
            
            
            4,177,209
            
            
            
            34,746
            
            
            
            1,183,635
            
            
            
            11,594Loss
      on sale of property and equipment
            
            
            6,793
            
            
            
            -
            
            
            
            -
            
            
            
            -Total
      operating costs and expenses
            
            
            19,644,562
            
            
            
            34,746
            
            
            
            7,592,373
            
            
            
            11,594Loss
      from operations
            
            
            (1,896,768
            )
            
            
            (34,746
            )
            
            
            (564,637
            )
            
            
            (11,594
            )Other
      income (expense):Interest
      income
            
            
            19,790
            
            
            
            -
            
            
            
            93
            
            
            
            -Interest
      expense
            
            
            (4,386,269
            )
            
            
            -
            
            
            
            (1,183,635
            )
            
            
            -Loss
      before provision for income taxes
            
            
            (6,263,247
            )
            
            
            (34,746
            )
            
            
            (1,728,979
            )
            
            
            (11,594
            )Income
      tax
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      loss from continuing operations
            
            
            (6,263,247
            )
            
            
            (34,746
            )
            
            
            (1,728,979
            )
            
            
            (11,594
            )Loss
      from discontinued operations
            
            
            -
            
            
            
            (10,967
            )
            
            
            -
            
            
            
            (6,426
            )Net
      loss
            
            
            (6,263,247
            )
            
            
            (45,713
            )
            
            
            (1,728,979
            )
            
            
            (18,020
            )Preferred
      stock dividend
            
            
            (722,112
            )
            
            
            -
            
            
            
            (255,254
            )
            
            
            -Net
      loss attributable to common shareholders
            
            $
            (6,985,359
            )
            
            $
            (45,713
            )
            
            $
            (1,984,233
            )
            
            $
            (18,020
            )Per
      common share data:Loss
      from continuing operations – basic and diluted
            
            $
            (0.36
            )
            
            $
            (0.00
            )
            
            $
            (0.10
            )
            
            $
            (0.00
            )Discontinued
      operations – basic and diluted
            
            
            -
            
            
            
            (0.00
            )
            
            
            -
            
            
            
            (0.00
            )Net
      loss – basic and diluted
            
            $
            (0.36
            )
            
            $
            (0.00
            )
            
            $
            (0.10
            )
            
            $
            (0.00
            )Weighted
      average common shares outstanding – basic and diluted
            
            
            19,145,674
            
            
            
            9,685,000
            
            
            
            20,216,366
            
            
            
            9,685,000





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








Best Energy Services, Inc.


Consolidated
Statements of Cash Flow


For
the nine months ended October 31, 2008 and 2007


(Unaudited)





2008
            
            
            2007Cash
      flow from operating activities:Net
      loss
            
            $
            (6,263,247
            )
            
            $
            (45,713
            )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Depreciation
            
            
            2,519,555
            
            
            
            -Stock-based
      compensation
            
            
            224,723
            
            
            
            -Non-cash
      interest expense
            
            
            3,421,066
            
            
            
            -Loss
      on sale of property and equipment
            
            
            6,793
            
            
            
            -Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (1,071,319
            )
            
            
            -Prepaid
      expenses
            
            
            (378,743
            )
            
            
            -Accounts
      payable and accrued liabilities
            
            
            720,536
            
            
            
            (12,561
            )Accrued
      officer compensation
            
            
            880,000
            
            
            
            -Net
      cash provided by (used in) operating activities, before discontinued
      operations
            
            
            59,364
            
            
            
            (58,274
            )Net
      cash flow from discontinued operations
            
            
            -
            
            
            
            (5,488
            )Net
      cash provided by (used in) operating activities
            
            
            59,364
            
            
            
            (63,762
            )Cash
      flows from investing activities:Acquisition
      of businesses, net of cash acquired
            
            
            (31,269,578
            )
            
            
            -Capital
      expenditures, net
            
            
            (894,814
            )
            
            
            -Proceeds
      from disposal of property and equipment
            
            
            17,412
            
            
            
            -Net
      cash used in investing activities
            
            
            (32,146,980
            )
            
            
            -Cash
      flows from financing activities:Proceeds
      from issuance of Term Loan
            
            
            5,850,000
            
            
            
            -Repayments
      of Term Loan
            
            
            (780,000
            )
            
            
            -Net
      borrowings under Revolving Advances
            
            
            16,326,622
            
            
            
            -Net
      repayments of other notes payable
            
            
            (5,809
            )
            
            
            -Proceeds
      from issuance of Units in private placement
            
            
            11,848,080
            
            
            
            -Payment
      of deferred financing costs
            
            
            (921,066
            )
            
            
            -Net
      cash provided by financing activities
            
            
            32,317,827
            
            
            
            -Increase
      (decrease) in cash and cash equivalents
            
            
            230,211
            
            
            
            (63,762
            )Cash
      and cash equivalents, beginning of period
            
            
            5
            
            
            
            108,054Cash
      and cash equivalents, end of period
            
            $
            230,216
            
            
            $
            44,292Supplemental
      disclosures of cash flow information:Cash
      paid for interest
            
            $
            965,203
            
            
            $
            -Cash
      paid for income 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
            
            
            595,592
            
            
            
            -




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










Best
Energy Services, Inc.


Consolidated
Statement of Stockholders’ Equity


For
the nine months ended October 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
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (595,592
            )
            
            
            -
            
            
            
            (595,592
            )Shares
      issued for services
            
            
            -
            
            
            
            -
            
            
            
            300,000
            
            
            
            300
            
            
            
            74,700
            
            
            
            -
            
            
            
            75,000Share
      based compensation
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            224,723
            
            
            
            -
            
            
            
            224,723Net loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (6,263,247
            )
            
            
            (6,263,247
            )Balance
      -
              October
      31, 2008
            
            
            1,458,592
            
            
            $
            14,585,920
            
            
            
            20,216,366
            
            
            $
            20,216
            
            
            $
            1,675,369
            
            
            $
            (6,381,199
            )
            
            $
            9,900,306





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














Best
Energy Services, Inc.


Notesto Unaudited Consolidated Financial Statements


October
31, 2008





Note
1 - Organization and Basis of Presentation





Nature
of Business





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.  In the third quarter of 2008,
we added geological mud-logging services to our existing business
segments.





We were
incorporated on October 31, 2006 as Hybrook Resources Corp. in
Nevada.   Since inception on October 31, 2006 through our year end
January 31, 2008, 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”).  Concurrent with these acquisitions, we abandoned our prior
business plan and changed our name to Best Energy Services, Inc.




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.  Beginning in the third quarter, we also began
providing geological mud-logging services.





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.








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 October 31, 2008, we had no cash balances 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 $87,747 at October 31,
2008.  Accounts receivable in the amount of $7,554 were written off
during the nine months ended October 31, 2008.





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.








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 October 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
anti-dilutive.








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 $20.6 million, payable as follows: (i) a note for $20.0 million 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 $0.5 million 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 $0.1
million based on a 10-day volume weighted average price, commencing with the
first day of trading (46,744 shares). This acquisition was 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 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.


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.  Prior to the
execution of the foregoing agreements with Mr. Bruce, there was no material
relationship between us and Mr. Bruce.








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 approximately $4.8 million, payable as follows: (i) a note for
approximately $4.0 million 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) $.02 million in a previously paid deposit;
and (iii) funds in the amount of $0.5 million 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 of October 31,
2008, this escrow has not been released. This acquisition was 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 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.








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 valued this transaction at approximately $2.3 million
based on a third-party appraisal of the assets.  ARH was owned and
controlled by Mr. Larry Hargrave, our former chief executive officer and a
director.  As part of this transaction, we 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.








Also on
February 27, 2008, we acquired certain assets of BB Drilling from its owner,
Robert L. Beeman, for a cash purchase price of $2.0 million, and certain assets
of Drill Site Services (“DSS”) from its owner, Todd Beeman, for a purchase price
of $1.0 million 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.





Note
4 - Property and equipment, net





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





AmountRigs,
      pumps, compressors, rig houses and related equipment
            $
            29,348,120Heavy
      trucks, trailers, dirt equipment
            
            1,805,837Vehicles
      and other equipment
            
            1,571,392Office
      and computer equipment
            
            54,080Leasehold
      improvements
            
            97,587Total
      property and equipment
            
            32,877,016Less:
      accumulated depreciation
            
            (2,518,607
            )Property
      and equipment, net
            $
            30,358,409





Depreciation
expense was $2.5 million for the nine months ended October 31,
2008.  No depreciation expense was recognized during the nine months
ended October 31, 2007.








Note
5 – Loans payable





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





AmountRevolving
      advances
            $
            16,326,622Term
      loan
            
            5,070,000Vehicle
      notes payable
            
            419,143Total
      loans payable
            
            21,815,765Current
      portion of loans payable
            
            21,572,849Loans
      payable, net of current portion
            $
            242,916





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 $25.0 million
at 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 the lesser of (a) $5,850,000 and (b) 80% of the orderly
liquidation value of certain equipment and machinery of BBD and Best, are
amortized and must be repaid on a 60 month amortization schedule, with an annual
recapture of an amount that is the greater of (a) 25% of excess cash flow and
(b) all payments made to holders of shares of Series A Preferred Stock since
January 1, 2008, 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. 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 we acquired from BB Drilling, DSS,
and ARH.  The Credit Facility is due on February 14,
2012.





In order
to fund our acquisition of BWS and BBD, we drew approximately $15.1 million on
the revolving portion of the Credit Facility and approximately $2.9 million on
the term loan portion of the Credit Facility.  We drew an additional
$3.0 million to close the acquisition of BB Drilling and DSS.  We have
drawn  on the revolving credit portion of the Credit Facility as
necessary for working capital purposes and repaid principal on the Credit
Facility with collections on accounts receivable.





Under our
Credit Facility, we are required to maintain a fixed charge coverage ratio (as
defined in the Credit Facility) of not less than 1.10 to 1.00 and a leverage
ratio (as defined in the Credit Facility) of 3.50 to 1.00.  Due
primarily to non-recurring costs incurred in the assumption of operations
immediately after closing our acquisitions in February 2008 and the reoccurrence
of very low seasonal utilization of rigs by BBD, we were not in compliance with
the leverage ratio as of our last report to PNC Bank.  We report our
ratios to PNC Bank based on a calendar quarter.  As of September 30,
2008, our fixed charge coverage ratio was 1.60 to 1.00 and our leverage ratio
was 4.94 to 1.00.  Due to our technical default on these loan
covenants, PNC Bank could choose to accelerate the due date of any or all
payments owed under the Credit Facility; although they have not notified us of
their intent to do so.  We have been in discussions with PNC Bank to
amend the ratio tests in the loan documents.  This amendment is
expected to be completed by year end 2008, although there is no assurance that
this will occur.  As a result, we have reclassified all debt
outstanding under the Credit Facility to current liabilities as of October 31,
2008.  We also wrote off unamortized deferred financing costs in the
amount of $789,564 due to the reclassification of the Credit Facility to current
liabilities.





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 October 31,
            Amount2009
            $
            21,572,8492010
            
            175,5392011
            
            59,4282012
            
            7,949





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 nine
months ended October 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
      - 3.0Risk-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 October 31, 2008
            1,350,000
            
            $
            0.39Options
      vested and exercisable at October 31, 2008
            450,000
            
            $
            0.16





During
the nine months ended October 31, 2008, 1,350,000 options were granted with a
weighted average grant date fair value of $0.17.  During the nine
months ended October 31, 2008 no options were exercised, forfeited or
expired.  As of October 31, 2008, there was approximately $35,900 of
total unrecognized compensation cost related to non-vested stock options which
is expected to be recognized over a weighted-average period of approximately two
months.  We recognized approximately $0.2 million  of
stock-based compensation expense related to stock options during the nine months
ended October 31, 2008.





The
aggregate intrinsic value of stock options outstanding at October 31, 2008 was
approximately $1.1 million, of which approximately $0.9 million 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 October 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.





Note
7 - Stockholders’ Equity





Share
retirement





Prior to
the closing of the acquisition of BWS and BBD, certain stockholders returned a
total of approximately 6,100,000 shares of common stock to Best Energy which
were retired.





Private
placement





During
the nine months ended October 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
and continue to use our best efforts to have the registration statement declared
effective.





The
Series A Preferred Stock has a stated face value of $10 per share, which shall
be redeemed by us using not less than 25% of our net income after tax each year.
The unredeemed portion of the face value of the Series A Preferred Stock will
receive dividends at an annual rate of 7%, payable quarterly in kind at the
then-current market price or in cash at our option. The unredeemed face value of
the Series A Preferred Stock may be converted into common stock (i) by the
holder at a conversion price of $4.00 per share or (ii) by us at a conversion
price of $4.00 per share in the event that our common stock closes at a market
price of $9.60 per share or higher for more than twenty consecutive trading
days. Best Energy evaluated this financial instrument under SFAS 150:Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity
to determine if it more closely resembles a liability or equity. Because the
redemption of the Series A Preferred Stock is contingent upon our achieving
positive net income, the redemption is conditional and not certain. Accordingly,
it has been included in equity on the balance sheet at October 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 $2.5 million 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
October 31, 2008, $1,800,000 of the collateral has been released.





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 October 31, 2008,
there was $595,592 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 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 approximately $9.3 million
which represents the difference in the tax basis and book basis of property and
equipment acquired in the BWS and BBD acquisitions.





As of
October 31, 2008, we have net operating losses in the amount of approximately
$5.0 million 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 former CEO and a current director of the Company, was
awarded a bonus of $1.0 million to be paid $15,000 per month beginning in March
2008.  As of October 31, 2008, $880,000 remains unpaid.





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





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





Our
interim Chief Executive Officer and the Chairman of the Board, 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 approximately $2.3 million 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 warrants to purchase 1,507
Units.





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, mud logging and construction of  portable rig housing for
rig sites.





Our
reportable segment information is as follows:





Well
      Services Division
            
            
            Drilling
      Services
            
            
            Mud
      logging
            
            
            Portable
      Rig Housing
            
            
            Reportable
      segmentsRevenues
      from external customers:Nine
      months ended October 31, 2008
            
            $
            13,654,858
            
            
            $
            3,204,615
            
            
            $
            308,256
            
            
            $
            580,065
            
            
            $
            17,747,794Three
      months ended October 31, 2008
            
            
            5,152,177
            
            
            
            1,361,115
            
            
            
            308,256
            
            
            
            206,188
            
            
            
            7,027,736Gross
      profit:Nine
      months ended October 31, 2008
            
            $
            5,220,557
            
            
            $
            181,946
            
            
            $
            39,226
            
            
            
            (641,733
            )
            
            $
            4,799,996Three
      months ended October 31, 2008
            
            $
            1,775,947
            
            
            $
            51,255
            
            
            $
            39,226
            
            
            
            (339,045
            )
            
            $
            1,527,383





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





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





Gross
      profit from reportable segments
            
            $
            4,799,996Depreciation
            
            
            (2,519,555
            )General
      and administrative expenses
            
            
            (4,177,209
            )Loss
      from operations
            
            
            (1,896,768
            )Other
      expense, net
            
            
            (4,366,479
            )Net
      loss from continuing operations before income taxes
            
            $
            (6,263,247
            )








Note
11 – Subsequent Events





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
October 13, 2008, our employment relationships with each of Larry W. Hargrave,
President and Chief Executive Officer, and James W. Carroll, Executive Vice
President and Chief Financial Officer, were terminated by mutual
agreement.  We are currently negotiating severance agreements with
both individuals.  Both Messrs. Hargrave and Carroll remain on the
Board of Directors.  On October 13, 2008, Robert Sternenberg was
elected as interim Chief Executive Officer.  Mr. Sternenberg was
engaged to help the Company to make a quick, strategic  assessment of our
opportunities and potential industry risks, particularly in the current economic
environment.





On
October 20, 2008, Mark Harrington was named our interim Chief Executive Officer.
Mr. Harrington will continue as our interim Chief Executive
Officer.  We anticipate hiring Mr. Harrington as our permanent Chief
Executive Officer, but we have not yet reached agreement with Mr.
Harrington.





On
November 10, 2008, Chuck Daniels resigned as our Executive Vice President and
Chief Operating Officer.   Tony Bruce, our interim President,
assumed Mr. Daniels' duties.





In
addition, on November 14, 2008, Roy Bowman resigned as our interim Chief
Financial Officer.  Mr. Bowman will continue to work as a consultant
under the Company’s engagement with Tatum, LLC., an independent consulting firm
that provides services of interim chief financial officers and controllers. Mark
Harrington, our Chairman of the Board and interim Chief Executive
Officer,  will act as our Principal Accounting Officer until the
Company is able to hire a replacement.  Ms. Christy Albeck will
continue as Controller.





On
December 20, 2008, we granted options to purchase 1,245,000 shares of common
stock to seven employees and consultants.  The options have an
exercise price of $0.25, a term of five years and vest immediately.








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 nine months ended October 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 nine months ended October 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.








UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS


For the
nine months ended October 31, 2008








Actual
      for the nine months ended
              October
      31, 2008
            
            
            Actual
      for the period from February 1, 2008 through February 14,
      2008
            
            Pro
      Forma
            
            
            Pro
      FormaBest
      Energy
            
            
            BWS
            
            
            BBD
            
            Adjustments
            
            
            ConsolidatedRevenues
            
            $
            17,747,794
            
            
            $
            775,498
            
            
            $
            10,000
            
            $
            -
            
            
            $
            18,533,292Operating
      expenses:Direct
      cost of revenue
            
            
            8,172,858
            
            
            
            142,156
            
            
            
            37,068
            
            
            -
            
            
            
            8,352,082Indirect
      cost of revenue
            
            
            4,768,147
            
            
            
            50,194
            
            
            
            6,273
            
            
            (18,218
            (a)
            
            
            4,806,396Depreciation
      and amortization
            
            
            2,519,555
            
            
            
            45,610
            
            
            
            9,433
            
            
            88,861
            (b)
            
            
            2,663,459General
      and administrative
            
            
            4,177,209
            
            
            
            -
            
            
            
            -
            
            
            
            
            
            
            4,177,209Loss
      on sale of property and equipment
            
            
            6,793
            
            
            
            -
            
            
            
            -
            
            
            -
            
            
            
            6,793Total
      operating expenses
            
            
            19,644,562
            
            
            
            237,960
            
            
            
            52,774
            
            
            
            
            
            
            20,005,939Operating
      income (loss)
            
            
            (1,896,768
            )
            
            
            537,538
            
            
            
            (42,774
            )
            
            
            
            
            
            (1,472,647
            )Other
      income (expense):Investment
      income (loss)
            
            
            -
            
            
            
            -
            
            
            
            444
            
            
            (444
            (c)
            
            
            -Interest
      income
            
            
            19,790
            
            
            
            1,389
            
            
            
            -
            
            
            -
            
            
            
            21,179Interest
      expense
            
            
            (4,386,269
            )
            
            
            400
            
            
            
            -
            
            
            (58,702
            (d)
            
            
            (4,444,571
            )Total
      other income (expense)
            
            
            (4,366,479
            )
            
            
            1,789
            
            
            
            444
            
            
            
            
            
            
            (4,423,392
            )Income
      (loss) before income taxes
            
            
            (6,263,247
            )
            
            
            539,327
            
            
            
            (42,330
            )
            
            
            
            
            
            (5,896,039
            )Income
      tax (expense) recovery
            
            
            -
            
            
            
            188,764
            
            
            
            (14,816
            )
            
            
            
            
            
            173,949Net
      income (loss)
            
            
            (6,263,247
            )
            
            
            728,091
            
            
            
            (57,146
            )
            
            
            
            
            
            (5,722,090
            )Net
      income per share:Basic
      and diluted
            
            $
            (0.33
            )
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (0.28
            )Weighted
      average shares outstanding:Basic
      and diluted
            
            
            19,145,674
            
            
            
            
            
            
            
            
            
            
            1,070,692
            
            
            
            20,216,366





See notes
to unaudited pro forma condensed consolidated financial
statements.













UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS


For the
nine months ended October 31, 2007








Actual
      for the nine months ended
              October
       31, 2007
            
            
            Actual
      for the nine months ended September 30, 2007
            Pro
      Forma
            
            
            
            Pro
      FormaBest
      Energy
            
            
            BWS
            
            
            BBD
            Adjustments
            
            
            
            ConsolidatedRevenues
            
            $
            -
            
            
            $
            13,186,260
            
            
            $
            2,601,730
            $
            -
            
            
            
            $
            15,787,990Operating
      expenses:Direct
      cost of revenue
            
            
            -
            
            
            
            7,007,334
            
            
            
            1,642,242
            
            -
            
            
            
            
            8,649,576Indirect
      cost of revenue
            
            
            -
            
            
            
            1,318,325
            
            
            
            676,865
            
            (273,274
            )
            (a)
            
            
            1,721,916Depreciation
      and amortization
            
            
            -
            
            
            
            799,453
            
            
            
            178,687
            
            1,770,465
            
            (b)
            
            
            2,748,605General
      and administrative
            
            
            34,746
            
            
            
            -
            
            
            
            -
            
            5,544,356
            
            (c)
            
            
            5,579,102Total
      operating expenses
            
            
            34,746
            
            
            
            9,125,112
            
            
            
            2,497,794
            
            
            
            
            
            
            18,699,199Operating
      income (loss)
            
            
            (34,746
            )
            
            
            4,061,148
            
            
            
            103,936
            
            
            
            
            
            
            (2,911,209
            )Other
      income (expense):Gain
      on sale of property and equipment
            
            
            -
            
            
            
            -
            
            
            
            50,000
            
            -
            
            
            
            
            50,000Investment
      income
            
            
            -
            
            
            
            83,906
            
            
            
            2,386,754
            
            (2,470,660
            )
            (d)
            
            
            -Interest
      income
            
            
            -
            
            
            
            84,793
            
            
            
            31,568
            
            (116,361
            )
            (d)
            
            
            -Interest
      expense
            
            
            -
            
            
            
            (7,242
            )
            
            
            (14,321
            
            (3,661,694
            )
            (e)
            
            
            (3,683,257
            )Total
      other income (expense)
            
            
            -
            
            
            
            161,457
            
            
            
            2,454,001
            
            
            
            
            
            
            (3,633,257
            )Income
      (loss) before income taxes
            
            
            (34,746
            )
            
            
            4,022,605
            
            
            
            2,557,937
            
            
            
            
            
            
            (6,544,466
            )Income
      tax expense
            
            
            -
            
            
            
            (1,777,149
            )
            
            
            (866,466
            
            2,643,615
            
            (f)
            
            
            -Net
      income (loss) from continuing operations
            
            $
            (34,746
            )
            
            $
            2,445,456
            
            
            $
            1,691,471
            
            
            
            
            
            $
            (6,544,466
            )Net
      income per share:Basic
      and diluted
            
            $
            (0.00
            )
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (0.32
            )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.





NOTES TO
UNAUDITED PRO FORMA FINANCIAL STATEMENTS





1. Pro
Forma Adjustments:





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




(a)
            Eliminate
      related party expenses incurred by BWS and BBD which will not be incurred
      acquisitions.(b)
            Record
      incremental depreciation on property and equipment as a result of the
      acquisition of BWS and BBD.(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.











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 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.  In the third quarter of 2008
we also began providing 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.   Since inception on October 31, 2006 through our
year end January 31, 2008, 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. In February 2008, we acquired two companies and certain assets
from three other companies all of which are engaged in drilling, well service,
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.





The
following discussion and analysis should be read in conjunction with the
accompanying unaudited condensed consolidated financial statements and related
notes as of October 31, 2008 and for the three and nine months ended October 31,
2008 and 2007, 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 year ended January 31, 2008.





Business
Plan





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




-
            The
      Well Service sector (Best Well
Service);




-
            The
      Drilling Services sector (Bob Beeman Drilling);
  and




-
            The
      Housing Accommodations sector (American Rig
  Housing).














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.  Beginning in the third quarter, we also
provide geological mud-logging services.





In the Well Service Division,
our acquisition of Best Well Service, Inc., or 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 both major oil companies and large
independents, as well as an employee retention history that we believe is among
the best in the industry.





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 selectively liquidated.





In the Housing Accommodations
Division, our acquisition of the assets of American Rig Housing, Inc., or
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.





In the Mud-logging Division,
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
will also work closely with ARH to refurbish some of the existing well site
trailers as mud-logging laboratories on site.








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
October 13, 2008, our employment relationship with  each of Larry W.
Hargrave, President and Chief Executive Officer, and James W. Carroll, Executive
Vice President and Chief Financial Officer, were terminated by mutual
agreement.  Both Messers. Hargrave and Carroll remain on the Board of
Directors.  On October 13, 2008, Robert Sternenberg was elected as
interim Chief Executive Officer of the Company and on October 24, 2008, our
engagement of Robert Sternenberg as interim Chief Executive Officer was
completed. Mr. Sternenberg was engaged to help the Company to make a quick,
strategic assessment of our opportunities and potential industry risks,
particularly in the current economic environment.





On
October 20, 2008, Mark Harrington was named our interim Chief Executive Officer.
Mr. Harrington will continue as our interim Chief Executive
Officer.  We anticipate hiring Mr. Harrington as our permanent Chief
Executive Officer, but we have not yet reached an agreement with Mr.
Harrington.





On
November 10, 2008, Chuck Daniels resigned as our Executive Vice President and
Chief Operating Officer.   Tony Bruce, our interim President,
assumed Mr. Daniels' duties.





In
addition, on November 14, 2008, Roy Bowman resigned as the interim Chief
Financial Officer of Best Energy Services, Inc. Mr. Bowman will continue to work
as a consultant under the Company’s engagement with Tatum, LLC., an independent
consulting firm that provides services of interim chief financial officers and
controllers. Mark Harrington, our Chairman of the Board and interim Chief
Executive Officer, will act as the Company’s Principal Accounting Officer until
the Company is able to hire a replacement.  Ms. Christy Albeck will
continue as Controller.











Credit
Facility





Under our
Revolving Credit, Term Loan and Security Agreement, dated as of February 14,
2008, with PNC Bank, N.A. (“Credit Facility”), we are required to comply with a
certain fixed charge coverage ratio and a certain leverage ratio.  Due
primarily to non-recurring costs incurred in the assumption of operations
immediately after closing our acquisitions in February 2008 and the reoccurrence
of very low seasonal utilization of rigs by BBD, we were not in compliance with
these covenants at October 31, 2008. We have been in discussions with PNC Bank
to amend the ratio tests in the loan documents.  This amendment is
expected to be completed by year end 2008.





Registration
Rights Agreement





On June
11, 2008, we filed a resale registration statement as is required pursuant to
the registration rights agreement we entered into in connection with our private
placement in February and March 2008 of shares of our common stock and Series A
Preferred Stock (together, the “Units”).  We have also agreed to use
our reasonable best efforts to have the resale registration statement declared
effective by the SEC within 180 days of its initial filing or to use all
commercially reasonable efforts to have the registration statement declared
effective as soon as possible after the initial filing date.  We will
be subject to payment of liquidated damages, up to a maximum of 6% of the
stockholders' investment, if we fail to use our best efforts to have it declared
effective.  We continue to use our best efforts to have the
registration statement declared effective.  We do not anticipate that
we will have to pay liquidated damages and have not accrued any estimated costs
for this contingency.








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.








Critical
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 October 31, 2008, we had no cash balances 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 $87,747 at October 31,
2008.  Accounts receivable in the amount of $7,554 were written off
during the nine months ended October 31, 2008.





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.





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 October 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 our management’s opinion
that we are not exposed to significant interest, exchange or credit risks
arising from these financial instruments.





We follow
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 we apply 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 our net income (loss) position at the calculation
date.  Diluted loss per share has not been provided as it is
anti-dilutive.











Results
of Operations





Nine
months Ended October 31, 2008 compared with the Nine Months Ended October 31,
2007





Revenues
were $17.7 million for the nine months ended October 31, 2008 compared with no
revenue for the nine months ended October 31, 2007. The increase of $17.7
million was primarily the result of the acquisitions of BWS and BBD in February
2008.





Operating
Expenses were $19.6 million for the nine months ended October 31, 2008
compared with $34,746 for the nine months ended October 31, 2007 resulting in an
increase of $19.6 million.  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.





General and
administrative expenses for the nine month period ended October 31, 2008
were $4.2 million compared with expenses of $34,746 for the nine month period
ended October 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.   General and
administrative expenses in the third quarter of 2008 included over $0.4 million
in non-recurring costs and approximately $1.2 million in non-cash costs
associated with assuming control of the BWS and BBD operations.During the first nine
months of 2008, we expended overhead costs in attempting to reequip and redeploy
BBD equipment into oil and gas drilling activities outside Moab, Utah. Following
the change in management instituted on October 13, 2008 we determined that such
efforts were not and would not be profitable and all such efforts were
immediately terminated.








Net loss from
operations was $1.9 million for the nine months ended October 31, 2008
compared with a net loss of $34,746 for the nine months ended October 31, 2007
resulting in an increased loss of $1.9 million.  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.





Interest
expense increased by $4.4 million for the nine month period ended October
31, 2008, compared with the nine month period ended October 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 $2.5 million for
the amortization of financing costs resulting from the stock issuance required
by that certain cash collateral agreement entered into in February 2008 among
Morris Gad, the Company and PNC Bank (the “Cash Collateral Agreement”) and the
write-off of $0.8 million of deferred financing costs associated with the
reclassification of the amounts owed under the Credit Facility to current
liabilities.





Net Loss
was $6.3 million or $0.36 per common share after accrued preferred stock
dividends for the nine months ended October 31, 2008 compared with a net loss of
$45,713 or $0.00 per share for the nine months ended October 31, 2007 resulting
in an increased loss of $6.2 million.  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 $2.5 million in deferred financing costs related to certain capital stock
issued in connection with our obligations under the Cash Collateral Agreement,
$1.0 million in deferred compensation granted to Larry W. Hargrave, our former
Chief Executive Officer upon the consummation of our acquisitions in February
2008 but to be paid over time (approximately $0.9 million remained unpaid as of
October 31, 2008), write-off of deferred financing costs of $0.8 million as a
result of the reclassification of amounts owed under the Credit Facility to
current liabilities, and approximately $0.3 million in stock-based compensation
costs.  Excluding these non-cash costs, the net loss would be
approximately $1.6 million.  In addition, we incurred over $0.4
million of non-recurring cash costs; excluding these charges our net loss would
be approximately $1.6 million which includes depreciation expense of $2.5
million.





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





February
            March
            April
            May
            June
            July
            August
            September
            OctoberBest
      Well Service
            100%
            100%
            100%
            100%
            100%
            100%
            100%
            100%
            100%Beeman
      Drilling
            3%
            8%
            11%
            24%
            30%
            30%
            37%
            28%
            23%American
      Rig Housing
            15%
            15%
            15%
            23%
            26%
            28%
            23%
            25%
            24%





Beeman
Drilling’s municipal water well and mineral core hole drilling experienced
seasonal lows in the first quarter of 2008.  Even with very low initial
utilization rates, Beeman earned $3.2 million in revenue during the nine months
ended October 31, 2008 compared with approximately $2.6 million during the nine
months ended October 31, 2007  (prior to its acquisition by Best
Energy).  We entered into the mud-logging market in the third quarter
of 2008.  Revenue associated with our mud-logging services was $0.3
million for the third quarter of 2008.







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





Revenues
were $7.0 million for the three months ended October 31, 2008 compared with no
revenue for the three months ended October 31, 2007. The increase of $7.0
million was primarily the result of the acquisitions of BWS and BBD in February
2008.





Operating
Expenses were $7.6 million for the three months ended October 31, 2008
compared with $11,594 for the three months ended October 31, 2007 resulting in
an increase of $7.6 million.  This increase was primarily as result of
the acquisitions of BWS and BBD in February 2008.





Net loss from
operations was $0.6 million for the three months ended October 31, 2008
compared with a net loss of $11,594 for the three months ended October 31, 2007
resulting in increased loss of $0.6 million.  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 October 31, 2008
were $1.2 million compared with expense of $11,594 for the three month period
ended October 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. During the three month period ended
October 31, 2008, we expended overhead costs in attempting to reequip and
redeploy BBD equipment into oil and gas drilling activities outside Moab, Utah.
Following the change in management instituted on October 13, 2008 we determined
that such efforts were not and would not be profitable and all such efforts were
immediately terminated.





Interest
expense increased by $1.2 million for the three month period ended
October 31, 2008, compared with the three month period ended October 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 $1.7 million or $0.10 per common share after accrued preferred dividends for
the three months ended October 31, 2008 compared with a net loss of $18,020 or
$0.00 per share for the three months ended October 31, 2007 resulting in an
increased loss of $1.7 million.   Included in the loss is the
amortization of deferred financing costs of $0.8 million primarily related to
the reclassification of amounts owed under the Credit Facility to current
liabilities.  Excluding these non-cash costs the loss is approximately
$0.9 million.  In addition, depreciation expense of $0.9 million is
included in the net loss.








Liquidity
and Capital Resources




Historical
Cash Flows






The
following table summarizes our cash flows for the nine months ended October 31,
2008 and 2007:




Nine Months
      Ended October 31,2008
            
            2007Net
      cash provided by (used in) operating activities
            
            $
            59,364
            
            
            $
            (63,762
            )Cash
      paid for capital expenditures
            
            
            (894,814
            )
            
            
            -Proceeds
      from disposal of property and equipment
            
            
            17,412
            
            
            
            -Acquisitions,
      net of cash acquired
            
            
            (31,269,578
            )
            
            
            -Proceeds
      from the issuance of Units in private placement
            
            
            11,848,080
            
            
            
            -Repayments
      of indebtedness other than Credit Facility
            
            
            (5,809
            )
            
            
            -Net
      borrowings under Credit Facility
            
            
            21,396,622
            
            
            
            -Cash
      paid for deferred financing cost
            
            
            (921,066
            )
            
            
            -Net
      increase (decrease) in cash and cash equivalents
            
            $
            230,211
            
            
            $
            (63,762
            )




Sources
of Liquidity






Our
sources of liquidity include our current cash and cash equivalents, availability
under our Credit Facility, sales of our capital stock and internally generated
cash flows from operations.









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 $25.0 million
at 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 the lesser of (a) $5,850,000 and (b) 80% of the orderly
liquidation value of certain equipment and machinery of BBD and Best, are
amortized and must be repaid on a 60 month amortization schedule, with an annual
recapture of an amount that is the greater of (a) 25% of excess cash flow and
(b) all payments made to holders of shares of Series A Preferred Stock since
January 1, 2008, 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. 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 we acquired from BB Drilling, DSS,
and ARH.  The Credit Facility is due on February 14,
2012.




In order
to fund our acquisition of BWS and BBD, we drew approximately $15.1 million on
the revolving portion of the Credit Facility and approximately $2.9 million on
the term loan portion of the Credit Facility.  We drew an additional
$3.0 million to close the acquisition of BB Drilling and DSS.  We have
drawn on the revolving credit portion of the Credit Facility as necessary for
working capital purposes and repaid principal on the Credit Facility with
collections on accounts receivable. As of October 31, 2008 we have repaid $0.8
million of principal under the term loan portion of the Credit
Facility.





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:





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 2008 and the reoccurrence
of very low seasonal utilization of rigs by BBD, we were not in compliance with
the leverage ratio as of our last report to PNC Bank.  We report our
ratios to PNC Bank based on a calendar quarter.  As of September 30,
2008, our fixed charge coverage ratio was 1.60 to 1.00 and our leverage ratio
was 4.94 to 1.00.  Due to our technical default on these loan
covenants, PNC Bank could choose to accelerate the due date of any or all
payments owed under the Credit Facility; although they have not notified us of
their intent to do so.  We have been in discussions with PNC Bank to
amend the ratio tests in the loan documents.  This amendment is
expected to be completed by year end 2008, although there is no assurance that
this will occur.  As a result, we have reclassified all debt
outstanding under the Credit Facility to current liabilities as of October 31,
2008.  We also wrote off unamortized deferred financing costs in the
amount of $789,564 due to the reclassification of the Credit Facility to current
liabilities.





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 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 $1.5 million 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.





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.








Our
availability under the Credit Facility as of October 31, 2008 was
approximately $0.8 million.





In
addition, to fund our acquisitions 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.








Off-Balance
Sheet Arrangements





As of
October 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.





Contractual
Obligations





Tabular
Disclosure of Contractual Obligations





Over the NextFive Years
            
            
            12
      MonthsNotes
      Payable
            
            $
            21,815,765
            
            
            $
            21,815,765Operating
      Leases
            
            
            519,250
            
            
            
            155,000Employment/Consultant
      Contracts
            
            
            160,000
            
            
            
            160,000Total
            
            $
            22,495,015
            
            
            $
            22,130,765





Our
Series A Preferred Stock must be redeemed using not less than 25% of our net
income after tax each year.  For the nine months ended October 31,
2008, we did not have positive net income after tax and did not redeem any
outstanding shares of Series A Preferred Stock.





Disclosure
Regarding Forward-Looking Statements





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





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





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








Item
3. Quantitative and Qualitative Disclosures about Market Risk





Not
required for smaller reporting companies.





Item
4. Controls and Procedures





(a)
Evaluation of Disclosure Controls and Procedures





We
carried out an evaluation, under the supervision and with the participation of
our management, including our principal executive officer and principal
financial officer, of the effectiveness of our disclosure controls and
procedures as of October 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 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





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










PART
II




Item 1. Legal Proceedings





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




Item 1A. Risk Factors





Not
required for smaller reporting companies.





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





None.




Item 3. Defaults Upon Senior Securities





None.




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





None.




Item 5. Other Information





None.





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:
      December 22, 2008BEST
      ENERGY SERVICES, INC./s/
      Mark HarringtonMark
      HarringtonChief
      Executive Officer and Principal Accounting Officer