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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





Form 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2010

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission file number 333-150853-4





Forbes Energy
Services Ltd.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Bermuda                                                        |  | 98-0581100                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                               | 
|3000 South Business Highway 281
Alice, Texas                   |  | 78332                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code:

(361) 664-0549





Indicate by
check mark whether the registrant (1) has 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 registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90
days.     ̈  Yes    x  No

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|  |  |                                                                     |  |   |  |                          
|- |  | ------------------------------------------------------------------- |  | - |  | -------------------------
| ̈ |  | Large accelerated filer                                             |  |  ̈ |  | Accelerated filer        
|  |  |                                                                     | 
|x |  | Non-accelerated filer (Do not check if a smaller reporting company) |  |  ̈ |  | Smaller reporting company

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

Shares outstanding of each of the registrants classes of common stock as of August 14, 2010:



|                             |  |                                  
|---------------------------- |  | ---------------------------------
|Class                        |  | Outstanding as of August 14, 2010
|Common Stock, $.01 par value |  | 83,673,700                       









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FORBES ENERGY SERVICES LTD. AND SUBSIDIARIES (a/k/a the Forbes Group)

TABLE OF CONTENTS



|                               |  |                                                                                       |  |     
|------------------------------ |  | ------------------------------------------------------------------------------------- |  | ----
|                               |  |                                                                                       |  | Page
|Part I  Financial Information |  |                                                                                      
|Item 1.                        |  | Condensed Consolidated Financial Statements                                           |  | 5   
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 32  
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 42  
|Item 4T.                       |  | Controls and Procedures                                                               |  | 43  
|                               | 
|Part II  Other Information    |  |                                                                                      
|Item 1.                        |  | Legal Proceedings                                                                     |  | 45  
|Item 1A.                       |  | Risk Factors                                                                          |  | 45  
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 45  
|Item 3.                        |  | Defaults Upon Senior Securities                                                       |  | 45  
|Item 4.                        |  | Reserved                                                                              |  | 45  
|Item 5.                        |  | Other Information                                                                     |  | 45  
|Item 6.                        |  | Exhibits                                                                              |  | 45  
|Signatures                     |  | 48                                                                                   



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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and any oral statements made in connection with it include certain forward-looking statements within
the meaning of the federal securities laws. You can generally identify forward-looking statements by the appearance in such a statement of words like anticipate, believe, continue, could,
estimate, expect, intend, may, plan, potential, predict, project, should or will or other comparable words or the negative of
these words. When you consider our forward-looking statements, you should keep in mind the risk factors we describe and other cautionary statements we make in this Quarterly Report on Form 10-Q. Our forward-looking statements are only predictions
based on expectations that we believe are reasonable. Our actual results could differ materially from those anticipated in, or implied by, these forward-looking statements as a result of known risks and uncertainties set forth below and elsewhere in
this Quarterly Report on Form 10-Q. These factors include or relate to the following:



| |  |  | supply and demand for oilfield services and industry activity levels;
| | - |  | ---------------------------------------------------------------------



| |  |  | potential for excess capacity;
| | - |  | ------------------------------



| |  |  | spending by the oil and natural gas industry given the recent worldwide economic downturn;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | our level of indebtedness in the current depressed market;
| | - |  | ----------------------------------------------------------



| |  |  | impairment of our long-lived assets;
| | - |  | ------------------------------------



| |  |  | our ability to maintain stable pricing;
| | - |  | ---------------------------------------



| |  |  | competition;
| | - |  | ------------



| |  |  | substantial capital requirements;
| | - |  | ---------------------------------



| |  |  | significant operating and financial restrictions under our indentures;
| | - |  | ----------------------------------------------------------------------



| |  |  | technological obsolescence of operating equipment;
| | - |  | --------------------------------------------------



| |  |  | dependence on certain key employees;
| | - |  | ------------------------------------



| |  |  | concentration of customers;
| | - |  | ---------------------------



| |  |  | substantial additional costs of compliance with reporting obligations, the Sarbanes-Oxley Act and indenture requirements;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | material weaknesses in internal controls over financial reporting;
| | - |  | ------------------------------------------------------------------



| |  |  | seasonality of oilfield services activity;
| | - |  | ------------------------------------------



| |  |  | dependence on equipment suppliers not party to written contracts;
| | - |  | -----------------------------------------------------------------



| |  |  | collection of accounts receivable;
| | - |  | ----------------------------------



| |  |  | environmental and other governmental regulation, including potential climate change legislation;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | the potential disruption of business activities caused by the physical effects, if any, of climate change;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | risks inherent in our operations;
| | - |  | ---------------------------------



| |  |  | market response to global demands to curtail use of oil and natural gas;
| | - |  | ------------------------------------------------------------------------



| |  |  | change of control;
| | - |  | ------------------



| |  |  | conflicts of interest between the principal equity investors and noteholders;
| | - |  | -----------------------------------------------------------------------------



| |  |  | results of legal proceedings;
| | - |  | -----------------------------



| |  |  | ability to fully integrate future acquisitions;
| | - |  | -----------------------------------------------



| |  |  | variation from projected operating and financial data;
| | - |  | ------------------------------------------------------



| |  |  | variation from budgeted and projected capital expenditures;
| | - |  | -----------------------------------------------------------



| |  |  | volatility of global financial markets;
| | - |  | ---------------------------------------



| |  |  | risk associated with our foreign operations;
| | - |  | --------------------------------------------



| |  |  | risks associated with contracts; and
| | - |  | ------------------------------------



| |  |  | the other factors discussed under Risk Factors.
| | - |  | -------------------------------------------------

We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or
otherwise. To the extent these risks, uncertainties and assumptions give rise to events that vary from our expectations, the forward-looking events discussed in this Quarterly Report on Form 10-Q may not occur. All



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forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. The above description of risks and uncertainties is by no means all-inclusive, but is
designed to highlight what we believe are important factors to consider.



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PART I  FINANCIAL INFORMATION



|Item 1. | Condensed Consolidated Financial Statements
|------- | -------------------------------------------

Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Condensed Consolidated Balance Sheets (unaudited)



|                                                                                                                                                             |  |              |             |   |                  |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                             |  | June 30,2010 |             |   | December 31,2009 |  
|Assets                                                                                                                                                       |  |              |             |   |                  |   |             |  
|Current assets                                                                                                                                               |  |              |             |   |                  |   |             |  
|Cash and cash equivalents                                                                                                                                    |  | $            | 16,509,774  |   |                  | $ | 28,425,367  |  
|Restricted cash                                                                                                                                              |  |              | 2,870,843   |   |                  |   | 2,932,279   |  
|Accounts receivable  trade, net                                                                                                                             |  |              | 80,034,811  |   |                  |   | 52,765,601  |  
|Accounts receivable  related parties                                                                                                                        |  |              | 222,489     |   |                  |   | 168,940     |  
|Accounts receivable  other                                                                                                                                  |  |              | 5,202,909   |   |                  |   | 5,159,324   |  
|Prepaid expenses                                                                                                                                             |  |              | 2,836,674   |   |                  |   | 3,857,527   |  
|Other current assets                                                                                                                                         |  |              | 869,687     |   |                  |   | 879,167     |  
|                                                                                                                                                             |  |              |             |   |                  |   |             |  
|Total current assets                                                                                                                                         |  |              | 108,547,187 |   |                  |   | 94,188,205  |  
|Property and equipment, net                                                                                                                                  |  |              | 291,549,059 |   |                  |   | 308,559,885 |  
|Intangible assets, net                                                                                                                                       |  |              | 35,168,183  |   |                  |   | 36,598,781  |  
|Deferred financing costs, net                                                                                                                                |  |              | 9,992,081   |   |                  |   | 11,453,830  |  
|Restricted cash                                                                                                                                              |  |              | 6,649,973   |   |                  |   | 6,560,225   |  
|Other assets                                                                                                                                                 |  |              | 48,929      |   |                  |   | 71,970      |  
|                                                                                                                                                             |  |              |             |   |                  |   |             |  
|Total assets                                                                                                                                                 |  | $            | 451,955,412 |   |                  | $ | 457,432,896 |  
|                                                                                                                                                             |  |              |             |   |                  |   |             |  
|                                                                                                                                                             |  |             
|Liabilities and Equity                                                                                                                                       |  |              |             |   |                  |   |             |  
|Current liabilities                                                                                                                                          |  |              |             |   |                  |   |             |  
|Current maturities of long-term debt                                                                                                                         |  | $            | 3,221,261   |   |                  | $ | 12,432,900  |  
|Accounts payable  trade                                                                                                                                     |  |              | 24,315,817  |   |                  |   | 23,375,729  |  
|Accounts payable  related parties                                                                                                                           |  |              | 1,052,552   |   |                  |   | 899,102     |  
|Accrued interest payable                                                                                                                                     |  |              | 8,941,757   |   |                  |   | 8,928,970   |  
|Accrued expenses                                                                                                                                             |  |              | 18,688,504  |   |                  |   | 14,201,278  |  
|                                                                                                                                                             |  |              |             |   |                  |   |             |  
|Total current liabilities                                                                                                                                    |  |              | 56,219,891  |   |                  |   | 59,837,979  |  
|Long-term debt                                                                                                                                               |  |              | 213,519,583 |   |                  |   | 214,465,329 |  
|Deferred tax liability                                                                                                                                       |  |              | 30,808,677  |   |                  |   | 36,622,111  |  
|                                                                                                                                                             |  |              |             |   |                  |   |             |  
|Total liabilities                                                                                                                                            |  |              | 300,548,151 |   |                  |   | 310,925,419 |  
|                                                                                                                                                             |  |              |             |   |                  |   |             |  
|Commitments and contingencies (Note 10)                                                                                                                      |  |              |             |   |                  |   |             |  
|Temporary Equity                                                                                                                                             |  |              |             |   |                  |   |             |  
|Series B senior convertible preferred shares                                                                                                                 |  |              | 14,293,557  |   |                  |   |            |  
|                                                                                                                                                             |  |              |             |   |                  |   |             |  
|                                                                                                                                                             |  |             
|Shareholders equity                                                                                                                                         |  |              |             |   |                  |   |             |  
|Preference shares, $.01 par value, 10,000,000 shares authorized, none issued and outstanding at June 30, 2010 and
December 31, 2009                          |  |              |            |   |                  |   |            |  
|Common shares, $.01 par value, 450,000,000 shares authorized, 83,673,700 and 54,173,700 shares issued and outstanding at
June 30, 2010 and December 31, 2009 |  |              | 836,737     |   |                  |   | 541,737     |  
|Class B shares, $.01 par value, 40,000,000 shares authorized, none and 29,500,000 shares issued and outstanding at June 30,
2010 and December 31, 2009       |  |              |            |   |                  |   | 295,000     |  
|Additional paid-in capital                                                                                                                                   |  |              | 184,899,217 |   |                  |   | 183,880,128 |  
|Accumulated deficit                                                                                                                                          |  |              | (48,622,250 | ) |                  |   | (38,209,388 | )
|                                                                                                                                                             |  |              |             |   |                  |   |             |  
|Total shareholders equity                                                                                                                                   |  |              | 137,113,704 |   |                  |   | 146,507,477 |  
|                                                                                                                                                             |  |              |             |   |                  |   |             |  
|Total liabilities and equity                                                                                                                                 |  | $            | 451,955,412 |   |                  | $ | 457,432,896 |  
|                                                                                                                                                             |  |              |             |   |                  |   |             |  

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



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Condensed Consolidated Statements of Operations (unaudited)



|                                                                   |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|------------------------------------------------------------------ |  | --------------------------- | ---------- | - | ------------------------- | - | ----------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                                                   |  | Three Months Ended June 30, |            |   | Six Months Ended June 30, |  
|                                                                   |  | 2010                        |            |   | 2009                      |   |             | 2010 |  |   | 2009        |  
|Revenues                                                           |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Well servicing                                                     |  | $                           | 39,650,732 |   |                           | $ | 25,515,071  |      |  | $ | 70,673,592  |   |  | $ | 57,054,079  |  
|Fluid logistics                                                    |  |                             | 40,393,056 |   |                           |   | 24,237,506  |      |  |   | 76,633,923  |   |  |   | 56,129,880  |  
|                                                                   |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Total revenues                                                     |  |                             | 80,043,788 |   |                           |   | 49,752,577  |      |  |   | 147,307,515 |   |  |   | 113,183,959 |  
|                                                                   |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|                                                                   |  |                             |            |  
|Expenses                                                           |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Well servicing                                                     |  |                             | 28,711,618 |   |                           |   | 23,720,892  |      |  |   | 57,359,936  |   |  |   | 50,116,601  |  
|Fluid logistics                                                    |  |                             | 32,026,780 |   |                           |   | 19,928,066  |      |  |   | 60,291,619  |   |  |   | 43,159,687  |  
|General and administrative                                         |  |                             | 6,552,668  |   |                           |   | 3,896,576   |      |  |   | 12,211,812  |   |  |   | 9,670,455   |  
|Depreciation and amortization                                      |  |                             | 9,914,028  |   |                           |   | 9,774,963   |      |  |   | 19,838,092  |   |  |   | 19,466,335  |  
|                                                                   |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Total expenses                                                     |  |                             | 77,205,094 |   |                           |   | 57,320,497  |      |  |   | 149,701,459 |   |  |   | 122,413,078 |  
|                                                                   |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Operating income (loss)                                            |  |                             | 2,838,694  |   |                           |   | (7,567,920  | )    |  |   | (2,393,944  | ) |  |   | (9,229,119  | )
|                                                                   |  |                             |            |  
|Other income (expense)                                             |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Interest expense, net                                              |  |                             | (6,894,946 | ) |                           |   | (6,406,311  | )    |  |   | (13,742,677 | ) |  |   | (13,059,988 | )
|Gain on early extinguishment of debt                               |  |                             | 18,591     |   |                           |   | 447,842     |      |  |   | 18,591      |   |  |   | 1,421,750   |  
|Other income (expense)                                             |  |                             | (16,511    | ) |                           |   | 8,084       |      |  |   | (108,266    | ) |  |   | 34,617      |  
|                                                                   |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Loss before taxes                                                  |  |                             | (4,054,172 | ) |                           |   | (13,518,305 | )    |  |   | (16,226,296 | ) |  |   | (20,832,740 | )
|                                                                   |  |                             |            |  
|Income tax benefit                                                 |  |                             | (1,812,826 | ) |                           |   | (4,480,569  | )    |  |   | (5,813,434  | ) |  |   | (7,259,514  | )
|                                                                   |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Net loss                                                           |  |                             | (2,241,346 | ) |                           |   | (9,037,736  | )    |  |   | (10,412,862 | ) |  |   | (13,573,226 | )
|Preferred shares dividends                                         |  |                             | (63,957    | ) |                           |   |            |      |  |   | (63,957     | ) |  |   |            |  
|                                                                   |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Net loss attributable to common shareholders                       |  | $                           | (2,305,303 | ) |                           | $ | (9,037,736  | )    |  | $ | (10,476,819 | ) |  | $ | (13,573,226 | )
|                                                                   |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|                                                                   |  |                             |            |  
|Loss per share of common stock attributable to common shareholders |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Basic and diluted                                                  |  | $                           | (0.03      | ) |                           | $ | (0.15       | )    |  | $ | (0.13       | ) |  | $ | (0.22       | )
|Weighted average number of shares outstanding                      |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Basic and diluted                                                  |  |                             | 83,673,700 |   |                           |   | 62,111,200  |      |  |   | 83,673,700  |   |  |   | 62,111,200  |  

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



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Condensed Consolidated Statements of Changes in Shareholders Equity (unaudited)



|                                                          |        |               |        |                    |         |  |             |             |   |                     |        |             |   |  |   |             |  
|--------------------------------------------------------- | ------ | ------------- | ------ | ------------------ | ------- |  | ----------- | ----------- | - | ------------------- | ------ | ----------- | - |  | - | ----------- | -
|                                                          |        | Capital Stock |        | Additional
Paid-In |         |  | Accumulated |             |   | Total
Shareholders |       
|                                                          | Shares |               | Amount |                    | Capital |  |             | Deficit     |   |                     | Equity |            
|Balance December 31, 2009                                 |        | 83,673,700    |        | $                  | 836,737 |  | $           | 183,880,128 |   |                     | $      | (38,209,388 | ) |  | $ | 146,507,477 |  
|Share-based compensation                                  |        |              |        |                    |        |  |             | 1,244,839   |   |                     |        |            |   |  |   | 1,244,839   |  
|Net loss                                                  |        |              |        |                    |        |  |             |            |   |                     |        | (10,412,862 | ) |  |   | (10,412,862 | )
|Preferred shares dividends, accretion, and offering costs |        |              |        |                    |        |  |             | (225,750    | ) |                     |        |            |   |  |   | (225,750    | )
|                                                          |        |               |        |                    |         |  |             |             |   |                     |        |             |   |  |   |             |  
|Balance June 30, 2010                                     |        | 83,673,700    |        | $                  | 836,737 |  | $           | 184,899,217 |   |                     | $      | (48,622,250 | ) |  | $ | 137,113,704 |  
|                                                          |        |               |        |                    |         |  |             |             |   |                     |        |             |   |  |   |             |  

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



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Condensed Consolidated Statements of Cash Flows (unaudited)



|                                                                                         |  |                                     |             |   |                                   |   |             |      |  |   |             |   |  |   |             |  
|---------------------------------------------------------------------------------------- |  | ----------------------------------- | ----------- | - | --------------------------------- | - | ----------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                                                                         |  | For the Three 
MonthsEnded June 30, |             |   | For the Six 
MonthsEnded June 30, |  
|                                                                                         |  | 2010                                |             |   | 2009                              |   |             | 2010 |  |   | 2009        |  
|Cash flows from operating activities                                                     |  |                                     |             |   |                                   |   |             |      |  |   |             |   |  |   |             |  
|Net loss                                                                                 |  | $                                   | (2,241,346  | ) |                                   | $ | (9,037,736  | )    |  | $ | (10,412,862 | ) |  | $ | (13,573,226 | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities |  |                                     |             |   |                                   |   |             |      |  |   |             |   |  |   |             |  
|Depreciation expense                                                                     |  |                                     | 9,198,729   |   |                                   |   | 9,059,664   |      |  |   | 18,407,494  |   |  |   | 18,035,737  |  
|Amortization expense                                                                     |  |                                     | 715,299     |   |                                   |   | 715,299     |      |  |   | 1,430,598   |   |  |   | 1,430,598   |  
|Amortization of Second Priority Notes OID                                                |  |                                     | 281,863     |   |                                   |   | 209,327     |      |  |   | 451,591     |   |  |   | 447,375     |  
|Share-based compensation                                                                 |  |                                     | 622,419     |   |                                   |   | 622,418     |      |  |   | 1,244,839   |   |  |   | 1,247,155   |  
|Deferred tax benefit                                                                     |  |                                     | (1,627,202  | ) |                                   |   | (4,466,168  | )    |  |   | (5,813,434  | ) |  |   | (7,392,548  | )
|(Gain)/loss on disposal of assets, net                                                   |  |                                     | 25,278      |   |                                   |   | (27,682     | )    |  |   | 109,850     |   |  |   | (84,986     | )
|Gain on early extinguishment of debt                                                     |  |                                     | (18,591     | ) |                                   |   | (447,842    | )    |  |   | (18,591     | ) |  |   | (1,421,750  | )
|Bad debt expense                                                                         |  |                                     | 600,000     |   |                                   |   | 1,246,495   |      |  |   | 902,118     |   |  |   | 2,333,086   |  
|Amortization of deferred financing cost                                                  |  |                                     | 554,363     |   |                                   |   | 470,085     |      |  |   | 1,114,838   |   |  |   | 914,307     |  
|Changes in operating assets and liabilities                                              |  |                                     |             |   |                                   |   |             |      |  |   |             |   |  |   |             |  
|Accounts receivable                                                                      |  |                                     | (17,459,014 | ) |                                   |   | 9,209,440   |      |  |   | (28,214,913 | ) |  |   | 25,166,534  |  
|Accounts receivable - related party                                                      |  |                                     | (32,845     | ) |                                   |   | (22,551     | )    |  |   | (53,549     | ) |  |   | (42,737     | )
|Prepaid expenses and other current assets                                                |  |                                     | 887,895     |   |                                   |   | 2,672,965   |      |  |   | 1,053,373   |   |  |   | 2,073,711   |  
|Accounts payable - trade                                                                 |  |                                     | 555,478     |   |                                   |   | (1,472,882  | )    |  |   | 2,678,318   |   |  |   | 1,005,938   |  
|Accounts payable - related party                                                         |  |                                     | (262,826    | ) |                                   |   | 142,839     |      |  |   | 153,450     |   |  |   | 187,481     |  
|Accrued expenses                                                                         |  |                                     | 2,327,189   |   |                                   |   | (1,256,668  | )    |  |   | 4,487,227   |   |  |   | (2,691,150  | )
|Income taxes payable                                                                     |  |                                     |            |   |                                   |   | (661,241    | )    |  |   |            |   |  |   | (513,806    | )
|Accrued interest payable                                                                 |  |                                     | 5,670,214   |   |                                   |   | 5,301,917   |      |  |   | (101,387    | ) |  |   | (194,799    | )
|                                                                                         |  |                                     |             |   |                                   |   |             |      |  |   |             |   |  |   |             |  
|Net cash provided by (used in) operating activities                                      |  |                                     | (203,097    | ) |                                   |   | 12,257,679  |      |  |   | (12,581,040 | ) |  |   | 26,926,920  |  
|                                                                                         |  |                                     |             |   |                                   |   |             |      |  |   |             |   |  |   |             |  
|Cash flows from investing activities                                                     |  |                                     |             |   |                                   |   |             |      |  |   |             |   |  |   |             |  
|Insurance proceeds                                                                       |  |                                     |            |   |                                   |   | 834,549     |      |  |   |            |   |  |   | 1,660,630   |  
|Restricted cash                                                                          |  |                                     | (13,294     | ) |                                   |   |            |      |  |   | (28,312     | ) |  |   |            |  
|Purchase of property and equipment                                                       |  |                                     | (1,512,468  | ) |                                   |   | (11,198,345 | )    |  |   | (3,244,749  | ) |  |   | (19,139,608 | )
|                                                                                         |  |                                     |             |   |                                   |   |             |      |  |   |             |   |  |   |             |  
|Net cash used in investing activities                                                    |  |                                     | (1,525,762  | ) |                                   |   | (10,363,796 | )    |  |   | (3,273,061  | ) |  |   | (17,478,978 | )
|                                                                                         |  |                                     |             |   |                                   |   |             |      |  |   |             |   |  |   |             |  
|Cash flows from financing activities                                                     |  |                                     |             |   |                                   |   |             |      |  |   |             |   |  |   |             |  
|Repayment of debt                                                                        |  |                                     | (1,627,970  | ) |                                   |   | (1,479,613  | )    |  |   | (3,358,975  | ) |  |   | (2,934,637  | )
|Borrowings under Credit Facility                                                         |  |                                     |            |   |                                   |   |            |      |  |   |            |   |  |   | 12,000,000  |  
|Proceeds from issuance of preferred stock                                                |  |                                     | 14,229,600  |   |                                   |   |            |      |  |   | 14,229,600  |   |  |   |            |  
|Retirement of Second Priority Notes                                                      |  |                                     | (6,778,750  | ) |                                   |   | (1,400,000  | )    |  |   | (6,778,750  | ) |  |   | (3,415,000  | )
|Other                                                                                    |  |                                     | (161,793    | ) |                                   |   |            |      |  |   | (153,367    | ) |  |   | (4,294      | )
|                                                                                         |  |                                     |             |   |                                   |   |             |      |  |   |             |   |  |   |             |  
|Net cash provided by (used in) financing activities                                      |  |                                     | 5,661,087   |   |                                   |   | (2,879,613  | )    |  |   | 3,938,508   |   |  |   | 5,646,069   |  
|                                                                                         |  |                                     |             |   |                                   |   |             |      |  |   |             |   |  |   |             |  
|                                                                                         |  |                                     |             |  
|Net increase (decrease) in cash and cash equivalents                                     |  |                                     | 3,932,228   |   |                                   |   | (985,730    | )    |  |   | (11,915,593 | ) |  |   | 15,094,011  |  
|Cash and cash equivalents                                                                |  |                                     |             |   |                                   |   |             |      |  |   |             |   |  |   |             |  
|Beginning of period                                                                      |  |                                     | 12,577,546  |   |                                   |   | 39,548,808  |      |  |   | 28,425,367  |   |  |   | 23,469,067  |  
|                                                                                         |  |                                     |             |   |                                   |   |             |      |  |   |             |   |  |   |             |  
|End of period                                                                            |  | $                                   | 16,509,774  |   |                                   | $ | 38,563,078  |      |  | $ | 16,509,774  |   |  | $ | 38,563,078  |  
|                                                                                         |  |                                     |             |   |                                   |   |             |      |  |   |             |   |  |   |             |  

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



8



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##### Table of Contents

Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements

1. Organization and Nature of Operations

Nature of Business

Forbes Energy Services Ltd. (FES Ltd) and its subsidiaries, Forbes Energy Services LLC (FES LLC), Forbes Energy
Capital Inc. (FES CAP), C.C. Forbes, LLC (CCF), TX Energy Services, LLC (TES), Superior Tubing Testers, LLC (STT) and Forbes Energy International, LLC (FEI LLC) are headquartered in Alice,
Texas, and conduct business primarily in the state of Texas. On October 15, 2008, FES LLC and FEI LLC formed Forbes Energy Services México, S. de R.L. de C.V. (FES Mexico), a Mexican limited liability partnership (sociedad de
responsabilidad limitada de capital variable), to conduct operations in Mexico. On December 3, 2008, Forbes Energy Services Mexico Servicios de Personal, S. de R.L de C. V. was formed to provide employee services to FES Mexico, and on
June 8, 2009, FES Ltd formed a branch in Mexico. As used in these condensed consolidated financial statements, the Company, the Forbes Group, we, or our means FES Ltd and all its direct and
indirect subsidiaries.

The Forbes Group is an independent oilfield services contractor that provides a wide range of well
site services to oil and natural gas drilling and producing companies to help develop and enhance the production of oil and natural gas. These services include fluid hauling, fluid disposal, well maintenance, completion services, workovers and
recompletions, plugging and abandonment, and tubing testing. The Forbes Groups operations are concentrated in the major onshore oil and natural gas producing regions of Texas, with locations in Baxterville, Mississippi, Washington,
Pennsylvania and Poza Rica, Mexico.

2. Risk and Uncertainties

As an independent oilfield services contractor that provides a broad range of drilling-related and production-related services to oil and
natural gas companies, primarily onshore in Texas, our revenue, profitability, cash flows and future rate of growth are substantially dependent on our ability to (1) maintain adequate equipment utilization, (2) maintain adequate pricing
for the services we provide, and (3) maintain a trained work force. Failure to do so could adversely affect our financial position, results of operations, and cash flows.

Because our revenues are generated primarily from customers who are subject to the same factors generally impacting the oil and natural
gas industry, our operations are also susceptible to market volatility resulting from economic, cyclical, weather related or other factors related to such industry. Changes in the level of operating and capital spending in the industry, decreases in
oil and natural gas prices, or industry perception about future oil and natural gas prices could materially decrease the demand for our services, adversely affecting our financial position, results of operations and cash flows.

3. Basis of Presentation

Interim Financial Information

The unaudited condensed consolidated financial statements of the Forbes Group are prepared in conformity with accounting principles
generally accepted in the United States of America, or GAAP. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. Therefore, these consolidated
financial statements should be read along with the annual audited consolidated financial statements and notes thereto included in Forbes Groups Annual Report on Form 10-K for the year ended December 31, 2009. In managements opinion,
all adjustments necessary for a fair statement are reflected in the interim periods presented. Interim results for the three and six months ended June 30, 2010 may not be indicative of results that will be realized for the full year ending
December 31, 2010. All significant intercompany accounts and transactions have been eliminated in consolidation.

Transactions that are denominated in a currency other than the functional currency are remeasured into the functional currency each
reporting period. Transaction gains and losses that arise from exchange rate fluctuations on transactions and balances denominated in a currency other than the functional currency are included in the results of operations and cash flows as incurred.

Use of Estimates

The preparation of these consolidated financial statements in conformity with GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Management believes that these estimates and assumptions provide a reasonable basis for the fair statement of the condensed consolidated financial statements.



9



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##### Table of Contents

Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



Correction of an Error

During the quarter ended June 30, 2010, the Company discovered and corrected an accounting error related to the recording of revenues
and expenses in its Mexico operations during the quarters ended December 31, 2009 and March 31, 2010. The error resulted in a misstatement of revenue and operating expenses with corresponding errors in accounts receivable  trade, net
and accrued liabilities. The cumulative correction was recorded during the quarter ended June 30, 2010 and decreased revenue and accounts receivable by $1.2 million and decreased operating expense and accrued liabilities by approximately $0.9
million resulting in a net impact of approximately $0.3 million of pre-tax loss.

The Company evaluated the correction of
these errors based on the expected operating results for the year ending December 31, 2010 and based on historical operating results for the year ended December 31, 2009 in accordance with Accounting Standards Codification 250-10-45-27
Materiality Determination for Correction of an Error and Staff Accounting Bulletin No.99, Materiality. The amount of the adjustments, when compared to the operating results for the year ended December 31, 2009, or on any trend of
losses, is not considered by management to be material. In addition, the Company believes that investors would not consider the amount of the adjustments to be material and, therefore, would not have significantly impacted their investment decisions
about the Company.

Differences Between US GAAP and Canadian GAAP

The financial statements in this report have been prepared in accordance with generally accepted accounting principles in the United
States or U.S. GAAP, and the reporting currency is the U.S. dollar. U.S. GAAP conforms in most respects to generally accepted accounting principles in Canada, or Canadian GAAP except for the following:



| |  |  | In accordance with U.S. GAAP, debt issuance costs are classified as other assets on the condensed consolidated balance sheet of the Company. Under
Canadian GAAP, debt issuance costs are netted with debt in the balance sheet. For U.S. and Canadian GAAP, debt issuance costs are amortized over the period of the loan agreement as a component of interest expense and any differences in the
calculation are immaterial.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In accordance with U.S. GAAP, the $14.3 million of Series B Senior Convertible Preferred Shares are classified as temporary equity on the condensed
consolidated balance sheet of the Company. Under Canadian GAAP, the value of Series B Preferred Shares would be bifurcated, allocating the fair value of the conversion feature of the Series B Preferred Shares, initially estimated by the Company
as $2.7 million, to Shareholders Equity, and the remaining balance, of $11.5 million to long-term liability. The liability portion would then be accreted each period, using the effective interest rate method, in amounts which will
increase the liability to its full face amount of the convertible instrument as of the maturity date, with the accretion recorded as interest expense. This difference would not have material impact on the operations or cash flows of the condensed
consolidated financial statements of the Company in this report.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recently Adopted Accounting
Pronouncements

The FASB issued Accounting Standards Update (ASU) No. 2010-13, CompensationStock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This ASU codifies the consensus reached in EITF Issue No. 09-J,
Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. The amendments to the Codification clarify that an employee share-based payment award
with an exercise price denominated in the currency of a market in which a substantial portion of the entitys equity shares trades should not be considered to contain a condition that is not a market, performance, or service condition.
Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The company adopted this ASU as of January 1, 2010, and it did have any impact on the consolidated financial statements.

The FASB issued ASU No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure
Requirements. The amendments in the ASU remove the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include
financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. The FASB also clarified that if the financial statements have been revised, then an entity that is not an SEC filer should disclose
both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued. The adoption of this ASU did not have a material impact on the Companys
consolidated financial statements.

The FASB issued ASU No. 2010-06, Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification
Subtopic 820-10. The FASBs objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require:



| |  |  | A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and
describe the reasons for the transfers; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



| |  |  | In the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about
purchases, sales, issuances, and settlements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, ASU 2010-06 clarifies the requirements of the
following existing disclosures:



| |  |  | For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the
appropriate classes of assets and liabilities; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring
fair value measurements.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ASU 2010-06 is effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. The adoption of this ASU is not expected to have a material impact on the Companys consolidated financial statements.

4. Intangible Assets

The following sets forth the identified intangible assets by major asset class:



|                        |  |                     |  |                         |            |                         |   |               |  |                     |            |                         |   |               |  |   |           |  |   |           
|----------------------- |  | ------------------- |  | ----------------------- | ---------- | ----------------------- | - | ------------- |  | ------------------- | ---------- | ----------------------- | - | ------------- |  | - | --------- |  | - | ----------
|                        |  | As of June 30, 2010 |  | As of December 31, 2009
|                        |  | UsefulLife (years)  |  | Gross CarryingValue     |            | AccumulatedAmortization |   | Net BookValue |  | Gross CarryingValue |            | AccumulatedAmortization |   | Net BookValue
|Customer relationships  |  | 15                  |  | $                       | 31,895,919 |                         | $ | 5,315,986     |  | $                   | 26,579,933 |                         | $ | 31,895,919    |  | $ | 4,252,789 |  | $ | 27,643,130
|Trade name              |  | 15                  |  |                         | 8,049,750  |                         |   | 1,341,625     |  |                     | 6,708,125  |                         |   | 8,049,750     |  |   | 1,073,300 |  |   | 6,976,450 
|Safety training program |  | 15                  |  |                         | 1,181,924  |                         |   | 196,987       |  |                     | 984,937    |                         |   | 1,181,924     |  |   | 157,590   |  |   | 1,024,334 
|Dispatch software       |  | 10                  |  |                         | 1,135,282  |                         |   | 283,820       |  |                     | 851,462    |                         |   | 1,135,282     |  |   | 227,055   |  |   | 908,227   
|Other                   |  | 10                  |  |                         | 58,300     |                         |   | 14,574        |  |                     | 43,726     |                         |   | 58,300        |  |   | 11,660    |  |   | 46,640    
|                        |  |                     |  |                         |            |                         |   |               |  |                     |            |                         |   |               |  |   |           |  |   |           
|                        |  |                     |  | $                       | 42,321,175 |                         | $ | 7,152,992     |  | $                   | 35,168,183 |                         | $ | 42,321,175    |  | $ | 5,722,394 |  | $ | 36,598,781
|                        |  |                     |  |                         |            |                         |   |               |  |                     |            |                         |   |               |  |   |           |  |   |           

The Company expenses costs associated with extensions
or renewals of intangible assets. There were no such extensions or renewals in the three and six months ended June 30, 2010 and 2009. Amortization expense is calculated using the straight-line method over the period indicated. Aggregate
amortization expense of intangible assets for the three and six months ended June 30, 2010 was approximately $0.7 million and $1.4 million, respectively, and $0.7 million and $1.4 million for the three and six months ended June 30, 2009,
respectively. Amortization expense associated with identified intangible assets is expected to be approximately $2.9 million in each of the next five years. The weighted average amortization period remaining for intangible assets is 12.3 years.

5. Share-Based Compensation

From time to time, the Company grants stock options to its employees, including executive officers, and directors from its 2008 Incentive
Compensation Plan. Standard options vest over a three-year period, with approximately one third vesting on the first, second and third anniversaries of the date of grant. For most grantees, options expire at the earlier of either one year after the
termination of grantees employment by reason of death, disability or retirement, ninety days after termination of the grantees employment other than upon grantees death, disability or retirement, or ten years after the date of
grant.

The following table presents a summary of the Companys stock option activity for the six months ended
June 30, 2010.



|                                             |  |           |  |                               |      |                                          |            |                         |  
|-------------------------------------------- |  | --------- |  | ----------------------------- | ---- | ---------------------------------------- | ---------- | ----------------------- | -
|                                             |  | Shares    |  | Weighted-AverageExercisePrice |      | Weighted-AverageRemainingContractualTerm |            | AggregateIntrinsicValue
|Options outstanding at December 31, 2009:    |  | 2,680,000 |  | $                             | 7.00 |                                          |           |                         | 
|Stock options:                               |  |           |  |                               |      |                                          |            |                         |  
|Granted                                      |  |          |  |                               |     |                                          |           |                         | 
|Exercised                                    |  |          |  |                               |     |                                          |           |                         | 
|Forfeited                                    |  |          |  |                               |     |                                          |           |                         | 
|                                             |  |           |  |                               |      |                                          |            |                         |  
|Options outstanding at June 30, 2010:        |  | 2,680,000 |  | $                             | 7.00 |                                          | 7.92 years |                         | 
|                                             |  |           |  |                               |      |                                          |            |                         |  
|                                             |  |           |  |                              
|Vested and expected to vest at June 30, 2010 |  | 1,786,667 |  | $                             | 7.00 |                                          | 7.92 years |                         | 
|                                             |  |           |  |                               |      |                                          |            |                         |  
|                                             |  |           |  |                              
|Exercisable at June 30, 2010                 |  | 1,786,667 |  | $                             | 7.00 |                                          | 7.92 years |                         | 
|                                             |  |           |  |                               |      |                                          |            |                         |  



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



During the three and six months ended June 30, 2010 and three and six months ended
June 30, 2009 the Company recorded total stock based compensation expense of $0.6 million, $1.2 million, $0.6 million and $1.2 million, respectively. No stock-based compensation costs were capitalized as of June 30, 2010. As of
June 30, 2010, total unrecognized stock-based compensation costs amounted to $2.3 million (net of estimated forfeitures) and is expected to be recorded over a weighted-average period of 1 year.

At June 30, 2010, 2,540,000 shares were available for future grants under the 2008 Incentive Compensation Plan.

6. Property and Equipment

Property and equipment consisted of the following:



|                          |  |                        |  |               |              |   |                   |   |             |  
|------------------------- |  | ---------------------- |  | ------------- | ------------ | - | ----------------- | - | ----------- | -
|                          |  | EstimatedLife in Years |  | June 30, 2010 |              |   | December 31, 2009 |  
|Well servicing equipment  |  | 3-15 years             |  | $             | 287,631,071  |   |                   | $ | 287,303,369 |  
|Autos and trucks          |  | 5-10 years             |  |               | 81,111,441   |   |                   |   | 80,802,973  |  
|Disposal wells            |  | 5-15 years             |  |               | 15,656,487   |   |                   |   | 14,989,517  |  
|Building and improvements |  | 5-30 years             |  |               | 6,131,767    |   |                   |   | 6,125,320   |  
|Furniture and fixtures    |  | 3-10 years             |  |               | 2,309,484    |   |                   |   | 2,247,541   |  
|Land                      |  |                        |  |               | 581,242      |   |                   |   | 581,242     |  
|Other                     |  | 3-15 years             |  |               | 26,125       |   |                   |   | 39,250      |  
|                          |  |                        |  |               |              |   |                   |   |             |  
|                          |  |                        | 
|                          |  |                        |  |               | 393,447,617  |   |                   |   | 392,089,212 |  
|Accumulated depreciation  |  |                        |  |               | (101,898,558 | ) |                   |   | (83,529,327 | )
|                          |  |                        |  |               |              |   |                   |   |             |  
|                          |  |                        | 
|                          |  |                        |  | $             | 291,549,059  |   |                   | $ | 308,559,885 |  
|                          |  |                        |  |               |              |   |                   |   |             |  

Depreciation expense was $9.2 million and $18.4 million for the three and six months ended June 30,
2010 and $9.1 million and $18.0 million for the three and six months ended June 30, 2009, respectively.



12



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##### Table of Contents

Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



7. Long-Term Debt

Long-term debt at June 30, 2010 and December 31, 2009, consisted of the following:



|                                          |  |               |             |   |                   |   |             |  
|----------------------------------------- |  | ------------- | ----------- | - | ----------------- | - | ----------- | -
|                                          |  | June 30, 2010 |             |   | December 31, 2009 |  
|Second Priority Notes, gross              |  | $             | 192,500,000 |   |                   | $ | 199,750,000 |  
|Less: Unamortized original issue discount |  |               | (2,999,539  | ) |                   |   | (3,451,130  | )
|                                          |  |               |             |   |                   |   |             |  
|                                          |  |              
|Second Priority Notes, net                |  |               | 189,500,461 |   |                   |   | 196,298,870 |  
|First Priority Notes                      |  |               | 20,000,000  |   |                   |   | 20,000,000  |  
|Paccar notes                              |  |               | 5,780,892   |   |                   |   | 6,612,859   |  
|Insurance notes                           |  |               | 1,459,491   |   |                   |   | 3,986,500   |  
|                                          |  |               |             |   |                   |   |             |  
|                                          |  |              
|                                          |  |               | 216,740,844 |   |                   |   | 226,898,229 |  
|Less: Current portion                     |  |               | (3,221,261  | ) |                   |   | (12,432,900 | )
|                                          |  |               |             |   |                   |   |             |  
|                                          |  |              
|                                          |  | $             | 213,519,583 |   |                   | $ | 214,465,329 |  
|                                          |  |               |             |   |                   |   |             |  

Second Priority Notes

On February 12, 2008, FES LLC and FES CAP issued $205.0 million in principal amount of 11% Second Priority Notes (together with notes
issued in exchange therefore, the Second Priority Notes). The Forbes Group reflects $189.5 million of debt outstanding in its balance sheet as of June 30, 2010, which recognizes the original issue discount as the Second Priority
Notes were issued at 97.635% of par and the repurchase of certain Second Priority Notes as described below. The Second Priority Notes mature on February 15, 2015, and require semi-annual interest payments at an annual rate of 11% on
February 15 and August 15 of each year until maturity. No principal payments are due until maturity. The Second Priority Notes are senior obligations and rank equally in right of payment with other existing and future senior indebtedness
and senior in right of payment to any subordinated indebtedness that may be incurred by the Forbes Group in the future.

The
Second Priority Notes are guaranteed by FES Ltd, the parent company of FES LLC and FES CAP, as well as the domestic subsidiaries (the Guarantor Subs) of FES LLC, which includes CCF, TES, STT and FEI LLC. All of the Guarantor Subs are
100% owned and each guarantees the securities on a full and unconditional and joint and several basis. FES Ltd has two 100% owned indirect subsidiaries, FES Mexico and a related employment company (the Non-Guarantor Subs) that have not
guaranteed the Second Priority Notes, however, the Forbes Group has granted a security interest in 65% of the equity interests of the Non-Guarantor Subs to secure the Second Priority Notes. FES Ltd has a branch office in Mexico and conducts
operations independent of the Non-Guarantor Subs. The Guarantor Subs represent the majority of the Companys operations.

The indenture governing the Second Priority Notes (the Second Priority Indenture), as amended, required the Forbes Group to
pay $2.0 million in cash during the first quarter of 2009 and an additional $8.0 million in cash by the end of the second quarter of 2010 to repurchase Second Priority Notes upon specified terms and conditions. Pursuant to this requirement, in the
quarter ended March 31, 2009, the Forbes Group paid $2.0 million in cash to repurchase, at a discount, $3.25 million of Second Priority Notes. Additionally, in the quarter ended June 30, 2009, the Forbes Group paid $1.4 million cash to
repurchase, at a discount, $2.0 million of Second Priority Notes. In connection with these repurchases, the Forbes Group realized a net gain of approximately $1.4 million after writing down a portion of the original bond discount and writing off a
portion of the deferred financing costs. In the quarter ended June 30, 2010, the Forbes Group paid $6.8 million in cash to repurchase, at a discount, $7.3 million of Second Priority Notes. In connection with this repurchase, the Forbes Group
recognized a nominal net gain after writing down a portion of the original bond discount and writing off a portion of the deferred financing costs.

The Forbes Group may, at its option, redeem all or part of the Second Priority Notes from time to time at specified redemption prices and
subject to certain conditions required by the Second Priority Indenture governing the Second Priority Notes. The Forbes Group is required to make an offer to purchase the notes and to repurchase any notes for which the offer is accepted at 101% of
their principal amount, plus accrued and unpaid interest, if there is a change of control or if the Forbes Group has excess cash flow. The Forbes Group is required to make an offer to repurchase the notes and to repurchase any notes for which the
offer is accepted at 100% of their principal amount, plus accrued and unpaid interest, following certain asset sales.



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



The Forbes Group is permitted under the terms of the Second Priority Indenture to incur
additional indebtedness in the future, provided that certain financial conditions set forth in the Second Priority Indenture are satisfied. The Forbes Group is subject to certain covenants contained in the Second Priority Indenture, including
provisions that limit or restrict the Forbes Groups and certain future subsidiaries abilities to incur additional debt, to create, incur or permit to exist certain liens on assets, to make certain dispositions of assets, to make payments
on certain subordinated indebtedness, to pay dividends or certain other payments to equity holders, to engage in mergers, consolidations or other fundamental changes, to change the nature of its business, to engage in transactions with affiliates or
to make capital expenditures in excess of certain amounts based on the year in which such expenditures are made.

Details of
two of the more significant restrictive covenants in the Second Priority Indenture are set forth below:



| |  |  | Limitation on the incurrence of additional debtIn addition to certain defined Permitted Debt (as defined in the Second Priority Indenture), the
Forbes Group may only incur additional debt if it is unsecured and if the Fixed Charge Coverage Ratio (as defined in the Second Priority Indenture) for the most recently completed four full fiscal quarters is at least 2.5 to 1.0 until
December 31, 2009, and 3.0 to 1.0 thereafter. As of June 30, 2010, the Forbes Group could incur no additional debt as Permitted Debt and under the Fixed Charge Coverage Ratio Test.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Limitations on capital expendituresSubject to certain adjustments, permitted Adjusted Capital Expenditures (as defined in the Second Priority
Indenture) that may be made by the Forbes Group are limited to $21.25 million for each quarter in the fiscal year ending December 31, 2010, provided that this base amount of permitted Adjusted Capital Expenditures for each quarter in 2010 will
be reduced to $11.25 million for any quarter where, in the immediately preceding quarter, either (a) the average daily spot price for WTI crude oil at Cushing, Oklahoma was less than $80 per barrel or (b) the average daily spot price for
natural gas at Henry Hub was less than $8 per MMbtu. As of June 30, 2010, the Forbes Group Capital expenditures for the three and six months ended June 30, 2010 totaled $0.9 million and $1.6 million, respectively. Under the Second Priority
Indenture, the Forbes Group is permitted to carry over into 2010 $10.0 million in Adjusted Capital Expenditures, which were permitted but unused in 2009.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revolving Credit Facility

On April 10, 2008, the Forbes Group entered into a revolving credit facility (the Credit Facility). As discussed below,
on October 2, 2009, the Forbes Group repaid and terminated the Credit Facility, using the proceeds from the issuance of the First Priority Notes. Borrowings under the Credit Facility accrued interest, at the option of the Forbes Group, at
either (i) the greater of the Federal Funds Effective Rate in effect on such day plus 0.5% and the prime rate announced from time to time by Citibank, N.A., plus a margin of up to 1.25%, or (ii) the London Interbank Offered
Rate, plus a margin of 1.75% to 2.25%. Unpaid interest accrued on outstanding loans was payable quarterly. The Credit Facility was secured by first priority security interests in substantially all of the Forbes Groups assets, including those
of all of the domestic subsidiaries that rank senior to the security interest granted to the holders of the Second Priority Notes. The credit agreement governing the Credit Facility (the Credit Agreement) also contained customary
representations, warranties and covenants for the type and nature of the Credit Facility, including certain limitations or restrictions on the Forbes Groups and certain future subsidiaries ability to incur additional debt, guarantee
others obligations, create, incur or permit to exist liens on assets, make investments or acquisitions, make certain dispositions of assets, make payments on certain subordinated indebtedness, pay dividends or other payments to equity holders,
engage in mergers, consolidations or other fundamental changes, sell assets, change the nature of its business and engage in transactions with affiliates. The Credit Agreement also contained restrictive financial covenants requiring us to maintain a
certain Net Worth and certain ratios of Consolidated EBITDA to Consolidated Interest Expense, Senior Funded Debt to Consolidated Net Worth, and Consolidated Senior Funded Debt to Consolidated EBITDA. The Credit Agreement also contained a provision
that would have made the occurrence of any Material Adverse Change an event of default (the capitalized terms used in this and the previous sentence have the meaning set forth in the Credit Agreement).

First Priority Notes

On October 2, 2009, FES LLC and FES CAP issued to Goldman, Sachs & Co. $20.0 million in aggregate principal amount of First
Lien Floating Rate Notes due 2014 (the First Priority Notes), in a private placement in reliance on an exemption from registration under the Securities Act of 1933, as amended. After offering expenses, the Forbes Group realized net
proceeds of approximately $18.8 million which was used, in part, to repay and terminate the Credit Facility. The First Priority Notes mature on August 1, 2014, and require semi-annual interest payments on February 1 and August 1 of
each year until maturity at a rate per annum, reset semi-annually, equal to the greater of 4% or six month LIBOR plus 800 basis points. No principal payments are due until maturity. The First Priority are senior obligations and rank equally in right
of payment with other existing and future senior indebtedness, including the Second Priority Notes, and senior in right of payment to any subordinated indebtedness that may be incurred by the Forbes Group in the future.



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



The First Priority Notes are guaranteed by FES Ltd, as well as the Guarantor Subs. Each
of the Guarantor Subs guarantees the securities on a full and unconditional and joint and several basis. The two Non-Guarantor Subs have not guaranteed the First Priority Notes, however, the Forbes Group has granted a security interest in 65% of the
equity interests of the Non-Guarantor Subs to secure the First Priority Notes. The Forbes Group may, at its option, redeem all or part of the First Priority Notes from time to time at specified redemption prices and subject to certain conditions
required by the indenture governing the First Priority Notes (the First Priority Indenture). The Forbes Group is required to make an offer to purchase the notes and to repurchase any notes for which the offer is accepted at 101% of their
principal amount, plus accrued and unpaid interest, if there is a change of control or if the Forbes Group has excess cash flow. The Forbes Group is required to make an offer to repurchase the notes and to repurchase any notes for which the offer is
accepted at 100% of their principal amount, plus accrued and unpaid interest, following certain asset sales.

The First
Priority Indenture contains certain covenants similar to those in the Second Priority Indenture, including provisions that limit or restrict the Forbes Groups and certain future subsidiaries abilities to incur additional debt, guarantee
other obligations, to create, incur or permit to exist certain liens on assets, make investments or acquisitions, make certain dispositions of assets, to make payments on certain subordinated indebtedness, to pay dividends or certain other payments
to equity holders, to engage in mergers, consolidations or other fundamental changes, to change the nature of its business, to engage in transactions with affiliates or to make capital expenditures in excess of certain amounts based on the year in
which such expenditures are made. The First Priority Indenture also provides for certain limitations and restrictions on the Forbes Groups ability to move collateral outside the United States or dispose of assets. These covenants are subject
to a number of important limitations and exceptions.

Details of two of the more significant restrictive covenants in the
First Priority Indenture are set forth below:



| |  |  | Limitation on the incurrence of additional debtIn addition to certain defined Permitted Debt (as defined in the First Priority Indenture), the
Forbes Group may only incur additional debt if it is unsecured and if the Fixed Charge Coverage Ratio (as defined in the First Priority Indenture) for the most recently completed four full fiscal quarters is at least 2.5 to 1.0 until
December 31, 2009, and 3.0 to 1.0 thereafter. As of December 31, 2009, the Forbes Group could incur no additional debt under the Fixed Charge Coverage Ratio Test.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Limitations on capital expendituresSubject to certain adjustments, permitted Adjusted Capital Expenditures (as defined in the First Priority
Indenture) that may be made by the Forbes Group are limited to $21.25 million for each quarter in the fiscal year ending December 31, 2010, provided that this base amount of permitted Adjusted Capital Expenditures for each quarter in 2010 will
be reduced to $11.25 million for any quarter where, in the immediately preceding quarter, either (a) the average daily spot price for WTI crude oil at Cushing, Oklahoma was less than $80 per barrel or (b) the average daily spot price for
natural gas at Henry Hub was less than $8 per MMbtu. As of June 30, 2010, the Forbes Group Capital expenditures for the three and six months ended June 30, 2010 totaled $0.9 million and $1.6 million, respectively. Under the First Priority
Indenture, the Forbes Group is permitted to carry over into 2010 $10 million in Adjusted Capital Expenditures, which were permitted but unused in 2009.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Each of the First Priority Indenture and Second Priority Indenture provides for events of default, which, if any of them occur, would, in
certain circumstances, permit or require the principal, premium, if any, and interest on all the then outstanding First Priority Notes or Second Priority Notes, respectively, to be due and payable immediately. Additionally, in certain circumstances
an event of default under the First Priority Indenture would cause an event of default under the cross-default provision of the Second Priority Indenture and vice versa.

There are no significant restrictions on FES Ltds ability or the ability of any guarantor to obtain funds from its subsidiaries by
such means as a dividend or loan. See Note 15 for condensed consolidating information required by Rule 3-10 of Regulation SX.

Paccar Notes

During 2008, the Forbes Group financed the purchase of certain vehicles and equipment through commercial loans with Paccar Financial
Group, with aggregate principal amounts outstanding as of June 30, 2010 and December 31, 2009 of approximately $5.8 million and $6.6 million, respectively. These loans are repayable in 60 monthly installments with the maturity dates
ranging from May 2013 to October 2013. Interest accrues at rates ranging from 7.5% to 7.6% and is payable monthly. The loans are collateralized by equipment purchased with the proceeds of such loans.

Insurance Notes

During 2009 and 2010, the Forbes Group entered into promissory notes with First Insurance Funding for the payment of insurance premiums in
an aggregate principal amount outstanding as of June 30, 2010 and December 31, 2009 of approximately $1.5 million and $4.0 million, respectively. These notes are or were payable in twelve monthly installments



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##### Table of Contents

Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



with maturity dates of September 15, 2010 and September 15, 2009. Interest accrues or accrued at a rate of approximately 4.0% and 4.4% for 2010 and 2009, respectively, and is payable
monthly. The amount outstanding could be substantially offset by the cancellation of the related insurance coverage.

8. Fair Value of
Financial Instruments

The following is a summary of the carrying amounts and estimated fair values of our financial
instruments as of June 30, 2010 and December 31, 2009. Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date.

Cash and cash equivalents, restricted cash, trade accounts receivable, accounts receivable-related parties, accounts
payable and accrued expenses: These carrying amounts approximate fair value because of the short maturity of these instruments. The carrying amount of our First Priority Notes approximates fair value due to the fact that the underlying instruments
include provisions to adjust interest rates.



|                            |  |                 |         |                   |   |                 |  |            |         |  |   |        
|--------------------------- |  | --------------- | ------- | ----------------- | - | --------------- |  | ---------- | ------- |  | - | -------
|                            |  | June 30, 2010   |         | December 31, 2009
|                            |  | Carrying Amount |         | Fair Value        |   | Carrying Amount |  | Fair Value
|11.0% Second Priority Notes |  | $               | 189,500 |                   | $ | 173,250         |  | $          | 199,750 |  | $ | 185,768

The fair value of
our Second Priority Notes is based upon the quoted market prices at June 30, 2010 and December 31, 2009.

9. Related Party
Transactions

The Forbes Group enters into transactions with related parties in the normal course of conducting business.
Accounts receivablerelated parties and Accounts payablerelated parties result from transactions with related parties which are at terms consistent with those available to third-party customers and from third-party vendors.

Certain members of the Forbes Group are also owners and managers of Alice Environmental Services, LP (AES). The Forbes Group
has entered into the following transactions with AES and its subsidiaries:



| |  |  | AES owns aircraft that the Forbes Group uses on a regular basis.
| | - |  | ----------------------------------------------------------------



| |  |  | The Forbes Group has also entered into long-term operating leases with AES for well service rigs, vacuum trucks and related equipment.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Forbes Group has entered into long-term real property and disposal well leases with AES.
| | - |  | --------------------------------------------------------------------------------------------

During December 2008, the Forbes Group leased 10 workover rigs from AES under long-term operating leases. In January 2010, the
Forbes Group began renting additional equipment from AES on a monthly basis which includes trucks, tanks, swab units, and other equipment. For the three months ended June 30, 2010 and 2009 Forbes Group recognized no revenue from AES, expenses
of approximately $2.4 million and $2.1 million, respectively, and no capital expenditures, respectively. For the six months ended June 30, 2010 and 2009 the Company recognized no revenues from AES, expenses related to rental facilities and
equipment, salt water disposals and contract services of approximately $4.5 million and $4.2 million, respectively, and no capital expenditures. Accounts payable to AES as of June 30, 2010 and December 31, 2009, resulting from
such transactions were $347,000 and $683,000 respectively. The Forbes Group had no accounts receivable from AES as of June 30, 2010 or December 31, 2009.

The Forbes Group rents or leases twelve separate properties from AES for separate parcels of land and buildings. Ten of the leases were
entered into at various dates subsequent to December 31, 2006. Each lease has a five-year term with the Forbes Group having the option to extend from between one and five years. Two of the leases are oral. Aggregate amounts paid for the twelve
rentals and leases were $0.3 million and $0.6 million for the three and six months ended June 30, 2010, and $0.3 million and $0.6 million for the three and six months ended June 30, 2009, respectively.

The Forbes Group entered into a waste water disposal operating agreement dated January 1, 2007, with AES pursuant to which AES
leases its rights in a certain well bore and receives payments in the form of a minimum fee of $5,000 per month plus $0.15 per barrel for any barrel injected over 50,000 barrels. Under this agreement, AES also receives a skim oil payment
of 20% of the amount realized by the Forbes Group for all oil and hydrocarbons removed from liquids injected into the premises. The agreement term is for three years and is renewable for successive three year terms as long as AES has rights to the
well.

The Forbes Group entered into a waste water disposal lease agreement dated April 1, 2007, with AES. Under the
agreement, the Forbes Group is entitled to use the leased land for the disposal of waste water for a term of five years with



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



three successive three year renewal periods. The Forbes Group pays a monthly rental of $2,500 per month plus $.05 per barrel for any barrel over 50,000 barrels of waste water injected per month.
Additionally, the Forbes Group pays an amount equal to 10% of all oil or other hydrocarbons removed from liquids injected or any skim oil.

Dorsal Services, Inc. is a trucking service provider that provides services to the Forbes Group. One of FES Ltds executive
officers, who also serves as a director of FES Ltd, is a partial owner of Dorsal Services, Inc. The Forbes Group recognized no revenues; expenses of approximately $343,000 and $26,000; and capital expenditures of approximately $38,000 and $0 from
transactions with Dorsal Services, Inc. for the three months ended June 30, 2010 and 2009, respectively. The Company recognized revenues of approximately $3,000 and $38,000; expenses of approximately $479,000 and $86,000, and capital
expenditures of approximately $38,000 and $0 from transactions with Dorsal Services, Inc. for the six months ended June 30, 2010 and 2009, respectively. The Forbes Group had accounts receivable from Dorsal Services, Inc. of $166,000 and
$162,000 as of June 30, 2010 and December 31, 2009, respectively, resulting from such transactions. The Forbes Group had accounts payable to Dorsal Services, Inc. of $344,000 and $144,000 as of June 30, 2010 and December 31,
2009, resulting from such transactions.

Tasco Tool Services, Inc. is a down-hole tool company that is partially owned and
managed by a company that is owned by two officers of FES Ltd. Tasco rents and sells tools to the Forbes Group from time to time. The Forbes Group had revenues from Tasco of $2,000 and $500 and recognized expenses of approximately $50,000 and $0 and
capital expenditures of $0 and $61,000 related to transactions with Tasco for the three months ended June 30, 2010 and 2009, respectively. The Company had revenues from Tasco of $2,000 and $500 and recognized expenses of approximately $58,000
and $38,000 and capital expenditures of $0 and $73,000 related to transactions with Tasco for the six months ended June 30, 2010 and 2009, respectively. Accounts payable to Tasco as of June 30, 2010 and December 31, 2009 were $50,000
and $20,000, respectively, resulting from these transactions.

The C. W. Hahl Lease, an oil and gas lease, is owned by one of
the executive officers of the Forbes Group. The Forbes Group recognized no revenues for the three months ended June 30, 2010 and 2009. The Forbes Group recognized no revenues for the six months ended June 30, 2010 and 2009. Accounts
receivable as of June 30, 2010 and December 31, 2009 were $1,000. The Forbes Group had no expenses or accounts payable from the C. W. Hahl Lease for either period.

FCJ Management (FCJ) is a corporation that leases land and facilities to the Forbes Group and is owned by two of the
executive officers of FES Ltd, who also serve as directors of FES Ltd, and a manager of one of the subsidiaries of FES Ltd. The Forbes Group recognized expenses of $9,000 and $6,000 for the three months ended June 30, 2010 and 2009,
respectively. The Company recognized expenses of $18,000 and $9,000 for the six months ended June 30, 2010 and 2009, respectively. No revenues have been recognized from FCJ for any period. The Forbes Group had no accounts receivable from FCJ or
accounts payable to FCJ as of June 30, 2010 or December 31, 2009.

C&F Partners is an entity that is owned by
officers of FES Ltd. The Forbes Group recognized expenses of $101,000 and $127,000 for the three months ended June 30, 2010 and 2009 respectively. The Forbes Group recognized expenses of $270,000 and $256,000 for the six months ended
June 30, 2010 and 2009, respectively. All expenses are related to aircraft rental. There were no capital expenditures for any period. There were no accounts receivable, and accounts payable were $42,000 and $0 as of June 30, 2010 and
December 31, 2009.



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



Resonant Technology Partners is a computer networking group that provides services to
the Forbes Group. A director of the Forbes Group has an interest in the computer networking company. The Forbes Group recognized expenses of $43,000 and $66,105; and no capital expenditures for the three months ended June 30, 2010 and
June 30, 2009 respectfully. The Company recognized expenses of $120,000 and $130,000; and capital expenditures of approximately $28,000 and $0 for the six months ended June 30, 2010 and 2009. The Forbes Group had accounts payable of
approximately $14,000 and $36,000 as of June 30, 2010 and December 31, 2009.

Wolverine Construction, Inc is a
construction and site preparation services company that is owned by a son of one of the officers of FES Ltd. The Forbes Group recognized capital expenditures of approximately $0 and $24,000, revenues of approximately $31,000 and $3,000 and expenses
of approximately $510,000 and $69,000 for the three months ended June 30, 2010, and June 30, 2009, respectively. The Forbes Group recognized capital expenditures of approximately $0 and $110,000, revenues of approximately $49,000 and
$3,000 and expenses of approximately $1,078,000 and $638,000 for the six months ended June 30, 2010, and June 30, 2009, respectively. The Forbes Group had accounts receivable from Wolverine as of June 30, 2010 and December 31,
2009 of approximately $56,000 and $6,000 respectively. The Forbes Group had accounts payable due to Wolverine of approximately $254,000 and $19,000 as of June 30, 2010 and December 31, 2009, respectively.

Testco is a company that provides valve and gathering system testing services to the Forbes Group. One of FES Ltds executive
officers, who also serves as a director of FES Ltd, is a partial owner of Testco. The Forbes Group recognized no revenues and expenses of approximately $2,000 and $1,000 for the three months ended June 30, 2010 and 2009, respectively. The
Forbes Group recognized $3,000 in revenues and expenses of approximately $2,000 and $8,000 for the six months ended June 30, 2010 and 2009, respectively. The Forbes Group had no accounts receivable from and $2,000 in accounts payable to Testco
as June 30, 2010 and December 31, 2009, respectively.

The Forbes Group has a relationship with a bank in which the
President, Chief Executive Officer, and director is also a director of the Forbes Group. As of June 30, 2010 and December 31, 2009, the Forbes Group had $3.2 million and $19.7 million on deposit with this bank.

10. Commitments and Contingencies

Concentrations of Credit Risk

Financial instruments which subject the Forbes Group to credit risk consist primarily of cash balances maintained in excess of federal
depository insurance limits and trade receivables. The Forbes Group restricts investment of temporary cash investments to financial institutions with high credit standings. The Forbes Groups customer base consists primarily of multi-national
and independent oil and natural gas producers. The Forbes Group does not require collateral on its trade receivables. For the six months ended June 30, 2010 Forbes Groups largest customer, five largest customers, and ten largest customers
constituted 14.6%, 36.9%, and 50.6% of revenues, respectively. The loss of any one of our top five customers would have a negative impact on the revenues and profits of the company. Further, our trade accounts receivable are from companies within
the oil and natural gas industry and as such the Forbes Group is exposed to normal industry credit risks. The Forbes Group continually evaluates its reserves for potential credit losses and establishes reserves for such losses.

Self-Insurance

The Forbes Group is self-insured up to retention limits with regard to workers compensation and medical coverage of our employees.
The Forbes Group has workers compensation limits of $1,000,000 for bodily injury per accident and $1,000,000 per each claim for disease. The medical coverage has a $125,000 deductible per individual plus a $235,000 aggregate specific
deductible. Deductibles for workers compensation, general liability and automobile liability are $0 per occurrence. The Forbes Group has incurred but not processed claims as of June 30, 2010 and December 31, 2009 of approximately
$2.2 million and $2.2 million, respectively. These claims are unprocessed and their values are estimated and included in accrued expenses in the accompanying condensed consolidated balance sheets.

Litigation

The Forbes Group is subject to various other claims and legal actions that arise in the ordinary course of business. We do not believe
that any of these claims and actions, separately or in the aggregate, will have a material adverse effect on our business, financial condition, results of operations or cash flows, although we cannot guarantee that a material adverse effect will not
occur.



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##### Table of Contents

Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



11. Supplemental Cash Flow Information



|                                                                     |  |                             |           |                           |      |   |           |  |   |            |   |  |   |           
|-------------------------------------------------------------------- |  | --------------------------- | --------- | ------------------------- | ---- | - | --------- |  | - | ---------- | - |  | - | ----------
|                                                                     |  | Three Months Ended June 30, |           | Six Months Ended June 30,
|                                                                     |  | 2010                        |           |                           | 2009 |   | 2010      |  |   | 2009      
|Cash paid for                                                        |  |                             |           |                           |      |   |           |  |   |            |   |  |   |           
|Interest                                                             |  | $                           | 1,070,146 |                           |      | $ | 174,330   |  | $ | 13,008,063 |   |  | $ | 11,642,291
|Taxes                                                                |  |                             |          |                           |      |   | 500,000   |  |   |           |   |  |   | 500,000   
|Supplemental schedule of non-cash investing and financing activities |  |                             |           |                           |      |   |           |  |   |            |   |  |   |           
|Changes in accrued capital expenditures                              |  | $                           | (710,216  | )                         |      | $ | 7,494,007 |  | $ | (1,738,230 | ) |  | $ | 8,105,927 
|Insurance proceeds receivable                                        |  |                             |          |                           |      |   | 50,503    |  |   |           |   |  |   | 50,503    

12. Loss per Share

Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average common
shares outstanding during the period (including for the periods prior to May 28, 2010, the Class B Shares convertible into common shares). Diluted net loss per share takes into account the potential dilution that could occur if securities or
other contracts to issue common shares, such as warrants, options and convertible preference shares, were exercised and converted into Common shares. Potential common stock equivalents that have been issued by the Forbes Group relate to outstanding
stock options, which are determined using the treasury stock method, and the Series B Senior Convertible Preferred Shares, which are determined using the if converted method. As of June 30, 2010 and 2009, there were options to
purchase 2.7 million common shares outstanding, and 580,800 and -0- Series B Senior Convertible Preferred Shares outstanding, respectively. We did not include any common shares covered by the options in the calculation of diluted loss per share
during any period presented as they would be antidilutive.

The Company has determined that the Series B Preferred Stock is a
participating security under ASC 260. Under ASC 260, a security is considered a participating security if the security may participate in undistributed earnings with common stock, whether that participation is conditioned upon the occurrence of a
specified event or not. In accordance with ASC 260, a company is required to use the two-class method when computing EPS when a company has a security that qualifies as a participating security. The two-class method is an earnings
allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. A participating security is included in the
computation of basic EPS using the two-class method. Under the two-class method, basic EPS for the Companys Common Stock is computed by dividing net income applicable to common stock by the weighted-average common shares outstanding during the
period. Diluted EPS for the Companys Common Stock is computed using the more dilutive of the two-class method or the if-converted method.

In accordance with ACC 260, securities are deemed to not be participating in losses if there is no obligation to fund such losses. Since
the Company reported a loss from operations for the quarter ended June 30, 2010, the Series B Preferred Stock was not deemed to be a participating security for the quarter ended June 30, 2010 pursuant to ASC 260.



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



The following table sets forth the computation of basic and diluted earnings per share:



|                                                    |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |             |  
|--------------------------------------------------- |  | ---------------------------------- | ---------- | - | -------------------------------- | - | ---------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                                    |  | For the Three MonthsEnded June 30, |            |   | For the Six MonthsEnded June 30, |  
|                                                    |  | 2010                               |            |   | 2009                             |   |            | 2010 |  |   | 2009        |  
|Basic and Diluted:                                  |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |             |  
|Net loss                                            |  | $                                  | (2,241,346 | ) |                                  | $ | (9,037,736 | )    |  | $ | (10,412,862 | ) |  | $ | (13,573,226 | )
|                                                    |  |                                    |            |  
|Accumulated preferred stock dividends and accretion |  |                                    | (63,957    | ) |                                  |   |           |      |  |   | (63,957     | ) |  |   |            |  
|                                                    |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |             |  
|Net loss attributable to common stockholders        |  | $                                  | (2,305,303 | ) |                                  | $ | (9,037,736 | )    |  | $ | (10,476,819 | ) |  | $ | (13,573,226 | )
|                                                    |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |             |  
|                                                    |  |                                    |            |  
|Weighted average common shares                      |  |                                    | 83,673,700 |   |                                  |   | 62,111,200 |      |  |   | 83,673,700  |   |  |   | 62,111,200  |  
|                                                    |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |             |  
|Basic and Diluted net loss per share               |  | $                                  | (0.03      | ) |                                  | $ | (0.15      | )    |  | $ | (0.13       | ) |  | $ | (0.22       | )
|                                                    |  |                                    |            |   |                                  |   |            |      |  |   |             |   |  |   |             |  

13. Income Taxes

The Companys benefit from application of the effective tax rate for the six months ended June 30, 2010 was estimated to be
35.8% based on a pre-tax loss of $16.2 million. The difference between the effective rate and 35% statutory rate is primarily related to Mexican taxes. For the six months ended June 30, 2009, the effective tax rate was 34.9%.

The Forbes Group is subject to the Texas Franchise tax. The Texas Franchise tax is a tax equal to one percent of Texas-sourced revenue
reduced by the greater of (a) cost of goods sold (as defined by Texas law), (b) compensation (as defined by Texas law) or (c) thirty percent of the Texas-sourced revenue. The Forbes Group accounts for the revised Texas Franchise tax
in accordance with ASC 740, as the tax is derived from a taxable base that consists of income less deductible expenses. For the six months ended June 30, 2010 and 2009, the Forbes Group recorded franchise tax expense of zero and $0.1 million,
respectively.

14. Business Segment Information

The Forbes Group has determined that it has two reportable segments organized based on its products and serviceswell servicing and
fluid logistics. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

Well Servicing

The well servicing segment consists of operations in the U.S. and Mexico, which provides (i) well maintenance, including remedial
repairs and removal and replacement of downhole production equipment, (ii) well workovers, including significant downhole repairs, re-completions and re-perforations, (iii) completion and swabbing activities, and (iv) plugging and
abandoning services. In addition, the Forbes Group has tubing testing units that are used to conduct pressure testing of oil and natural gas production tubing.

Fluid Logistics

The fluid logistics segment consists of operations in the U.S., which provide, transport, store and dispose of a variety of drilling and
produced fluids used in and generated by oil and natural gas production activities. These services are required in most workover and completion projects and are routinely used in daily producing well operations.



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



The following table sets forth certain financial information with respect to the
Companys reportable segments:



|                                 |  |               |             |                |   |              |  |   |            
|-------------------------------- |  | ------------- | ----------- | -------------- | - | ------------ |  | - | -----------
|                                 |  | WellServicing |             | FluidLogistics |   | Consolidated
|Three months ended June 30, 2010 |  |               |             |                |   |              |  |   |            
|Operating revenues               |  | $             | 39,650,732  |                | $ | 40,393,056   |  | $ | 80,043,788 
|Direct operating costs           |  |               | 28,711,618  |                |   | 32,026,780   |  |   | 60,738,398 
|                                 |  |               |             |                |   |              |  |   |            
|Segment profits                  |  | $             | 10,939,114  |                | $ | 8,366,276    |  | $ | 19,305,390 
|                                 |  |               |             |                |   |              |  |   |            
|Depreciation and amortization    |  | $             | 5,432,735   |                | $ | 4,481,293    |  | $ | 9,914,028  
|                                 |  |               |            
|Capital expenditures             |  |               | 339,620     |                |   | 565,768      |  |   | 905,388    
|Assets                           |  |               | 303,049,253 |                |   | 208,051,038  |  |   | 511,100,291
|Three months ended June 30, 2009 |  |               |             |                |   |              |  |   |            
|Operating revenues               |  | $             | 25,515,071  |                | $ | 24,237,506   |  | $ | 49,752,577 
|Direct operating costs           |  |               | 23,720,892  |                |   | 19,928,066   |  |   | 43,648,958 
|                                 |  |               |             |                |   |              |  |   |            
|Segment profits                  |  | $             | 1,794,179   |                | $ | 4,309,440    |  | $ | 6,103,619  
|                                 |  |               |             |                |   |              |  |   |            
|Depreciation and amortization    |  | $             | 5,313,314   |                | $ | 4,461,649    |  | $ | 9,774,963  
|Capital expenditures             |  |               | 3,445,121   |                |   | 259,217      |  |   | 3,704,338  
|Assets                           |  |               | 292,162,779 |                |   | 192,142,899  |  |   | 484,305,678
|Six months ended June 30, 2010   |  |               |             |                |   |              |  |   |            
|Operating revenues               |  | $             | 70,673,592  |                | $ | 76,633,923   |  | $ | 147,307,515
|Direct operating costs           |  |               | 57,359,936  |                |   | 60,291,619   |  |   | 117,651,555
|                                 |  |               |             |                |   |              |  |   |            
|Segment profits                  |  | $             | 13,313,656  |                | $ | 16,342,304   |  | $ | 29,655,960 
|                                 |  |               |             |                |   |              |  |   |            
|Depreciation and amortization    |  | $             | 10,920,484  |                | $ | 8,917,608    |  | $ | 19,838,092 
|Capital expenditures             |  |               | 843,273     |                |   | 767,232      |  |   | 1,610,505  
|Assets                           |  |               | 303,049,253 |                |   | 208,051,038  |  |   | 511,100,291
|                                 |  |               |            
|Six months ended June 30, 2009   |  |               |             |                |   |              |  |   |            
|Operating revenues               |  | $             | 57,054,079  |                | $ | 56,129,880   |  | $ | 113,183,959
|Direct operating costs           |  |               | 50,116,601  |                |   | 43,159,687   |  |   | 93,276,288 
|                                 |  |               |             |                |   |              |  |   |            
|Segment profits                  |  | $             | 6,937,478   |                | $ | 12,970,193   |  | $ | 19,907,671 
|                                 |  |               |             |                |   |              |  |   |            
|Depreciation and amortization    |  | $             | 10,565,782  |                | $ | 8,900,553    |  | $ | 19,466,335 
|Capital expenditures             |  |               | 9,456,950   |                |   | 1,576,731    |  |   | 11,033,681 
|Assets                           |  |               | 292,162,779 |                |   | 192,142,899  |  |   | 484,305,678



|                                                                 |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|---------------------------------------------------------------- |  | --------------------------- | ---------- | - | ------------------------- | - | ----------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                                                 |  | Three Months Ended June 30, |            |   | Six Months Ended June 30, |  
|                                                                 |  | 2010                        |            |   | 2009                      |   |             | 2010 |  |   | 2009        |  
|Reconciliation of the Forbes Group Operating Income as Reported: |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Segment profits                                                  |  | $                           | 19,305,390 |   |                           | $ | 6,103,619   |      |  | $ | 29,655,960  |   |  | $ | 19,907,671  |  
|General and administrative exp                                   |  |                             | 6,552,668  |   |                           |   | 3,896,576   |      |  |   | 12,211,812  |   |  |   | 9,670,455   |  
|Depreciation and amortization                                    |  |                             | 9,914,028  |   |                           |   | 9,774,963   |      |  |   | 19,838,092  |   |  |   | 19,466,335  |  
|                                                                 |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Operating income (loss)                                          |  |                             | 2,838,694  |   |                           |   | (7,567,920  | )    |  |   | (2,393,944  | ) |  |   | (9,229,119  | )
|Other expenses, net                                              |  |                             | (6,892,866 | ) |                           |   | (5,950,385  | )    |  |   | (13,832,352 | ) |  |   | (11,603,621 | )
|                                                                 |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  
|Loss before income taxes                                         |  | $                           | (4,054,172 | ) |                           | $ | (13,518,305 | )    |  | $ | (16,226,296 | ) |  | $ | (20,832,740 | )
|                                                                 |  |                             |            |   |                           |   |             |      |  |   |             |   |  |   |             |  



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



|                                                       |  |                    |              |   |                        |   |              |  
|------------------------------------------------------ |  | ------------------ | ------------ | - | ---------------------- | - | ------------ | -
|                                                       |  | As atJune 30, 2010 |              |   | As atDecember 31, 2009 |  
|Reconciliation of the Forbes Group Assets as Reported: |  |                    |              |   |                        |   |              |  
|Total reportable segments                              |  | $                  | 511,100,291  |   |                        | $ | 505,332,269  |  
|Eliminate internal transactions                        |  |                    | (590,479,737 | ) |                        |   | (554,826,490 | )
|Parent                                                 |  |                    | 531,334,858  |   |                        |   | 506,927,117  |  
|                                                       |  |                    |              |   |                        |   |              |  
|Total assets                                           |  | $                  | 451,955,412  |   |                        | $ | 457,432,896  |  
|                                                       |  |                    |              |   |                        |   |              |  

Financial information about geographic areas

Revenues from the Companys non-U.S. operations were $11.0 million and $7.0 million for the three months end June 30, 2010 and
June 30, 2009, respectively. Revenues from the Companys non-U.S. operations were $21.5 million and $9.7 million for the six months ended June 30, 2010 and June 30, 2009, respectively. All other revenue was generated by the
Companys U.S. operations. Long-lived assets located in Mexico were approximately $25.6 million and $19.2 million as of June 30, 2010 and December 31, 2009, respectively. All other long-lived assets were located in the U.S.

15. Guarantor and Non-Guarantor Condensed Consolidating Financial Statements

The Company has certain foreign significant subsidiaries that do not guarantee the Second Priority Notes and the First Priority Notes
discussed in Note 7 and is required to present the following condensed consolidating financial information pursuant to Rule 3-10 of Regulation S-X. These schedules are presented using the equity method of accounting for all periods presented. Under
this method, investments in subsidiaries are recorded at cost and adjusted for the Companys share in the subsidiaries cumulative results of operations, capital contributions and distributions and other changes in equity. Elimination
entries relate primarily to the elimination of investments in subsidiaries and associated intercompany balances and transactions.



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



Supplemental financial information for Forbes Energy Services Ltd., the parent, Forbes
Energy Services LLC and Forbes Energy Capital, Inc., the issuers, our combined subsidiary guarantors and our non-guarantor subsidiaries is presented below.



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



Condensed Consolidating Balance Sheet

As of June 30, 2010



|                                           |  |        |             |   |         |   |             |  |   |                |   |  |              |            |   |              |   |              |   |  |   |            
|------------------------------------------ |  | ------ | ----------- | - | ------- | - | ----------- |  | - | -------------- | - |  | ------------ | ---------- | - | ------------ | - | ------------ | - |  | - | -----------
|                                           |  | Parent |             |   | Issuers |   | Guarantors  |  |   | Non-Guarantors |   |  | Eliminations |            |   | Consolidated
|Assets                                     |  |        |             |   |         |   |             |  |   |                |   |  |              |            |   |              |   |              |   |  |   |            
|Current assets                             |  |        |             |   |         |   |             |  |   |                |   |  |              |            |   |              |   |              |   |  |   |            
|Cash and cash equivalents                  |  | $      | 2,530,735   |   |         | $ | 1,247,073   |  | $ | 12,686,257     |   |  | $            | 45,709     |   |              | $ |             |   |  | $ | 16,509,774 
|Restricted cash                            |  |        |            |   |         |   | 2,870,843   |  |   |               |   |  |              |           |   |              |   |             |   |  |   | 2,870,843  
|Accounts receivable                        |  |        | 27,912,602  |   |         |   |            |  |   | 63,552,844     |   |  |              | 12,878,741 |   |              |   | (18,883,978  | ) |  |   | 85,460,209 
|Other current assets                       |  |        | 69,099      |   |         |   | 330,699     |  |   | 2,932,044      |   |  |              | 39,964     |   |              |   | 334,555      |   |  |   | 3,706,361  
|                                           |  |        |             |   |         |   |             |  |   |                |   |  |              |            |   |              |   |              |   |  |   |            
|Total current assets                       |  |        | 30,512,436  |   |         |   | 4,448,615   |  |   | 79,171,145     |   |  |              | 12,964,414 |   |              |   | (18,549,423  | ) |  |   | 108,547,187
|Property and equipment, net                |  |        | 628,684     |   |         |   |            |  |   | 290,147,577    |   |  |              | 772,798    |   |              |   |             |   |  |   | 291,549,059
|Investments in affiliates                  |  |        | 19,633,915  |   |         |   | 93,459,476  |  |   | (2,613,452     | ) |  |              |           |   |              |   | (110,479,939 | ) |  |   |           
|Intercompany receivables                   |  |        | 85,751,011  |   |         |   | 126,011,566 |  |   |               |   |  |              |           |   |              |   | (211,762,577 | ) |  |   |           
|Intercompany note receivable               |  |        | 5,013,404   |   |         |   |            |  |   |               |   |  |              |           |   |              |   | (5,013,404   | ) |  |   |           
|Intangible assets, net                     |  |        |            |   |         |   |            |  |   | 35,168,183     |   |  |              |           |   |              |   |             |   |  |   | 35,168,183 
|Deferred financing costs, net              |  |        |            |   |         |   | 9,992,081   |  |   |               |   |  |              |           |   |              |   |             |   |  |   | 9,992,081  
|Restricted cash                            |  |        |            |   |         |   | 6,649,973   |  |   |               |   |  |              |           |   |              |   |             |   |  |   | 6,649,973  
|Other assets                               |  |        | 9,932       |   |         |   |            |  |   | 30,886         |   |  |              | 8,111      |   |              |   |             |   |  |   | 48,929     
|                                           |  |        |             |   |         |   |             |  |   |                |   |  |              |            |   |              |   |              |   |  |   |            
|Total assets                               |  | $      | 141,549,382 |   |         | $ | 240,561,711 |  | $ | 401,904,339    |   |  | $            | 13,745,323 |   |              | $ | (345,805,343 | ) |  | $ | 451,955,412
|                                           |  |        |             |   |         |   |             |  |   |                |   |  |              |            |   |              |   |              |   |  |   |            
|Liabilities and Shareholders Equity       |  |        |             |   |         |   |             |  |   |                |   |  |              |            |   |              |   |              |   |  |   |            
|                                           |  |        |             |   |         |  
|Current liabilities                        |  |        |             |   |         |   |             |  |   |                |   |  |              |            |   |              |   |              |   |  |   |            
|Accounts payable                           |  | $      | 15,482,745  |   |         | $ | 889,302     |  | $ | 19,583,053     |   |  | $            | (45,265    | ) |              | $ | (10,541,466  | ) |  | $ | 25,368,369 
|Accrued liabilities                        |  |        | 5,792,581   |   |         |   | 9,077,542   |  |   | 8,264,024      |   |  |              | 3,696,943  |   |              |   | 799,171      |   |  |   | 27,630,261 
|Current maturities of long-term debt       |  |        |            |   |         |   | 1,459,492   |  |   | 1,761,769      |   |  |              |           |   |              |   |             |   |  |   | 3,221,261  
|                                           |  |        |             |   |         |   |             |  |   |                |   |  |              |            |   |              |   |              |   |  |   |            
|Total current liabilities                  |  |        | 21,275,326  |   |         |   | 11,426,336  |  |   | 29,608,846     |   |  |              | 3,651,678  |   |              |   | (9,742,295   | ) |  |   | 56,219,891 
|Long-term debt, net of current maturities  |  |        |            |   |         |   | 209,500,461 |  |   | 4,019,122      |   |  |              |           |   |              |   |             |   |  |   | 213,519,583
|Intercompany payables                      |  |        |            |   |         |   |            |  |   | 212,875,753    |   |  |              | 7,693,995  |   |              |   | (220,569,748 | ) |  |   |           
|Intercompany note payable                  |  |        |            |   |         |   |            |  |   |               |   |  |              | 5,013,405  |   |              |   | (5,013,405   | ) |  |   |           
|Deferred tax liability                     |  |        | (31,133,204 | ) |         |   |            |  |   | 61,941,881     |   |  |              |           |   |              |   |             |   |  |   | 30,808,677 
|                                           |  |        |             |   |         |   |             |  |   |                |   |  |              |            |   |              |   |              |   |  |   |            
|Total liabilities                          |  |        | (9,857,878  | ) |         |   | 220,926,797 |  |   | 308,445,602    |   |  |              | 16,359,078 |   |              |   | (235,325,448 | ) |  |   | 300,548,151
|                                           |  |        |             |   |         |   |             |  |   |                |   |  |              |            |   |              |   |              |   |  |   |            
|Series B Convertible Preferred Shares      |  |        | 14,293,557  |   |         |   |            |  |   |               |   |  |              |           |   |              |   |             |   |  |   | 14,293,557 
|Shareholders equity                       |  |        | 137,113,703 |   |         |   | 19,634,914  |  |   | 93,458,737     |   |  |              | (2,613,755 | ) |              |   | (110,479,895 | ) |  |   | 137,113,704
|                                           |  |        |             |   |         |   |             |  |   |                |   |  |              |            |   |              |   |              |   |  |   |            
|Total liabilities and shareholders equity |  | $      | 141,549,382 |   |         | $ | 240,561,711 |  | $ | 401,904,339    |   |  | $            | 13,745,323 |   |              | $ | (345,805,343 | ) |  | $ | 451,955,412
|                                           |  |        |             |   |         |   |             |  |   |                |   |  |              |            |   |              |   |              |   |  |   |            



24



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



Condensed Consolidating Balance Sheet

As of December 31, 2009



|                                           |  |        |             |   |         |   |             |  |                |             |              |   |            |              |   |              |   |  |   |            
|------------------------------------------ |  | ------ | ----------- | - | ------- | - | ----------- |  | -------------- | ----------- | ------------ | - | ---------- | ------------ | - | ------------ | - |  | - | -----------
|                                           |  | Parent |             |   | Issuers |   | Guarantors  |  | Non-Guarantors |             | Eliminations |   |            | Consolidated
|Assets                                     |  |        |             |   |         |   |             |  |                |             |              |   |            |              |   |              |   |  |   |            
|Current assets                             |  |        |             |   |         |   |             |  |                |             |              |   |            |              |   |              |   |  |   |            
|Cash and cash equivalents                  |  | $      | 12,577,404  |   |         | $ | 7,860,204   |  | $              | 7,973,636   |              | $ | 14,123     |              | $ |             |   |  | $ | 28,425,367 
|Restricted cash                            |  |        |            |   |         |   | 2,932,279   |  |                |            |              |   |           |              |   |             |   |  |   | 2,932,279  
|Accounts receivable                        |  |        | 20,747,276  |   |         |   | 9,078       |  |                | 40,203,774  |              |   | 15,992,327 |              |   | (18,858,590  | ) |  |   | 58,093,865 
|Other current assets                       |  |        | (14,107     | ) |         |   | 401,021     |  |                | 4,231,170   |              |   | 118,610    |              |   |             |   |  |   | 4,736,694  
|                                           |  |        |             |   |         |   |             |  |                |             |              |   |            |              |   |              |   |  |   |            
|Total current assets                       |  | $      | 33,310,573  |   |         | $ | 11,202,582  |  | $              | 52,408,580  |              | $ | 16,125,060 |              | $ | (18,858,590  | ) |  | $ | 94,188,205 
|                                           |  |        |             |   |         |   |             |  |                |             |              |   |            |              |   |              |   |  |   |            
|Property and equipment, net                |  |        | 546,107     |   |         |   |            |  |                | 307,115,247 |              |   | 898,531    |              |   |             |   |  |   | 308,559,885
|Investments in affiliates                  |  |        | 40,712,544  |   |         |   | 97,919,974  |  |                | 680,424     |              |   |           |              |   | (139,312,942 | ) |  |   |           
|Intercompany receivables                   |  |        | 63,984,843  |   |         |   | 143,549,204 |  |                |            |              |   |           |              |   | (207,534,047 | ) |  |   |           
|Intercompany note receivable               |  |        | 5,013,405   |   |         |   |            |  |                |            |              |   |           |              |   | (5,013,405   | ) |  |   |           
|Intangible assets, net                     |  |        |            |   |         |   |            |  |                | 36,598,781  |              |   |           |              |   |             |   |  |   | 36,598,781 
|Deferred financing costs, net              |  |        |            |   |         |   | 11,453,830  |  |                |            |              |   |           |              |   |             |   |  |   | 11,453,830 
|Restricted cash                            |  |        |            |   |         |   | 6,560,225   |  |                |            |              |   |           |              |   |             |   |  |   | 6,560,225  
|Other assets                               |  |        | 1,890       |   |         |   | 27,500      |  |                | 31,436      |              |   | 11,144     |              |   |             |   |  |   | 71,970     
|                                           |  |        |             |   |         |   |             |  |                |             |              |   |            |              |   |              |   |  |   |            
|Total assets                               |  | $      | 143,569,362 |   |         | $ | 270,713,315 |  | $              | 396,834,468 |              | $ | 17,034,735 |              | $ | (370,718,984 | ) |  | $ | 457,432,896
|                                           |  |        |             |   |         |   |             |  |                |             |              |   |            |              |   |              |   |  |   |            
|                                           |  |        |             |   |         |  
|Liabilities and Shareholders Equity       |  |        |             |   |         |   |             |  |                |             |              |   |            |              |   |              |   |  |   |            
|Current liabilities                        |  |        |             |   |         |   |             |  |                |             |              |   |            |              |   |              |   |  |   |            
|Accounts payable                           |  | $      | 21,340,568  |   |         | $ | 445,376     |  | $              | 16,706,926  |              | $ | 5,137,388  |              | $ | (19,355,427  | ) |  | $ | 24,274,831 
|Accrued liabilities                        |  |        | 1,041,085   |   |         |   | 9,269,026   |  |                | 9,269,096   |              |   | 3,074,506  |              |   | 476,535      |   |  |   | 23,130,248 
|Current portion of long-term debt          |  |        |            |   |         |   | 10,736,500  |  |                | 1,696,400   |              |   |           |              |   |             |   |  |   | 12,432,900 
|                                           |  |        |             |   |         |   |             |  |                |             |              |   |            |              |   |              |   |  |   |            
|Total current liabilities                  |  |        | 22,381,653  |   |         |   | 20,450,902  |  |                | 27,672,422  |              |   | 8,211,894  |              |   | (18,878,892  | ) |  |   | 59,837,979 
|Long-term debt                             |  |        |            |   |         |   | 209,548,870 |  |                | 4,916,459   |              |   |           |              |   |             |   |  |   | 214,465,329
|Intercompany payables                      |  |        |            |   |         |   |            |  |                | 204,384,800 |              |   | 3,128,945  |              |   | (207,513,745 | ) |  |   |           
|Intercompany note payable                  |  |        |            |   |         |   |            |  |                |            |              |   | 5,013,405  |              |   | (5,013,405   | ) |  |   |           
|Deferred tax liability (benefit)           |  |        | (25,319,770 | ) |         |   |            |  |                | 61,941,881  |              |   |           |              |   |             |   |  |   | 36,622,111 
|                                           |  |        |             |   |         |   |             |  |                |             |              |   |            |              |   |              |   |  |   |            
|Total liabilities                          |  |        | (2,938,117  | ) |         |   | 229,999,772 |  |                | 298,915,562 |              |   | 16,354,244 |              |   | (231,406,042 | ) |  |   | 310,925,419
|                                           |  |        |             |   |         |   |             |  |                |             |              |   |            |              |   |              |   |  |   |            
|Shareholders equity                       |  |        | 146,507,479 |   |         |   | 40,713,543  |  |                | 97,918,906  |              |   | 680,491    |              |   | (139,312,942 | ) |  |   | 146,507,477
|                                           |  |        |             |   |         |   |             |  |                |             |              |   |            |              |   |              |   |  |   |            
|Total liabilities and shareholders equity |  | $      | 143,569,362 |   |         | $ | 270,713,315 |  | $              | 396,834,468 |              | $ | 17,034,735 |              | $ | (370,718,984 | ) |  | $ | 457,432,896
|                                           |  |        |             |   |         |   |             |  |                |             |              |   |            |              |   |              |   |  |   |            



25



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##### Table of Contents

Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



Condensed Consolidating Statement of Operations

For the Three Months Ended June 30, 2010



|                                                                                         |  |        |            |   |         |   |            |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |            |  
|---------------------------------------------------------------------------------------- |  | ------ | ---------- | - | ------- | - | ---------- | ---------- |  | - | -------------- | - |  | ------------ | ---------- | - | ------------ | - | ----------- | - |  | - | ---------- | -
|                                                                                         |  | Parent |            |   | Issuers |   |            | Guarantors |  |   | Non-Guarantors |   |  | Eliminations |            |   | Consolidated |  
|Revenues                                                                                 |  |        |            |   |         |   |            |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |            |  
|                                                                                         |  |        |            |   |         |  
|Well servicing                                                                           |  | $      | 11,977,886 |   |         |   |           |            |  | $ | 28,366,595     |   |  | $            | 9,021,378  |   |              | $ | (9,715,127  | ) |  | $ | 39,650,732 |  
|Fluid logistics                                                                          |  |        |           |   |         |   |           |            |  |   | 40,393,056     |   |  |              |           |   |              |   |            |   |  |   | 40,393,056 |  
|                                                                                         |  |        |            |   |         |   |            |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |            |  
|Total revenues                                                                           |  |        | 11,977,886 |   |         |   |           |            |  |   | 68,759,651     |   |  |              | 9,021,378  |   |              |   | (9,715,127  | ) |  |   | 80,043,788 |  
|                                                                                         |  |        |            |   |         |   |            |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |            |  
|Expenses                                                                                 |  |        |            |   |         |   |            |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |            |  
|Well servicing                                                                           |  |        | 9,958,422  |   |         |   |           |            |  |   | 22,370,711     |   |  |              | 4,682,603  |   |              |   | (8,300,118  | ) |  |   | 28,711,618 |  
|Fluid logistics                                                                          |  |        |           |   |         |   |           |            |  |   | 32,026,780     |   |  |              |           |   |              |   |            |   |  |   | 32,026,780 |  
|General and administrative                                                               |  |        | 4,277,535  |   |         |   | 1,522,916  |            |  |   | 2,704,414      |   |  |              | 915,706    |   |              |   | (2,867,903  | ) |  |   | 6,552,668  |  
|Depreciation and amortization                                                            |  |        | 32,373     |   |         |   |           |            |  |   | 9,820,783      |   |  |              | 60,872     |   |              |   |            |   |  |   | 9,914,028  |  
|                                                                                         |  |        |            |   |         |   |            |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |            |  
|Total expenses                                                                           |  |        | 14,268,330 |   |         |   | 1,522,916  |            |  |   | 66,922,688     |   |  |              | 5,659,181  |   |              |   | (11,168,021 | ) |  |   | 77,205,094 |  
|                                                                                         |  |        |            |   |         |   |            |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |            |  
|Operating income                                                                         |  |        | (2,290,444 | ) |         |   | (1,522,916 | )          |  |   | 1,836,963      |   |  |              | 3,362,197  |   |              |   | 1,452,894   |   |  |   | 2,838,694  |  
|Interest Expense                                                                         |  |        | 8,058      |   |         |   | (6,770,228 | )          |  |   | (122,967       | ) |  |              | (18,005    | ) |              |   | 8,196       |   |  |   | (6,894,946 | )
|Equity in income (loss) of affiliates                                                    |  |        | (6,081,954 | ) |         |   | 2,192,589  |            |  |   | 505,633        |   |  |              |           |   |              |   | 3,383,732   |   |  |   |           |  
|Other income, net                                                                        |  |        | 3,034,219  |   |         |   | 18,601     |            |  |   | (26,821        | ) |  |              | (3,024,132 | ) |              |   | 213         |   |  |   | 2,080      |  
|                                                                                         |  |        |            |   |         |   |            |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |            |  
|Income before taxes                                                                      |  |        | (5,330,121 | ) |         |   | (6,081,954 | )          |  |   | 2,192,808      |   |  |              | 320,060    |   |              |   | 4,845,035   |   |  |   | (4,054,172 | )
|Income tax expense                                                                       |  |        | (1,627,202 | ) |         |   |           |            |  |   |               |   |  |              | (185,624   | ) |              |   |            |   |  |   | (1,812,826 | )
|                                                                                         |  |        |            |   |         |   |            |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |            |  
|Net income (loss)                                                                        |  | $      | (3,702,919 | ) |         | $ | (6,081,954 | )          |  | $ | 2,192,808      |   |  | $            | 505,684    |   |              | $ | 4,845,035   |   |  | $ | (2,241,346 | )
|                                                                                         |  |        |            |   |         |   |            |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |            |  
|                                                                                        
|Condensed Consolidating Statement of Operations
For the Three Months Ended June 30, 2009 | 
|                                                                                         |  |        |            |   |         |  
|                                                                                         |  | Parent |            |   | Issuers |   |            | Guarantors |  |   | Non-Guarantors |   |  | Eliminations |            |   | Consolidated |  
|Revenues                                                                                 |  |        |            |   |         |   |            |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |            |  
|Well servicing                                                                           |  | $      | 8,075,927  |   |         | $ |           |            |  | $ | 20,448,253     |   |  | $            | 5,910,533  |   |              | $ | (8,919,642  | ) |  | $ | 25,515,071 |  
|Fluid logistics                                                                          |  |        |           |   |         |   |           |            |  |   | 24,237,506     |   |  |              |           |   |              |   |            |   |  |   | 24,237,506 |  
|                                                                                         |  |        |            |   |         |   |            |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |            |  
|Total revenues                                                                           |  |        | 8,075,927  |   |         |   |           |            |  |   | 44,685,759     |   |  |              | 5,910,533  |   |              |   | (8,919,642  | ) |  |   | 49,752,577 |  
|                                                                                         |  |        |            |   |         |   |            |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |            |  
|Expenses                                                                                 |  |        |            |   |         |   |            |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |            |  
|Well servicing                                                                           |  |        | 7,240,980  |   |         |   |           |            |  |   | 18,588,566     |   |  |              | 5,106,456  |   |              |   | (7,215,110  | ) |  |   | 23,720,892 |  
|Fluid logistics                                                                          |  |        |           |   |         |   |           |            |  |   | 19,928,066     |   |  |              |           |   |              |   |            |   |  |   | 19,928,066 |  
|General and administrative                                                               |  |        | 1,462,524  |   |         |   | 1,284,002  |            |  |   | 2,123,165      |   |  |              | 622,948    |   |              |   | (1,596,063  | ) |  |   | 3,896,576  |  
|Depreciation and amortization                                                            |  |        | 81,762     |   |         |   |           |            |  |   | 9,722,973      |   |  |              | 51,990     |   |              |   | (81,762     | ) |  |   | 9,774,963  |  
|                                                                                         |  |        |            |   |         |   |            |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |            |  
|Total expenses                                                                           |  |        | 8,785,266  |   |         |   | 1,284,002  |            |  |   | 50,362,770     |   |  |              | 5,781,394  |   |              |   | (8,892,935  | ) |  |   | 57,320,497 |  
|                                                                                         |  |        |            |   |         |   |            |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |            |  
|Operating income                                                                         |  |        | (709,339   | ) |         |   | (1,284,002 | )          |  |   | (5,677,011     | ) |  |              | 129,139    |   |              |   | (26,707     | ) |  |   | (7,567,920 | )



26



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##### Table of Contents

Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



|                                                                                       |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|-------------------------------------------------------------------------------------- |  | ------ | ----------- | - | ------- | - | ----------- | ---------- |  | - | -------------- | - |  | ------------ | ---------- | - | ------------ | - | ----------- | - |  | - | ----------- | -
|                                                                                       |  | Parent |             |   | Issuers |   |             | Guarantors |  |   | Non-Guarantors |   |  | Eliminations |            |   | Consolidated |  
|                                                                                       |  |        |             |   |         |  
|Interest Expense                                                                       |  |        | (9,895      | ) |         |   | (6,138,407  | )          |  |   | (267,902       | ) |  |              | (9,897     | ) |              |   | 19,790      |   |  |   | (6,406,311  | )
|                                                                                       |  |        |             |   |         |  
|Equity in income (loss) of affiliates                                                  |  |        | (12,779,175 | ) |         |   | (5,804,866  | )          |  |   | 92,344         |   |  |              |           |   |              |   | 18,491,697  |   |  |   |            |  
|Other income (loss), net                                                               |  |        | (5,496      | ) |         |   | 448,100     |            |  |   | 11,813         |   |  |              | (5,408     | ) |              |   | 6,917       |   |  |   | 455,926     |  
|                                                                                       |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Income (expense) before taxes                                                          |  |        | (13,503,905 | ) |         |   | (12,779,175 | )          |  |   | (5,840,756     | ) |  |              | 113,834    |   |              |   | 18,491,697  |   |  |   | (13,518,305 | )
|Income tax expense                                                                     |  |        | (4,466,169  | ) |         |   |            |            |  |   | (35,881        | ) |  |              | 21,481     |   |              |   |            |   |  |   | (4,480,569  | )
|                                                                                       |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Net income (loss)                                                                      |  | $      | (9,037,736  | ) |         | $ | (12,779,175 | )          |  | $ | (5,804,875     | ) |  | $            | 92,353     |   |              | $ | 18,491,697  |   |  | $ | (9,037,736  | )
|                                                                                       |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|                                                                                      
|Condensed Consolidating Statement of Operations
For the Six Months Ended June 30, 2010 | 
|                                                                                       |  |        |             |   |         |  
|                                                                                       |  | Parent |             |   | Issuers |   |             | Guarantors |  |   | Non-Guarantors |   |  | Eliminations |            |   | Consolidated |  
|Revenues                                                                               |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Well servicing                                                                         |  | $      | 21,507,073  |   |         |   |            |            |  |   | 50,572,555     |   |  | $            | 10,713,251 |   |              | $ | (12,119,287 | ) |  | $ | 70,673,592  |  
|Fluid logistics                                                                        |  |        |            |   |         |   |            |            |  |   | 76,633,923     |   |  |              |           |   |              |   |            |   |  |   | 76,633,923  |  
|                                                                                       |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Total revenues                                                                         |  |        | 21,507,073  |   |         |   |            |            |  |   | 127,206,478    |   |  |              | 10,713,251 |   |              |   | (12,119,287 | ) |  |   | 147,307,515 |  
|                                                                                       |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Expenses                                                                               |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Well servicing                                                                         |  |        | 18,362,031  |   |         |   |            |            |  |   | 42,703,311     |   |  |              | 5,545,762  |   |              |   | (9,251,168  | ) |  |   | 57,359,936  |  
|Fluid logistics                                                                        |  |        |            |   |         |   |            |            |  |   | 60,291,619     |   |  |              |           |   |              |   |            |   |  |   | 60,291,619  |  
|General and administrative                                                             |  |        | 4,550,869   |   |         |   | 3,080,787   |            |  |   | 5,441,282      |   |  |              | 2,006,777  |   |              |   | (2,867,903  | ) |  |   | 12,211,812  |  
|Depreciation and amortization                                                          |  |        | 81,749      |   |         |   |            |            |  |   | 19,634,892     |   |  |              | 121,451    |   |              |   |            |   |  |   | 19,838,092  |  
|                                                                                       |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Total expenses                                                                         |  |        | 22,994,649  |   |         |   | 3,080,787   |            |  |   | 128,071,104    |   |  |              | 7,673,990  |   |              |   | (12,119,071 | ) |  |   | 149,701,459 |  
|                                                                                       |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Operating income                                                                       |  |        | (1,487,576  | ) |         |   | (3,080,787  | )          |  |   | (864,626       | ) |  |              | 3,039,261  |   |              |   | (216        | ) |  |   | (2,393,944  | )
|Interest Expense                                                                       |  |        | 16,254      |   |         |   | (13,558,564 | )          |  |   | (185,239       | ) |  |              | (15,128    | ) |              |   |            |   |  |   | (13,742,677 | )
|Equity in income (loss) of affiliates                                                  |  |        | (17,784,304 | ) |         |   | (1,166,173  | )          |  |   |               |   |  |              |           |   |              |   | 18,950,477  |   |  |   |            |  
|Other income, net                                                                      |  |        | 3,029,450   |   |         |   | 21,220      |            |  |   | (116,425       | ) |  |              | (3,024,133 | ) |              |   | 213         |   |  |   | (89,675     | )
|                                                                                       |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Income before taxes                                                                    |  |        | (16,226,176 | ) |         |   | (17,784,304 | )          |  |   | (1,166,290     | ) |  |              |           |   |              |   | 18,950,474  |   |  |   | (16,226,926 | )
|Income tax expense                                                                     |  |        | (5,813,434  | ) |         |   |            |            |  |   |               |   |  |              |           |   |              |   |            |   |  |   | (5,813,434  | )
|                                                                                       |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Net income (loss)                                                                      |  | $      | (10,412,742 | ) |         | $ | (17,784,304 | )          |  | $ | (1,166,290     | ) |  | $            |           |   |              | $ | 18,950,474  |   |  | $ | (10,412,862 | )
|                                                                                       |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  



27



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##### Table of Contents

Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



Condensed Consolidating Statement of Operations

For the Six Months Ended June 30, 2009



|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|------------------------------------- |  | ------ | ----------- | - | ------- | - | ----------- | ---------- |  | - | -------------- | - |  | ------------ | --------- | - | ------------ | - | ----------- | - |  | - | ----------- | -
|                                      |  | Parent |             |   | Issuers |   |             | Guarantors |  |   | Non-Guarantors |   |  | Eliminations |           |   | Consolidated |  
|Revenues                              |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Well servicing                        |  | $      | 10,784,461  |   |         | $ |            |            |  | $ | 49,698,727     |   |  | $            | 8,619,067 |   |              | $ | (12,048,176 | ) |  | $ | 57,054,079  |  
|Fluid logistics                       |  |        |            |   |         |   |            |            |  |   | 56,129,880     |   |  |              |          |   |              |   |            |   |  |   | 56,129,880  |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Total revenues                        |  |        | 10,784,461  |   |         |   |            |            |  |   | 105,828,607    |   |  |              | 8,619,067 |   |              |   | (12,048,176 | ) |  |   | 113,183,959 |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|Expenses                              |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Well servicing                        |  |        | 10,170,235  |   |         |   |            |            |  |   | 43,106,443     |   |  |              | 7,183,567 |   |              |   | (10,343,644 | ) |  |   | 50,116,601  |  
|                                      |  |        |             |   |         |  
|Fluid logistics                       |  |        |            |   |         |   |            |            |  |   | 43,159,687     |   |  |              |          |   |              |   |            |   |  |   | 43,159,687  |  
|                                      |  |        |             |   |         |  
|General and administrative            |  |        | 1,898,602   |   |         |   | 3,464,987   |            |  |   | 4,931,200      |   |  |              | 971,729   |   |              |   | (1,596,063  | ) |  |   | 9,670,455   |  
|Depreciation and amortization         |  |        | 81,762      |   |         |   |            |            |  |   | 19,384,303     |   |  |              | 82,032    |   |              |   | (81,762     | ) |  |   | 19,466,335  |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Total expenses                        |  |        | 12,150,599  |   |         |   | 3,464,987   |            |  |   | 110,581,633    |   |  |              | 8,237,328 |   |              |   | (12,021,469 | ) |  |   | 122,413,078 |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Operating income                      |  |        | (1,366,138  | ) |         |   | (3,464,987  | )          |  |   | (4,753,026     | ) |  |              | 381,739   |   |              |   | (26,707     | ) |  |   | (9,229,119  | )
|                                      |  |        |             |   |         |  
|Interest Expense                      |  |        | (9,895      | ) |         |   | (12,572,714 | )          |  |   | (487,274       | ) |  |              | (9,895    | ) |              |   | 19,790      |   |  |   | (13,059,988 | )
|Equity in income (loss) of affiliates |  |        | (19,584,246 | ) |         |   | (4,968,748  | )          |  |   | 244,614        |   |  |              |          |   |              |   | 24,308,380  |   |  |   |            |  
|                                      |  |        |             |   |         |  
|Other income, net                     |  |        | (5,496      | ) |         |   | 1,422,203   |            |  |   | 79,246         |   |  |              | (46,503   | ) |              |   | 6,917       |   |  |   | 1,456,367   |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Income before taxes                   |  |        | (20,965,775 | ) |         |   | (19,584,246 | )          |  |   | (4,916,440     | ) |  |              | 325,341   |   |              |   | 24,308,380  |   |  |   | (20,832,740 | )
|                                      |  |        |             |   |         |  
|Income tax expense                    |  |        | (7,392,549  | ) |         |   |            |            |  |   | 52,332         |   |  |              | 80,703    |   |              |   |            |   |  |   | (7,259,514  | )
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|Net income (loss)                     |  | $      | (13,573,226 | ) |         | $ | (19,584,246 | )          |  | $ | (4,968,772     | ) |  | $            | 244,638   |   |              | $ | 24,308,380  |   |  | $ | (13,573,226 | )
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2010



|                                                     |  |        |             |   |         |   |            |            |  |   |                |   |              |   |              |  |   |   |  |   |             |  
|---------------------------------------------------- |  | ------ | ----------- | - | ------- | - | ---------- | ---------- |  | - | -------------- | - | ------------ | - | ------------ |  | - | - |  | - | ----------- | -
|                                                     |  | Parent |             |   | Issuers |   |            | Guarantors |  |   | Non-Guarantors |   | Eliminations |   | Consolidated | 
|Cash flows from operating activities                 |  |        |             |   |         |   |            |            |  |   |                |   |              |   |              |  |   |   |  |   |             |  
|Net cash provided by operating activities            |  | $      | (24,114,476 | ) |         | $ | 2,720,939  |            |  | $ | 8,780,911      |   |              | $ | 31,586       |  | $ |  |  | $ | (12,581,040 | )
|                                                     |  |        |             |   |         |   |            |            |  |   |                |   |              |   |              |  |   |   |  |   |             |  
|                                                     |  |        |             |   |         |  
|Cash flows from investing activities                 |  |        |             |   |         |   |            |            |  |   |                |   |              |   |              |  |   |   |  |   |             |  
|Change in restricted cash                            |  |        |            |   |         |   | (28,312    | )          |  |   |               |   |              |   |             |  |   |  |  |   | (28,312     | )
|Insurance proceeds                                   |  |        |            |   |         |   |           |            |  |   |               |   |              |   |             |  |   |  |  |   |            |  
|Purchase of property and equipment                   |  |        |            |   |         |   |           |            |  |   | (3,244,749     | ) |              |   |             |  |   |  |  |   | (3,244,749  | )
|                                                     |  |        |             |   |         |   |            |            |  |   |                |   |              |   |              |  |   |   |  |   |             |  
|Net cash used in investing activities                |  |        |            |   |         |   | (28,312    | )          |  |   | (3,244,749     | ) |              |   |             |  |   |  |  |   | (3,273,061  | )
|                                                     |  |        |             |   |         |   |            |            |  |   |                |   |              |   |              |  |   |   |  |   |             |  
|                                                     |  |        |             |   |         |  
|Cash flows from financing activities                 |  |        |             |   |         |   |            |            |  |   |                |   |              |   |              |  |   |   |  |   |             |  
|Other                                                |  |        | (161,793    | ) |         |   |           |            |  |   | 8,426          |   |              |   |             |  |   |  |  |   | (153,367    | )
|Proceeds from issuance of preferred stock            |  |        | 14,229,600  |   |         |   |           |            |  |   |                |   |              |   |             |  |   |  |  |   | 14,229,600  |  
|                                                     |  |        |             |   |         |  
|Repayments of debt                                   |  |        |            |   |         |   | (9,305,758 | )          |  |   | (831,967       | ) |              |   |              |  |   |   |  |   | (10,137,725 | )
|                                                     |  |        |             |   |         |   |            |            |  |   |                |   |              |   |              |  |   |   |  |   |             |  
|Net cash provided by (used in) financing activities  |  |        | 14,067,807  |   |         |   | (9,305,758 | )          |  |   | (823,541       | ) |              |   |             |  |   |  |  |   | 3,938,508   |  
|                                                     |  |        |             |   |         |   |            |            |  |   |                |   |              |   |              |  |   |   |  |   |             |  
|Net increase/(decrease) in cash and cash equivalents |  |        | (10,046,669 | ) |         |   | (6,613,131 | )          |  |   | 4,712,621      |   |              |   | 31,586       |  |   |  |  |   | (11,915,593 | )
|Cash and cash equivalents                            |  |        |             |   |         |   |            |            |  |   |                |   |              |   |              |  |   |   |  |   |             |  
|                                                     |  |        |             |   |         |  
|Beginning of period                                  |  |        | 12,577,404  |   |         |   | 7,860,204  |            |  |   | 7,973,636      |   |              |   | 14,123       |  |   |  |  |   | 28,425,367  |  
|                                                     |  |        |             |   |         |   |            |            |  |   |                |   |              |   |              |  |   |   |  |   |             |  
|End of period                                        |  | $      | 2,530,735   |   |         | $ | 1,247,073  |            |  | $ | 12,686,257     |   |              | $ | 45,709       |  | $ |  |  | $ | 16,509,774  |  
|                                                     |  |        |             |   |         |   |            |            |  |   |                |   |              |   |              |  |   |   |  |   |             |  



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2009



|                                                     |  |        |           |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|---------------------------------------------------- |  | ------ | --------- | - | ------- | - | ---------- | ---------- |  | - | -------------- | - |  | ------------ | -------- | ------------ |  | - | - |  | - | ----------- | -
|                                                     |  | Parent |           |   | Issuers |   |            | Guarantors |  |   | Non-Guarantors |   |  | Eliminations |          | Consolidated | 
|Cash flows from operating activities                 |  |        |           |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|Net cash provided by operating activities            |  | $      | 3,723,376 |   |         | $ | 15,208,361 |            |  | $ | 7,396,957      |   |  | $            | 598,226  |              |  | $ |  |  | $ | 26,926,920  |  
|                                                     |  |        |           |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|                                                     |  |        |           |   |         |  
|Cash flows from investing activities                 |  |        |           |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|Insurance proceeds                                   |  |        |          |   |         |   |           |            |  |   | 1,660,630      |   |  |              |         |              |  |   |  |  |   | 1,660,630   |  
|Purchase of property and equipment                   |  |        |          |   |         |   |           |            |  |   | (18,252,374    | ) |  |              | (887,234 | )            |  |   |  |  |   | (19,139,608 | )
|                                                     |  |        |           |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|Net cash used in investing activities                |  |        |          |   |         |   |           |            |  |   | (16,591,744    | ) |  |              | (887,234 | )            |  |   |  |  |   | (17,478,978 | )
|                                                     |  |        |           |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|                                                     |  |        |           |   |         |  
|Cash flows from financing activities                 |  |        |           |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|Payments related to issuance of common stock         |  |        | (4,294    | ) |         |   |           |            |  |   |               |   |  |              |         |              |  |   |  |  |   | (4,294      | )
|Net borrowings under the Credit Facility             |  |        |          |   |         |   |           |            |  |   | 12,000,000     |   |  |              |         |              |  |   |  |  |   | 12,000,000  |  
|                                                     |  |        |           |   |         |  
|Repayments of debt                                   |  |        |          |   |         |   | (3,425,182 | )          |  |   | (2,924,455     | ) |  |              |         |              |  |   |  |  |   | (6,349,637  | )
|                                                     |  |        |           |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|Net cash provided by (used in) financing activities  |  |        | (4,294    | ) |         |   | (3,425,182 | )          |  |   | 9,075,545      |   |  |              |         |              |  |   |  |  |   | 5,646,069   |  
|                                                     |  |        |           |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|Net increase/(decrease) in cash and cash equivalents |  |        | 3,719,082 |   |         |   | 11,783,179 |            |  |   | (119,242       | ) |  |              | (289,008 | )            |  |   |  |  |   | 15,094,011  |  
|Cash and cash equivalents                            |  |        |           |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|                                                     |  |        |           |   |         |  
|Beginning of period                                  |  |        | 136,891   |   |         |   | 196,738    |            |  |   | 23,115,657     |   |  |              | 19,781   |              |  |   |  |  |   | 23,469,067  |  
|                                                     |  |        |           |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  
|End of period                                        |  | $      | 3,855,973 |   |         | $ | 11,979,917 |            |  | $ | 22,996,415     |   |  | $            | (269,227 | )            |  | $ |  |  | $ | 38,563,078  |  
|                                                     |  |        |           |   |         |   |            |            |  |   |                |   |  |              |          |              |  |   |   |  |   |             |  

16. Equity Securities

Common Shares

Holders of Common Shares have no pre-emptive, redemption, conversion, or sinking fund rights. Holders of Common Shares are entitled to one
vote per share on all matters submitted to a vote of holders of Common Shares. Unless a different majority is required by law or by the Bye-laws, resolutions to be approved by holders of Common Shares require approval by a simple majority of
votes cast at a meeting at which a quorum is present. In the event of the liquidation, dissolution, or winding up of the Company, the holders of Common Shares are entitled to share equally and ratably in the Companys assets, if any,
remaining after the payment of all of its debts and liabilities, subject to any liquidation preference on any issued and outstanding Preference Shares.

Class B Shares

On May 28, 2010, in connection with the issuance of the Series B Preferred Shares, holders of Class B Shares holding greater than 66
2/3% of the Class B Shares then issued and outstanding elected to convert their Class B Shares into an equal number of the Companys Common Shares, pursuant to Section 4.3 of the Companys Bye-laws. This resulted in the automatic
conversion of all issued and outstanding Class B Shares into the Companys Common Shares, on a one-for-one basis. There are no Class B Shares currently issued and outstanding.

Prior to Conversion, holders of Class B Shares had all of the rights of holders of Common Shares, except for the differences described in
footnote 15 of the Companys Annual Report on Form 10-K for the year ended December 31, 2009.



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



Series B Senior Convertible Preferred Shares

Under our Certificate of Designation, we are authorized to issue 825,000 shares of Series B Senior Convertible Preferred Shares (the
Series B Preferred Shares), par value $0.01 per share. On May 28, 2010 the Company completed a private placement of 580,800 Series B Preferred Shares to West Face Long Term Opportunities Limited Partnership, West Face Long Term
Opportunities (USA) Limited Partnership and West Face Long Term Opportunities Master Fund L.P. (collectively, the Investors) for total gross proceeds of $14,520,000. In connection with the private placement, the Company paid the
Investors a closing fee of $290,400. The Common Shares into which the Series B Preferred Shares are convertible have certain demand and piggyback registration rights.

The terms of the Series B Preferred Shares are as follows:

Rank  The Series B Preferred Shares rank senior in right of payment to the Common Shares and any class or
series of capital stock that is junior to the Series B Preferred Shares, and pari passu with any series of the Companys preferred stock that by its terms ranks pari passu in right of payment as to dividends and liquidation with the Series B
Preferred Shares.

Conversion The Series B Preferred Shares are convertible into the
Companys common shares at an initial rate of 36 common shares per Series B Preferred Shares (subject to adjustment). If all such Series B Preferred Shares are converted, at the initial conversion rate, 20,908,800 Common Shares (representing
19.99% of the outstanding common shares after such conversion) will be issued to the holders of the Series B Preferred Shares. Pursuant to Certificate of Designation, no holder of the Series B Preferred Shares is entitled to effect a conversion of
Series B Preferred Shares if such conversion would result in the holder (and affiliates) beneficially owning 20% or more of the Companys Common Shares. The Company has considered all applicable guidance related to the conversion feature and
determined that bifurcation was not required.

DividendsRights  The Series B Preferred
Shares are entitled to receive preferential dividends equal to five percent (5%) per annum of the original issue price per share, payable quarterly in February, May, August and November of each year. Such dividends may be paid by the Company in
cash or in kind (in the form of additional Series B Preferred Shares). In the event that the payment in cash or in kind of any such dividend would cause the Company to violate a covenant under its debt agreements, the obligation to pay, in cash or
in kind, will be suspended until the earlier to



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Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements(Continued)



occur of (i) and only to the extent any restrictions under the debt agreements lapse or are no longer applicable or (ii) February 16, 2015. During any such suspension period, the
preferential dividends shall continue to accrue and accumulate. As shares of the Series B Preferred Shares are convertible into shares of our common stock, each dividend paid in kind will have a dilutive effect on our shares of common stock.

Liquidation  Upon any voluntary or involuntary liquidation, dissolution or winding up of the
Company, no distribution shall be made as follows:



| | (i) | to the holders of shares ranking junior to the Series B Preferred Shares unless the holders of Series B Preferred Shares shall have received an amount equal to the
original issue price per share of the Series B Preferred Shares (subject to adjustment) plus an amount equal to accumulated and unpaid dividends and distributions thereon to the date of such payment, and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | to the holders of shares ranking on a parity with the Series B Preferred Shares, unless simultaneously therewith distributions are made ratably on the Series B
Preferred Shares and all other such parity stock in proportion to the total amounts to which the holders of Series B Preferred Shares are entitled.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Voting Rights  The holders of Series B Preferred Shares are not entitled to any voting rights except as
provided in the following sentence in the Companys Bye-laws or otherwise under the Company Act of 1981 of Bermuda. If the preferential dividends on the Series B Preferred Shares have not been declared and paid in full in cash or in kind for
eight or more quarterly dividend periods (whether or not consecutive), the holders of the Series B Preferred Shares shall be entitled to vote at any meeting of shareholders with the holders of Common Shares and to cast the number of votes equal to
the number of whole Common Shares into which the Series B Preferred Shares held by such holders are then convertible.

Redemption  All or any number of the Series B Preferred Shares may be redeemed by the Company at any time
after May 28, 2013 at a redemption price determined in accordance with the Certificate of Designations and provided that the current equity value of our common stock exceeds specified levels. On May 28, 2017, the Company is required to
redeem any Series B Preferred Shares then outstanding at a redemption price determined in accordance with the Certificate of Designation. Such mandatory redemption may, at the Companys election, be paid in cash or in common shares (valued for
such purpose at 95% of the then fair market value of the common shares). In the event certain corporate transactions occur (such as a reorganization, recapitalization, reclassification, consolidation or merger) under which the Companys common
shares (but not the Series B Preferred Shares) are converted into or exchanged for securities, cash or other property, then following such transaction, each Series B Preferred Share shall thereafter be convertible into the same kind and amount of
securities, cash or other property.

Certain of the redemption features are outside of the Companys control, and as a
result, the Series B Preferred Shares have been reflected in the consolidated balance sheet as temporary equity.

Dividends

Preferred stock dividends are recorded at their fair value. If paid in cash, the amount paid represents fair value. If paid in kind, the
fair value of the preferred stock dividends is determined using valuation techniques that include a component representing the intrinsic value of the dividends (which represents the fair value of the common stock into which the preferred shares
could be converted) and an option component (which is determined using a Black-Scholes Option Pricing Model). Management currently expects to pay dividends in kind. As we are in an accumulated deficit position, these dividends are treated as a
reduction of additional paid-in capital.

The Series B Preferred Shares are not redeemable as of June 30, 2010. The
Company paid a closing fee to the Investors of $290,400 which is netted with the proceeds from the sale of the Series B Preferred Shares in temporary equity on the consolidated balance sheet. The value of the Series B Preferred Shares is being
accreted up to redemption value from the date of issuance to the earliest redemption date of the instrument using the effective interest rate method. If the Series B Preferred Shares had been redeemed as of June 30, 2010, the redemption
amount would have been approximately $14,580,500.

17. Subsequent Events

Subsequent events have been evaluated through the date of this Form 10-Q.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying
condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with the audited consolidated financial statements for the year ended December 31, 2009 included in our Annual Report on
Form 10-K. Any forward-looking statements made by or on our behalf are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that such forward-looking statements involve risks and
uncertainties in that the actual results may differ materially from those projected in the forward-looking statements. Important factors that could cause actual results to differ include risks set forth in Part II-Item 1A. Risk
Factors included herein.



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Overview

Forbes Energy Services Ltd., or FES Ltd, and its domestic subsidiaries, Forbes Energy Services LLC, or FES LLC, Forbes Energy Capital
Inc., or FES CAP, C.C. Forbes, LLC, or CCF, TX Energy Services, LLC, or TES, Superior Tubing Testers, LLC, or STT, and Forbes Energy International, LLC, or FEI LLC, are headquartered in Alice, Texas and conduct business primarily in the state
of Texas. In late 2008, FES LLC and FEI LLC formed Forbes Energy Services México, S. de R.L. de C.V., or FES Mexico, a Mexican limited liability partnership (sociedad de responsabilidad limitada de capital variable) and a related company to
conduct operations in Mexico.

As used in this Quarterly Report on Form 10-Q, the Company, the Forbes
Group, we, and our mean FES Ltd and its subsidiaries.

We are an independent oilfield services
contractor that provides a wide range of well site services to oil and natural gas drilling and producing companies to help develop and enhance the production of oil and natural gas. These services include fluid hauling, fluid disposal, well
maintenance, completion services, workovers and recompletions, plugging and abandonment, and tubing testing. The Forbes Groups operations are concentrated in the major onshore oil and natural gas producing regions of Texas, with locations in
Baxterville, Mississippi, Washington, Pennsylvania and Poza Rica, Mexico.

We currently conduct our operations through the
following two business segments:



| |  |  | Well Servicing. Our well servicing segment comprised 49.5% and 48.0 % of consolidated revenues for the three and six months ended
June 30, 2010, respectively. At June 30, 2010, our well servicing segment utilized our modern fleet of 171 owned or leased well servicing rigs, which included 162 workover rigs and 9 swabbing rigs, and related assets and
equipment. These assets are used to provide (i) well maintenance, including remedial repairs and removal and replacement of downhole production equipment, (ii) well workovers, including significant downhole repairs, re-completions and
re-perforations, (iii) completion and swabbing activities, and (iv) plugging and abandoning services. In addition, we have a fleet of nine tubing testing units that are used to conduct pressure testing of oil and natural gas
production tubing.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Fluid Logistics. Our fluid logistics segment comprised 50.5% and 52.0 % of consolidated revenues for the three and six months ended
June 30, 2010, respectively. Our fluid logistics segment utilized our fleet of owned or leased fluid transport trucks and related assets, including specialized vacuum, high-pressure pump and tank trucks, frac tanks, water wells, salt water
disposal wells and facilities, and related equipment. These assets are used to provide, transport, store, and dispose of a variety of drilling and produced fluids used in, and generated by, oil and natural gas production. These services are required
in most workover and completion projects and are routinely used in daily operations of producing wells.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
believe that our two business segments are complementary and create synergies in terms of selling opportunities. Our multiple lines of service allow us to capitalize on our existing customer base to grow within existing markets, generate more
business from existing customers, and increase our operating profits. By offering our customers the ability to reduce the number of vendors they use, we believe we help improve our customers efficiency. This is demonstrated by the fact that
70.8% and 68.7% of our revenues for the three and six months ended June 30, 2010, respectively, were from customers that utilized services of both of our business segments. Further, by having multiple service offerings that span the life cycle
of the well, we believe we have a competitive advantage over smaller competitors offering more limited services.

Factors Affecting Results of Operations

Oil and Natural Gas Prices

Demand for well servicing and fluid logistics services is generally a function of the willingness of oil and natural gas companies to make
operating and capital expenditures to explore for, develop and produce oil and natural gas, which in turn is affected by current and anticipated levels of oil and natural gas prices. Exploration and production spending is generally categorized as
either operating expenditures or capital expenditures. Activities by oil and natural gas companies designed to add oil and natural gas reserves are classified as capital expenditures, and those associated with maintaining or accelerating production,
such as workover and fluid logistics services, are categorized as operating expenditures. Operating expenditures are typically more stable than capital expenditures and are less sensitive to oil and natural gas price volatility. In contrast, capital
expenditures by oil and natural gas companies for drilling are more directly influenced by current and expected oil and natural gas prices and generally reflect the volatility of commodity prices.



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Workover Rig Rates

Our well servicing segment revenues are dependent on the prevailing market rates for workover rigs. Market day rates for workover rigs
increased from 2003 through the first half of 2008, as high oil and natural gas prices and declining domestic production resulted in a substantial growth of drilling activity and demand for workover services that are used primarily to maintain or
enhance production levels of existing producing wells. Throughout 2009 and through the majority of the first quarter of 2010, we continued to experience pricing pressure that resulted from the general economic decline and, more specifically, the
precipitous decline in oil and gas prices. However, during the six months ended June 30, 2010 utilization began to increase allowing us to increase rates in certain markets beginning in March 2010 and continuing through July 2010.

Fluid Logistics Rates

Our fluid logistics segment revenues are dependent on the prevailing market rates for fluid transport trucks and the related assets,
including specialized vacuum, high-pressure pump and tank trucks, frac tanks and salt water disposal wells. Prior to the general economic decline that commenced in the latter half of 2008, higher oil and natural gas prices resulted in growing demand
for drilling and our services and, since the decline, lower oil and natural gas prices have resulted in reduced demand for drilling and our services. Required disposal of fluids produced from wells and the increased number of wells in service
through the first half of 2008 led to a higher demand for fluid logistics services. Throughout 2009, fluid logistics rates were under significant pressure. During the six months ended June 30, 2010 we experienced a significant upward trend in
utilization which allowed us to increase rates during the period in selected markets. This has continued through July 2010. In large part this is due to the Companys exposure to the Eagle Ford shale formation in South Texas where drilling
activity has increased substantially in the last twelve months.

Operating Expenses

Prior to the general economic decline, a strong oil and natural gas environment resulted in a higher demand for operating personnel and
oilfield supplies and caused increases in the cost of those goods and services. Throughout 2009 and through much of the first quarter of 2010, a weaker oil and natural gas environment has resulted in lower demand for operating personnel and oilfield
supplies which has allowed us to decrease our costs, thereby offsetting a portion of the price decreases granted to our customers. As utilization and demand has started to increase in 2010, we are again experiencing cost pressures in areas such as
labor, where we have incurred additional costs in the form of increased pay rates. Future earnings and cash flows will be dependent on our ability to manage our overall cost structure and obtain price increases from our customers.

Capital Expenditures and Debt Service Obligations

As a general matter, our capital expenditures to maintain our assets have been relatively limited. Historically, we have incurred
indebtedness to invest in new assets to grow our business. As a result, the indebtedness we incurred for our capital expenditures has significantly increased our debt service obligations. Most of our new assets have been acquired through bank
borrowings, short-term equipment vendor financings, cash flows from operations and other permitted financings. In the near term, we expect our capital expenditures to be minimal and will be subject to the constraints of the covenants under our
indentures.

Capital Expenditures and Operating Income Margins

The well servicing segment typically has higher operating income margins along with higher capital expenditures when compared with the
fluid logistics segment, which has lower operating margins but also lower capital expenditure requirements. However, with the recent industry downturn, we have experienced less margin pressure on our fluid logistics segment, which has resulted in
more favorable margins in that segment, relative to the well servicing segment. This is due to the fact that a large portion of the fluids business is not discretionary services, but required for wells to continue producing.

Presentation

The following discussion and analysis is presented on a consolidated basis to reflect results of operations and the financial condition of
the Forbes Group.

Results of Operations

The following discussion, as well as the discussion found under Liquidity and Capital Resources, compares our consolidated
financial information as of and for the three and six months ended June 30, 2010 to the three and six months ended June 30, 2009, respectively.



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Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009

Consolidated Revenues.For the three months ended June 30, 2010, revenues increased by $30.3 million, or
60.9%, to $80.0 million when compared to the same period in the prior year. The second quarter of 2009 was the middle of the recent industry decline, resulting in lower revenues and profits, as compared to the second quarter of 2010 where the
energy services industry has experienced a turn-around with increasing utilization and pricing.

Well Servicing
Revenues from the well servicing segment increased $14.1 million for the period, or 55.4% to $39.7 million compared to the corresponding period in the prior year. The increase largely results from the increase in prices and rig hours for our well
services. We utilized 171 well servicing rigs as of June 30, 2009 and 2010. Of the 171 rigs available as of June 30, 2010, 11 were allocated to Mexico operations. Average utilization of our well service rigs during the three months ended
June 30, 2010 and 2009 was 66.6% and 46.3%, respectively, based on a twelve hour day working five days a week, except holidays in the U.S., and seven days a week, 24 hours a day in Mexico, except holidays. All 11 Mexico rigs were utilized
during the quarter.

Fluid Logistics  Revenues from the fluid logistics segment increased $16.2 million for the
period, or 66.7%, to $40.4 million compared to the corresponding period in the prior year. Utilization for trucks in service during the three months ended June 30, 2010 and June 30, 2009 was 89.2% and 63.0% respectively, based on working
fourteen hours a day six days a week, except holidays. Our principal fluid logistics assets for the three months ended June 30, 2010 and June 30, 2009 were as follows:



|                             |  |                |  |      
|---------------------------- |  | -------------- |  | -----
|                             |  | As of June 30,
|Asset                        |  | 2010           |  | 2009 
|Vacuum trucks                |  | 288            |  | 294  
|High-pressure pump trucks    |  | 19             |  | 19   
|Other heavy trucks           |  | 58             |  | 57   
|Frac tanks (includes leased) |  | 1,368          |  | 1,370
|Salt water disposal wells    |  | 17             |  | 16   

Consolidated
Operating Expenses. Our operating expenses increased to $60.7 million for the three months ended June 30, 2010, from $43.6 million for the three months ended June 30, 2009, an increase of $17.1 million or 39.2%. Operating expenses as a
percentage of revenues were 75.9% for the three months ended June 30, 2010, compared to 87.6% for the three months ended June 30, 2009. This decrease in operating expense as a percentage of our revenues is generally attributable to the
general industry decline that was taking place in 2008 and 2009. During the decline companies, including Forbes, were not able to reduce costs as fast as revenues were declining. As industry activity began to stabilize in late 2009 and early 2010,
cost reductions were able to catch up and expense as a percentage of revenues began to decrease.

Well
Servicing Operating expenses from the well servicing segment increased by $5.0 million, or 21.0%, to $28.7 million. Well servicing operating expenses as a percentage of well servicing revenues were 72.4% for the three months ended
June 30, 2010, compared to 93.0% for the three months ended June 30, 2009, a decrease of 20.6%. This decrease in the percentage was partially due to an increase of approximately 4.3% in average billing rates between the two quarters, as
well as an increase in utilization to 66.6% for the three months ended June 30, 2010 from 46.3% for the three months ended June 30, 2009, which allowed the Company to spread its fixed costs over greater revenues, therefore increasing the
gross margin. The resulting increase in revenues was greater than the increased cost, thereby contributing to the decrease in well service expense as a percentage of revenues.

The dollar increase in well servicing operating costs between the two periods was due in large part to the increase in freight and
equipment transportation costs of $1.8 million to approximately $2.6 million for the three months ended June 30, 2010 compared to approximately $0.8 million for the same period of the prior year. Freight and equipment transportation costs as a
percentage of revenues was 6.4% and 2.7% for the three months ended June 30, 2010 and June 30, 2009, respectively. The majority of this percentage increase was from our Mexico operations where third parties are required to move rigs
between locations due to the rough terrain. Employee count also increased to 1,085 as of June 30, 2010 as compared with 819 at June 30, 2009. Repairs and equipment maintenance cost increased by $1.3 million, or 73.3% to $3.1 million.
Product and chemical costs increased by $0.6 million, or 32.4%, to $2.4 million, roughly in line with the increase in revenues. Product and chemical costs as a percentage of revenues was 6.1% and 7.1% for the three months ended June 30, 2010
and June 30, 2009, respectively. Repairs and equipment maintenance cost as a percentage of revenues was 7.9% and 7.1% for the three months ended June 30, 2010 and June 30, 2009, respectively. Rent and supplies and parts also increased
by approximately $0.6 million each in line with increased activity levels. The remaining $0.1 million is related to various expenses that were consistent with the activity of the business and were in line with managements expectations.



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Fluid Logistics Operating expenses for the fluid logistics segment increased
by $12.1 million, or 60.7%, to $32.0 million. Fluid logistics operating expenses as a percentage of fluid logistics revenues were 79.3% for the three months ended June 30, 2010, compared to 82.2% for the three months ended
June 30, 2009. This decrease in operating expenses as a percentage of revenues was partially due to an increase of approximately 20.2% in average billing rates between the two quarters, as well as an increase in utilization to 89.2% for
the three months ended June 30, 2010 from 63.0% for the three months ended June 30, 2009. The resulting increase in revenues was greater than the increased cost, thereby contributing to the decrease in well service expense as a percentage
of revenues.

The dollar increase in fluid logistics operating expenses of $12.1 million was due in large part to an increase
in labor costs of $3.2 million or 47.6%, for the three months ended June 30, 2010 compared to the same period in the prior year as the result of the addition of employees. Employee count at June 30, 2010 was 827 compared with 658 at
June 30, 2009. Labor costs as a percentage of revenues were 24.5% and 27.6% for the three months ended June 30, 2010 and 2009, respectively. Although the second quarter of 2010 includes labor rate increases, customer prices increased at a
greater rate resulting in lower labor cost as a percentage of revenues. Fuel costs increased $2.5 million, or 74.3% to $5.8 million due to activity increases in drilling and well services and fuel price increases of 32.0%. Fuel cost as a percentage
of revenues were 14.3% and 13.6% for the three months ended June 30, 2010 and June 30, 2009, respectively. Contract service costs increased by $2.1 million or 500.4% to $2.5 million due to activity increases in drilling and well services
and the need to utilize outside services to satisfy customer demand, particularly in times of peak demand in South Texas. The majority of these increased costs were primarily for renting additional fluid transport trucks as needed to service
customer demand in South Texas. Although management has actively reallocated assets in an effort to avoid this additional cost, the day rentals were required to respond to customer peak needs. Contract service costs as a percentage of revenues were
6.3% and 1.7% for the three months ended June 30, 2010 and 2009, respectively. Product and chemical costs increased $1.6 million, or 97.6% to $3.2 million. Product and chemical cost as a percentage of revenues was 7.9% and 6.7% for the three
months ended June 30, 2010 and June 30, 2009, respectively. Repairs and equipment maintenance cost increased $1.3 million, or 73.5% to $3.1 million. Repairs and equipment maintenance cost as a percentage of revenues was 7.5% and 7.8% for
the three months ended June 30, 2010 and June 30, 2009, respectively. The remaining $1.4 million change is related to various expenses that were consistent with the activity of the business.

General and Administrative Expenses. General and administrative expenses from consolidated operations increased by approximately
$2.7 million, or 68.2%, to $6.6 million when compared to the three months ended June 30, 2009. General and Administrative expense as a percentage of revenues was 8.3% and 7.8% for the three months ended June 30, 2010 and 2009,
respectively. The dollar increase in general and administrative expenses relates, in large part, to our Mexico operations. Expense for the three months ended June 30, 2010 also includes approximately $0.3 million of legal fees related
to a potential equipment sale/lease back transaction and a potential additional bond offering. We also incurred approximately $0.2 million additional in consulting fees for SOX and other accounting matters, primarily in Mexico. Travel expense
related to air travel increased approximately $0.2 million between the two periods as a greater proportion was allocated to general and administrative from operations.

Depreciation and Amortization. Depreciation and amortization expenses increased by $0.1 million, or 1.4%, to $9.9 million. Capital
expenditures incurred for the three months ended June 30, 2010 were $0.9 million compared to $3.2 million for the three months ended June 30, 2009. The change in depreciation expense is in line with managements expectations.

Interest and Other Expenses. Interest and other expenses were $6.8 million for the three months ended June 30,
2010, compared to $6.0 million for the three months ended June 30, 2009. This increase is primarily due to the additional interest associated with the First Priority Notes, less a decrease in interest expense associated with the re-purchase of
certain bonds.

Income Taxes.We recognized an income tax benefit of $1.8 million and $4.5 million for the three months
ended June 30, 2010 and 2009, respectively, due to the loss recognized during each quarter. The effective tax rate for three months ended June 30, 2010 and 2009 was 44.7% and 33.1% respectively.

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

Consolidated Revenues.For the six months ended June 30, 2010, revenues increased by $34.1 million, or 30.1%, to
$147.3 million when compared to the same period in the prior year. The first six months of 2009 was in the early stages of the recent industry decline, resulting in lower revenues and profits, as compared to the first half of 2010 where the
energy services industry has experienced a turn-around with increasing utilization and pricing.



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Well Servicing Revenues from the well servicing segment increased $13.6
million for the period, or 23.9% to $70.7 million compared to the corresponding period in the prior year. The increase largely results from the continued increase in prices and rig hours for our well services. We utilized 171 well servicing rigs as
of June 30, 2009 and 2010. Of the 171 rigs available at of June 30, 2010, 11 were allocated to Mexico operations. Average utilization of our well service rigs during the six months ended June 30, 2009 and 2010 was 62.4% and 51.0%,
respectively, based on a twelve hour day working five days a week, except holidays in the U.S., and seven days a week, 24 hours a day in Mexico, except holidays. All 11 Mexico rigs were utilized during the six month period.

Fluid Logistics  Revenues from the fluid logistics segment increased $20.5 million for the period, or 36.5%, to $76.6
million compared to the corresponding period in the prior year. Utilization for trucks in service during the six months ended June 30, 2010 and June 30, 2009 was 87.3% and 68.6% respectively, based on working fourteen hours a day six days
a week, except holidays. Our principal fluid logistics assets for the six months ended June 30, 2010 and June 30, 2009 were as follows:



|                             |  |                |  |      
|---------------------------- |  | -------------- |  | -----
|                             |  | As of June 30,
|Asset                        |  | 2010           |  | 2009 
|Vacuum trucks                |  | 288            |  | 294  
|High-pressure pump trucks    |  | 19             |  | 19   
|Other heavy trucks           |  | 58             |  | 57   
|Frac tanks (includes leased) |  | 1,368          |  | 1,370
|Salt water disposal wells    |  | 17             |  | 16   

Consolidated
Operating Expenses. Our operating expenses increased to $117.7 million for the six months ended June 30, 2010, from $93.3 million for the six months ended June 30, 2009, an increase of $24.4 million or 26.1%. Operating expenses as a
percentage of revenues were 79.9% for the six months ended June 30, 2010, compared to 82.4% for the six months ended June 30, 2009. This decrease in operating expense as a percentage of our revenues is generally attributable to the general
industry decline that was taking place in 2009. During the decline companies, including Forbes, were not able to reduce costs as fast as revenues were declining. As industry activity began to stabilize in late 2009 and early 2010, cost reductions
were able to catch up and expense as a percentage of revenues began to decrease.

Well Servicing Operating expenses from the well servicing segment increased by $7.2 million, or 14.5%, to $57.4 million. Well servicing operating expenses as a percentage of well servicing revenues were 81.2% for the six months ended June 30, 2010,
compared to 87.8% for the six months ended June 30, 2009, a decrease of 6.6%. This decrease in operating expenses as a percentage of revenues was partially due to an increase in utilization to 62.4% for the six months ended June 30, 2010
from 51.0% for the six months ended June 30, 2009, which allowed the Company to spread its fixed costs over greater revenues, thereby increasing the gross margin. This was partially offset by an average price decrease of approximately 4.6% in
average billing rates between the two six month periods. This decrease was primarily driven by the fact that rates for the six months ended June 30, 2009 were still decreasing throughout the period and rates for the same period in 2010 have
been increasing. The 2010 rates have not yet reached the levels of the first half of 2009. Rates increased from the first quarter of 2010 to the second quarter of 2010 by approximately 11.6%.

The dollar increase in well servicing operating costs between the two periods was due in large part to the increase in labor costs of
$1.8 million or 7.9%, for the six months ended June 30, 2010 compared to the same period in the prior year. Employee count at June 30, 2010 was 1,085 compared with 819 at June 30, 2009. Labor costs as a percentage of revenues were
35.4% and 40.7% for the six months ended June 30, 2010 and 2009, respectively. Product and chemical costs increased by approximately $1.8 million or 98.1% to $3.7 million as a result of increased activity and were roughly in line with the
increase in revenues. Repairs and maintenance, out of town expenses, and saltwater, and mud disposal expenses also increased $1.4 million, $1.1 million, and $1.0 million, respectively, in line with the increase in business activity. The remaining
$0.1 million is related to various expenses that were consistent with the activity of the business and were in line with managements expectations.

Fluid Logistics Operating expenses from the fluid logistics segment increased by $17.1 million, or 39.7%, to
$60.3 million. Fluid logistics operating expenses as a percentage of fluid logistics revenues were 78.7% for the six months ended June 30, 2010, compared to 76.9% for the six months ended June 30, 2009. This increase in operating
expenses as a percentage of revenues was partially offset by an increase of approximately 9.1% in average billing rates between the two quarters, as well as an increase in utilization to 87.3% for the six months ended June 30, 2010 from 68.6%
for the six months ended June 30, 2009. The resulting increase in revenues was greater than the increased cost, thereby partially offsetting the increase in well service expense as a percentage of revenues.



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The dollar increase in fluid logistics operating expenses of $17.1 million was due in large
part to an increase in fuel costs of $4.3 million, or 64.0%, for the six months ended June 30, 2010, compared to the same period in the prior year. Part of this increase was attributable to fuel prices that increased 30.1% for the six months
ended June 30, 2010 as compared to the same period in 2009. The balance of the increase in fuel cost relates to consumption, which increased in line with increased business activity. Labor cost increased $3.9 million, or 25.7% to $17.3 million
as the result of additional employees hired in response to increased business activity. Labor costs as a percentage of revenues was 24.9% and 27.0% for the six months ended June 30, 2010 and June 30, 2009, respectively. Employee count at
June 30, 2010 was 827 compared with 658 at June 30, 2009. Contract service costs increased by $3.1 million or 250.8% to $4.4 million due to activity increase in drilling and well services and the need to utilize outside services to satisfy
customer demand, particularly in times of peak demand in South Texas. The majority of these increased costs were primarily for renting additional fluid transport trucks as needed to service customer demand in South Texas. Contract service costs as a
percentage of revenues were 5.7% and 2.2% for the six months ended June 30, 2010 and 2009, respectively. Repairs and equipment maintenance cost increased $2.6 million, or 73.4% to $6.0 million. Repairs and equipment maintenance cost as a
percentage of revenues was 7.9% and 6.2% for the six months ended June 30, 2010 and June 30, 2009, respectively. Rent equipment cost increased $1.1 million, or 84.3% to $3.1 million. Rent equipment cost as a percentage of revenues was 3.1%
and 2.3% for the six months ended June 30, 2010 and June 30, 2009, respectively. Product and chemical costs cost increased $0.7 million, or 16.8% to $4.9 million. Product and chemical cost as a percentage of revenues was 6.3% and 7.4% for
the six months ended June 30, 2010 and June 30, 2009, respectively. The remaining $1.4 million change is related to various expenses that were consistent with the business activity levels.

General and Administrative Expenses. General and administrative expenses from consolidated operations increased by approximately
$2.5 million, or 26.3%, to $12.2 million. General and Administrative expense as a percentage of revenues was 8.3% and 8.5% for the six months ended June 30, 2010 and 2009, respectively. The dollar increase in general and administrative
expenses relates, in large part, to our Mexico operations. Expense for the six months ended June 30, 2010 also includes approximately $0.3 million of legal fees related to a potential equipment sale/lease back transaction and a potential
additional bond offering. We also incurred approximately $0.2 million additional in consulting fees for SOX and other accounting matters, primarily in Mexico. Travel expense related to air travel increased approximately $0.3 million between the
two periods as a greater proportion was allocated to general and administrative from operations.

Depreciation and
Amortization. Depreciation and amortization expenses increased by $0.4 million, or 1.9%, to $19.8 million. Capital expenditures incurred for the six months ended June 30, 2010 were $1.6 million compared to $11.0 million for the six months
ended June 30, 2009.

Interest and Other Expenses. Interest and other expenses were $13.8 million for the six
months ended June 30, 2010, compared to $11.6 million for the six months ended June 30, 2009, an increase of $2.2 million, or 19.2%. This increase is primarily due to the additional interest associated with the first priority notes, less a
decrease in interest expense associated with the re-purchase of certain bonds.

Income Taxes.We recognized an income
tax benefit of $5.8 million and $7.3 million for the six months ended June 30, 2010 and 2009, respectively, due to the losses recognized during such quarters of $10.4 million and $13.6 million. For the six months ended June 30, 2010 and
2009 the effective tax rate was 35.8% and 34.8% respectively.

Liquidity and Capital Resources

Overview

As discussed in Note 7 of our Notes to Consolidated Financial Statements, in October 2009 we repaid and terminated our revolving credit
facility with Citibank, N.A., or the Credit Facility, using the proceeds from the issuance of the first lien floating rate notes due 2014, or the First Priority Notes. Notwithstanding the termination of the Credit Facility, the indenture governing
our Second Priority Notes, or the Second Priority Indenture, and the newly executed indenture governing our First Priority Notes, or the First Priority Indenture, and the debt outstanding thereunder impose significant restrictions on us and increase
our vulnerability to adverse economic and industry conditions that could limit our ability to obtain additional or replacement financing. Our inability to satisfy certain obligations under these indentures, such as the payment of interest or the
requirement to repurchase Second Priority Notes could constitute an event of default. An event of default could result in all or a portion of our outstanding debt becoming immediately due and payable. If this should occur, we might not be able to
obtain waivers or secure alternative financing to satisfy all of our obligations simultaneously. Given current market conditions, our ability to access the capital markets or to consummate any asset sales might be restricted at a time when we would
like or need to raise capital. In addition, the current economic conditions could also impact our customers and vendors and may cause them to fail to meet their obligations to us with little or no warning. These events could have a material adverse
effect on our business, financial position, results of operations and cash flows and our ability to satisfy the obligations under our indentures.



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Within certain constraints, we can conserve capital by reducing or delaying capital
expenditures, deferring non-regulatory maintenance expenditures and further reducing operating and administrative costs.

We
have historically funded our operations, including capital expenditures, with bank borrowings, vendor financings, cash flow from operations, the issuance of our Second Priority Notes, and First Priority Notes and the proceeds from our initial equity
offering, our October 2008 and December 2009 Common Share offering, and our May 2010 Series B Preferred Share private placement.

As of June 30, 2010, we had $216.7 million in debt outstanding (including the Second Priority Notes based on $192.5 million
aggregate principal amount at an issue price of 97.635% of par and the First Priority Notes based on $20.0 million aggregate principal amount at an issue price of 100% of par).

As of June 30, 2010, we had $16.5 million in cash and cash equivalents, $213.5 million in long-term debt outstanding, $3.2 million
in short-term debt outstanding, and $5.8 million of short-term equipment vendor financings for well servicing rigs and other equipment included in accounts payable. Our $3.2 million of short-term debt consisted of $1.7 million payable to equipment
lenders under various installment notes, and $1.5 million payable related to financing of our insurance premiums. Our $5.8 million of vendor financing was comprised of $5.4 million payable to our well service rig and vacuum trailer supplier, with
the balance due to several smaller vendors. We incurred $0.9 million and $1.6 million for capital equipment acquisitions during the three and six months ended June 30, 2010, respectively, as compared to actual cash disbursements in payment of
capital equipment purchases of $1.5 million and $3.2 million for the three and six months ended June 30, 2010, respectively. Capital equipment added for the three and six months includes equipment related to rigs (primarily for our Mexico
operations), saltwater disposal wells, and pickup trucks.

Cash Flows

Our cash flows depend, to a large degree, on the level of spending by oil and gas companies development and production activities.
Sustained increases or decreases in the price of natural gas or oil could have a material impact on these activities, and could also materially affect our cash flows. Certain sources and uses of cash, such as the level of discretionary capital
expenditures, purchases and sales of investments, issuances and repurchases of debt and of our common shares are within our control and are adjusted as necessary based on market conditions.

Cash Flows from Operating Activities

Net cash used in operating activities totaled $12.6 million for the six months ended June 30, 2010, compared to net cash provided by
operating activities of $26.9 million for the six months ended June 30, 2009, a decrease of $39.5 million. The primary reason for the decrease in net cash flow resulted from a change in working capital related to an increase in accounts
receivable of $53.4 million between the six months ended June 30, 2009 and 2010. This significant swing is a reflection of the changes in the energy services business between the two periods. During the six months ended June 30, 2009 the
industry was rapidly shrinking, causing a reduction in accounts receivable which resulted in cash flow as compared to the six months ended June 30, 2010 where the energy services industry, and specifically our business, was rapidly expanding
causing an increase in accounts receivable which resulted in a use of cash. Other changes that benefited us during the six months ended June 30, 2010 include a reduction in the net loss between the two periods of $3.1 million, a reduction in
payments on accrued expenses between the two periods of $7.2 million. Accrued expenses increased in 2010 primarily as a result of our Mexico location which began operations during the first quarter of 2010. Changes in various other accounts were in
line with the changing industry environment.

Cash Flows Used in Investing Activities

Net cash used in investing activities for the six months ended June 30, 2010 amounted to $3.3 million, primarily related to principal
payments on various equipment notes, compared to $17.5 million for the six months ended June 30, 2009. The significant capital expenditures in the first six months of 2009 were reflective of the expansion of business during 2008. Capital
expenditures for the six months ended June 30, 2010 were primarily for the payment of costs associated with preparation of well service equipment.

Cash Flows from Financing Activities

Cash provided by financing activities for the six months ended June 30, 2010 amounted to $3.9 million compared to $5.6 million for
the six months ended June 30, 2009. In the May 2010 we issued 825,000 shares of Series B Senior Convertible Preferred Shares for net proceeds of $14.3 million (see footnote sixteen to the condensed consolidated financial statements included
herein). In June 2010, we re-purchased and retired $7.25 million of Second Priority Notes for $6.8 million, which represents a discount of approximately 6.5% off of par value. During the six months ended June 30, 2009 $12.0 million was drawn
under our Credit Agreement. In addition, we repurchased $5.25 million in Senior Secured notes for $3.4 million or at an average discount price of approximately 65.0% of par value.



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Second Priority Notes

On February 12, 2008, we issued an aggregate of $205.0 million of 11.0% Second Priority Notes. As described in further detail in
Footnote seven to the condensed consolidated financial statements included herein, pursuant to the requirements of the indenture governing the Second Priority Notes, we have repurchased 12.5 million in aggregate principal amount of Second Priority
Notes, including $7.3 million of principal amount of Second Priority Notes repurchased in the quarter ended June 30, 2010.

The Second Priority Notes are our senior secured obligations. The Second Priority Notes are and will be guaranteed on a senior secured
basis by each of our existing and future domestic restricted subsidiaries. The Second Priority Notes and the guarantees are secured by second priority liens on substantially all of our assets, subject to certain exceptions and permitted liens. The
Second Priority Notes are subject to redemption and to requirements that we offer to purchase the Second Priority Notes upon a change of control, following certain asset sales, and if we have excess cash flow for any fiscal year. The Second Priority
Indenture governing the Second Priority Notes limits our and our restricted subsidiaries ability to, among other things, transfer or sell assets; pay dividends; redeem subordinated indebtedness; make investments or make other restricted
payments; incur or guarantee additional indebtedness or issue disqualified capital stock; make capital expenditures that exceed certain amounts; create, incur or suffer to exist liens; incur dividend or other payment restrictions affecting certain
subsidiaries; consummate a merger, consolidation or sale of all or substantially all of our assets; enter into transactions with affiliates; designate subsidiaries as unrestricted subsidiaries; engage in a business other than a business that is the
same or similar to our current business and reasonably related businesses; and take or omit to take any actions that would adversely affect or impair in any material respect the liens in respect of the collateral securing the Second Priority Notes.



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First Priority Notes

On October 2, 2009, FES LLC and FES CAP issued to Goldman, Sachs & Co. $20 million in aggregate principal amount of First
Priority Notes in a private placement in reliance on an exemption from registration under the Securities Act of 1933, as amended. After offering expenses, the Forbes Group realized net proceeds of approximately $18.8 million which was used to repay
and terminate its Credit Facility with Citibank, N.A. The First Priority Notes mature on August 1, 2014, and require semi-annual interest payments on February 1 and August 1 of each year until maturity at a rate per annum, reset
semi-annually, equal to the greater of four percent or six month LIBOR, plus 800 basis points. The interest rate is currently 12%. No principal payments are due until maturity. The First Priority are senior obligations and rank equally in right of
payment with other existing and future senior indebtedness, including the Second Priority Notes, and senior in right of payment to any subordinated indebtedness that may be incurred by the Forbes Group in the future.

The First Priority Notes are guaranteed by FES Ltd, as well as the Guarantor Subs. Each of the Guarantor Subs guarantees the securities
on a full and unconditional and joint and several basis. The two Non-Guarantor Subs have not guaranteed the First Priority Notes, however, the Forbes Group has granted a security interest in 65% of the equity interests of the Non-Guarantor Subs to
secure the First Priority Notes. The Forbes Group may, at its option, redeem all or part of the First Priority Notes from time to time at specified redemption prices and subject to certain conditions required by the First Priority Indenture
governing the First Priority Notes. The Forbes Group is required to make an offer to purchase the notes and to repurchase any notes for which the offer is accepted at 101% of their principal amount, plus accrued and unpaid interest, if there is a
change of control or if the Forbes Group has excess cash flow. The Forbes Group is required to make an offer to repurchase the notes and to repurchase any notes for which the offer is accepted at 100% of their principal amount, plus accrued and
unpaid interest, following certain asset sales.

The First Priority Indenture contains certain covenants similar to those in
the Second Priority Indenture, including provisions that limit or restrict the Forbes Groups and certain future subsidiaries abilities to incur additional debt; to create, incur or permit to exist certain liens on assets; to make
payments on certain subordinated indebtedness; to pay dividends or certain other payments to equity holders; to engage in mergers, consolidations or other fundamental changes; to change the nature of its business; to engage in transactions with
affiliates or to make capital expenditures in excess of certain amounts based on the year in which such expenditures are made. The First Priority Indenture also provides for certain limitations and restrictions on the Forbes Groups ability to
move collateral outside the United States or dispose of assets. These covenants are subject to a number of important limitations and exceptions. Further, each of the First Priority Indenture and Second Priority Indenture provides for events of
default, which, if any of them occur, would, in certain circumstances, permit or require the principal, premium, if any, and interest on all the then outstanding First Priority Notes or Second Priority Notes, respectively, to be due and payable
immediately. Additionally, in certain circumstances an event of default under the First Priority Indenture would cause an event of default under the cross-default provision of the Second Priority Indenture and vice versa. The rights of the trustee
and collateral agent under the First Priority Indenture vis-à-vis the trustee and collateral agent under the Second Priority Indenture are governed by an intercreditor agreement among the Forbes Group, Wilmington Trust FSB, the trustee and
collateral agent under the First Priority Indenture, and Wells Fargo Bank, National Association, the trustee and collateral agent under the Second Priority Indenture.

There are no significant restrictions on FES Ltds ability or the ability of any guarantor to obtain funds from its subsidiaries by
such means as a dividend or loan. See Note 15 for consolidating information required by Rule 3-10 of Regulation S-X.

Contractual Obligations and Financing

As described in Footnote sixteen to the condensed consolidated financial statements included herein, on May 28, 2017, the Company is
required to redeem any of its Series B Preferred Shares then outstanding. Such mandatory redemption may, at the Companys election, be paid in cash or Common Shares (valued for such purpose at 95% of the then fair market value of the Common
Shares).

Seasonality

Our operations are impacted by seasonal factors. Historically, our business has been negatively impacted during the winter months due to
inclement weather, fewer daylight hours, and holidays. Our well servicing rigs are mobile, and we operate a significant number of oilfield vehicles. During periods of heavy snow, ice or rain, we may not be able to move our equipment between
locations, thereby reducing our ability to generate rig or truck hours. In addition, the majority of our well servicing rigs work only during daylight hours. In the winter months when daylight time becomes shorter, this reduces the amount of time
that the well servicing rigs can work and, therefore, has a negative impact on total hours worked. Finally, during the fourth quarter, we historically have experienced significant slowdowns during the Thanksgiving and Christmas holiday seasons.



41



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##### Table of Contents

Critical Accounting Policies and Estimates

There have been no changes in our critical accounting policies or estimates from those presented in our Annual Report on Form 10-K for the
year ended December 31, 2009.

Recently Adopted Accounting Pronouncements

The FASB issued ASU No. 2010-13, CompensationStock Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This ASU codifies the consensus reached in EITF Issue No. 09-J, Effect of Denominating the Exercise Price of a Share-Based Payment
Award in the Currency of the Market in Which the Underlying Equity Security Trades. The amendments to the Codification clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a
substantial portion of the entitys equity shares trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it
otherwise qualifies as equity. The company adopted this ASU as of January 1, 2010, and it did have any impact on the consolidated financial statements.

The FASB issued Accounting Standards Update (ASU) No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition
and Disclosure Requirements. The amendments in the ASU remove the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements
include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. The FASB also clarified that if the financial statements have been revised, then an entity that is not an SEC filer should
disclose both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued. The adoption of this ASU did not have a material impact on the
Companys consolidated financial statements.

The FASB issued ASU No. 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10.
The FASBs objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require:



| |  |  | A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and
describe the reasons for the transfers; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about
purchases, sales, issuances, and settlements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, ASU 2010-06 clarifies the requirements of the
following existing disclosures:



| |  |  | For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the
appropriate classes of assets and liabilities; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring
fair value measurements.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ASU 2010-06 is effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. The adoption of this ASU is not expected to have a material impact on the Companys consolidated financial statements.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

In addition to the risks inherent in our operations, we are exposed to financial, market and economic risks. Changes in interest rates may
result in changes in the fair market value of our financial instruments, interest income and interest expense. Our financial instruments that are exposed to interest rate risk are long-term borrowings. The following discussion provides information
regarding our exposure to the risks of changing interest rates.

Our primary debt obligations are the outstanding Second
Priority Notes and the First Priority Notes. Changes in interest rates do not affect interest expense incurred on our Second Priority Notes as such notes bear interest at a fixed rate. However, changes in interest rates would affect their fair
values. In general, the fair market value of debt with a fixed interest rate will increase as interest rates fall. Conversely, the fair market value of debt will decrease as interest rates rise. A hypothetical change in interest rates of 10%
relative to interest rates as of June 30, 2010 would have no impact on our interest expense for the Second Priority Notes.



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##### Table of Contents

The First Priority Notes have a variable interest rate and, therefore, is subject to
interest rate risk. A 100 basis point increase in interest rates on our variable rate debt would result in approximately $200,000 in additional annual interest expense after exceeding the interest rate floor of 12% based on the balance outstanding
as of June 30, 2010 in the amount of $20 million.

Historically, we have not been exposed to significant foreign currency
fluctuation; however, as we have expanded operations in Mexico, we have become exposed to certain risks typically associated with foreign currency fluctuation as we collect revenues and pay expenses in Mexico in the local currency. Nevertheless, as
of June 30, 2010, a 10% unfavorable change in the Mexican Peso-to-U.S. Dollar exchange rate would not materially impact our consolidated balance sheet. To date, we have not taken any action to hedge against any foreign currency rate
fluctuations; however, we continually monitor the currency exchange risks associated with conducting foreign operations.

We
have not entered into any derivative financial instrument transactions to manage or reduce market risk or for speculative purposes.



|Item 4T. | Controls and Procedures
|-------- | -----------------------

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our
disclosure controls and procedures as of June 30, 2010. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means
controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files
or submits under the Exchange Act is accumulated and communicated to the Companys management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2010, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure
controls and procedures were not effective. See Material Weaknesses below.

Change in Internal Control over
Financial Reporting

Other than the remediation measure described below under Remediation no change in our
internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2010 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.

Material Weaknesses

In connection with the preparation of the Forbes Groups consolidated financial statements for the year ended December 31, 2009
and the period ended June 30, 2010, we identified control deficiencies that constitute material weaknesses in the design and operation of our internal control over financial reporting. The following material weaknesses were present at
December 31, 2009 and at June 30, 2010.



| |  |  | We did not maintain an appropriate accounting and financial reporting organizational structure to support the activities of the Forbes Group.
Specifically, we did not maintain a sufficient complement of personnel with an appropriate level of accounting knowledge, experience and training to ensure the proper selection, application and implementation of GAAP.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We did not design or maintain effective controls over the recording of revenue and expenses in our Mexico operations. Specifically, effective controls
were not designed and in place to ensure that revenues and expenses were recorded at the correct amounts in the appropriate period.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We did not design and maintain effective controls over the review of the accuracy and completeness of the income tax provision.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

These control deficiencies could result in a future material misstatement to substantially all the accounts
and disclosures that would result in a material misstatement to the annual or interim combined financial statements that would not be prevented or detected. Accordingly, we have determined that each of the above control deficiencies represents a
material weakness.



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##### Table of Contents

Remediation

We have implemented, or are in the process of implementing and continue to implement, remedial measures to address the above deficiencies
on a going-forward basis. In response to the lack of appropriate accounting staff and financial reporting organizational structure, in 2009 we engaged a third party consulting group to assist us with financial reporting and non-routine
accounting matters. In addition, we recently hired an experienced Director of Financial Reporting. This person begins employment the end of August 2010. The third party consulting firm will continue to complement the Director of
Financial Reporting as needed.

In response to the Mexico operations revenue and expense recognition errors, we have
made personnel changes including; replacing controller in Mexico, hiring a third party consultant to work in Mexico, and hiring an experienced Spanish speaking internal auditor.

In response to our material weakness in the area of the design of effective controls over the review and completeness of the income tax
provision, in 2009 we engaged a third party consulting group to assist us with income tax calculations. In July 2010 we hired a tax accountant to begin preparing tax calculations and returns in-house. The third party consulting firm will
continue to complement the tax accountant as needed. With the addition of the above mentioned staff members, this will also make time available for our controller to review and become more involved in tax matters.



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##### Table of Contents

PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

There
are no pending material legal proceedings, and the Forbes Group is not aware of any material threatened legal proceedings, to which the Forbes Group is a party or to which its property is subject, other than in the ordinary course of business.



|Item 1A. | Risk Factors
|-------- | ------------

There were
no material changes from the risk factors previously disclosed in the registrants Annual Report on Form 10-K for the year ended December 31, 2009 in response to Item 1A. Risk Factors to Part II of Form 10-Q, except as set
forth below.

Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs
and additional operating restrictions or delays.

Hydraulic fracturing is an important and common practice that is used
to stimulate production of hydrocarbons, particularly natural gas, from tight formations. The process involves the injection of water, sand and chemicals under pressure into the formation to fracture the surrounding rock and stimulate production.
The process is typically regulated by state oil and gas commissions but is not subject to regulation at the federal level. The U.S. Environmental Protection Agency, or the EPA, has commenced a study of the potential environmental impacts of
hydraulic fracturing activities, and a committee of the U.S. House of Representatives is also conducting an investigation of hydraulic fracturing practices. Legislation has been introduced before Congress to provide for federal regulation of
hydraulic fracturing and to require disclosure of the chemicals used in the fracturing process. In addition, some states are considering adopting regulations that could restrict hydraulic fracturing in certain circumstances. If new laws or
regulations that significantly restrict hydraulic fracturing are adopted, such laws could make it more difficult or costly for producers to perform fracturing to stimulate production from tight formations. In addition, if hydraulic fracturing is
regulated at the federal level, fracturing activities could become subject to additional permitting requirements, and also to attendant permitting delays and potential increases in costs.



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

On May 28, 2010, the Company completed a private placement of 580,800 Series B Preferred Shares to West Face Long Term Opportunities
Limited Partnership, West Face Long Term Opportunities (USA) Limited Partnership and West Face Long Term Opportunities Master Fund L.P. (collectively, the Investors) for total gross proceeds of $14,520,000, in reliance on exemptions from
registration provided by Regulation D and Regulation S promulgated under the Securities Act of 1933, as amended. In connection with the private placement, the Company paid the Investors a commitment fee of $290,400. The Common Shares into which the
Series B Preferred Shares are convertible have certain demand and piggyback registration rights.

The Series B
Preferred Shares are convertible into the Companys common shares at an initial rate of 36 common shares per Series B Preferred Shares (subject to adjustment). If all such Series B Preferred Shares are converted, at the initial conversion rate,
20,908,800 Common Shares (representing 19.99% of the outstanding common shares after such conversion) will be issued to the holders of the Series B Preferred Shares. Pursuant to Certificate of Designation, no holder of the Series B Preferred Shares
is entitled to effect a conversion of Series B Preferred Shares if such conversion would result in the holder (and affiliates) beneficially owning 20% or more of the Companys Common Shares.

All or any number of the Series B Preferred Shares may be redeemed by the Company at any time after May 28, 2013 at a redemption price
determined in accordance with the Certificate of Designations and provided that the current equity value of our common stock exceeds specified levels. On May 28, 2017, the Company is required to redeem any Series B Preferred Shares then outstanding
at a redemption price determined in accordance with the Certificate of Designation. Such mandatory redemption may, at the Companys election, be paid in cash or in common shares (value for such purpose at 95% of the then fair market value of
the common shares). In the event certain corporate transactions occur (such as a reorganization, recapitalization, reclassification, consolidation or merger) under which the Companys common shares (but not the Series B Preferred Shares) are
converted into or exchanged for securities, cash or other property, then following such transaction, each Series B Preferred Share shall thereafter be convertible into the same kind and amount of securities, cash or other property.

The additional rights and preferences of the Series B Preferred Shares are more fully summarized in footnote sixteen to the condensed
consolidated financial statements included herein.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



|Item 4. | Reserved
|------- | --------

None.



|Item 5. | Other Information
|------- | -----------------

None.



|Item 6. | Exhibits**
|------- | ----------



|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------ |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  |   |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                
|       |  |  
|2.1    |  |  |  | Agreement and Plan of Reorganization effective January 1, 2008 among Forbes Energy Services LLC and the respective members of C.C. Forbes, LLC, TX Energy Services, LLC
and Superior Tubing Testers, LLC (incorporated by reference to Exhibit 2.1 to the Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                      
|       |  |  
|2.2    |  |  |  | Agreement and Plan of Reorganization effective May 29, 2008 among Forbes Energy Services Ltd. and the members of Forbes Energy Services LLC (incorporated by reference to
Exhibit 2.2 to the Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                   
|       |  |  
|3.1    |  |  |  | Memorandum of Association of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.11 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                     
|       |  |  
|3.2    |  |  |  | Amended and Restated Bye-laws of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.12 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                 
|       |  |  
|4.1    |  |  |  | Indenture, dated as of February 12, 2008 among Forbes Energy Services LLC and Forbes Energy Capital Inc., as issuers, the guarantors party thereto and Wells Fargo Bank,
National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008).                                                                                                 
|       |  |  
|4.2    |  |  |  | Supplemental Indenture (First Supplemental Indenture), dated as of May 29, 2008 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital Inc., the
other Guarantors (as defined in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30,
2008).



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|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------ |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  |   |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       |  |  
|4.3    |  |  |  | Supplemental Indenture (Second Supplemental Indenture), dated as of October 6, 2008 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital
Inc., the other Guarantors (as defined in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended
December 31, 2008).                                         
|       |  |  
|4.4    |  |  |  | Third Supplemental Indenture, dated as of February 6, 2009 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital Inc., the other Guarantors (as
defined in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated February 6, 2009).                                                                                
|       |  |  
|4.5    |  |  |  | Indenture dated as of October 2, 2009, by and among Forbes Energy Services LLC and Forbes Energy Capital Inc., as issuers, the guarantors party thereto and Wilmington Trust FSB,
as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated October 10, 2009).                                                                                                                                                                       
|       |  |  
|4.6    |  |  |  | Notation of Guarantee from Forbes Energy Services Ltd. (incorporated by reference to Exhibit 4.5 to the Companys Annual Report on Form 10-K for the year ended December 31,
2008).                                                                                                                                                                                                                                                                                               
|       |  |  
|4.7    |  |  |  | Notation of Guarantee from Forbes Energy International, LLC (incorporated by reference to Exhibit 4.6 to the Companys Annual Report on Form 10-K for the year ended December
31, 2008).                                                                                                                                                                                                                                                                                          
|       |  |  
|4.8    |  |  |  | Specimen 144A Global 11% Senior Secured Exchange Note due 2015 (incorporated by reference to Exhibit 4.5 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                                                           
|       |  |  
|4.9    |  |  |  | Rights Agreement dated as of May 19, 2008 between Forbes Energy Services Ltd. and CIBC Mellon Trust Company, as Rights Agent, which includes as Exhibit A the
Certificate of Designations of Series A Junior Participating Preferred Shares, as Exhibit B the form of Right Certificate and as Exhibit C the form of Summary of Rights to Purchase Shares (incorporated by reference to Exhibit 4.8 to
the Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).
|       |  |  
|10.1   |  |  |  | Credit Agreement dated as of April 10, 2008 among C.C. Forbes, LLC, TX Energy Services, LLC and Superior Tubing Testers, LLC, as borrowers, Forbes Energy Services LLC, as
guarantor, and Citibank, N.A., as lender, governing the Credit Facility (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008).                                                                                                   
|       |  |  
|10.2   |  |   |  | Third Amendment to Credit Agreement dated effective as of July 10, 2009 among C.C. Forbes, LLC, TX Energy Services, LLC and Superior Tubing Testers, LLC, as borrowers, Forbes
Energy Services LLC, as guarantor, and Citibank, N.A., as lender (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed July 15, 2009).                                                                                                                      
|       |  |  
|10.3   |  |  |  | Guaranty dated April 10, 2008, among Forbes Energy Services LLC and Forbes Energy Capital Inc., including the Guaranty Supplement, dated effective May 29, 2008, executed January
5, 2009, among Forbes Energy Services Ltd. and Citibank, N.A. (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated January 8, 2009).                                                                                                                    
|       |  |  
|10.4   |  |  |  | Forbes Energy Services Ltd. Incentive Compensation Plan effective May 19, 2008 (incorporated by reference to Exhibit 10.1 to the Companys Form S-4/A filed
June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                                                          
|       |  |  
|10.5   |  |  |  | Employment Agreement effective May 1, 2008 by and between John E. Crisp and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.2 to the Companys
Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                                  
|       |  |  
|10.6   |  |  |  | Employment Agreement effective May 1, 2008 by and between Charles C. Forbes and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.3 to the
Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                              



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|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------ |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  |   |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       |  |  
|10.7   |  |  |  | Employment Agreement effective May 1, 2008 by and between L. Melvin Cooper and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.4 to the
Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                                                                                                                            
|       |  |  
|10.8   |  |  |  | Form of Indemnification Agreement for directors, officers and key employees (incorporated by reference to Exhibit 10.5 to the Companys Form S-4/A filed
June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                                                                                                                                                          
|       |  |  
|10.9   |  |  |  | Form of Executive Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.6 to the Companys Form S-4/A filed June 27, 2008, Registration No.
333-150853).                                                                                                                                                                                                                                                                                                                                                                                               
|       |  |  
|10.10  |  |  |  | Form of Director Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.7 to the Companys Form S-4/A filed June 27, 2008, Registration No.
333-150853).                                                                                                                                                                                                                                                                                                                                                                                                
|       |  |  
|10.11  |  |   |  | Commercial Equipment Lease Agreement, dated October 15, 2008 among Forbes Energy Services LLC and Alice Environmental Services, LP. (incorporated by reference to Exhibit 10.1 to
the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2008).                                                                                                                                                                                                                                                                                                       
|       |  |  
|10.12  |  |  |  | Notes Purchase Agreement dated September 25, 2009, by and among Forbes Energy Services LLC, Forbes Energy Capital Inc., C.C. Forbes, LLC, TX Energy Services, Superior Tubing
Testers, LLC, Forbes Energy International, LLC, Forbes Energy Services Ltd. and Goldman, Sachs & Co. (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated September 28, 2009).                                                                                                                                                                           
|       |  |  
|10.13  |  |  |  | Translation of Unit Price Public Works Contract No. 424048860 dated September 26, 2008, including Agreement No. 1 Inclusion of Project and New Concepts with Additional
Increase of Contract Amount 424048860 dated December 4, 2009, entered into by and between PEMEX Exploración y Producción, Merco Ingenieria Industrial S.A. de C.V. and Forbes Energy Services Ltd. (incorporated by reference to
Exhibit 10.13 to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).                                                                   
|       |  |  
|10.14  |  |  |  | Subscription Agreement dated as of May 17, 2010, by and among Forbes Energy Services Ltd., West Face Long Term Opportunities Limited Partnership, West Face Long Term
Opportunities (USA) Limited Partnership and West Face Long Term Opportunities Master Fund L.P, including the Form of Certificate of Designation of Series B Senior Convertible Preferred Shares and Form of Registration Rights Agreement attached as
exhibits thereto. (incorporated by reference to Exhibit 10.14 to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).
|       |  |  
|16.1   |  |  |  | Letter from PricewaterhouseCoopers, LLP to the Securities and Exchange Commission dated June 26, 2009 (incorporated by reference to Exhibit 16.1 to the Companys Current
Report on Form 8-K dated June 26, 2009).                                                                                                                                                                                                                                                                                                                                                             
|       |  |  
|31.1*  |  |  |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       |  |  
|31.2*  |  |  |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       |  |  
|32.1*  |  |  |  | Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                                                                                                                                                                                                                                                                                                                                                     
|       |  |  
|32.2*  |  |  |  | Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                                                                                                                                                                                                                                                                                                                                                     



|* | Filed herewith.
|- | ---------------



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SIGNATURES

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



|                |  |                             |  |                                                
|--------------- |  | --------------------------- |  | -----------------------------------------------
|                |  | FORBES ENERGY SERVICES LTD.
|                |  |                            
|August 16, 2010 |  | By:                         |  | /S/    JOHN E.
CRISP                           
|                |  |                             |  | John E. Crisp                                  
|                |  |                             |  | Chairman, Chief Executive Officer and President
|                |  |                             |  | (Principal Executive Officer)                  
|                |  |                            
|August 16, 2010 |  | By:                         |  | /S/    L. MELVIN
COOPER                        
|                |  |                             |  | L. Melvin Cooper                               
|                |  |                             |  | Senior Vice President,                         
|                |  |                             |  | Chief Financial Officer and Assistant Secretary
|                |  |                             |  | (Principal Financial and Accounting Officer)   



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##### Table of Contents

EXHIBIT INDEX**



|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------ |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  |   |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       |  |  
|2.1    |  |  |  | Agreement and Plan of Reorganization effective January 1, 2008 among Forbes Energy Services LLC and the respective members of C.C. Forbes, LLC, TX Energy Services, LLC
and Superior Tubing Testers, LLC (incorporated by reference to Exhibit 2.1 to the Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                 
|       |  |  
|2.2    |  |  |  | Agreement and Plan of Reorganization effective May 29, 2008 among Forbes Energy Services Ltd. and the members of Forbes Energy Services LLC (incorporated by reference to
Exhibit 2.2 to the Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                              
|       |  |  
|3.1    |  |  |  | Memorandum of Association of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.11 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                                                                
|       |  |  
|3.2    |  |  |  | Amended and Restated Bye-laws of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.12 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                                                            
|       |  |  
|4.1    |  |  |  | Indenture, dated as of February 12, 2008 among Forbes Energy Services LLC and Forbes Energy Capital Inc., as issuers, the guarantors party thereto and Wells Fargo Bank,
National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008).                                                                                                                                            
|       |  |  
|4.2    |  |  |  | Supplemental Indenture (First Supplemental Indenture), dated as of May 29, 2008 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital Inc., the
other Guarantors (as defined in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30,
2008).                                           
|       |  |  
|4.3    |  |  |  | Supplemental Indenture (Second Supplemental Indenture), dated as of October 6, 2008 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital Inc., the
other Guarantors (as defined in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31,
2008).                                         
|       |  |  
|4.4    |  |  |  | Third Supplemental Indenture, dated as of February 6, 2009 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital Inc., the other Guarantors (as
defined in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated February 6, 2009).                                                                                
|       |  |  
|4.5    |  |  |  | Indenture dated as of October 2, 2009, by and among Forbes Energy Services LLC and Forbes Energy Capital Inc., as issuers, the guarantors party thereto and Wilmington Trust FSB,
as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated October 10, 2009).                                                                                                                                                                       
|       |  |  
|4.6    |  |  |  | Notation of Guarantee from Forbes Energy Services Ltd. (incorporated by reference to Exhibit 4.5 to the Companys Annual Report on Form 10-K for the year ended December 31,
2008).                                                                                                                                                                                                                                                                                               
|       |  |  
|4.7    |  |  |  | Notation of Guarantee from Forbes Energy International, LLC (incorporated by reference to Exhibit 4.6 to the Companys Annual Report on Form 10-K for the year ended December
31, 2008).                                                                                                                                                                                                                                                                                          
|       |  |  
|4.8    |  |  |  | Specimen 144A Global 11% Senior Secured Exchange Note due 2015 (incorporated by reference to Exhibit 4.5 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                                                           
|       |  |  
|4.9    |  |  |  | Rights Agreement dated as of May 19, 2008 between Forbes Energy Services Ltd. and CIBC Mellon Trust Company, as Rights Agent, which includes as Exhibit A the
Certificate of Designations of Series A Junior Participating Preferred Shares, as Exhibit B the form of Right Certificate and as Exhibit C the form of Summary of Rights to Purchase Shares (incorporated by reference to Exhibit 4.8 to
the Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).



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##### Table of Contents

|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------ |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  |   |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       |  |  
|10.1   |  |  |  | Credit Agreement dated as of April 10, 2008 among C.C. Forbes, LLC, TX Energy Services, LLC and Superior Tubing Testers, LLC, as borrowers, Forbes Energy Services LLC, as
guarantor, and Citibank, N.A., as lender, governing the Credit Facility (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008).                                                                                                                                                                                                 
|       |  |  
|10.2   |  |   |  | Third Amendment to Credit Agreement dated effective as of July 10, 2009 among C.C. Forbes, LLC, TX Energy Services, LLC and Superior Tubing Testers, LLC, as borrowers, Forbes
Energy Services LLC, as guarantor, and Citibank, N.A., as lender (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed July 15, 2009).                                                                                                                                                                                                                    
|       |  |  
|10.3   |  |  |  | Guaranty dated April 10, 2008, among Forbes Energy Services LLC and Forbes Energy Capital Inc., including the Guaranty Supplement, dated effective May 29, 2008, executed January
5, 2009, among Forbes Energy Services Ltd. and Citibank, N.A. (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated January 8, 2009).                                                                                                                                                                                                                  
|       |  |  
|10.4   |  |  |  | Forbes Energy Services Ltd. Incentive Compensation Plan effective May 19, 2008 (incorporated by reference to Exhibit 10.1 to the Companys Form S-4/A filed
June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                                                                                                                                                        
|       |  |  
|10.5   |  |  |  | Employment Agreement effective May 1, 2008 by and between John E. Crisp and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.2 to the Companys
Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                                                                                                                                
|       |  |  
|10.6   |  |  |  | Employment Agreement effective May 1, 2008 by and between Charles C. Forbes and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.3 to the
Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                                                                                                                            
|       |  |  
|10.7   |  |  |  | Employment Agreement effective May 1, 2008 by and between L. Melvin Cooper and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.4 to the
Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                                                                                                                             
|       |  |  
|10.8   |  |  |  | Form of Indemnification Agreement for directors, officers and key employees (incorporated by reference to Exhibit 10.5 to the Companys Form S-4/A filed
June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                                                                                                                                                           
|       |  |  
|10.9   |  |  |  | Form of Executive Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.6 to the Companys Form S-4/A filed June 27, 2008, Registration No.
333-150853).                                                                                                                                                                                                                                                                                                                                                                                                
|       |  |  
|10.10  |  |  |  | Form of Director Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.7 to the Companys Form S-4/A filed June 27, 2008, Registration No.
333-150853).                                                                                                                                                                                                                                                                                                                                                                                                 
|       |  |  
|10.11  |  |   |  | Commercial Equipment Lease Agreement, dated October 15, 2008 among Forbes Energy Services LLC and Alice Environmental Services, LP. (incorporated by reference to Exhibit 10.1 to
the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2008).                                                                                                                                                                                                                                                                                                        
|       |  |  
|10.12  |  |  |  | Notes Purchase Agreement dated September 25, 2009, by and among Forbes Energy Services LLC, Forbes Energy Capital Inc., C.C. Forbes, LLC, TX Energy Services, Superior Tubing
Testers, LLC, Forbes Energy International, LLC, Forbes Energy Services Ltd. and Goldman, Sachs & Co. (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated September 28, 2009).                                                                                                                                                                            
|       |  |  
|10.13  |  |  |  | Translation of Unit Price Public Works Contract No. 424048860 dated September 26, 2008, including Agreement No. 1 Inclusion of Project and New Concepts with Additional
Increase of Contract Amount 424048860 dated December 4, 2009, entered into by and between PEMEX Exploración y Producción, Merco Ingenieria Industrial S.A. de C.V. and Forbes Energy Services Ltd. (incorporated by reference to
Exhibit 10.13 to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).                                                                    
|       |  |  
|10.14  |  |  |  | Subscription Agreement dated as of May 17, 2010, by and among Forbes Energy Services Ltd., West Face Long Term Opportunities Limited Partnership, West Face Long Term
Opportunities (USA) Limited Partnership and West Face Long Term Opportunities Master Fund L.P, including the Form of Certificate of Designation of Series B Senior Convertible Preferred Shares and Form of Registration Rights Agreement, attached as
exhibits thereto. (incorporated by reference to Exhibit 10.14 to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).



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##### Table of Contents

|       |  |   |  |                                                                                                                                                                                                                   
|------ |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  |   |  | Description of Exhibits                                                                                                                                                                                           
|       |  |  
|16.1   |  |  |  | Letter from PricewaterhouseCoopers, LLP to the Securities and Exchange Commission dated June 26, 2009 (incorporated by reference to Exhibit 16.1 to the Companys
Current Report on Form 8-K dated June 26, 2009).
|       |  |  
|31.1*  |  |  |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                    
|       |  |  
|31.2*  |  |  |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                    
|       |  |  
|32.1*  |  |  |  | Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                        
|       |  |  
|32.2*  |  |  |  | Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                        



|* | Filed herewith.
|- | ---------------



51