**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D. C. 20549**





**Form
      10-KSB/A**








ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the
      fiscal year ended **December
      31, 2005**





TRANSITIONAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
      the
      transition period from ________to ________





Commission
      file number: 333-64122





**Blast
      Energy Services, Inc.**


(Name
      of
      small business issuer in its charter)





**California**
            **22-3755993****(State
                of incorporation)**
            **(I.R.S.
                Employer**
              **Identification
                No.)**








**14550
      Torrey Chase Blvd, Suite 330**


**Houston,
      Texas 77014**


(Address
      of principal executive offices)





**(281)
      453-2888**


(Telephone
      number)





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








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








Check
      whether issuer (1) filed all reports required to be filed by Section 13 or
      15(d)
      of the Exchange Act during the past 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 No





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of the registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of the Form 10-KSB or any
      amendments to this Form 10-KSB.





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





Issuer’s
      revenues for the most recent fiscal year: $1,159,458





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      last sold on February 28, 2006 is $33,569,923.





The
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of December 31, 2005:





Common
      Stock: 42,060,477 shares





No
      (1)
      annual report to security holders; (2) proxy or information statement; or (3)
      any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of
      1933; are incorporated by reference into any part of this Form
      10-KSB.


Transitional
      Small Business Disclosure Format: Yes No











**Explanatory
      Note**







Blast
        Energy Services, Inc. is filing this amended Annual Report on Form 10-KSB/A
        for the period ended December 31, 2005 (the “Amended Annual Report”), to amend
        its Report on Form 10-KSB for the period ended December 31, 2005 (the “Original
        Annual Report”), which was filed with the Securities and Exchange Commission on
        March 31, 2006.





The
        Amended Annual Report amends the Company’s financial statements to reflect the
        proper classification of the cash received from the sale of the Landers license,
        revisions to the language describing notes payable, warrants issued in 2005
        and
        subsequent events, including the associated footnotes to the financial
        statements and disclosures under Part I, Item 1 “Financial Statements,” I, and
        Part II, Item 8a “Controls and Procedures.” Except for these items no other
        information in the original Report is amended hereby.

















1





**Table
      of Contents**




**PART
                I****DESCRIPTION
                OF BUSINESS**
            3FORWARD-LOOKING
                STATEMENTS
            3BUSINESS
                DEVELOPMENT
            3BUSINESS
                OF ISSUER
            3INDUSTRY
            4ABRASIVE
                JETTING LATERAL DRILLING SERVICES
            5*Major
                Customers*
            7*Market*
            8*Competition*
            8SATELLITE
                SERVICES
            8*Major
                Customers*
            9*Market*
            9*Competition*
            10PATENTS
            10GOVERNMENTAL
                REGULATION
            11**DESCRIPTION
                OF PROPERTY**
            12**LEGAL
                PROCEEDINGS**
            12**SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS**
            13**PART
                II****MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**
            13**MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**
            19**FINANCIAL
                STATEMENTS**
            31**CHANGES
                IN / DISAGREEMENTS WITH ACCOUNTANTS**
            48**CONTROLS
                AND PROCEDURES**
            48**PART
                III****DIRECTORS
                AND EXECUTIVE OFFICERS**
            49**EXECUTIVE
                COMPENSATION**
            51**SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT**
            54**CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS**
            55**EXHIBITS
                AND REPORTS ON FORM 10-KSB**
            58**PRINCIPAL
                ACCOUNTANTS FEES AND SERVICES**
            61**SIGNATURES**
            62



















2


**Item
      1. Description of Business**





**Forward-Looking
      Statements**


Certain
      statements concerning our plans and intentions included herein may constitute
      forward-looking statements, including, but not limited to, statements identified
      by the words “anticipate”, “believe”, “expect” and similar expressions and
      statements regarding our business strategy, plans, beliefs and objectives for
      future operations. Although management believes that the expectations reflected
      in these forward-looking statements are reasonable, we can give no assurance
      that such expectations will prove to have been correct. There are a number
      of
      factors that may affect our future results, including, but not limited to,
      (a) our ability to obtain additional funding for development and
      operations, (b) the continued availability of management to execute the
      business plan, (c) successful deployment and market acceptance of our
      products, and (d) the resolution of legal matters that may inhibit the
      execution of the business plan.





This
      annual report may contain both historical facts and forward-looking statements.
      Any forward-looking statements involve risks and uncertainties. Moreover, future
      revenue and margin trends cannot be reliably predicted.





**Business
      Development**


In
      September 2000 we were incorporated as Rocker & Spike Entertainment,
      Inc, a California corporation. Until December 31, 2000, operations
      consisted of organizational matters and the search for an operating company
      with
      which to perform a merger or acquisition. Effective January 1, 2001, we
      purchased the assets and web domain of Accident Reconstruction Communications
      Network from its sole proprietor. Following the acquisition, we changed our
      name
      from Rocker & Spike Entertainment, Inc. to Reconstruction Data Group,
      Inc. At that time, we provided research, communication and marketing exposure
      to
      the accident reconstruction industry through our website and seminars.





In
      April
      2003, we entered into a merger agreement with Verdisys, Inc. (“Verdisys”).
      Verdisys was initially incorporated as TheAgZone Inc. in 1999 as a California
      corporation. Its purpose was to provide e-Commerce satellite services to
      agribusiness. They changed their name to Verdisys in 2001, and in 2003, with
      the
      acquisition of exclusive rights to a proprietary lateral drilling process
      throughout most of the U.S. and Canada, they changed their market focus to
      concentrate on services to the oil and natural gas (“oil and gas”) industry.





The
      merger agreement with Verdisys called for us to be the surviving company. In
      connection with the merger, our name changed to Verdisys, our articles of
      incorporation and bylaws remained in effect, the officers and directors of
      Verdisys became our officers and directors, each share of Verdisys’ common stock
      was converted into one share of our common stock, and our accident
      reconstruction assets were sold.





Effective
      June 6, 2005, we formally changed our name to Blast Energy Services, Inc.
      (“Blast” or “Blast Energy”) from Verdisys in part to reflect our focus on the
      energy service business. We have shifted our business strategy away from an
      agricultural related business toward energy services. We believe such a name
      change creates better name recognition related to the types of service that
      we
      intend to provide and the ability to trademark new applications and services
      in
      a way to uniquely identify them with our company.





**Business
      of Issuer**


Our
      mission is to substantially improve the economics of existing oil and gas
      operations through the application of our licensed and proprietary technologies.





We
      expect
      our primary segment will be our down-hole energy services business. We have
      been
      striving to develop a commercially viable lateral drilling technology with
      the
      potential to penetrate through well casing and into reservoir formations to
      stimulate oil and gas production using abrasive fluid jetting (AFJ) and the
      principles gained from the non-abrasive process used in the Landers lateral
      drilling technology. In 2003, with the acquisition of exclusive rights to a
      proprietary Landers horizontal drilling process we began to deploy this
      non-abrasive, lateral drilling service in the field. During 2004, it became
      apparent that this process was limited and was not able to succeed in a wide
      variety of oil and gas formations. After redesigning and improving the existing
      process and designing and testing some newer technologies, including abrasive
      fluid jetting, we now believe that we can deliver a valuable and cost effective
      production enhancement service to onshore oil and gas producers, particularly
      operators of marginal wells. We believe we have now made this new service more
      reliably predictable and consistently dependable for our customers than our
      old
      technology. We have recently delivered our first new generation lateral drilling
      rig with the AFJ capability which utilizes high-pressure fluid mixed with a
      small volume of abrasive materials, such as fine garnet sand, to cut through
      surfaces as tough as four inches of steel as well as granite rock. During this
      period of development and construction in late 2004 and all of 2005, we have
      conducted no drilling operations. If accepted by the market, the capabilities
      of
      this new generation AFJ rig will allow us to expand to a wider range of well
      services, including specialty casing cutting, long reach and large bore
      perforating, lateral jetting and specialty completions. Should we achieve
      favorable results for our customers with this initial rig’s capabilities, we
      intend to order the construction of up to three additional rigs in 2006 and
      significantly grow the deployment of our abrasive jetting service.


3


Our
      secondary business segment is providing satellite communication services to
      energy companies. This service allows them to remotely monitor and control
      well
      head, pipeline, drilling, and other operations through low cost broadband data
      and voice services to remote operations where terrestrial or cellular
      communication networks do not exist or are too costly to install to meet
      customers commercial requirements. Longer term, our broader vision is to
      introduce additional early stage technologies to the energy services sector,
      all
      of which would fit our mission of helping energy companies produce oil and
      gas
      more economically.





**Industry**


We
      operate in the energy services industry which services the broader energy
      industry, where companies explore, develop, produce, transport, and market
      oil
      and gas. This industry is comprised of a diversity of operators, ranging from
      the very small to the extremely large. While the major portion of oil and gas
      production is provided by very large international oil companies, there are
      also
      a large number of smaller independent companies who own the vast majority of
      existing wells.





As
      a
      smaller firm with a specialized service, we intend to provide down-hole
      solutions and satellite communication services to both small and large operators
      in the energy industry. Initially, the down-hole business will be focused toward
      North American onshore-based independent producers while the satellite business
      already has several of the large oil and gas operators as customers. As we
      grow,
      we intend to cater to all segments of the industry in situations where the
      application of our services can add value to our customers.





Demand
      for our services depends on our ability to demonstrate improved economics,
      primarily to the oil and gas production sector we serve. We believe that they
      will use our abrasive jetting service where it costs less than alternative
      services and/or when they perceive it enhances production. It will also be
      driven by macro-economic factors driving oil and gas fundamentals. The report
      of
      the Energy Information Administration of the U.S. Department of Energy entitled
      “International Energy Outlook 2006” forecasts that world oil consumption will
      increase at an average annual rate of approximately 1.1% from 2004 to 2030
      and
      that world natural gas consumption will increase at an average annual rate of
      approximately 0.7% over the same period. The projected increase in demand for
      oil is based on growth in the transportation and industry sectors in particular,
      and primarily in Asian emerging economies, such as China and India, as well
      as
      North America. The projected increase in gas consumption over this period is
      expected to result from higher demand across the electrical power, industrial
      and commercial sectors, as well as from the increasing use of gas as a source
      of
      fuel for electric power generation, particularly in North and South America,
      as
      well as other regions. We also believe that reliance on traditional sources
      of
      oil and gas will be limited due to the inadequate delivery infrastructure and
      political unrest in major supplying countries.





There
      are
      1,337 trillion cubic feet (“Tcf “) of recoverable gas resources in the U.S. -
      enough to last decades - but some of it is off-limits to recover because of
      restrictive environmental rules and lawsuits. This is particularly the case
      with
      drilling moratoriums on the East and West Coasts of America, parts of the Rocky
      Mountain Area and Alaska. On its website, www.naturalgasfacts.org, the American
      Petroleum Institute advocates “A multi-pronged approach is essential for meeting
      future U.S. gas demand: (1) wiser energy use and conservation, where
      possible; (2) development of more U.S. supplies - both offshore and in the
      Mountain West; (3) construction of pipelines to bring Arctic gas to
      consumers; and (4) tapping into global markets through liquefied natural
      gas from a diverse array of suppliers.” We believe a more immediate impact can
      be made by exploiting existing U.S. supplies. Developing such supplies is
      dependent on drilling new wells in existing fields, or new reserves in expensive
      less accessible fields. We believe our lateral drilling technology can access
      previously uneconomic reserves and bring them to market cost effectively thereby
      helping to resolve this supply/demand imbalance.





The
      Office of Fossil Energy, U.S. Department of Energy, estimates there are over
      400,000 oil wells and 260,000 gas wells that are marginal or classified as
      “stripper” wells in the United States. These stripper wells produce 10 to 15
      barrels or less of oil a day or 60 thousand cubic feet of gas or less a
      day. According to the Office of Fossil Energy “together (stripper wells) account
      for over 1.4 Tcf of gas, or about 7% of the natural gas produced in the lower
      48
      states.” Such wells are potentially considered uneconomic or marginal with the
      strong potential of being abandoned due to poor production economics. Indeed
      approximately 142,000 marginal wells were abandoned between 1994 and 2003
“costing the U.S. more than $3.0 billion in lost oil revenue” according to the
      Office of Fossil Energy. In seeking to revitalize marginal and stripper wells
      both the Department of Energy and American Petroleum Institute have emphasized
      the need for new technologies to access more of the reserves available. We
      believe we have the ability to generate new business by re-entering existing
      wells rather than being dependent on the production companies drilling new
      wells. With our unique abrasive jetting drilling technology, we believe we
      can
      provide potentially improved recovery rates rather than abandoning a field
      because of the depletion of its oil or gas reserves.





We
      believe that producing companies will react to the combination of the increased
      demand and the decreased supply of oil and gas in a manner that requires them
      to
      utilize both segments of our business. We believe that oil and gas producers
      have great economic incentive to recover additional production and reserves
      from
      known reservoirs rather than pursuing a more risky exploration approach. Our
      extraction methods may permit producers to add value by potentially recovering
      a
      significant additional percentage of the oil and gas from a reservoir. We
      believe that there exists a large potential market in North America that
      comprises logical candidates to apply our abrasive jetting stimulation methods.





4


Activity
      in the energy services industry tends to be cyclical with oil and gas prices.
      In
      addition to the currently positive industry fundamentals, we believe the
      following sector-specific trends enhance the growth potential of our business:





•  While
      oil
      prices are unpredictable, they have remained and are projected to remain
      relatively high by historic terms for several years. Continuing high consumption
      and strong growth in Asian demand, limitations in delivery infrastructures
      and
      political unrest in major supplying countries are expected to be contributing
      factors.





•  Gas
      prices are projected to remain high for several years due to the combination
      of
      strong demand and major supply constraints The situation is serious enough
      that
      Federal Reserve Bank Chairman Greenspan has expressed concern as to its effect
      as a constraint to US economic growth during his testimony before the Joint
      Economic Committee of Congress on May 21, 2003 and in updates since that
      time.





•  There
      is
      no substitution threat to oil and gas in the foreseeable future. In particular,
      any significant substitution by hydrogen or any other potential source is
      believed by management to be some decades away.





**Abrasive
      Jetting Services**


Our
      AFJ
      service intends to provide casing milling, perforation, well stimulation and
      lateral drilling services to oil and gas producers. As a co-owner of the
      intellectual property with Alberta Energy Partners (“Alberta”) formerly known as
      Alberta Energy Holding, Inc., we also have exclusive worldwide licensing rights
      for the application of their patent pending Abrasive Fluid Jet (“AFJ”) cutting
      technique to cut through well casing and formation rock in oil and gas wells.
      AFJ is being added to, and will enhance the existing principles of lateral
      jetting and completion techniques utilized by us and the industry. Applications
      of such abrasive cutting techniques are a proven feature in industries as
      diverse as munitions disposal in the military, offshore platform dismantlement
      in the salvage industry and cutting specialty glass and steel in the machining
      business. We would be among the first to commercially apply the proven abrasive
      jetting techniques to the energy producing business.





We
      have
      recently completed the construction of a new generation specialty rig based
      upon
      modifications using existing coiled tubing technology as the primary platform.
      The capabilities of our new rig include: one-inch coiled tubing with a working
      depth capability of 8,000 feet; a fluid pressure pumping system; an abrasive
      slurry system; and a computer-controlled system to guide and control the
      down-hole formation access tool for precise casing milling and jetting services.
      The new generation rig is expected to be commercially deployed during April,
      2006. After the initial rig establishes a reliable and commercial oilfield
      service, we intend to begin construction of additional rigs with similar
      capabilities as the market demands.





**Expanded
      Product Line**


Our
      versatile AFJ product line offerings have been expanded greatly from the single
      oilfield service offered using the Landers technology. The product line now
      varies in scope and complexity from the provision of relatively simple services
      such as coil tubing pumping, tubing cleaning and cutting, window casing milling,
      and large bore perforations to the more technically challenging services of
      long
      reach lateral jetting, with or without well stimulation services, using
      materials such as propants to ensure integrity of the well bore and acid to
      stimulate release of hydrocarbons. Most of the services offered currently exist
      in the marketplace but our goal is to provide them more efficiently and
      effectively by adding the abrasive cutting capability. For example, the current
      industry standard for well perforation involves shooting multiple small holes
      into the well bore and out into the oil and gas formation 3 to 6 feet compared
      to our approach of blasting 2 to 4 inch diameter tunnels into the formation
      rock
      as far as 10 feet or more. Another example is casing milling, where conventional
      methods take far longer to mechanically cut windows into the casing than the
      abrasive cutting technique. Management believes that the industry will rapidly
      embrace such time and cost saving operations.





Our
      initial rig is configured to provide such services to a working depth of 8,000
      feet. Given our current lack of experience in providing these new AFJ services,
      we are unsure which services will be better received by the market or which
      will
      be more profitable to the company. Consequently, 2006 will be a year of learning
      much more about these markets for us.





Due
      to
      our unique and environmentally sound process, we believe that our AFJ product
      line will offer the ability to access previously uneconomic reserves and bring
      them to market cost effectively. These services should have appeal for both
      small independent operators as well as larger energy companies. At our lower
      comparative costs, we believe we can make it feasible to enhance production
      from
      a large potential market in North America and worldwide that would otherwise
      be
      cost prohibitive to recover. The existing independent oil and gas producers
      in
      North America are leading potential customers of these services. The company’s
      strategy is to operate in North America as a service company and to accelerate
      worldwide growth by attempting to deploy the technology overseas via licensing
      of the technology to energy service companies in their geographic areas of
      greatest strength.





5


**Lateral
      Jetting Services**


Many
      of
      the nation’s mature oil and gas fields contain new infield reservoir
      compartments and bypassed pockets of productive zones that have not previously
      been economic to produce. By extending 2 inch or greater diameter channels
      extended distances in multiple directions from the casing of the well, our
      lateral jetting service provides an potentially economic way to enhance
      production levels of existing reservoirs or by reaching new infield reservoirs
      or untapped reservoirs located near the existing vertical well. Our lateral
      drilling process uses a high pressure AFJ cutting technique, capable of drilling
      lateral holes from existing wells extended distances beyond the near well bore
      damage in wells at working depths as deep as 8,000 feet.











With
      conventional horizontal drilling, the transition from drilling vertically to
      horizontal drilling may take 200 feet or more and take many days to accomplish.
      With our patented technology, we can make this transition in two feet in an
      immediate fashion. This enables us to be extremely precise in targeting and
      staying within specific pay zones for a potentially significant enhancement
      to
      the production of the well.





We
      are
      developing abrasive jetting technology using specially designed deflection
      shoes, nozzles and hoses to drill 2 inch and larger diameter well bores into
      the
      producing formation in multiple directions around the well-bore. By increasing
      the surface drainage area opened to the producing reservoir, oil or gas
      production should be increased, which represents a potentially large value-added
      application in conventional drilling and completion operations. The figure
      below
      more precisely illustrates the process.





Our
      AFJ
      process is designed to work on both new and existing wells, but may have greater
      attraction to operators of marginal wells, whose production and basic economic
      performance could be greatly improved. The strong market potential arises from
      the realization that our service could negate the continual need for new
      drilling and denser infield drilling. Any fields that may be ready to be
      abandoned but have remaining resource potential can have their production
      re-established and their economic lives significantly extended if our abrasive
      jetting application is successful.





The
      figure below demonstrates how drilling multiple lateral wells from existing
      vertical well bores can drastically expand the production area within a given
      field. A typical vertical well will only recover petroleum from an area
      relatively near to the well bore. However, each lateral can extend in multiple
      directions from the well bore, thus potentially increasing the area of
      productive capacity several fold. With our lateral drilling process we have
      the
      ability to drill multiple laterals in different directions and at multiple
      depths within the same producing intervals in a matter of days. The average
      price for our service will range from $25,000 to $40,000 per well depending
      upon
      the size of the project. Specialized directional drilling companies typically
      charge $250,000 or more to drill horizontally in one direction and in only
      one
      horizon and may require weeks to drill each well.


6








Potential
      Benefits of our AFJ lateral jetting service:


•  Increase
      production rate and recoverable reserves from marginal wells.


•  Allows
      stimulation of wells with acid, steam, CO 2 ,
      etc.


•  Allows
      multi-layer application in thicker reservoir zones.


•  Provides
      an economic alternative to conventional infield drilling programs.


•  Provides
      a time efficient and cost effective casing milling process.


•  Offers
      an
      alternative to high cost well stimulation services such as hydraulic fracturing.


•  Limits
      the time the well is out of production due to rapid jetting times.





*Major
      Customers*


We
      currently have one single active customer as we are in the commercial deployment
      mode. We have a letter of intent with Oracle Energy to conduct down-hole service
      testing on several wells located in their fields in Louisiana. 
Additionally, we have several other potential customers attending our yard
      and
      field demonstrations while on location in our contracted Fort Worth fabrication
      facility and in Sabine Parish, Louisiana with Oracle Energy.





*Customer
      Acceptance*


We
      are
      encouraged by the level of interest from prior and prospective customers in
      the
      abrasive jetting technology as it relates to conventional oil and gas production
      as well as coal bed methane opportunities.





Our
      abrasive jetting service directly competes with the need for new wells by
      laterally drilling from existing wells to extend the pay zone resulting in
      increased production through existing well bores. Our ability to target new
      or
      previously untapped deposits makes our technology potentially very compelling.
      By cost effectively extending the accessibility of reserves through the existing
      well bore, our technology can provide an alternative for a customer to add
      value
      to an existing field as compared to conventional well fracturing and stimulation
      techniques or infield drilling programs. The field operator’s next best economic
      alternatives are all more expensive than our service. This has the potential
      to
      be not only compelling economically but also very environmentally friendly
      because it uses previously established well bores rather than building new
      surface locations to drill new wells.





According
      to the Department of Energy Report - Natural Gas Fundamentals from Resource
      to
      Market, June, 2003, there are “Over 7,000 small independent businesses (that)
      drill 85% of wells and produce 65% of gas in the U.S. from over 350,000 U.S.
      wells.” These independent producers are potential customers for our abrasive
      jetting service. In the same report it estimates 10,000 to 15,000 new gas wells
      are drilled and completed each year costing anywhere from less than $100,000
      to
      several million. These new wells are necessary just to replace depleted supplies
      from existing wells in an effort to maintain current U.S. production
      levels.





Recent
      changes in U.S. tax laws provide for incentives to keep smaller oil and gas
      wells pumping even at lower energy prices. Operators of the nation’s 650,000
      marginally producing wells, representing approximately 25% of total U.S.
      production, receive tax credits of up to $9 per well per day. We believe such
      credits will be reinvested by the operators toward services such as abrasive
      jetting in an effort to increase production and the value of their oil and
      gas
      fields.





7


*Market*


It
      has
      become clear in recent years that while the demand of oil and gas in the U.S.
      continues to grow, its ability to meet this demand from existing and new sources
      is rapidly declining. This accelerated decline will require producers to seek
      new extraction methods or technologies to exploit oil and gas production from
      existing fields and we anticipate that our abrasive jetting process will help
      satisfy the need for these new technologies. According to the Department of
      Energy, there have been 2.3 million wells drilled in the US since 1949.
“Historically, only some 30% of the total oil in a reservoir - the “original
      oil-in-place” - was recoverable. As pressure declines in the reservoir, the oil
      becomes costlier and costlier to produce until further production becomes
      uneconomic...recent advances now allow greater recovery from old
      reservoirs.”





*Emphasis
      on Gas*


The
      U.S.
      consumed 22.3 Tcf of gas in 2004 - heating 57% of U.S. households and meeting
      23% of the country’s energy requirements, according to the U.S. Energy
      Information Administration (EIA). In that same year, U.S. production of gas
      totaled 18.8 Tcf, which equates to 84% of the amount consumed. According to
      the
      EIA, this gap between demand and supply is estimated to grow over the next
      decade. Demand will grow because gas is a versatile, clean burning and,
      historically, an economic fuel. At the same time, the new domestic fields being
      found are smaller and have shorter productive lives. So, it is management’s
      belief that with legal and political barriers to drilling on new lands,
      producers will seek alternative to extend the lives from existing fields,
      utilizing new energy service technologies such as AFJ.





*Competition*


Our
      AFJ
      business is expected to operate in a niche that lies between the more expensive
      and higher impact conventional horizontal drilling business and the much cheaper
      and lower impact casing milling and perforation businesses. Our abrasive jetting
      service can provide significant reservoir exposure, and therefore greater
      production potential, similar to horizontal drilling at a cost closer to that
      of
      a perforation service.





Conventional
      horizontal or directional drilling is slow and significantly more expensive
      to
      the extent that it is only being used if its much longer drilling radius was
      required as is necessary in offshore or environmentally sensitive areas.
      Companies offering this service include Halliburton, Baker Hughes, Schlumberger
      and other independent service companies. They traditionally drill one lateral
      through the existing well bore. That lateral can take over 200 feet to achieve
      the turn to the horizontal and be limited to only one “pay” zone. It usually
      costs over $250,000 and positive financial returns require very high producing
      rates or high oil and gas prices.





However,
      many of our competitors are better financed, equipped and resourced than
      us.





**Satellite
      Communications**


Our
      second business segment provides satellite communication services to oil and
      gas
      producers. It has been common practice to manually gather much of the data
      for
      energy management, and communicate using satellite phone or cellular service
      where available. This is not only expensive but also causes a significant time
      lag in the availability of critical management information. The Blast Satellite
      Private Network (“BSPN”) services utilize two-way satellite broadband to provide
      oil and gas companies with a wide variety of remote energy management
      communications and applications. Satellite’s capability to provide secure
      broadband to any remote location in the world gives it unique capabilities
      over
      terrestrial and cellular networks. Technology advancements now facilitate not
      only data, email and internet traffic but also Voice over Internet (“VoiP”) and
      video streaming. Bandwidth traffic capabilities of base station have also
      increased significantly allowing larger and faster file and data transfer
      capabilities to compete with terrestrial systems. Satellites capability to
      operate off stationary and mobile remote dishes with no supporting
      infrastructure has proven invaluable in both disaster recovery and remote or
      continuously moving commercial operations.





Our
      satellite services can be optimized to provide cost effective applications
      such
      as VoIP, Virtual Private Networking “VPN” and Real-time Supervisory Control and
      Data Acquisition Systems, commonly referred to as SCADA. SCADA permits oil
      and
      gas companies to dispense with a manual structure and move to a real-time,
      automated, energy management program. Utilizing SCADA, a service we currently
      offer, production levels can be optimized to meet the producer’s current market
      demands and commitments.


8











At
      present, we acquire modem hardware from ViaSat, iDirect Technologies and
      Spacenet and install this equipment on our customers’ onshore and offshore
      platforms. Space segment services are acquired from SES and Loral and hub
      services from Constellation, Isotropic Networks, Viasat and
      Spacenet.





Blast
      uses satellite communications that are low cost and that ensure worldwide
      availability, even in geographic areas with a poor communications
      infrastructure. Our satellite services are based on industry standards to lower
      implementation costs and to simplify the integration into existing systems.
      Reliability and availability are critical considerations for SCADA. Satellite
      services are provided 24 hours a day, 7 days a week with 99.9% availability
      virtually anywhere in the world. There are fewer points of failure than
      comparable terrestrial services. They provide uniform service levels, are faster
      and more cost effective to deploy. Our satellite services are also very flexible
      and easily accommodate site additions, relocations, bandwidth expansion, and
      network reconfiguration.





Additionally,
      security, integrity, and reliability have been designed into our satellite
      services to ensure that information is neither corrupted nor compromised.
      Satellite communications are more secure than many normal telephone
      lines.





*Major
      Customers*


Our
      current satellite services customers include Apache Corporation, BP America
      Production Company, and Noble Energy with 22 remote sites, representing 16%,
      23%
      and 16%, respectively, of our satellite revenues through December 31, 2006.
      We
      are also providing satellite services in West Africa to ExxonMobil, Kellogg
      Brown & Root Inc. and General Electric Power Company. Contracts are
      usually for hardware, backhaul, and bandwidth. Virtually any oil and gas
      producer, of which there are thousands, is a potential customer for our
      satellite services.





*Market*


There
      are
      more than two million oil and gas wells in existence in the U.S. alone, many
      of
      which are located in remote or rural areas where communications and monitoring
      well status can be difficult and expensive. Such well locations could benefit
      from the economics of our real-time, high speed satellite connectivity services
      as compared to more conventional monitoring alternatives, such as, the time
      consuming and costly transportation of personnel to remote well locations,
      or
      the equipment and maintenance costs of laying land lines for real-time
      monitoring of remote well operations. Our focus is serving the needs of oil
      and
      gas producers worldwide to control their production effectively and to enhance
      customer satisfaction by providing worldwide real-time access to information.
      This market for satellite services is very competitive with increasing pressure
      on margins our larger competitors offer services at substantially discounted
      prices. We attempt to compete against such competitors by attempting to target
      niche markets and offering alternative solutions that solve customers’ complex
      communication problems at more cost effective rates. We utilize satellite,
      Wi-Fi
      and other wireless technology for the last mile of wellhead connectivity for
      these customers and focus almost exclusively on the oil and gas market. The
      common denominator throughout is Multiple Protocol Label Switching “MPLS/ATM”
network transport services.





9


*Competition*


The
      satellite communication industry is intensely competitive due to overcapacity,
      but the competition is less severe in the oil and gas producing sector. Other
      satellite services providers in the oil and gas industry include Petrocom,
      Stratus Global, Tachyon, Schlumberger and Caprock. Caprock, Schlumberger and
      Stratus are focused on the top 20% of the market, particularly international
      and
      offshore platforms, and Petrocom and Stratus Global are focused on the offshore
      market using a traditional wireless network. Our satellite services offer
      advantages over those services by:





•  Customizing
      the provided service to better meet the customer’s needs;


•  Offering
      superior speed;


•  Providing
      single vendor convenience; and


•  Offering
      lower up-front infrastructure and operating costs.





**Insurance**


Our
      operations are subject to hazards inherent in the oil and gas industry, such
      as
      accidents, blowouts, explosions, implosions, fires and oil spills. These
      conditions can cause:





a)
            personal
                injury or loss of life


b)
            damage
                to or destruction of property, equipment and the environment


c)
            suspension
                of operations





In
      addition, claims for loss of oil and gas production and damage to formations
      can
      occur in the well service industry. Litigation arising from a catastrophic
      occurrence at a location where our equipment and services are being used may
      result in us being named as a defendant in lawsuits asserting large
      claims.





We
      maintain insurance coverage that we believe to be customary in the industry
      against these types of hazards. However, we may not be able to maintain adequate
      insurance in the future at rates we consider reasonable. In addition, our
      insurance is subject to coverage limits and some policies exclude coverage
      for
      damages resulting from environmental contamination. The occurrence of a
      significant event or adverse claim in excess of the insurance coverage that
      we
      maintain or that is not covered by insurance could have a materially adverse
      effect on our financial condition and results of operations.





**Patents
      and Licenses**


Effective
      August 25, 2005, Blast entered into a definitive agreement to purchase from
      Alberta an interest in the AFJ technology that enables Blast the unrestricted
      right to use the technology and license the technology worldwide to others.
      Blast expects to utilize the technology as the foundation for its energy
      services business. Blast has acquired a 20% interest in the technology that
      can
      increase to up to a 50% interest as described below. The agreement supersedes
      the previously existing licensing agreement between the parties.





As
      part
      of the agreement, Blast has agreed to issue to Alberta 3,000,000 shares of
      restricted common stock, with registration rights, and warrants to purchase
      750,000 shares of Blast common stock at an exercise price of $0.45 per share.
      The warrants have a three-year term and are exercisable when Blast receives
      $225,000 in revenue from its initial rig utilizing the technology. Blast has
      agreed to pay a royalty payment of $2,000 per well bore or 2% of the gross
      revenues received, whichever is greater. The parties also agreed to share any
      revenues received by Blast from licensing the technology, with Alberta receiving
      75% of licensing revenues until it receives $2,000,000 and then decreasing
      to
      50% thereafter. Blast’s ownership interest in the technology would increase on a
      sliding scale from 20% up to 50% based on the licensing revenues received by
      Alberta. Either party has a right of first refusal on any new applications
      of
      the technology by the other party, or any sale of the other party’s interest in
      the technology.





In
      March
      of 2006, Alberta accelerated the revenue sharing provisions of the Technology
      Purchase Agreement and assigned the full 50% ownership in the AFJ technology
      to
      Blast effective immediately. Blast had previously been awarded only 20% of
      the ownership and the remaining 30% balance had been contingent upon the sharing
      of future revenues.





Blast
      and
      Alberta also agreed to amend the existing construction agreement between the
      parties. The amendment increased the construction cost of the rig by $50,000
      to
      $900,000. Under the amendment, the parties agree to share cost overruns, if
      any,
      equally up to a rig cost of $1,000,000, with Blast assuming responsibility
      of
      any costs above that amount.





10


On
      April 24, 2003 we entered into an agreement to license the Landers
      Horizontal Drilling Process, based on U.S. Patent Nos. 5,413,184, 5,853,056,
      and
      6,125,949 relating to certain oil and gas well production enhancement techniques
      and devices and related trade secrets with the inventor and holder of the
      patents and trade secrets, Carl Landers. The license gives us exclusive rights
      to apply the technology and the related trade secrets in all of the U.S. (except
      for part of Colorado West of the Rockies, and Utah) and Canada. Mr. Landers
      also reserves the rights to certain applications in which he has a direct
      interest but may not compete with us. Any improvements to the technology remain
      the sole property of the licensor but are provided to us without additional
      licensing fees. The license terminates upon the expiration of the underlying
      patents, the earliest date being October 1, 2013.





On
      March 8, 2005, we entered into an Assignment of License Agreement
      (“Assignment”) with Maxim TEP (“Maxim”). The President and CEO of Maxim is Dan
      Williams, our former President and CEO. Under the assignment, we assigned to
      Maxim our rights in the license of the Landers Horizontal Drilling Process;
      all
      current and future negotiations for assignments, sublicenses or territorial
      royalty pertaining to the license and two lateral drilling rigs. As
      consideration, Maxim has paid $1,300,000 in principal payments and $500,000
      in
      penalties for extending the payment deadlines and released a $270,000 credit
      obligation we owed to Maxim. We will retain a non-exclusive sublicense interest
      in the Landers Horizontal Technology provided we pay all required royalties
      in
      utilizing the technology.





The
      lateral jetting technology and related trade secrets are instrumental to our
      competitive edge in the oil and gas service industry. We are highly committed
      to
      protecting the technology. We cannot assure our investors that the scope of
      any
      protection we are able to secure for our license will be adequate to protect
      it,
      or that we will have the financial resources to engage in litigation against
      parties who may infringe on our exclusive license. We also can not provide
      our
      investors with any degree of assurance regarding the possible independent
      development by others of technology similar to that which we have licensed,
      thereby possibly diminishing our competitive edge.





**Governmental
      Regulations**


Once
      we
      begin commercial lateral drilling operations, we may be subject to various
      local, state and federal laws and regulations intended to protect the
      environment. Such laws may include among others:





·
            Comprehensive
                Environmental Response, Compensation and Liability
                Act;


·
            Oil
                Pollution Act of 1990;


·
            Oil
                Spill Prevention and Response Act;


·
            The
                Clean Air Act;


·
            The
                Federal Water Pollution Control Act;
                and


·
            Texas
                Railroad Commission Regulations.





These
      operations may involve the handling of non-hazardous oil-field wastes such
      as
      sediment, sand and water. Consequently, the environmental regulations applicable
      to our operations pertain to the storage, handling and disposal of oil-field
      wastes. State and federal laws make us responsible for the proper use and
      disposal of waste materials while we are conducting operations. We do not
      believe we are currently required under any environmental laws to obtain permits
      to conduct our lateral drilling operations as proposed. We believe we conduct
      our operations in compliance with all applicable environmental laws, however,
      there has been a trend toward more stringent regulation of oil and gas
      exploration and production in recent years and future modifications of the
      environmental laws could require us to obtain permits or could negatively impact
      our operations.





We
      depend
      on the demand for our products and services from oil and natural gas companies.
      This demand is affected by changing taxes, price controls and other laws
      relating to the oil and gas industry generally, including those specifically
      directed to oilfield operations. The adoption of laws curtailing exploration
      and
      development drilling for oil and natural gas in our areas of operation could
      also adversely affect our operations by limiting demand for our products and
      services. We cannot determine the extent to which our future operations and
      earnings may be affected by new legislation, new regulations or changes in
      existing legislation regulations or enforcement.





Our
      satellite services utilize products that are incorporated into wireless
      communications systems that must comply with various government regulations,
      including those of the Federal Communications Commission (FCC). In addition,
      we
      provide services to customers through the use of several satellite earth hub
      stations, which are licensed by the FCC. Regulatory changes, including changes
      in the allocation of available frequency spectrum and in the military standards
      and specifications that define the current satellite networking environment,
      could materially harm our business by (1) restricting development efforts
      by us and our customers, (2) making our current products less attractive or
      obsolete, or (3) increasing the opportunity for additional competition.
      Changes in, or our failure to comply with, applicable regulations could
      materially harm our business and impair the value of our common stock. In
      addition, the increasing demand for wireless communications has exerted pressure
      on regulatory bodies worldwide to adopt new standards for these products and
      services, generally following extensive investigation of and deliberation over
      competing technologies. The delays inherent in this government approval process
      have caused and may continue to cause our customers to cancel, postpone or
      reschedule their installation of communications systems. This, in turn, may
      have
      a material adverse effect on our sales of products to our
      customers.


11


**Research
      and Development Activities**


During
      2005 and 2004, we incurred an insignificant amount of research and development
      costs as it relates to our abrasive jetting process. We incurred no research
      and
      development costs in our satellite business.





**Employees**


As
      of
      December 31, 2005, we had a total of seven full time employees. We also
      utilize independent contractors and consultants to assist us conducting the
      drilling operations, installing the satellite equipment, maintaining and
      supervising such services in order to complement our existing work force, as
      needed. Our agreements with these independent contractors and consultants are
      usually short-term. We are not a party to any collective bargaining agreement
      with any employees, and believe relations with our employees, independent
      contractors and consultants are good.








**Item
      2. Description of Property**





*Office
      Facilities*


We
      lease
      approximately 3,000 square feet of office space in Houston, Texas for our
      principal executive office at a cost of $4,000 per month. Our lease expires
      in
      August of 2007.





*Equipment*


As
      of
      December 31, 2005, our primary equipment consisted of one new generation
      AFJ mobile drilling unit, which was under construction. The unit is expected
      to
      be deployed during April 2006.   We also maintain certain satellite
      communication equipment, computer equipment, and furniture at our principal
      executive office.





On
      March 8, 2005, Blast assigned its rights in the license of the Landers
      Horizontal Drilling Process to Maxim along with all current and future
      assignments, sublicenses or territorial royalty pertaining to the license.
      In
      connection with the assignment, Blast sold two of its three drilling rigs for
      the release of a customer deposit obligation that we owed Maxim. Maxim has
      taken
      delivery of both rigs.  The other rig was transferred to Edge Capital, as
      part of the settlement agreement.  As a result, Blast no longer owns any of
      the older generation non-abrasive drilling rigs.





We
      believe that our facilities and equipment are in good operating condition and
      that they are adequate for their present use.








**Item
      3. Legal Proceedings**





*Securities
      and Exchange Commission Investigation*


We
      received notice in January 2004 that the Securities and Exchange Commission
      has
      initiated a formal investigation into our reporting practices and our public
      statements in 2003.





The
      SEC
      has requested substantiation and documentary evidence from us concerning the
      performance of certain lateral drilling services by subcontractors in the period
      from May, 2003 to September 2003, supervision of such services by our executive
      management at the time, revenue recognition related to the performance of such
      services, the third quarter 2003 earnings restatement, public statements
      concerning the services performed, and related matters. The SEC has also
      requested information and documentary evidence related to our acquisition of
      certain assets of Quikview, Inc., a related party company, in June,
      2003.





Since
      December 2003, we have taken several steps to address issues related to the
      SEC’s inquiries, including the termination and replacement of the previous CEO
      and COO. Two directors have resigned from our board and we have appointed a
      new
      CFO. Internal controls have been strengthened overall, particularly with respect
      to the public release of information and the recognition of revenue. We had
      also
      initiated an internal investigation of the matters of concern to the SEC.
      Consequently, we restated our second and third quarter financial statements
      from
      fiscal year 2003 to reverse all revenue related to the aforementioned
      period.





We
      are
      cooperating fully with the SEC, including the provision of numerous documents
      and voluntary testimony by our current executives. In December 2004, the staff
      of the SEC notified us that it was considering recommending that the SEC bring
      a
      civil injunction (including a possible permanent injunction and a civil penalty)
      against us alleging violations of provisions of the Sections 10(b), 13(b)(2)(A),
      13(b)(2)(B) and 15(d) of the Securities Exchange Act of 1934 and rules
      promulgated there under in connection with the purchase and sale of our
      securities, recordkeeping, internal controls, certification and disclosure
      obligations. We were notified of our right to make a Wells submission. We have
      provided information to the SEC setting forth the specific steps we have taken
      to upgrade the quality and effectiveness of our board of directors, replace
      the
      previous management team with industry experts, improve our recordkeeping,
      internal and disclosure controls, and revenue recognition procedures. Although
      we are working to bring the matter to a prompt conclusion and have been engaged
      in settlement discussions with the SEC, we cannot make any assurance that the
      investigation will be resolved positively or that it will not have negative
      effects on our limited resources or our ability to raise capital and use its
      stock as acquisition currency during the period of the
      investigation.


12


*Claims
      by Investor (Partially Settled)*


In
      February 2005, Blast entered into an Agreed Judgment and Order of Severance
      with
      Gryphon Master Fund, L.P. (“Gryphon”) as to all breach of contract claims
      related to Blast Energy’s delay in registering common stock acquired by Gryphon
      in October 2003. Under the terms of the Agreed Judgment, Blast agreed to pay
      liquidated damages of $500,000 to Gryphon and has satisfied this obligation.
      In
      the portion of the lawsuit which was severed from the breach of contract and
      liquidated damages claims, filed in state court in Dallas County, Texas. Gryphon
      has also claimed against us that it has sustained actual damages in excess
      of
      $2.1 million. The suit alleges a claim, among other things, of securities fraud
      by us. In connection with the lawsuit, Gryphon requested liquidated damages,
      actual damages, punitive damages, interest, cost and attorneys’ fees among other
      claims. Gryphon has made a settlement demand on the Company for $2.1 million,
      which it purports to represent the actual damages it has sustained. We intend
      to
      vigorously defend ourselves in this matter with respect to the remaining claims
      of Gryphon. If Gryphon prevails on the remaining claims, it may obtain
      significant damages that may have a material adverse effect on our financial
      condition.





*Concluding
      Statement*


We
      have
      never been in bankruptcy, receivership or any similar legal proceeding. Other
      than described above, we are not aware of any other threatened legal
      proceedings. The foregoing is also true with respect to each officer, director
      and control shareholder as well as any entity owned by any officer, director
      and
      control shareholder, over the last five years. As part of its regular
      operations, we may become party to various pending or threatened claims,
      lawsuits and administrative proceedings seeking damages or other remedies
      concerning our commercial operations, products, employees and other matters.
      Although we can give no assurance about the outcome of these or any other
      pending legal and administrative proceedings and the effect such outcomes may
      have on the company, except as described above, we believe that any ultimate
      liability resulting from the outcome of such proceedings, to the extent not
      otherwise provided for or covered by insurance, will not have a material adverse
      effect on our financial condition or results of operations.








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





No
      matter
      was submitted during the fourth quarter of the fiscal year covered by this
      report to a vote of security holders, through the solicitation of proxies or
      otherwise.








**Part
      II**





**Item
      5. Market for Common Equity and Related Stockholder
      Matters**


The
      common stock of Blast Energy Services, formerly known as Verdisys, Inc.,
      commenced trading on the OTC Bulletin Board on July 18, 2003 under the
      symbol “VDYS”. Effective June 6, 2005, the symbol for our stock became
“BESV”. The following table sets forth, for the periods indicated, the high and
      low bid prices of a share of our common stock as reported on the OTC Bulletin
      Board since active trading began on May 2, 2003. The quotations provided
      are for the over the counter market which reflect interdealer prices without
      retail mark-up, mark-down or commissions, and may not represent actual
      transactions.





**HIGH**
            
            **LOW**2004First
                Quarter
            $
                9.54
            
            $
                3.35Second
                Quarter
            $
                4.75
            
            $
                1.50Third
                Quarter
            $
                1.95
            
            $
                0.25Fourth
                Quarter
            $
                1.00
            
            $
                0.402005First
                Quarter
            $
                0.59
            
            $
                0.35Second
                Quarter
            $
                0.52
            
            $
                0.30Third
                Quarter
            $
                0.61
            
            $
                0.31Fourth
                Quarter
            $
                1.08
            
            $
                0.34





**Holders**


As
      of
      February 28, 2006, we had 42,954,507 shares of common stock issued and
      outstanding held by approximately 420 shareholders of record, including
      1,150,000 shares approved for issue under the class action
      settlement.





**Dividends**


We
      have
      never paid cash dividends. At present, we do not anticipate paying any dividends
      on our common stock in the foreseeable future and intend to devote any earnings
      to the development of our business.








13


**EQUITY
      COMPENSATION PLAN INFORMATION**





The
      following table provides information as of December 31, 2005 regarding
      compensation plans (including individual compensation arrangements) under which
      equity securities are authorized for issuance:





Plan
                Category
            
            Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            
            Weighted-average
                exercise price of outstanding options, warrants and rights
            
            Number
                of securities available for future issuance under equity compensation
                plans (excluding securities shown in first column)Equity
                compensation plans approved by shareholdersEquity
                compensation plans not approved by shareholders
            
            4,749,847
            
            $1.27
            
            3,250,153Total
            
            4,749,847
            
            $1.27
            
            3,250,153





**Recent
      Sales of Unregistered Securities**


The
      following table details shares issued under transactions that were a private
      offering we believe to be exempt from registration under Regulation D
      promulgated under Section 4(2) of the Securities Act. The sales of stock were
      to
      individuals or entities, each of whom was an accredited investor, as that term
      is defined in Rule 501 of Regulation D promulgated under Section 4(2) of the
      Securities Act and had adequate access to information pertaining to us.
      Furthermore, no advertisements were made and the securities are restricted
      pursuant to Rule 144.





**December
                2005**
            
            
            **Shares**
            
            
            **Value**Linden
                Capital Partners
            
            
            900,000
            
            $
            540,000





Offering
      Costs:  A
      commission of $27,000 was earned by Chadbourn Securities


Other
      Terms:   None





**February
                2005**
            
            
            **Shares**
            
            
            **Value**Nick
                Gorenc
            
            
            13,000
            
            $
            6,500John
                & Cecelia Colgate
            
            
            30,000
            
            $
            15,000Lakshmana
                MadalaDefined
                Benefits Plan
            
            
            20,000
            
            $
            10,000Flavio
                & Veronica Parigi
            
            
            15,000
            
            $
            7,500Henry
                Rasmussen
            
            
            10,000
            
            $
            5,000Nyla
                Rasmussen
            
            
            20,000
            
            $
            10,000Steven
                E. Berglund
            
            
            20,000
            
            $
            10,000Martin
                Hagenson
            
            
            10,000
            
            $
            5,000Michael
                J. Paveloff
            
            
            20,000
            
            $
            10,000Total
            
            
            158,000
            
            $
            79,000





Offering
      Costs:  15,800
      shares of common stock and warrants to purchase 15,800 shares of our common
      stock at $1.00 per share were issued as a finders fee to Prima Capital
      Group.


Other
      Terms:  Two
      year
      warrants to purchase 433,000 shares of our common stock at a price of $1.00
      per
      share were issued in connection with the private placement. The proceeds will
      be
      allocated between the common stock and the warrants based on their respective
      relative fair values.





**January
                2005**
            
            
            **Shares**
            
            
            **Value**Michael
                Peterson
            
            
            100,000
            
            $
            50,000George
                Andros
            
            
            100,000
            
            $
            50,000Osvaldo
                Diaz-Christians, Jr.
            
            
            25,000
            
            
            12,500Jack
                St. Arnold
            
            
            50,000
            
            $
            25,000Total
            
            
            275,000
            
            $
            137,500


Offering
      Costs:  None


Other
      Terms:  Two
      year
      warrants to purchase 433,000 shares of our common stock at a price of $1.00
      per
      share were issued in connection with the private placement. The proceeds will
      be
      allocated between the common stock and the warrants based on their respective
      relative fair values.


14





**May
                - June 2004**
            
            
            **Shares**
            
            
            **Value**Venkata
                Kollipara
            
            
            62,500
            
            $
            125,000D.L.
                Dunbar, Trustee &
            
            
            5,000
            
            $
            10,000Ruth
                Anne Dunbar, TrusteeGeorge
                C. Koutures
            
            
            14,000
            
            $
            28,000John
                Burke Trustee
            
            
            12,500
            
            $
            25,000Robert
                E. & Rosalie T. Dettle
            
            
            12,500
            
            $
            25,000Living
                TrustJoseph
                W. Brown
            
            
            13,000
            
            $
            26,000James
                & Bernice Campbell
            
            
            12,500
            
            $
            25,000Edwards
                Family Trust
            
            
            12,500
            
            $
            25,000Prima
                Capital Group
            
            
            35,000
            
            $
            70,000Total
            
            
            179,500
            
            $
            137,500





Offering
      Costs:   17,950
      shares of common stock and warrants to purchase 7,180 shares of our common
      stock
      at $2.00 per share were issued as a finders fee to Prima Capital
      Group.


Other
      Terms:   Two
      year
      warrants to purchase 71,800 shares of our common stock at a price of $2.00
      per
      share were issued in connection with the private placement. The proceeds were
      allocated between the common stock and the warrants based on their respective
      relative fair values.





**July
                - August 2003**
            
            
            **Shares**
            
            
            **Value**Elizabeth
                A. Reed
            
            
            12,500
            
            $
            25,000Peter
                A. Massaniso
            
            
            40,000
            
            $
            80,000Ponte
                Vedra Partners
            
            
            60,000
            
            $
            120,000Nick
                Gorenc
            
            
            37,000
            
            $
            74,000Ernest
                Telford
            
            
            25,000
            
            $
            50,000Venkata
                Kollipara
            
            
            12,500
            
            $
            25,000George
                Shirahama Maggay
            
            
            12,500
            
            $
            25,000Gregg
                Mullery
            
            
            12,500
            
            $
            25,000David
                Newton
            
            
            10,000
            
            $
            10,000Vivanis
                Kaplanis
            
            
            8,000
            
            $
            16,000Mahi-Niki
                Loumidis
            
            
            7,500
            
            $
            15,000Louis
                Lyras
            
            
            7,000
            
            $
            14,000Elizabeth
                A. Reed
            
            
            6,250
            
            $
            12,500Michael
                A. Frangopolous
            
            
            7,000
            
            $
            14,000Jerome
                Dreyfuss
            
            
            6,250
            
            $
            12,500Howard
                Kaplan
            
            
            5,000
            
            $
            10,000Peter
                Skafte
            
            
            5,000
            
            $
            10,000R.V.
                Edwards, Jr.
            
            
            2,500
            
            $
            5,000Navid
                Eskandari
            
            
            6,250
            
            $
            12,500David
                Eskandari
            
            
            6,250
            
            $
            12,500Total
            
            
            609,000
            
            $
            1,218,000





Offering
      Costs:   59,400
      shares of common stock and warrants to purchase 9,501 shares of our common
      stock
      at $2.00 per share were issued as a finders fee to Prima Capital
      Group.


Other
      Terms:   None








15


The
      following table details sales of stock we believe to be exempt from registration
      under Section 4(2) of the Securities Act. Each of the recipients of our stock
      was an accredited investor, as that term is defined in Rule 501 of Regulation
      D
      promulgated under Section 4(2) of the Securities Act and had access to
      information concerning us and our business prospects. Furthermore, no
      advertisements were made and the securities are restricted pursuant to Rule
      144.





**Date**
            
            **Number
                of Shares of Common Stock**
            
            **Value**
            
            **Comment**Fourth
                Quarter of 2005
            
            30,000
            
            $
                11,100
            
            Shares
                issued to Clayton & McEvoy P.C. for legal services.Third
                Quarter of 2005
            
            35,000
            
            $
                14,000
            
            Shares
                issued to BlausenLisi for design services.60,000
            
            $
                24,500
            
            Shares
                issued to Prima Capital for investor relations
                services.Second
                Quarter of 2005
            
            63,000
            
            $
                22,050
            
            Shares
                issued to Jeffrey MacKay in payment of legal fees for SEC
                filing20,000
            
            $
                10,000
            
            Shares
                issued to Clayton McEvoy P.C. for legal servicesFirst
                Quarter of 2005
            
            83,333
            
            $
                25,000
            
            Shares
                issued to settle a dispute with Mr. Pimentel, a former
                consultant.First
                Quarter of 2004
            
            60,000
            
            $
                30,000
            
            Shares
                issued to Jeffery MacKay in payment of legal fees for SEC
                filing.44,000
            
            $
                22,000
            
            Shares
                issued to the Strickland Group for engineering consulting
                services250,000
            
            $
                75,000
            
            Shares
                issued to settle a dispute with Mr. John Pimentel, a former
                consultant400,000
            
            $
                200,000
            
            Shares
                to Berg McAfee Companies for cashThird
                Quarter of 2004
            
            30,000
            
            $
                15,000
            
            Shares
                issued to Amerifund Capital Group in payment of a future fundraising
                effort300,000
            
            $
                213,000
            
            Shares
                issued in lawsuit settlement with Scooter’s Convenience,
                Inc.First
                Quarter of 2004
            
            300,000
            
            $
                1,920,000
            
            Shares
                issued in payment of outstanding obligations to Mr. Landers for technology
                fees.Third
                Quarter 2003
            
            500,000
            
            $
                2,275,000
            
            Shares
                issued to Mr. Landers in exchange for amendment to Landers licensing
                agreement125,000
            
            $
                250,000
            
            Shares
                issued in payment of note payable to Mr.
                Landers.








*Other
      Sales*





In
      August
      2005, Blast entered into a definitive agreement to purchase from Alberta an
      interest in the abrasive fluid jetting technology. Blast issued to Alberta
      3,000,000 shares of restricted common stock valued at $1,170,000, with
      registration rights, and warrants to purchase 750,000 shares of Blast common
      stock at an exercise price of $0.45 per share. The warrants have a three-year
      term and are exercisable when Blast receives $225,000 in revenue from its
      initial rig utilizing the technology.





In
      June
      2005, Blast issued 592,000 shares of common stock to a group of lenders composed
      principally of management and directors for the payment of $ 199,800 in notes
      payable and accrued interest that matured on May 15, 2005.





In
      March
      2005, the Board of Directors awarded to certain employees and officers a total
      of 560,000 shares of company stock as a bonus payment in lieu of cash for 2004
      performance. These shares were issued in September 2005 with a value of
      $196,000.





In
      early
      2005, we issued 403,340 shares of our common stock under a program to compensate
      our directors, employees, contractors and former employees for $201,670 of
      unpaid wages, commissions and director fees incurred in 2004.





16


In
      January 2005, we issued 16,000 shares of our common stock for the payment of
      leasing fees valued at approximately $8,000 and 10,666 shares of our common
      stock with a value of $4,626 to settle unpaid compensation with two former
      AgZone employees. Additionally, 500,000 shares of common stock with a value
      of
      $215,000 were issued to Edge under the final terms of the lawsuit settlement
      agreement.





In
      October 2004, we issued 750,000 shares of our common stock valued at $240,000
      in
      a move to settle outstanding litigation matters. In a Settlement Agreement
      and
      Mutual Release (“Agreement”) between Edge, Eric McAfee and us, the parties would
      release each other from any claims upon the completion of the terms of the
      Agreement. As a part of this Agreement, 250,000 shares of our common stock
      were
      placed in escrow for the benefit of Edge. In October 2004, we entered into
      an
      agreement with Berg McAfee Companies, Energy 2000 and Eric McAfee (collectively,
      “McAfee Group”) to settle several outstanding legal issues. Under this
      agreement, 500,000 shares of our common stock were placed in escrow for the
      benefit of the McAfee Group. In return, the McAfee Group contributed 875,000
      shares of NGS. Further detail on these agreements can be found in the
“litigation” section of this Form 10-KSB. The shares of stock were issued in
      transactions we believe to be exempt from registration under Section 4(2)
      of the Securities Act. The recipient of our stock was an accredited investor
      as
      defined in Rule 501 of Regulation D promulgated under Section 4(2) of the
      Securities Act and had access to information concerning us and our business
      prospects.





Furthermore,
      no advertisements were made and the securities are restricted pursuant to Rule
      144.





*Common
      Stock Issued Upon Exercise of Options*





**Date**
            
            **Shares
                Issued Upon Exercise**
            
            **Value**
            
            **Comment**Second
                Quarter of 2004
            
            344,583
            
            $
                34,458First
                Quarter of 2004
            
            25,000
            
            $
                2,500Fourth
                Quarter of 2003
            
            100,000
            
            $
                10,000Second
                Quarter of 2003
            
            2,409,291
            
            $
                240,929
            
            In
                lieu of cash, we agreed to expense the exercise
                price.








*Common
      Stock Issued Upon Exercise of Warrants*





**Date**
            
            **Shares
                Issued Upon Exercise**
            
            **Value**
            
            **Comment**Third
                Quarter of 2005
            
            50,000
            
            $
                50First
                Quarter of 2005
            
            25,000
            
            $
                250Second
                Quarter of 2004
            
            57,658
            
            $
                5,766First
                Quarter of 2004
            
            779,597
            
            $
                38,494
            
            Includes
                cashless exercise of 400,000 warrants for 395,022 shares of common
                stock.Fourth
                Quarter of 2003
            
            245,631
            
            $
                29,564





Third
                Quarter of 2003
            
            269,547
            
            $
                177,751Second
                Quarter of 2003
            
            430,000
            
            $
                56,500Second
                Quarter of 2003
            
            950,000
            
            $
                95,000
            
            Accounts
                payable reduced in lieu of cash exercise.Second
                Quarter of 2003
            
            200,000
            
            $
                20,000
            
            Note
                payable reduced in lieu of cash for
                exercise.








17


*Options*


The
      following table summarizes option grants for the last three years:





**Date**
            **Number
                of Shares**
            **Exercise
                Price**
            **Market
                Price**
            **Vesting**
            **Term
                (years)**
            **Fair
                Value**
            **To
                Whom Issued**Dec
                2005
            1,000,000
            $
                0.80
            $
                0.79
            Quarterly
                over 2.5 years
            10
            $
                800,000
            Officers170,000
            $
                0.80
            $
                0.79
            Quarterly
                over 3 years
            10
            $
                136,000
            EmployeesAug
                2005
            900,000
            $0.10
            $
                0.40
            Subject
                to terms of settlement agreement
            2
            $
                360,000
            Former
                OfficerAug
                2005
            140,000
            $
                0.40
            $
                0.40
            Quarterly
                over 3 years
            10
            $
                56,000
            EmployeesJune
                2005
            72,000
            $
                0.38
            $
                0.38
            Quarterly
                over 1 year
            10
            $
                27,360
            Non-employee
                directorsMarch
                2005
            100,000
            $
                0.40
            $
                0.40
            Quarterly
                over 3 years
            10
            $
                39,990
            OfficersJan
                2005
            30,000
            $
                0.50
            $
                0.50
            Quarterly
                over 3 years
            10
            $
                14,996
            OfficersJuly
                2004
            770,000
            $
                0.90
            $
                0.90
            Quarterly
                over 3 years
            10
            $
                689,232
            OfficersMay
                2004
            72,000
            $
                2.20
            $
                2.20
            Quarterly
                over 1 year
            10
            $
                156,913
            Non-employee
                directorsJan
                2004
            230,000
            $
                4.28
            $
                4.28
            Quarterly
                over 1 year
            10
            $
                890,785
            OfficersJan
                2004
            80,000
            $
                4.28
            $
                4.28
            Immediate
            10
            $
                309,840
            Non-employee
                directorsDec
                2003
            500,000
            $
                9.55
            $
                9.55
            10%
                immediate, 80% over 12 months, 10% on performance
            10
            $
                4,061,703
            Officer/directorAug
                2003
            100,000
            $
                4.10
            $
                4.10
            Quarterly
                over 1 year
            5
            $
                321,024
            EmployeeApril
                2003
            750,000
            $
                0.10
            $
                0.50
            Quarterly
                over 3 years
            10
            N/A
            OfficerApril
                2003
            250,000
            $
                0.10
            $
                0.50
            Quarterly
                over 1 year
            10
            N/A
            Non-employee
                directorsApril
                2003
            250,000
            $
                0.10
            $
                0.50
            Quarterly
                over 1 year
            10
            N/A
            Officer/directorApril
                2003
            30,000
            $
                0.10
            $
                0.50
            Over
                4 months
            10
            N/A
            Officer





We
      recorded expense of $0 and $245,829 for the intrinsic value associated with
      the
      options vesting in 2005 and 2004, respectively. The expense is included in
      selling, general & administrative expense on the statement of
      operations.





*Warrants*


The
      following table summarizes warrants granted for the last three
      years:





**Date**
            **Number
                of Shares**
            **Exercise
                Price**
            **Term
                (years)**
            **Other**August
                2005
            750,000
            $
                0.45
            3
            Issued
                in connection with definitive agreement to purchase from Alberta
                an
                interest in the AFJ technology.April
                2005
            400,000
            $
                1.00
            2
            Issued
                in connection with stock sale.Jan
                & Feb 2005
            433,000
            $
                1.00
            2
            Issued
                in connection with Private Placement.Jan
                & Feb 2005
            15,800
            $
                1.00
            2
            Offering
                costs of Private Placement.





Jan
                2005
            750,000
            $
                1.00
            3
            Issued
                in connection with Edge dispute settlement.October
                2004
            100,000
            $
                0.001
            1
            Issued
                in connection with aggregate convertible notes of $200,000 to Berg
                McAfee
                and Eric McAfee. The notes have been discounted for the relative
                fair
                value of the warrants.October
                2004
            250,000
            $
                0.50
            3
            Issued
                to Alberta as part of a licensing agreement. The fair value of $199,750
                was expensed in 2004.August
                2004
            140,000
            $
                0.80
            2
            Issued
                to certain subcontractors and the fair value of $98,000 was expensed
                in
                2004. 20% of the warrants vest immediately and the balance vest 20%
                every
                90 days thereafter.


18





July
                2004
            100,000
            $
                0.001
            1
            Issued
                in connection with $200,000 in convertible notes to third party lenders.
                The notes have been discounted for the relative fair value of the
                warrants.July
                2004
            75,000
            $
                0.01
            2
            Issued
                in connection with $150,000 in convertible notes to third party lenders.
                The notes have been discounted for the relative fair value of the
                warrants.May
                & June 2004
            71,800
            $
                2.00
            2
            Issued
                in connection with Private Placement.June
                2004
            7,180
            $
                2.00
            2
            Offering
                costs of Private Placement.May
                2004
            37,000
            $
                2.00
            1
            Issued
                in connection with $185,000 in promissory notes to third party lenders.
                The notes have been discounted for the relative fair value of the
                warrants.Fall
                2003
              
              Fall
                2003
            92,835
              
              9,501
            $
                6.00
              
              $
                2.00
            5
              
              5
            Issued
                in connection with raising $5,000,000 from Gryphon and the fair value
                of
                $822,738 has been treated as a cost of fundraising.Summer
                2003
            150,000
            $
                0.10
            1
            Part
                of settlement, along with $28,000 in cash, with the two original
                founders
                for various debts recorded on the books at $576,000. The warrants
                were
                valued at $0.40 per share or $60,000, resulting in a contribution
                to
                capital of $488,000.May
                2003
            2,644,438
            $
                0.10
            Var
            Issued
                to former employees and the fair value of $1,050,687 were expensed
                in
                2003.April
                2003
            200,000
            $
                0.10
            4
            Issued
                to consultants and the fair value of $800,000 was expensed in
                2003.April
                2003
            232,334
            $
                0.75
            1
            Previously
                expired warrants were extended.








**Item
      6. Management’s Discussion and Analysis or Plan of
      Operation**


The
      following discussion should be read in conjunction with the Financial Statements
      and Notes thereto included in this report. All statements that are included
      in
      this Report, other than statements of historical fact, are forward-looking
      statements. You can identify forward-looking statements by words such as
“anticipate”, “believe” and similar expressions and statements regarding our
      business strategy, plans and objectives for future operations. Although
      management believes that the expectations reflected in these forward-looking
      statements are reasonable, it can give no assurance that such expectations
      will
      prove to have been correct. The forward-looking statements in this filing
      involve known risks and uncertainties, which may cause our actual results in
      future periods to be materially different from any future performance suggested
      in this report. Such factors may include, but are not limited to, such risk
      factors as: changes in technology, reservoir or sub-surface conditions, the
      introduction of new services, commercial acceptance and viability of new
      services, fluctuations in customer demand and commitments, pricing and
      competition, reliance upon subcontractors, the ability of our customers to
      pay
      for our services, together with such other risk factors as may be included
      in
      this report.





We
      are
      currently deploying our first new generation lateral drilling rig with the
      capability of abrasive fluid jetting by use of much higher hydraulic horsepower.
      During this period of development and construction in late 2004 and all of
      2005,
      we have conducted no drilling operations and the only income provided by our
      primary segment has been the proceeds from the sale of equipment. We believe
      our
      future success depends on the ability to effectively utilize the lateral
      drilling technology obtained through our purchase of an interest in the
      intellectual property behind the AFJ technology provided by Alberta. See
“Patents and Licenses” in the Description of Business section of this
      prospectus. Funding for developing this abrasive cutting service has been
      primarily met by a $1 million loan from Berg McAfee Companies, our major
      shareholder. The loan has a senior and subordinated structure. The loans carry
      a
      combined interest rate of 7.4% and will share in 10% of the future gross
      revenues from the abrasive jetting rig for a period of ten years. In addition,
      working capital needs have been through the assignment of our exclusive rights
      acquired in 2003 for the previous generation technology to Maxim. Maxim has
      paid
      $1,300,000 in principal payments and $500,000 in late payment penalties. See
      “Management’s Discussion and Analysis or Plan of Operation - Liquidity and
      Capital Resources.”





*Risk
      factors*


*Investing
      in our common stock is highly speculative and risky. You should be able to
      bear
      a complete loss of your investment. You should carefully consider the following
      risks and the other information in this Prospectus before investing in the
      shares. If any of the following risks and uncertainties develops into actual
      events, the business, financial condition and operating results could be
      materially adversely affected, and you could lose your entire investment. The
      risks and uncertainties described below are not the only ones which we face;
      there may be additional risks and uncertainties not presently known to us or
      those we currently believe are immaterial which could also have a negative
      impact on our business, financial condition, and operating results.*





19


***THIS
      ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
      UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED
      IN
      THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THE
      RISK FACTORS DESCRIBED BELOW. THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED
      CAREFULLY IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS ANNUAL
      REPORT.***





**GENERAL
      RISKS RELATING TO OUR COMPANY**





**1.
      The deployment of our abrasive jetting rig may be put in jeopardy due to funding
      issues.**





Cash
      flow
      from our current operations does not cover overhead expenses and our future
      financial security depends on the customer acceptance and commercial deployment
      of our abrasive jetting service. **** The
      rig
      has largely been funded from a loan from our major shareholder, Berg McAfee
      Companies. In addition, we have received $1.8 million in payments from Maxim
      from the sale of the Landers Master License. If for any reason, the service
      is
      not successfully deployed in a timely manner and accepted by customers, then
      the
      company will face a liquidity crisis. If we are unable to generate sufficient
      revenue from new business arrangements or arrange new financing, we will be
      unable to continue in our current form and will be forced to restructure or
      seek
      creditor protection.





**2.
      We have a limited operating history, and our business and marketing strategies
      planned are not yet proven, which makes it difficult to evaluate our business
      performance. An investor could lose some or all of his
      investment.**





We
      have
      been in existence for a few years. We conducted drilling operations using a
      prior generation of a proprietary non-abrasive lateral drilling technology
      only
      since June 2003. The principles of the prior technology form the basis for
      our
      abrasive jetting technology. We have not commenced any drilling with our
      abrasive jetting technology and are not conducting operations with the prior
      technology. Abrasive jetting has been successfully commercialized in several
      industries but is not yet proven in the energy drilling industry. Also, we
      have
      conducted satellite services to the oil and gas industry only since June 2002.
      We have no established basis to assure investors that our business or marketing
      strategies will be successful. Because we have a limited operating history,
      there is little historical financial data upon which an investor may evaluate
      our business performance. An investor must consider the risks, uncertainties,
      expenses and difficulties frequently encountered by companies in their early
      stages of development, particularly companies with limited capital in a rapidly
      evolving market. These risks and difficulties include our ability to develop
      our
      infrastructure, reliability in the milling process in our abrasive jetting
      technology, attract and maintain a base of customers, provide customer support,
      personnel, and facilities to support our business, and respond effectively
      to
      competitive and technological developments. Our business strategy may not be
      successful or may not successfully address any of these risks or difficulties
      and we may not be able to realize revenues. If we are unable to generate
      sufficient revenue from new business arrangements or arrange new financing,
      we
      will be unable to continue in our current form and will be forced to restructure
      or seek creditor protection.





**3.
      We may be unable to raise the additional capital needed to fund our abrasive
      jetting business, which would prevent us from continuing
      operations.**





We
      may
      need to raise additional funds through public or private debt or equity
      financing or other various means to fund our abrasive jetting business if we
      are
      unable to successfully deploy the rig and generate positive cash flow. In such
      a
      case, adequate funds may not be available when needed or may not be available
      on
      favorable terms. If we need to raise additional funds by issuing equity
      securities, dilution to existing stockholders will result, and such equity
      may
      have rights, preferences and privileges senior to those of our common stock.
      If
      we raise additional funds by issuing debt securities, we may be required to
      agree to covenants that may restrict our ability to expend or raise capital
      in
      the future. If funding is insufficient at any time in the future and we are
      unable to generate sufficient revenue from new business arrangements, we will
      be
      unable to continue in our current form and will be forced to restructure or
      seek
      creditor protection.





**4.
      Our auditors have expressed doubt as to our ability to continue as a going
      concern.**




As
      noted
      in the Independent Auditors Report (See Financial Note 2), our continued
      substantial operating losses raise substantial doubt as to our ability to
      continue as a going concern. We are in an early stage of development and are
      rapidly depleting our cash resources, therefore we have determined that we
      will
      need to raise additional financing in the short term to continue in operation
      and fund future growth. If we are unable to arrange new financing or generate
      sufficient revenue from new business arrangements, we will be unable to continue
      in our current form and will be forced to restructure or seek creditor
      protection.





20


**5.
      We experienced operating losses in 2004 and 2005, and this trend may continue.
      It is uncertain when, if ever, we will have significant operating income or
      cash
      flow from operations sufficient to sustain operations.**





We
      suffered net losses since our inception, including net losses of $8,766,108
      and
      $2,827,231 for the years ended December 31, 2004 and 2005, respectively.
      These losses are the result of a sporadic revenue stream which has been
      inadequate to compensate for our operating and overhead costs as well as an
      impairment of our Landers license. The volatility underlying the early stage
      nature of our business and our industry prevents us from accurately predicting
      future operating conditions and results, and we could continue to have losses.
      It is uncertain when, if ever, we will have significant operating income or
      cash
      flow from operations sufficient to sustain operations. If cash needs exceed
      available resources additional capital may not be available through public
      or
      private equity or debt financings. If we are unable to arrange new financing
      or
      generate sufficient revenue from new business arrangements, we will be unable
      to
      continue in our current form and will be forced to restructure or seek creditor
      protection.





**6.
      We have historically had negative working capital, which will impair our ability
      to continue operations if we are unable to reverse this trend.**





We
      had
      negative working capital of $1,249,000 and $644,000 as of December 31, 2004
      and 2005, respectively. Due to this situation we have structured payments to
      vendors in a manner to continue operations. Our vendors may decide to stop
      providing services and/or materials until we are able to pay them according
      to
      their terms. Our vendors may decide to no longer offer credit to us. A large
      portion of our accounts payable are due to our legal support vendors and they
      may cease to assist us until we can make satisfactory payment arrangements.
      If
      we cannot raise capital, we will need our lenders to extend payment terms or
      accept stock in lieu of cash, which they may not be willing to do. If we are
      unable to arrange new financing or convince our lenders to extend payment terms
      or accept stock in lieu of cash, we may be unable to continue in our current
      form and be forced to restructure or seek creditor protection.





**7.
      Significant amounts of our outstanding common shares are restricted from
      immediate resale but will be available for resale into the market in the near
      future, which could potentially cause the market price of our common stock
      to
      drop significantly, even if our business is doing well.**





As
      of
      February 28, 2006, we had 42,954,507 shares of common stock issued and
      outstanding held by approximately 420 shareholders of record, including
      1,150,000 shares approved for issue under the class action settlement. As
      restrictions on these outstanding shares end, the market price could drop
      significantly if the holders of these restricted shares sell them or are
      perceived by the market as intending to sell them in an excessive amount
      relative to the market demand for our shares. An excessive sale of our shares
      may result in a substantial decline in the price of our common stock, and limit
      our ability to raise capital, even if our business is doing well.





**8.
      One principal stockholder can influence the corporate and management policies
      of
      our company.**





Berg
      McAfee Companies, and its affiliates, effectively control approximately 26%
      of
      the outstanding common stock. Therefore, Berg McAfee Companies, and its
      affiliates, may have the ability to substantially influence all decisions made
      by us. Additionally, Berg McAfee Companies and its affiliates’ control could
      have a negative impact on any future takeover attempts or other acquisition
      transactions. Furthermore, certain types of equity offerings require stockholder
      approval depending on the exchange on which shares of a company’s common stock
      are traded. The control by one principal stockholder results in less control
      by
      our board of directors, management and the remaining stockholders. Please read
      ‘Certain Relationships and Related Transactions.’





**9.
      SEC investigation and inquiries may continue to draw on our limited financial
      resources and continue to negatively impact our ability to raise additional
      capital.**





We
      received notice that the Securities and Exchange Commission initiated an inquiry
      which became a formal investigation into our reporting practices and public
      statements about the company in 2003. The SEC has requested substantiation
      and
      documentary evidence from us concerning the performance of certain lateral
      drilling services by subcontractors in the period from May 2003 to September
      2003, supervision of such services by our executive management at the time,
      revenue recognition related to the performance of such services, the third
      quarter 2003 earnings restatement, public statements concerning the services
      performed, and related matters. The SEC has also requested information and
      documentary evidence related to our acquisition of certain assets of QuikView,
      Inc., a related party company, in June, 2003.





21


In
      December 2004, the staff of the SEC notified us that it was considering
      recommending that the SEC bring a civil injunction (including a possible
      permanent injunction and a civil penalty) against us alleging violations of
      provisions of the Sections 10(b), 13(b)(2)(A), 13(b)(2)(B) and 15(d) of the
      Securities Exchange Act of 1934 and rules promulgated thereunder in connection
      with the purchase and sale of our securities, recordkeeping, internal controls,
      certification and disclosure obligations. We were notified of our right to
      make
      a Wells submission. We have provided information to the SEC setting forth the
      specific steps we have taken to upgrade the quality and effectiveness of our
      board of directors, replace the previous management team with industry experts,
      improve our recordkeeping, internal and disclosure controls, and revenue
      recognition procedures. The investigation or any settlement may not be resolved
      positively and could strain our limited financial resources and our ability
      to
      raise capital and use our stock as acquisition currency during the period of
      the
      investigation.





**10.
      We are subject to certain additional lawsuits. If these lawsuits are successful
      and substantial damages are awarded, these damages would have a material adverse
      effect on our financial condition.**





In
      February 2005, we entered into an Agreed Judgment and Order of Severance with
      Gryphon Master Fund, L.P. (“Gryphon”) as to all breach of contract claims
      related to our delay in registering common stock acquired by Gryphon in October
      2003. Under the terms of the Agreed Judgment, we were obligated to pay $500,000
      to Gryphon and have paid such obligation in full, resulting in a discharge
      of
      the agreed judgment. In the portion of the lawsuit which remains, Gryphon has
      alleged, among other things, securities fraud by us. In connection with the
      lawsuit, Gryphon requested actual damages, punitive damages, interest, cost
      and
      attorneys’ fees among other claims. Gryphon has made a settlement demand on the
      company for $2.1 million, which it purports to represent the actual damages
      it
      has sustained. If Gryphon prevails on the remaining claims, it may obtain
      significant damages that may have a material adverse effect on our financial
      condition.





An
      adverse outcome in the above litigation or SEC investigation could subject
      us to
      additional financial obligations, which our cash position may not be sufficient
      to meet. If we are unable to meet such obligations through revenue from
      operations or obtaining additional financing, we may be unable to continue
      in
      our current form and be forced to restructure or seek creditor
      protection.





Please
      see the section ‘Legal Proceedings.’





**11.
      Our common stock is currently traded over the counter on the OTC Bulletin Board
      and is considered a “penny stock” resulting in potential illiquidity and high
      volatility in the market price of our common stock.**





The
      market price of our common stock is likely to be highly volatile, as is the
      stock market in general, as well as the capital stock of most small cap
      companies. Our common stock currently trades over the counter on the OTC
      Bulletin Board, where stocks typically suffer from lower liquidity. This may
      lead to depressed trading prices, greater price volatility and difficulty in
      buying or selling shares in large quantities. Currently, there is a limited
      trading market for our common stock If a fully developed public market for
      the
      common stock does not occur, our stock will continue to have reduced liquidity
      and our shareholders may have difficulty in selling our stock.





**12.
      Because our common stock is considered a “penny stock,” certain rules may impede
      the development of increased trading activity and could affect the liquidity
      for
      stockholders.**





Penny
      stocks generally are equity securities with a price of less than $5.00 per
      share
      other than securities registered on certain national securities exchanges or
      quoted on the NASDAQ stock market, subject to certain exceptions for companies
      which exceed certain minimum tangle net worth requirements.





Our
      common stock is subject to the SEC’s “penny stock rules”. The rules impose
      additional sales practice requirements on broker-dealers who sell penny stock
      securities to persons other than established customers and accredited investors.
      For transactions covered by these rules, the broker-dealer must make a special
      suitability determination for the purchase of penny stock securities and have
      received the purchaser’s written consent to the transaction prior to the
      purchase. Additionally, for any transaction involving a penny stock, unless
      exempt, the “penny stock rules” require the delivery, prior to the transaction,
      of a disclosure schedule relating to the penny stock market. The broker-dealer
      also must disclose the commissions payable to both the broker-dealer and the
      registered representative and current quotations for the securities. And,
      monthly statements must be sent disclosing recent price information on the
      limited market in penny stocks. These rules may restrict the ability of
      broker-dealers to sell our securities and may have the effect of reducing the
      level of trading activity of our common stock in the secondary market. In
      addition, the penny-stock rules could have an adverse effect on our ability
      to
      raise capital in the future from offerings of our common stock.





On
      July 7, 2005, the SEC approved amendments to the penny stock rules to
      ensure that investors continue to receive the protections of those rules. The
      amendments also provide that broker-dealers be required to enhance their
      disclosure schedule to investors who purchase penny stocks, and that those
      investors have an explicit “cooling-off period” to rescind the transaction.
      These amendments could place further constraints on broker-dealers’ ability to
      sell our securities.


22


**13.
      Our operations are subject to inherent risks that are beyond our control and
      such risks may not be fully covered under our insurance policies or under our
      contracts with customers.**





We
      plan
      to deploy the first drilling rig utilizing high pressure abrasive jetting and
      the application of the technology does not have a safety history. However,
      we
      expect our operations to be subject to hazards inherent in the oil and gas
      industry, such as accidents, blowouts, explosions, implosions, fires and oil
      spills. These conditions can cause:





•  personal
      injury or loss of life;


•  damage
      to
      or destruction of property, equipment and the environment; and


•  suspension
      of operations.





In
      addition, claims for loss of oil and gas production and damage to formations
      can
      occur in the well service industry. Litigation arising from a catastrophic
      occurrence at a location where our equipment and services are being used may
      result in us being named as a defendant in lawsuits asserting large claims.





We
      mandate, in our customer contracts, that our customers indemnify us from
      operational hazards. We also maintain insurance coverage that we believe to
      be
      customary in the industry against these hazards. However, we may not be able
      to
      maintain adequate insurance in the future at rates we consider reasonable.
      In
      addition, our insurance is subject to coverage limits and our policies typically
      exclude coverage for damages resulting from environmental contamination, damage
      to the well bore, blow-outs and other extraordinary events. The occurrence
      of a
      significant event or adverse claim excluded by or in excess of the indemnities
      we receive or the insurance coverage that we maintain or that is not covered
      by
      insurance could potentially strain our limited financial resources.





**14.
      We are subject to various operational and performance risks related to projects
      that we undertake and services that we provide.**





We
      are
      subject to various operational and performance risks related to projects that
      we
      undertake and services that we provide. These risks include:





•  changes
      in the price or the availability of commodities that we use;


•  non-performance,
      default or bankruptcy of key suppliers or subcontractors;


•  cost
      over-runs and operating cost inflation resulting from fixed-price projects;
      and


•  failure
      by one or more parties to a complex business arrangement for technically
      demanding projects.





Some
      of
      these risks may be beyond our control, or we may be unable to collect on the
      indemnities we typically ask for to guard against some of these
      risks.





**15.
      Our markets may be adversely affected by oil and gas industry conditions that
      are beyond our control.**





Oil
      and
      gas industry conditions are influenced by numerous factors over which we have
      no
      control, such as the supply of and demand for oil and gas, domestic and
      worldwide economic conditions, political instability in oil producing countries
      and merger and divestiture activity among oil and gas producers. Those
      conditions could reduce the level of drilling and workover activity by oil
      and
      gas producers. A reduction in activity could increase competition among energy
      services business such as ours, making it more difficult for us to attract
      and
      maintain customers, or could adversely affect the price we could charge for
      our
      services.





**16.
      Our success depends on key members of our management, the loss of whom could
      disrupt our business operations.**





We
      depend
      to a large extent on the services of some of our executive officers and
      directors. The loss of the services of either John O’Keefe or David Adams could
      disrupt our operations. We may not be able to retain our executive officers
      and
      may not be able to enforce the non-compete provisions in the employment
      agreements. We maintain key man insurance against the loss of these individuals.
      Failure to retain key members of our management may have a material adverse
      effect on our continued operations.





**17.
      Compliance with Section 404 of the Sarbanes-Oxley Act will strain our limited
      financial and management resources.**





We
      expect
      to be required to comply with the requirements of Section 404 of the
      Sarbanes-Oxley Act (“Sarbanes”) for our fiscal year ended 2007, which require
      annual management assessments of the effectiveness of our internal controls
      over
      financial reporting and our auditor’s attestation report on management’s
      assessment. During the course of our testing we may identify deficiencies,
      which
      we may not be able to remediate in time to meet the deadline imposed. Effective
      internal controls are necessary for us to produce reliable financial reports
      and
      may be important to prevent financial fraud. If we cannot comply with
      Section 404, our stock price may decrease as investors lose confidence in
      the accuracy of our reported financial information. Compliance with
      Section 404 will likely require the Company to expend significant financial
      and management resources, which are extremely limited at this time and would
      therefore divert such resources from our day-to-day operations.


23


**RISKS
      RELATED TO OUR DOWN-HOLE SOLUTIONS BUSINESS**





**1.
      We currently have one active customer. If we are unable to attract more
      permanent and active customers, we will not be able to generate revenue.**





We
      have
      one customer. The deployment of our rig for such customer is currently in
      process of being prepared for mobilization. If the rig is not deployed, we
      will
      not be able to generate revenue for our abrasive jetting services since we
      are
      in the construction and testing mode. Our current indications of interest in
      the
      new AFJ drill rig may not convert into customer orders or cash revenue. If
      we
      are unable to attract new customers and generate sufficient revenue or arrange
      new financing, we will be unable to continue in our current form and will be
      forced to restructure or seek creditor protection.





**2.
      Our business plan relies on the successful deployment of a new generation
      drilling rig utilizing abrasive fluid jetting which has been unproven in the
      energy service industry.**





Our
      abrasive jetting service intends to provide casing milling, well stimulation
      and
      lateral drilling services to oil and gas producers. Applications of such
      abrasive cutting techniques are a proven feature in industries as diverse as
      munitions disposal in the military, offshore platform dismantlement in the
      salvage industry and cutting specialty glass and steel in the machining
      business. We are currently building a custom drilling rig based on the abrasive
      jetting concept. Since we would be among the first to commercially apply the
      proven abrasive jetting techniques to the energy producing business, we cannot
      guarantee that our custom drilling rig design based on the abrasive jetting
      concept will be adequate, that the rig will be built correctly or timely, or
      that the abrasive jetting technology will stimulate additional oil and gas
      production. We may not achieve the designed results for the rig. Customers
      may
      not accept the services we offer. Any of these results would have a negative
      impact on the development of our abrasive jetting business.





**3.
      We may not be able to protect our abrasive jetting technology. Providers
      utilizing an infringing technology may compete with us, which may impair the
      development of our abrasive jetting business.**





The
      technology purchase agreement between Alberta and Blast allocates joint
      responsibility for maintaining the status of the patents underlying the
      technology with the US Patent and Trademark Office to Alberta. In the event
      that
      both parties had to assume these responsibilities, additional pressure on our
      financial resources would result. Competition from infringers of our technology
      may significantly impair the development of our abrasive jetting business.





**4.
      Our customers may not realize the expected benefits of enhanced production
      or
      lower costs from our abrasive jetting technology, which may impair market
      acceptance of our drilling services.**





Our
      abrasive jetting business will be heavily dependent upon our clients achieving
      enhanced production, or lower costs, from certain types of existing oil and
      gas
      wells. Many of the wells for which the abrasive jetting technology will be
      used
      on have been abandoned for some time due to low production volumes or other
      reasons. In some cases, we have experienced difficulty in having the enhanced
      production reach the market due to the gathering field pipeline system’s
      disrepair resulting from the age of the fields and the reliability of the
      milling process. Our abrasive jetting technology may not achieve enhanced
      production from every well drilled, or, if enhanced production is achieved
      initially, it may not continue for the duration necessary to achieve payout
      or
      reach the market on a timely basis. The failure to screen adequately and achieve
      projected enhancements could result in making the application of the technology
      uneconomic for our clients. Failure to achieve an economic benefit for our
      clients in the provision of this service would significantly impair the
      development of our abrasive jetting business and limit our ability to achieve
      revenue from these operations.





**5.
      Geological uncertainties may negatively impact the effectiveness of abrasive
      jetting services.**





Oil
      and
      gas fields may be depleted and zones may not be capable of stimulation by our
      abrasive jetting technology due to geological uncertainties such as lack of
      reservoir drive or adequate well pressure. Such shortcomings may not be
      identifiable. The failure to avoid such shortcomings could have a material
      adverse effect on our results of operations and financial
      condition.





24


**6.
      Competition within the well service industry may adversely affect our ability
      to
      market our services.**





The
      well
      service industry is highly competitive and includes several large companies
      as
      well as other independent drilling companies that possess substantially greater
      financial and other resources than we do. These greater resources could allow
      those competitors to compete more effectively than we can. Additionally, the
      number of rigs available continues to exceed demand, resulting in active price
      competition. Moreover, many contracts are awarded on a bid basis, which further
      increases competition based on price. Failure to successfully compete within
      our
      industry would significantly impair the development of our abrasive jetting
      business and limit our ability to generate revenue from these operations.





**7.
      The energy service market is currently in tight supply conditions and key
      equipment items are subject to long lead-times as well as cost
      escalation.**





We
      depend
      on the key equipment suppliers for our AFJ rigs to deliver in a timely manner
      and at a reasonable price, but lead-times in items, such as coiled tubing
      strings, have lengthened and prices have firmed with the current tightness
      in
      the energy service supply industry. If we are unable to source our key equipment
      in a reasonable period and at a reasonable price, our planned revenues and
      costs
      may suffer, which would have a material negative impact on our abrasive jetting
      business.





**8.
      We may be subject to environmental requirements that may increase our costs
      or
      liabilities related to our abrasive jetting operations.**





Given
      the
      manner in which we currently operate our business, we are not regulated to
      the
      extent that an oil and gas company is with respect to environmental laws, rules
      and regulations in the U.S. and other countries, including those covering
      hazardous materials, because we generally do not own the properties we service.
      Also, the materials we use to provide abrasive jetting services consist
      primarily of water and fine garnet sand, neither of which are hazardous
      materials. However, environmental requirements generally are becoming
      increasingly strict. In the future, we may be held liable for certain failures
      relating to environmental regulations. Sanctions for failure to comply with
      these requirements, many of which may be applied retroactively, may include:





•  administrative,
      civil and criminal penalties;


•  revocation
      of permits; and


•  corrective
      action orders, including orders to investigate and/or clean up contamination.





Liability
      for damages arising as a result of environmental laws could be substantial
      and
      could have a material adverse effect on our results of operations. The
      liabilities incurred as a result of complying with environmental requirements
      or
      failure on our part to comply with applicable environmental requirements may
      have a material adverse effect on our financial condition. Governmental laws
      could broaden in scope in the future to cover the types of services that we
      currently provide. Any changes that might require us to comply with
      environmental laws could require us to make significant additional expenditures
      to reach and maintain compliance and may otherwise have a material adverse
      effect on our industry in general and on our results of operations and financial
      condition.





**9.
      Changes in environmental laws may decrease demand for our services.**





Changes
      in environmental laws may negatively impact demand and reduce potential revenues
      from our down-hole well services. Activity by exploration and production
      companies may decline if, for example, the Environmental Protection Agency
      promulgates more stringent environmental regulations such as land use policies.
      If exploration and production drilling activity declines, this could have a
      material adverse effect on our ability to market down-hole services as the
      number of potential clients and overall market size may decline.





**RISKS
      RELATED TO OUR SATELLITE COMMUNICATIONS BUSINESS**





**1.
      Our satellite communications business is highly dependent upon a few key
      suppliers of satellite networking components, hardware, and technological
      services.**





Our
      satellite business is heavily dependent on agreements with Spacenet, ViaSat
      and
      other equipment and service providers. These strategic relationships provide
      key
      network technology, satellite data transport, hardware and software. Failure
      of
      Spacenet, ViaSat or other key relationships to meet our expectations or
      termination of a relationship with one of our key providers could adversely
      affect our ability to provide customers with our satellite services and could
      lead to a loss in revenues, which would adversely affect our results of
      operations and financial condition.





25


**2.
      We depend upon our vendors and their affiliates to provide services that we
      require to operate the network we use to provide services to our customers.**





We
      are
      not and do not plan to become a licensee of the Federal Communications
      Commission (“FCC”) and do not hold any authorization to operate satellite
      communications facilities. We depend upon licenses held by Spacenet and ViaSat
      and their subsidiaries for our satellite communications. If the licenses held
      by
      Spacenet and ViaSat are limited or revoked, if the FCC limits the number of
      its
      customer premises earth stations or if Spacenet or ViaSat fails to operate
      the
      earth stations providing service to us and our subscribers in a satisfactory
      manner, we may not be able to provide our customers with proper service, which
      could lead to a loss in revenues and could adversely affect our results of
      operations and financial condition.





**3.
      We rely on third-party independent contractors to install our customer premises
      equipment at new subscribers’ businesses and remote locations.**





We
      do not
      control the hiring, training, certification and monitoring of the employees
      of
      our third-party independent contractors. If growth of our new subscriber base
      outpaces growth of our installer base or if the installers fail to provide
      the
      quality of service that our customers expect, the introduction of our service
      could be delayed, and which could lead to a deferment or loss in satellite
      revenues.





**4.
      The service we provide is entirely dependent on the functionality of satellites
      on which we lease transponders and on our computer and communications hardware
      and software.**





Our
      ability to provide service is entirely dependent on the functionality of
      satellites on which we lease transponders. These satellites may experience
      failure, loss, damage or destruction from a variety of causes, including war,
      anti-satellite devices and collision with space debris. The ability to provide
      timely information and services depends also on the efficient and uninterrupted
      operation of our computer and communications hardware and software systems.
      These systems and operations are vulnerable to damage or interruption from
      human
      error, natural disasters, telecommunication failures, break-ins, sabotage,
      computer viruses, intentional acts of vandalism and similar events. Despite
      precautions, there is always the danger that human error or sabotage could
      substantially disrupt the system.





If
      any of
      these events occurs, we are likely to suffer:





•  permanent
      loss of service;


•  temporary
      gaps in service availability; or


•  decreased
      quality of service.





Any
      such
      failure in the service we provide could lead to a loss in revenues and could
      adversely affect our results of operations and financial condition.





**5.
      We may be unable to attract or retain subscribers. If we are unable to attract
      or retain subscribers, our Satellite Communications business will be
      harmed.**





Our
      success depends upon our ability to rapidly grow our subscriber base and retain
      our existing customers. Several factors may negatively impact this ability,
      including:





•  loss
      of
      our existing sales employees, resulting in our lack of access to potential
      subscribers;


•  failure
      to establish and maintain the Blast Energy Services brand through advertising
      and marketing, or erosion of our brand due to misjudgments in service offerings;


•  failure
      to develop or acquire technology for additional value added services that
      appeals to the evolving preferences of our subscribers;


•  failure
      to meet our expected minimum sales commitments to Spacenet and ViaSat; and


•  failure
      to provide the minimum transmission speeds and quality of service our customers
      expect.





In
      addition, our service may require customers to purchase our satellite system
      equipment and to pay our monthly subscriber fees. The price of the equipment
      and
      the subscription fees may be higher than the price of many dial-up, DSL and
      cable modem internet access services, where available. In some instances, we
      expect to subsidize our subscribers’ customer premises equipment to encourage
      the purchase of our service and to offset our higher relative costs but such
      subsidy may not be possible. Failure to attract or retain subscribers would
      affect our ability to generate satellite revenues.





26


**6.
      We may fail to manage any potential growth or expansion, negatively impacting
      our quality of service or overcapacity impacting profitability.**





If
      we
      fail to manage our potential rapid growth and expansion effectively or expand
      and allocate our resources efficiently, we may not be able to retain or grow
      our
      subscriber base. While we believe that the trend toward satellite broadband
      information services in the energy market will continue to develop, our future
      success is highly dependent on increased use of these services within the
      sector. The number of satellite broadband users willing to pay for online
      services and information may not continue to increase. If our assumptions
      regarding the usage patterns of our subscribers are wrong, our subscribers’
usage patterns change or the market for satellite broadband services fails
      to
      develop as expected, we will have either too little or too much satellite
      capacity, both of which could harm our business.





If
      we
      achieve the substantial subscriber growth that we anticipate, we will need
      to
      procure additional satellite capacity. If we are unable to procure this
      capacity, we may be unable to provide service to our subscribers or the quality
      of service we provide may not meet their expectations. Failure to manage any
      potential growth may have a material adverse effect on our business and our
      ability to generate satellite revenues.





**7.
      Our current services may become obsolete due to the highly competitive and
      continued advancement of the satellite industry. Larger service providers may
      provide services reduced pricing.**





Intense
      competition in the internet services market and inherent limitations in existing
      satellite technology may negatively affect the number of our subscribers.
      Competition in the market for consumer internet access services is intense,
      and
      we expect the level of competition to intensify in the future. We compete with
      providers of various high-speed communications technologies for local access
      connections such as cable modem and DSL. We also may face competition from
      traditional telephone companies, competitive local exchange carriers and
      wireless communication companies. As our competitors expand their operations
      to
      offer high speed internet services, we may no longer be the only high-speed
      service available in certain markets. We also expect additional competitors
      with
      satellite-based networks to begin operations soon. In particular, some satellite
      companies have announced that in the future they may offer high-speed internet
      service at the same price or at a lower price than we currently intend to offer
      and are offering our services. The market for internet services and satellite
      technology is characterized by rapid change, evolving industry standards and
      frequent introductions of new technological developments. These new standards
      and developments could make our existing or future services obsolete. Many
      of
      our current and potential competitors have longer operating histories, greater
      brand name recognition, larger subscriber bases and substantially greater
      financial, technical, marketing and other resources than we have. Therefore,
      they may be able to respond more quickly than we can respond to new or changing
      opportunities, technologies, standards or subscriber requirements. Our effort
      to
      keep pace with the introduction of new standards and technological developments
      and effectively compete with larger service providers could result in additional
      costs or the effort could prove difficult or impossible. The failure to keep
      pace with these changes and to continue to enhance and improve the
      responsiveness, functionality and features of our services could harm our
      ability to attract and retain users, which could lead to a loss of satellite
      revenues.





**8.
      We may be subject to significant liability for our products.**





If
      our
      products contain defects, we may be subject to significant liability claims
      from
      subscribers and other users of our products and incur significant unexpected
      expenses or lost revenues. Our satellite communications products are complex
      and
      may contain undetected errors or failures. We also have exposure to significant
      liability claims from our customers because our products are designed to provide
      critical communications services. Our product liability insurance and
      contractual limitations in our customer agreements may not cover all potential
      claims resulting from a defect in one or more of our products. Failure of our
      products to perform satisfactorily could cause us to lose revenue, as well
      as to
      experience delay in or loss of market acceptance and sales, products returns,
      diversion of research and development resources, injury to our reputation or
      increased service and warranty costs.





**Critical
      Accounting Policies**





The
      following is a discussion of our critical accounting policies pertaining to
      accounts receivable, equipment, license, revenue recognition and the use of
      estimates.





*Accounts
      Receivable*


Trade
      accounts receivable are recorded at the invoiced amount and do not bear
      interest. The allowance for doubtful accounts represents our estimate of the
      amount of probable credit losses existing in our accounts receivable. We
      determine the allowance based on management’s estimate of likely losses based on
      a review of current open receivables and our historical write-off experience.
      We
      review the adequacy of our allowance for doubtful accounts quarterly.
      Significant individual accounts receivable balances and balances which have
      been
      outstanding greater than 90 days are reviewed individually for collectibility.
      Account balances, when determined to be uncollectible, are charged against
      the
      allowance.


27


*Equipment*


Equipment,
      including betterments which extend the useful life of the asset, is stated
      at
      cost. Maintenance and repairs are charged to expense when incurred. We provide
      for the depreciation of our equipment using the straight-line method over the
      estimated useful lives. Our method of depreciation does not change when
      equipment becomes idle; we continue to depreciate idled equipment on a
      straight-line basis. No provision for salvage value is considered in determining
      depreciation of our equipment. We review our assets for impairment when events
      or changes in circumstances indicate that the carrying values of certain assets
      either exceed their respective fair values or may not be recovered over their
      estimated remaining useful lives. Provisions for asset impairment are charged
      to
      income when estimated future cash flows, on an undiscounted basis, are less
      than
      the asset’s net book value. Impairment charges are recorded based on discounted
      cash flows. There were no impairment charges to equipment during the years
      ended
      December 31, 2005 and 2004.





*Intellectual
      Property*


Our
      AFJ
      Intellectual Property (“IP”), consisting of our 50% ownership interest in the
      AFJ technology jointly with Alberta, is stated at cost. We provide for
      amortization of our IP using the straight-line method over the estimated useful
      life of the technology. We review our carrying value of the IP for impairment
      on
      an annual basis or when events or changes in circumstances indicate that the
      carrying values may no longer be appropriate. We assess recoverability of the
      carrying value of the asset by estimating the future net cash flows expected
      to
      result from the asset, including eventual disposition. If the future net cash
      flows are less than the carrying value of the asset, an impairment loss is
      recorded equal to the difference between the asset’s carrying value and fair
      value. There were no impairment charges during the years ended December 31,
      2005
      but we charged $3.2 million to impairment expense in 2004.





*Revenue
      Recognition*


All
      revenue is recognized when persuasive evidence of an arrangement exists, the
      service or sale is complete, the price is fixed or determinable and
      collectibility is reasonably assured. Revenue is derived from sales of satellite
      hardware, satellite bandwidth, satellite service and lateral drilling services.
      Revenue from satellite hardware is recognized when the hardware is installed.
      Revenue from satellite bandwidth is recognized evenly over the term of the
      contract. Revenue from satellite service is recognized when the services are
      performed. We provide no warranty but sell commercially obtained 3 to 12 month
      warranties for satellite hardware. We have a 30 day return policy. Revenue
      for
      lateral drilling services is recognized when the services are performed and
      collectibility is reasonably assured and when collection is uncertain, revenue
      is recognized when cash is collected. In accordance with Emerging Issues Task
      Force Issue No. 00-14, we recognize reimbursements received from third
      parties for out-of-pocket expenses incurred as revenues and account for
      out-of-pocket expenses as direct costs.





*Use
      of Estimates*


The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      certain estimates and assumptions that affect the reported amounts of assets
      and
      liabilities and disclosures of contingent assets during the reporting period.
      Actual results could differ from such estimates.





Estimates
      are used by management in the following financial reporting areas:





·
            Allowance
                for doubtful accounts,


·
            Depreciation
                and amortization,


·
            Asset
                impairment,


·
            Income
                taxes and


·
            Stock
                option disclosures.





For
      additional information on our accounting policies, see Note 1 of Notes to
      Financial Statements included as part of Item 7 of this Report.





**Fiscal
      Year ended December 31, 2005 Compared to the Fiscal Year Ended December 31,
      2004**





*Satellite
      Communications*


Satellite
      Communications’ revenues increased by $417,000 to $1,132,000 for the year ended
      December 31, 2005 compared to $715,000 for the year ended December 31, 2004.
      The
      operating margin from Satellite Communications improved by $314,000 to a
      positive contribution of $308,000 for the year ended December 31, 2005 compared
      to a loss of $6,000 for the year ended December 31, 2004. As this segment of
      our
      business grows, it becomes more efficient and realizes economies of
      scale.





As
      hardware is sold, we recognize the revenue in the period it is delivered to
      the
      customer. We bill some of our bandwidth contracts in advance, but recognize
      revenue over the period benefited. At December 31, 2005, there was $131,000
      reflected in the balance sheet as deferred revenue relating to Satellite
      Communication Services.





28


*Down-hole
      Solutions*


Down-hole
      Solutions’ revenues decreased by $712,000 to $27,000 for the year ended December
      31, 2005 compared to $739,000 for the year ended December 31, 2004. The
      operating margin from Down-hole Solutions deteriorated by $337,000 to a loss
      of
      $466,000 for the year ended December 31, 2005 compared to a loss of $129,000
      for
      the year ended December 31, 2004. We have been in technology development mode
      following mixed results using the Landers technology and therefore have been
      unable to generate a profit during either year.





Effective
      as of October 27, 2004, we entered into a licensing agreement to develop a
      new
      generation of lateral drilling technology using the AFJ process; such license
      was converted to a 20% equity ownership in the IP in August 2005, which was
      subsequently increased to 50% in March 2006. In the short term, the development
      activity will decrease lateral drilling revenues until such time as the new
      technology rigs are deployed into commercial operations.





*Selling,
      General and Administrative Expense*


Selling,
      general and administrative (“SG&A”) expense decreased by $1.9 million to
      $2.8 million for the year ended December 31, 2005 compared to $4.7 million
      for
      the year ended December 31, 2004. The following table details the major
      components of SG&A expense over the periods.





In
                thousands
            
            2005
            
            2004
            
            Increase
              (Decrease)Payroll
                and related costs
            
            $
            627
            
            $
            774
            
            $
            (147
            )Option
                and warrant expense
            
            
            100
            
            
            747
            
            
            (647
            )License
                fee
            
            
            -
            
            
            735
            
            
            (735
            )Legal
                fees and settlements
            
            
            1,336
            
            
            719
            
            
            617External
                services
            
            
            413
            
            
            568
            
            
            (155
            )Insurance
            
            
            183
            
            
            447
            
            
            (264
            )Liquidated
                damages
            
            
            -
            
            
            500
            
            
            (500
            )Travel
                & entertainment
            
            
            69
            
            
            140
            
            
            (71
            )Office
                rent
            
            
            31
            
            
            67
            
            
            (36
            )Communications
            
            
            15
            
            
            56
            
            
            (41
            )Miscellaneous
            
            
            73
            
            
            -
            
            
            73$
            2,847
            
            $
            4,753
            
            $
            (1,906
            )





The
      decrease in option and warrant expense can be attributed to the fact that in
      2005, we started issuing options at market price and therefore recognized no
      expense under our accounting policy (see Financial Note 13). The 2004 license
      fee is related to the lateral drilling license and note payable with Carl
      Landers. We issued 300,000 shares of common stock with a value of $1.9 million
      to reduce the note balance by $1.2 million and recorded expense of $0.7 million.
      Legal fees and settlement costs continue to increase due to the level of legal
      activity we have experienced over the last three years, including a Note we
      incurred to settle the dispute with a previous CEO. Our external services have
      decreased due to the fact we were in construction and development versus
      operating mode in Down-hole Solutions in 2005. The decrease in the cost of
      insurance was primarily attributable to the decrease in the directors and
      officers’ liability policy premium due to lower legal exposure and the lower
      level of operating exposure. The 2004 liquidated damages relate to our delay
      in
      registering shares that we sold (see Financial Note 12).





*Depreciation
      and Amortization*


Depreciation
      and amortization expense decreased by $82,000 to $431,000 for the year ended
      December 31, 2005 compared to $513,000 for the year ended December 31, 2004.
      The
      decrease in depreciation was due to the partial year depreciation of the rigs
      in
      2005 including the transfer of one rig in early 2005 and the transfer of the
      remaining rigs in the fourth quarter of 2005. Amortization was reduced by the
      asset impairment as of December 31,2004.





*Asset
      Impairment Expense*


We
      charged $3,175,000 to impairment expense at December 31, 2004 to recognize
      the
      difference in the carrying value and the market price when we entered into
      the
      sale of the Landers license to Maxim for $1.3 million. No impairment charge
      was
      recorded for the year ended December 31, 2005.





*Other
      Income*


We
      recognized $561,000 of other income in 2005 primarily from the receipt of late
      payment fees associated with the sale of the Landers license. No other income
      or
      expense was recorded in 2004.





*Gain
      or Loss on Sale of Property*


In
      2005,
      we had a net loss from the sale and or disposition of the non-abrasive drilling
      equipment in the normal course of business of $93,000. In 2004, we recognized
      a
      loss of only $11,000.


29


*Interest
      Expense*


Interest
      expense increased by $90,000 to $195,000 for the year ended December 31, 2005
      compared to $105,000 for the year ended December 31, 2004. The increase in
      interest expense can be attributed to an average debt outstanding for the year
      ended December 31, 2005 of approximately $1.1 million compared to average debt
      outstanding of approximately $0.7 million for the year ended December 31,
      2004.





*Net
      Loss*


The
      net
      loss for the year ended December 31, 2005 decreased to $2.9 million from $8.8
      million for the year ended December 31, 2004. The $5.9 million decrease is
      attributable to the major items explained above. The tax benefit associated
      with
      our loss has been fully reserved as we have recurring net losses and it is
      more
      likely than not that tax benefits will not be realized.





**Liquidity
      and Capital Resources**


As
      of
      December 31, 2005 and 2004, our cash balance was $836,000 and $267,000,
      respectively, an improvement of $569,000. The improved cash balance at December
      31, 2005 was generated primarily by the sale of the Landers Master License
      for a
      total of $1.8 million and stock sales of $780,000 that were utilized to pay
      debt
      and to fund operations. We have $350,000 of convertible notes that became due
      on
      December 31, 2005 and a $50,000 note that is due on demand. In addition, we
      have
      $200,000 of convertible notes with related parties that mature on May 31, 2006.
      Both sets of convertible notes are convertible into common stock at the rate
      of
      one share for each $2.00 of principal and interest outstanding. The $350,000
      of
      December Notes were exchanged for stock in January 2006. In addition, the
      maturity date on the $1 million AFJ Rig loan was extended from September 2006
      to
      March 31, 2007 and is now reflected as a long term liability.





We
      are
      also subject to significant contingent liabilities as more fully described
      in
      the Notes to the Financial Statements (See Financial Note 15).





Our
      cash
      balance as of March, 2006 is approximately $470,000.We are in an early stage
      of
      development and are rapidly depleting our cash resources, therefore we have
      determined that we will need to raise additional financing in the short term
      to
      continue in operation and fund future growth. We currently plan to raise
      additional financing in the quarter ending June 30, 2006. The use of stock
      for
      currency in financing or making acquisitions has been heavily curtailed while
      we
      have been under SEC investigation. (See Financial Note 16) If we are unable
      to
      arrange new financing or generate sufficient revenue from new business
      arrangements, we will be unable to continue in our current form and will be
      forced to restructure or seek creditor protection.





**Capital
      Expenditures**


We
      expended $970,000 in 2005 for the building of the first rig utilizing the AFJ
      cutting technology. As of December 31, 2005, we had approximately $230,000
      of
      commitments towards this project, including spare parts. The project has been
      financed from Notes and working capital. Capital expenditures for 2005 were
      $970,000 as compared to $4,000 from 2004. Capital expenditures for 2005 include
      the development and construction of the first AFJ mobile drilling unit. We
      do
      not anticipate significant additional expenditures for Blast Rig #1 during
      2006,
      but depending on customer acceptance of our services, expect to make decisions
      with respect to building additional rigs this year.





**Research
      and Development, Patents and Licenses**





We
      believe our future success depends on the ability to effectively utilize the
      lateral drilling technology obtained in a license granted by Mr. Landers and
      the
      AFJ technology currently under ownership and development jointly with Alberta
      Energy. See “Patents and Licenses” in the Description of Business section of
      this Form 10-KSB.








30











**Item
      7. Financial Statements**








**Index
      to Financial Statements**





PageReport
                of Independent Registered PublicAccounting
                Firm
            32Balance
                Sheet at December 31, 2005
            33Statements
                of OperationsYears
                ended December 31, 2005 and 2004
            34Statements
                of Stockholders’ DeficitYears
                ended December 31, 2005 and 2004
            35Statements
                of Cash FlowsYears
                ended December 31, 2005 and 2004
            37Notes
                to Financial Statements
            38 -
                48











31








**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**











To
      the
      Board of Directors


Blast
      Energy Services, Inc.


Houston,
      Texas











We
      have
      audited the accompanying balance sheet of Blast Energy Services, Inc. as of
      December 31, 2005 and the related statements of operations, stockholders’
deficit and cash flows for each of the two years then ended. These financial
      statements are the responsibility of Blast Energy’s management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





We
      conducted our audits in accordance with standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. An audit includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements. An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of Blast Energy Services, Inc. as
      of
      December 31, 2005 and the results of its operations and cash flows for each
      of
      the two years then ended in conformity with accounting principles generally
      accepted in the United States of America.





The
      accompanying financial statements have been prepared assuming that Blast will
      continue as a going concern. As discussed in Note 2 to the financial statements,
      Blast suffered recurring losses from operations and has a working capital
      deficiency, which raises substantial doubt about its ability to continue as
      a
      going concern. Management’s plans regarding those matters also are described in
      Note 2. The financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.




As
          described in Note 20, the accompanying statement of cash flows for the
          year
          ended December 31, 2005 has been restated to properly classify the cash
          received
          from the sale of the Landers license.





MALONE
      & BAILEY, PC





www.malone-bailey.com





Houston,
      Texas





March
        22,
        2006 (May
        8,
        2006 as to the effects of the restatement as described in Note
        20)











32








BLAST
      ENERGY SERVICES, INC.


(Formerly
      Verdisys, Inc.)


BALANCE
      SHEET


December
      31, 2005








**Assets**Current
                AssetsCash
            
            $
            835,978Accounts
                Receivable, net of allowance for doubtful accounts of
                $10,290
            
            
            156,437Other
                Assets
            
            
            231,413Current
                Assets
            
            
            1,223,828Intangible
                assets, net of $27,857 of accumulated amortization
            
            
            1,142,143Property
                & equipment, net of $22,416 of accumulated
                depreciation
            
            
            977,269Total
                Assets
            
            
            3,343,240**Liabilities
                and Stockholder’s Deficit**Current
                LiabilitiesAccounts
                payable
            
            $
            622,396Accrued
                expenses
            
            
            533,842Deferred
                revenue
            
            
            131,425Notes
                payable-related parties, net of unamortized discount of
                $14,814
            
            
            185,186Notes
                payable-other
            
            
            395,000Total
                Current Liabilities
            
            
            1,867,849Long
                Term LiabilitiesAdvances-related
                parties
            
            
            1,000,000Note
                payable-other
            
            
            500,000Deferred
                revenue, less current portion
            
            
            6,780Total
                Liabilities
            
            
            3,374,629Commitments
                and Contingencies
            
            
            -Stockholders’
                DeficitCommon
                stock, $.001 par value, 100,000,000 shares authorized, 42,060,477
                shares
                issued and outstanding
            
            
            42,060Additional
                paid in capital
            
            
            29,855,409Accumulated
                deficit
            
            
            (29,928,859
            )Total
                Stockholders’ Deficit
            
            
            (31,390
            )Total
                Liabilities and Stockholders’ Deficit
            
            $
            3,343,240














33





BLAST
      ENERGY SERVICES, INC.


(Formerly
      Verdisys, Inc.)


STATEMENTS
      OF OPERATIONS


Years
      ended December 31, 2005 and 2004








**2005**
            
            **2004**Revenue:Satellite
                Communications
            
            $
            1,131,967
            
            $
            714,634Down-hole
                Solutions
            
            
            27,491
            
            
            738,710Total
                Revenue
            
            
            1,159,458
            
            
            1,453,344Cost
                of Services Provided:Satellite
                Communications
            
            
            824,505
            
            
            720,912Down-hole
                Solutions
            
            
            493,209
            
            
            868,160Total
                Cost of Services Provided
            
            
            1,317,714
            
            
            1,589,072Gross
                Margin (Deficit)
            
            
            (158,256
            )
            
            (135,728
            )Operating
                Expenses:Selling,
                general and administrative
            
            
            2,847,212
            
            
            4,752,391Depreciation
                and amortization
            
            
            119,306
            
            
            512,706Bad
                debts
            
            
            10,000
            
            
            73,249Asset
                impairment
            
            
            -
            
            
            3,175,833Operating
                loss
            
            
            (3,134,774
            )
            
            (8,649,907
            )Other
                (Income) Expense
            
            
            (560,912
            )
            
            -Interest
                expense
            
            
            195,121
            
            
            105,053(Gain)
                loss on sale of equipment
            
            
            93,247
            
            
            11,237Interest
                income
            
            
            (4
            )
            
            (89
            )Total
                other (income) expense
            
            
            (272,548
            )
            
            116,201Net
                Loss
            
            $
            (2,862,231,
            )
            $
            (8,766,108
            )Basic
                and diluted loss per share
            
            $
            (0.08
            )
            $
            (0.28
            )Weighted
                average shares outstanding
            
            
            37,480,228
            
            
            31,415,041




















34





BLAST
      ENERGY SERVICES, INC.


(Formerly
      Verdisys, Inc.)


STATEMENTS
      OF STOCKHOLDERS’ DEFICIT


Years
      Ended December 31, 2005 and 2004








**Preferred
                Stock**
            
            **Common
                Stock****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**Balances
                at December 31, 2003
            
            
            
            
            
            
            
            
            29,627,265
            
            $
            29,627Shares
                issued for:Cash,
                net of fundraising costs
            
            
            
            
            
            
            
            
            829,500
            
            
            830Services
            
            
            
            
            
            
            
            
            47,950
            
            
            48Accounts
                payable
            
            
            
            
            
            
            
            
            104,000
            
            
            104Notes
                payable, accrued interest & licensing fees
            
            
            
            
            
            
            
            
            300,000
            
            
            300Cash
                exercise of warrants and options
            
            
            
            
            
            
            
            
            1,207,198
            
            
            1,207Prior
                fundraising agreement
            
            
            
            
            
            
            
            
            277,778
            
            
            278Lawsuits
                settlements
            
            
            
            
            
            
            
            
            1,050,000
            
            
            1,050Fair
                value of options and warrants issued for servicesNet
                lossBalances
                at December 31, 2004
            
            
            -
            
            
            -
            
            
            33,443,691
            
            $
            33,444Shares
                issued for:Cash,
                net of fundraising costs
            
            
            
            
            
            
            
            
            900,000
            
            
            900Services
            
            
            
            
            
            
            
            
            673,903
            
            
            674Technology
                acquisition
            
            
            
            
            
            
            
            
            3,000,000
            
            
            3,000Cash
                exercise of warrants and options
            
            
            
            
            
            
            
            
            675,000
            
            
            675Prior
                fundraising agreement
            
            
            
            
            
            
            
            
            448,800
            
            
            449Notes
                payable, accrued interest and salaries
            
            
            
            
            
            
            
            
            1,185,750
            
            
            1,185Lawsuit
                settlements
            
            
            
            
            
            
            
            
            1,733,333
            
            
            1,733Option
                expenseWarrant
                expenseNet
                lossBalances
                at December 31, 2005
            
            
            -
            
            
            -
            
            
            42,060,477
            
            $
            42,060














35





BLAST
      ENERGY SERVICES, INC.


(Formerly
      Verdisys, Inc.)


STATEMENTS
      OF STOCKHOLDERS’ DEFICIT


Years
      Ended December 31, 2005 and 2004











**Paid-In
                Capital**
            
            **Retained
                Deficit**
            
            **Totals**Balances
                at December 31, 2003
            
            
            21,743,321
            
            
            (18,300,519
            )
            
            3,472,429Shares
                issued for:Cash,
                net of fundraising costs
            
            
            633,170
            
            
            
            
            
            634,000Services
            
            
            (48
            )
            
            
            
            
            -Accounts
                payable
            
            
            51,873
            
            
            
            
            
            51,977Notes
                payable, accrued interest & licensing fees
            
            
            1,919,700
            
            
            
            
            
            1,920,000Cash
                exercise of warrants and options
            
            
            80,010
            
            
            
            
            
            81,217Prior
                fundraising agreement
            
            
            (278
            )
            
            
            
            
            -Lawsuits
                settlements
            
            
            836,950
            
            
            
            
            
            838,000Fair
                value of options and warrants issued for services
            
            
            735,421
            
            
            
            
            
            735,421Net
                loss
            
            
            
            
            
            (8,766,108
            )
            
            (8,766,108
            )Balances
                at December 31, 2004
            
            
            26,000,119
            
            $
            (27,066,627
            )
            $
            (1,033,063
            )Shares
                issued for:Cash,
                net of fundraising costs
            
            
            539,100
            
            
            
            
            
            540,000Services
            
            
            309,385
            
            
            
            
            
            310,059Technology
                acquisition
            
            
            1,167,000
            
            
            
            
            
            1,170,000Cash
                exercise of warrants and options
            
            
            74,725
            
            
            
            
            
            75,400Prior
                fundraising agreement
            
            
            216,051
            
            
            
            
            
            216,500Notes
                payable, accrued interest and salaries
            
            
            468,593
            
            
            
            
            
            469,778Lawsuit
                settlements
            
            
            711,767
            
            
            
            
            
            713,500Option
                expense
            
            
            100,000
            
            
            
            
            
            100,000Warrant
                expense
            
            
            268,669
            
            
            
            
            
            268,669Net
                loss
            
            
            
            
            
            (2,862,233
            )
            
            (2,862,233
            )Balances
                at December 31, 2005
            
            
            29,855,409
            
            $
            (29,928,858
            )
            $
            (31,390
            )

















36


BLAST
      ENERGY SERVICES, INC.


(Formerly
      Verdisys, Inc.)


STATEMENTS
      OF CASH FLOWS (Restated)


Years
      Ended December 31, 2005 and 2004





**2005**
              
              **2004****Cash
                  Flows From Operating Activities**
              
              
              (Restated)Net
                  loss
              
              $
              (2,862,231
              )
              $
              (8,766,108
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Stock
                  issued for services or litigation
              
              
              1,193,133
              
              
              1,573,192Release
                  of deferred revenue from litigation settlement
              
              
              -
              
              
              (565,750
              )Option
                  and warrant expense
              
              
              368,669
              
              
              544,579Amortization
                  of note discount
              
              
              117,630
              
              
              58,398Depreciation
                  and amortization
              
              
              119,306
              
              
              512,706Guarantee
                  of third party debt
              
              
              -
              
              
              (300,000
              )Loss
                  (gain) on sale of property
              
              
              93,247
              
              
              11,237Asset
                  impairment charge
              
              
              -
              
              
              3,175,833Note
                  issued for legal settlement
              
              
              500,000
              
              
              -Bad
                  debts
              
              
              -
              
              
              73,249Changes
                  in:Other
                  Accounts receivable
              
              
              27,289
              
              
              132,131Other
                  current assets
              
              
              (187,337
              )
              
              -Accounts
                  payable
              
              
              (91,130
              )
              
              473,437Accrued
                  expenses
              
              
              (670,002
              )
              
              787,767Deferred
                  revenue
              
              
              (198,399
              )
              
              15,039Customer
                  deposit
              
              
              (276,850
              )
              
              208,568Net
                  Cash Used In Operating Activities
              
              
              (1,866,675
              )
              
              (2,115,722
              )**Cash
                  Flows From Investing Activities**Purchase
                  of equipment
              
              
              (970,298
              )
              
              (3,705
              )Proceeds
                  from sale of license
              
              
              1,300,000
              
              
              -Proceeds
                  from sale of equipment
              
              
              255,734
              
              
              12,500Net
                  Cash Provided By Investing Activities
              
              
              585,436
              
              
              8,795**Cash
                  Flows From Financing Activities**Proceeds
                  from sales of common stock
              
              
              779,900
              
              
              634,000Proceeds
                  from exercise of options and warrants
              
              
              75,400
              
              
              81,217Proceeds
                  from advances by advanced parties
              
              
              1,000,000
              
              
              -Proceeds
                  from notes payable, related parties
              
              
              -
              
              
              345,000Proceeds
                  from notes payable
              
              
              (5,000
              )
              
              475,000Payments
                  on notes payable, related parties
              
              
              -
              
              
              (35,000
              )Payments
                  on note payable related to license
              
              
              -
              
              
              (500,000
              )Net
                  Cash Provided By Financing Activities
              
              
              1,850,300
              
              
              1,000,217Net
                  change in cash
              
              
              569,061
              
              
              (1,106,710
              )Cash
                  at beginning of year
              
              
              266,917
              
              
              1,373,627Cash
                  at end of year
              
              $
              835,978
              
              $
              266,917Cash
                  paid during the year for:Interest
              
              $
              83,311
              
              $
              -Income
                  taxes
              
              
              -
              
              
              -











37





**BLAST
      ENERGY SERVICES, INC.**


**(Formerly
      Verdisys, Inc.)**


**NOTES
      TO FINANCIAL STATEMENTS**








**NOTE
      1 - BASIS OF PRESENTATION**





Business .
      The
      Company was formed in California on April 7, 1999. The Company entered into
      a
      merger agreement with Reconstruction Data Group, Inc. in July 2003, the
      principal effect of which was to make the company, after the transactions,
      a
      publicly traded company. Effective June 6, 2005, the Company changed its name
      to
      Blast Energy Services, Inc. (“Blast”) from Verdisys, Inc. in part to reflect its
      focus on the energy service business. Management believes such a name change
      creates better name recognition related to the types of service that it intends
      to provide and the ability to trademark new applications and services in a
      way
      to uniquely identify them with our company. In June 2003, Blast began selling
      a
      lateral drilling technique using high pressure water jetting for the enhancement
      and production of oil and gas reserves using licensed technology acquired in
      April 2003.





In
      2005
      and 2004, Blast provided lateral jetting services through the utilization of
      its
      drilling rigs by oil and gas operators primarily in Texas and Louisiana. Blast
      also provided satellite services to oil and gas companies throughout North
      America and West Africa.





Management
      Estimates .
      The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets,
      liabilities, revenues and expenses, as well as certain financial statement
      disclosures. While management believes that the estimates and assumptions used
      in the preparation of the financial statements are appropriate, actual results
      could differ from these estimates.





Cash
      Equivalents .
      Highly
      liquid investments with original maturities of three months or less are
      considered cash equivalents.





Revenue
      Recognition .
      All
      revenue is recognized when persuasive evidence of an arrangement exists, the
      service or sale is complete, the price is fixed or determinable and
      collectibility is reasonably assured. Revenue is derived from sales of satellite
      hardware, satellite bandwidth, satellite service and lateral drilling services.
      Revenue from satellite hardware is recognized when the hardware is installed.
      Revenue from satellite bandwidth is recognized evenly over the term of the
      contract. Revenue from satellite service is recognized when the services are
      performed. Blast provides no warranty but sells commercially obtained 3 to
      12
      month warranties for satellite hardware. Blast has a 30 day return policy.
      Revenue for lateral drilling services is recognized when the services are
      performed and collectibility is reasonably assured and when collection is
      uncertain, revenue is recognized when cash is collected.





Allowance
      for Doubtful Accounts .
      Bad
      debt expense is recognized based on management’s estimate of likely losses per
      year, based on past experience and an estimate of current year uncollectible
      amounts.





Equipment .
      Equipment is valued at cost. Maintenance and repairs are charged to expense
      as
      incurred. Renewals and betterments which extend the life or improve existing
      equipment are capitalized. Upon disposition or retirement of equipment, the
      cost
      and related accumulated depreciation are removed and any resulting gain or
      loss
      is reflected in operations. Depreciation is provided using the straight-line
      method over the estimated useful lives of the assets, which are three to seven
      years.





Impairment
      of Long-Lived Assets .
      Blast
      reviews the carrying value of its long-lived assets annually or whenever events
      or changes in circumstances indicate that the historical cost-carrying value
      of
      an asset may no longer be appropriate. Blast assesses recoverability of the
      carrying value of the asset by estimating the future net cash flows expected
      to
      result from the asset, including eventual disposition. If the future net cash
      flows are less than the carrying value of the asset, an impairment loss is
      recorded equal to the difference between the asset’s carrying value and fair
      value.





Stock
      Options and Warrants .
      Blast
      accounts for all stock-based employee compensation plans in accordance with
      Statement of Financial Accounting Standard No. 123, *Accounting
      for Stock-Based Compensation* (“SFAS
      No. 123”), which permits the measurement of compensation expense in accordance
      with Accounting Principles Board Opinion 25 *Accounting
      for Stock Issued to Employees* (“APB
      25”). Under APB 25, no stock-based employee compensation cost is reflected in
      net income, as all options granted under those plans had an exercise price
      equal
      to or in excess of the market value of the underlying common stock on the date
      of grant. Blast accounts for stock-based compensation issued to non-employees
      in
      accordance with the provisions of SFAS No. 123 and EITF No. 96-18, *Accounting
      for Equity Investments That Are Issued to Non-Employees for Acquiring, or in
      Conjunction with Selling Goods or Services* .
      Common
      stock issued to non-employees and consultants is based upon the fair value
      of
      the services received or the fair value of the equity instruments issued
      whichever value is more reliably measurable.


38





2005
            
            2004Net
                loss as reported
            
            $
            (2,862,231
            )
            $
            (8,766,108
            )Add:
                intrinsic value of stock-based compensation
            
            
            -
            
            
            245,829Less:
                stock based compensation determinedunder
                fair value-based method
            
            
            (354,290
            )
            
            (2,337,230
            )Pro
                forma net loss
            
            $
            (3,216,521
            )
            $
            (10,857,509
            )Basic
                and diluted net loss per common share:As
                reported
            
            $
            (.08
            )
            $
            (.28
            )Pro
                forma
            
            
            (.09
            )
            
            (.35
            )





The
      weighted average fair value of the stock options granted during 2005 and 2004
      was $.08 and $1.78, respectively. Variables used in the Black-Scholes
      option-pricing model include (1) 2% risk-free interest rate, (2) expected option
      life is the actual remaining life of the options as of each period end, (3)
      expected volatility is 69% to 153% and (4) zero expected dividends.





Income
      Taxes .
      Blast
      utilizes the asset and liability method in accounting for income taxes. Under
      this method, deferred tax assets and liabilities are recognized for operating
      loss and tax credit carryforwards and for the future tax consequences
      attributable to differences between the financial statement carrying amounts
      of
      existing assets and liabilities and their respective tax bases. Deferred tax
      assets and liabilities are measured using enacted tax rates expected to apply
      to
      taxable income in the year in which those temporary differences are expected
      to
      be recovered or settled. The effect on deferred tax assets and liabilities
      of a
      change in tax rates is recognized in the results of operations in the period
      that includes the enactment date. A valuation allowance is recorded to reduce
      the carrying amounts of deferred tax assets unless it is more likely than not
      that the value of such assets will be realized.





Earnings
      Per Share .
      Basic
      earnings per share equals net earnings divided by weighted average shares
      outstanding during the year. Diluted earnings per share include the impact
      on
      dilution from all contingently issuable shares, including options, warrants
      and
      convertible securities. The common stock equivalents from contingent shares
      are
      determined by the treasury stock method. Blast has incurred net losses for
      the
      years ended December 31, 2005 and 2004 and has, therefore, excluded certain
      securities from the computation of diluted earnings per share as the effect
      would be anti-dilutive.





Recently
      Issued Accounting Pronouncements .
      In
      December 2004, the FASB issued SFAS No. 123R, “Accounting for Stock-Based
      Compensation.” SFAS No. 123R establishes standards for the accounting for
      transactions in which an entity exchanges its equity instruments for goods
      or
      services. This Statement focuses primarily on accounting for transactions in
      which and entity obtains employee services in share-based payment transactions.
      SFAS No. 123R requires that the fair value of such equity instruments be
      recognized as expense in the historical financial statements as services are
      performed. Prior to SFAS No. 123R, only certain pro forma disclosures of fair
      value were required. SFAS No. 123 shall be effective for small business issuers
      as of the beginning of the first interim or annual reporting period that begins
      after December 15, 2005. The impact of the adoption of this new accounting
      pronouncement would be similar to the Company’s calculation of the pro forma
      impact on net income of FAS 123 included in Note 1 above.





Reclassifications . ** Certain
      amounts in the financial statements of the prior year have been reclassified
      to
      conform to the presentation of the current year for comparative
      purposes.





**NOTE
      2 - GOING CONCERN**





As
      shown
      in the accompanying financial statements, Blast incurred a net loss of $2.9
      million for the year ended December 31, 2005, has an accumulated deficit of
      $29.9 million and a working capital deficit of $0.6 million as of December
      31,
      2005 and has several significant future financial obligations. These conditions
      create an uncertainty as to Blast’s ability to continue as a going concern.
      Management is trying to raise additional capital. The financial statements
      do
      not include any adjustments that might be necessary if Blast is unable to
      continue as a going concern.








39


**NOTE
      3 - EQUIPMENT**





Equipment
      consisted of the following at December 31, 2005:





Description
            
            Life
            
            AmountRig
                under construction
            
            12
                years
            
            $
                944,355Computer
                equipment
            
            3
                years
            
            31,246Automobile
            
            4
                years
            
            19,300Service
                Trailer
            
            5
                years
            
            4,784$
                999,685Less:
                accumulated depreciation
            
            
            
            (22,416)$
                977,269





During
      the first quarter of 2005, one of Blast’s three rigs was transferred to Maxim
      TEP under the terms of the Technology Assignment Agreement. In October 2005,
      Blast conveyed the second of its Landers technology rigs to Edge Capital as
      part
      of the Settlement Agreement & Mutual Release entered into between the
      parties. In December 2005 the remaining rig and related spare parts, was
      transferred to Maxim TEP (See Note 4).





Depreciation
      expense totaled $91,449 and $159,352 in 2005 and 2004,
      respectively.





**NOTE
      4 - INTELLECTUAL PROPERTY (“IP”)**





Blast
      entered into a license agreement on April 23, 2003 for the exclusive use of
      the
      Landers lateral drilling process. On March 8, 2005, Blast assigned its rights
      in
      that license to Maxim TEP, Inc. (“Maxim”) along with all current and future
      assignments, sublicenses or territorial royalty pertaining to the license.
      The
      President and CEO of Maxim is Dan Williams, a former President and CEO of Blast.
      As consideration, Maxim has paid $1,300,000 in principal payments and $500,000
      in penalties for extending the payment deadlines and released a $270,000 credit
      obligation we owed to Maxim. We will retain a non-exclusive sublicense interest
      in the Landers license, as long as we pay all required royalties on which the
      Landers Horizontal Technology is utilized. The carrying value of the IP was
      impaired by $3,175,000 at December 31, 2004 to recognize the sale of the
      license.





In
      connection with the assignment, Blast sold two of its three drilling rigs for
      the release of a customer deposit obligation that Blast owed Maxim. Maxim took
      delivery of the first rig during the first quarter and the second rig was
      delivered to Maxim in the fourth quarter. The rigs were sold as a package and
      the gain on the sale of the first rig of $41,890 had been deferred and Blast
      recognized as a loss on the second rig in the fourth quarter. Blast continued
      to
      depreciate the second rig until its delivery to Maxim in the fourth quarter.
      The
      Equipment asset includes the cost incurred to date for the abrasive fluid
      jetting rig that is currently under construction.





On
      July
      15, 2005, Blast entered into an agreement to develop its initial abrasive
      jetting rig with Berg McAfee Companies, LLC (“BMC”), a major shareholder. The
      arrangement involves two loans for a total of $1 million to fund the completion
      of the initial rig and sharing in the expected rig revenues for a ten-year
      period. As of December 31, 2005, Blast received $1,000,000 in funding under
      this
      agreement. Under the terms of the loan agreement with BMC, cash revenues will
      be
      shared on the basis of allocating 90% to Blast and 10% to BMC for a ten-year
      period following repayment. After ten years, Blast will receive all of the
      revenue from the rig. The loan, which carries an average interest rate of 7.4%,
      has a senior and subordinated structure due September 15, 2006 and September
      30,
      2006, respectively. In February 2006, Blast and Berg McAfee Companies, our
      major
      shareholder, mutually agreed to extend the Maturity Date of the AFJ Rig Loans
      from September 2006 to March 31, 2007. BMC also has the option to fund an
      additional three rigs under these commercial terms.





On
      August
      25, 2005, Blast entered into a purchase agreement with Alberta Energy Holdings
      Inc. (“Alberta”) to purchase a one-half interest in Alberta’s Abrasive Fluid Jet
      (“AFJ”) cutting technology. The purchase agreement replaces in its entirety an
      October 2004 licensing agreement between Blast and Alberta. Blast issued to
      Alberta 3,000,000 restricted shares of its common stock and 750,000 warrants
      exercisable at $.45 per share for the purchase of Blast common shares. The
      warrants are exercisable at such time as a minimum of $225,000 in revenue has
      been received by operation of Blast Rig # 1, and expire three years from date
      of
      issuance. The fair value of the award will be measured and recognized at which
      time Blast achieves the $225,000 revenue mark. In addition, one half of Blast’s
      50% share of the revenue stream from licensing of the technology shall be paid
      to Alberta, in addition to Alberta’s own one-half, until Alberta has received $2
      million. Thereafter, Blast and Alberta will share licensing revenue equally.
      Blast shall not own its full 50% in the technology until all of the $2 million
      has been paid, but shall own a 20% interest initially with ownership increasing
      at the same percentage as the $2million dollars is paid to Alberta. Royalties
      are payable to Alberta at the rate of $2,000 per well or 2% of gross revenues
      received, whichever is greater, for each well bore in which Blast uses the
      technology. The agreement shall remain in effect for the commercial life of
      the
      technology. Alberta also has agreed to continue the provision of consulting
      services to Blast at the rate of $10,000 per month through December 31,
      2005.


40


At
      December 31, 2005 the total cost of the Intellectual Property was $1,170,000
      with $27,857 of accumulated amortization. The IP, composed of the 50% ownership
      in the Alberta technology, is being amortized on a straight-line method over
      the
      life of the patent, which is 14 years.





**NOTE
      5 - ACCRUED EXPENSES**





Accrued
      expenses at December 31, 2005 consisted of the following:





Description
            
            AmountAccrued
                payroll
            
            $
                221,951Director
                fees
            
            135,500Interest
            
            61,332Other
            
            115,059$
                533,842





**NOTE
      6 - DEFERRED REVENUE**





Blast
      bills some of its satellite bandwidth contracts in advance over periods ranging
      from 3 to 36 months. Blast recognizes revenue evenly over the contract term.
      Deferred revenue related to satellite services totaled $131,425, of which
      $119,880 will be recognized in the next twelve months.





**NOTE
      7 - ADVANCES - RELATED PARTIES**





During
      2005, under the agreement to develop its initial abrasive jetting rig with
      Berg
      McAfee Companies, funded primarily by Eric McAfee and Clyde Berg, each of whom
      are considered significant holders of Blast, $1 million rig funding was received
      (see note 4). The loan matures on March 31, 2007.





**NOTE
      8 - NOTES PAYABLE - RELATED PARTIES**





Notes
      payable - related parties at December 31, 2005 consisted of the
      following:


Convertible
                promissory notes with related individual and entity, 8%, maturing
                on May
                31, 2006, issued in connection with 100% warrant coverage to purchase
                Blast common stock at $.001 per share until October 26, 2005, conversion
                rate of one share of common stock for every $2.00 of outstanding
                principal
                and unpaid interest.
            
            $
            200,000Less:
                discount for warrants
            
            
            (23,840
            )$
            176,160





**NOTE
      9 - NOTES PAYABLE**





Current
        Notes payable at December 31, 2005 consisted of the
        following:


Convertible
                  promissory notes, 8%, maturing on December 31, 2005, issued in
                  connection
                  with 100% warrant coverage to purchase Blast common stock until
                  December
                  31, 2005, conversion rate of one share of common stock for every
                  $2.00 of
                  outstanding principal and unpaid interest.
              
              $
              350,000Note
                  payable, individual, 10%, due on demand
              
              
              45,000$
              395,000Long-Term
                  Notes payable at December 31, 2005 consisted of the
                  following:Promissory
                  Note with Charles Steinberger, a previous CEO of the Company, becomes
                  due
                  on June 30, 2007 and carries no interest. Blast Energy has the
                  option to
                  pay the Note early and in the event that the price of Blast Energy
                  common
                  stock trades on average greater that $2.00 per share for the 20
                  trading
                  days prior to the due date, the Note will no longer be
                  payable.
              
              $
              500,000








41


**NOTE
      10 - RELATED PARTY REVENUES**





Energy
      2000 NGC, Inc. (“Energy 2000”) is a subsidiary of Berg McAfee Energy, LLC, a
      wholly owned subsidiary of Berg McAfee Companies. Berg McAfee Companies are
      beneficial owners of 24% of Blast and Eric McAfee is a former Vice Chairman
      and
      CEO of Blast. In April 2003, Blast signed a drilling service contract with
      Energy 2000, whereby Energy 2000 would have paid Blast a minimum of $1,800,000
      for lateral drilling of 45 wells. In September, 2003 Blast entered into another
      contract with Energy 2000 for an additional 57 wells with terms similar to
      the
      original contract. This contract was suspended for lack of payment.





Blast
      billed $666,250 and $153,960 to Energy 2000 and NGS, respectively, for services
      performed in 2003. Blast received $397,500 and $130,000, respectively. However,
      Blast has inadequate documentation to substantiate whether some of the services
      were performed. For Energy 2000, Blast was able to substantiate $328,750 of
      revenue leaving $68,750 in deferred revenue. Blast billed $20,547 and $2,000
      to
      Energy 2000 and NGS, respectively, for expenses incurred in 2004. The amount
      billed to Energy 2000 was deemed uncollectible and the amount billed to NGS
      was
      collected. As of December 31, 2004, deferred revenues from related parties
      totaled $0. In October 2004, Blast entered into an agreement with Berg McAfee
      Companies, Energy 2000 and Eric McAfee to settle several outstanding legal
      issues. Under the agreement, Blast is entitled to retain the $68,750 and Energy
      2000 has waived all claims to the funds.





**NOTE
      11 - INCOME TAXES**





During
      2005 and 2004, Blast incurred net losses and, therefore, had no tax liability.
      The net deferred tax asset generated by the loss carry-forward has been fully
      reserved. The cumulative net operating loss carry-forward is approximately
      $16,500,000 at December 31, 2005, and will expire in the years 2019 through
      2025.





At
      December 31, 2005, deferred tax assets consisted of the following:





Deferred
                tax assetsNet
                operating losses
            $5,880,000Less:
                valuation allowance
            (5,880,000)Net
                deferred tax asset
            $0





The
      change in the valuation allowance for the years ended December 31, 2005 and
      2004
      totaled $420,000 and $1,800,000, respectively.





**NOTE
      12 - COMMON STOCK**





In
      June
      2005, Blast shareholders approved the increase in the number of authorized
      common shares from 50 million to 100 million.





During
      2004, Blast issued 3,816,426 shares of common stock as follows:


·
            829,500
                shares issued in a series of private placement offerings for total
                proceeds of $634,000. Two year warrants to purchase 71,800 shares
                of
                common stock at a price of $2.00 per share were issued in connection
                with
                one of the private placements. The proceeds were allocated between
                the
                common stock and the warrants based on their respective relative
                fair
                values. Offering costs consisted of 17,950 shares of common stock
                and
                7,180 warrants exercisable at $2.00 per share until August 23,
                2006.


·
            47,950
                shares issued in payment of legal and consulting services in connection
                with private placements.


·
            104,000
                shares issued in payment of accounts payable valued at
                $51,977.


·
            300,000
                shares issued in repayment of notes payable, accrued interest and
                licensing fees valued at
                $1,920,000.


·
            1,207,198
                shares issued as a result of cash exercise of warrants and options
                valued
                at $81,217. The exercised warrants included a cashless exercise of
                400,000
                warrants for 395,022 shares of common stock.


·
            277,778
                shares issued pursuant to a prior period fundraising
                agreement.


·
            1,050,000
                shares issued as a result of lawsuit settlements valued at
                $838,000.





During
      2005, Blast issued 8,616,786 shares of common stock as follows:


·
            900,000
                shares issued in a private placement offering for total proceeds
                of
                $540,000.


·
            613,903
                shares issued in payment of legal and consulting services valued
                at
                $286,659.


·
            3,000,000
                shares issued in connection with a technology acquisition valued
                at
                $1,170,000.


·
            675,000
                shares issued as a result of cash exercise of warrants and options
                valued
                at $75,400.


·
            508,800
                shares issued pursuant to a prior period fundraising agreement valued
                at
                $239,900.


·
            1,185,750
                shares issued in repayment of notes payable, accrued interest and
                salaries
                valued at $469,778.


·
            1,733,333
                shares issued as a result of lawsuit settlements valued at
                $713,500.


42


**NOTE
      13 - STOCK OPTIONS AND WARRANTS**





Options





During
      2004, Blast issued 1,152,000 options as follows:


·
            230,000
                options vesting over 12 months were issued to officers at market
                price of
                $4.28.


·
            80,000
                options vesting at grant date were issued to non-employee directors
                at
                market price of $4.28.


·
            72,000
                options vesting quarterly over one year, were issued to non-employee
                directors at market price of $2.20.


·
            770,000
                options vesting quarterly over 3 years were issued to officers at
                market
                price of $0.90.





During
      2005, Blast issued 2,412,000 options as follows:


·
            270,000
                ten-year options, vesting quarterly over 36 months, issued to employees
                at
                market prices of $0.38 to $0.50. 80,000 of these options were subsequently
                cancelled upon the termination of
                employment.


·
            72,000
                ten-year options, vesting over 12 months, issued to non-employee
                directors
                at market price of $0.38.


·
            900,000
                options, vesting at grant date at an exercise price of $0.10, relating
                to
                a settlement agreement were reinstated, of which only 300,000 may
                be
                exercised in the first year.


·
            1,170,000
                ten-year options issued to employees at market price of $0.80. 1,000,000
                vest quarterly over 30 months and 170,000 vest quarterly over 36
                months.





Warrants





Blast
      issues warrants to non-employees from time to time. The board of directors
      has
      discretion as to the terms under which the warrants are issued. All warrants
      vest immediately unless specifically noted in warrant agreements.





During
      2004, Blast issued warrants to purchase 780,980 shares of common stock as
      follows:


·
            37,000
                warrants, with an exercise price of $2.00 and a one year term, were
                issued
                in connection with one year promissory notes totaling $185,000. The
                notes
                have been discounted for the relative fair value of the
                warrants.


·
            78,980
                warrants, with an exercise price of $2.00 and a two-year term, were
                issued
                in connection with the raise of funds in a private placement offering
                that
                raised $359,000. The warrants were recorded as part of the offering
                costs
                of the private placement.


·
            100,000
                warrants, with an exercise price of $0.001 and a one-year term, were
                issued in connection with convertible notes totaling $200,000. The
                notes
                have been discounted for the relative fair value of the
                warrants.


·
            75,000
                warrants, with an exercise price of $0.01 and a two-year term, were
                issued
                to third party lenders in connection with a $150,000 convertible
                note. The
                notes have been discounted for the relative fair value of the
                warrants.


·
            140,000
                warrants, 20% of which vested immediately and the balance vesting
                at the
                rate of 20% every 90 days thereafter, with an exercise price of $0.80
                and
                a two-year term were issued to
                subcontractors.


·
            100,000
                warrants, with an exercise price of $0.001 and a one-year term, were
                issued in connection with convertible notes totaling $200,000. The
                notes
                have been discounted for the relative fair value of the
                warrants.


·
            250,000
                warrants, with an exercise price of $0.50 and a three-year term,
                were
                issued as part of a licensing agreement. The fair value was expensed
                in
                2004.





During
        2005, Blast issued warrants to purchase 2,348,800 shares of common stock
        as
        follows:


·
              848,800
                  warrants, with an exercise price of $1.00 and a two-year term,
                  were issued
                  in connection with the raise of funds in a private placement offerings
                  that raised $830,000. The warrants were recorded as part of the
                  offering
                  costs of the private
                  placement.


·
              750,000
                  warrants, with an exercise price of $1.00 and a three-year term,
                  were
                  issued in connection with the settlement of a legal dispute. The
                  fair
                  value was expensed in 2005.


·
              750,000
                  warrants, with an exercise price of $0.45 and a three-year term,
                  were
                  issued as part of a licensing agreement. The fair value was expensed
                  in
                  2005.











43





Summary
      information regarding options and warrants is as follows:





Options
            
            Weighted
                Average Share Price
            
            Warrants
            
            Weighted
                Average Share PriceOutstanding
                atDecember
                31, 2003
            
            
            4,112,376
            
            $
            1.35
            
            
            4,424,715
            
            $
            0.38Year
                ended December 31, 2004:Granted
            
            
            1,152,000
            
            
            1.89
            
            
            780,980
            
            
            0.48Exercised
            
            
            (369,583
            )
            
            0.10
            
            
            (837,605
            )
            
            0.10Forfeited
            
            
            (2,481,113
            )
            
            1.47
            
            
            (573,871
            )
            
            0.18Outstanding
                atDecember
                31, 2004
            
            
            2,413,680
            
            
            1.67
            
            
            3,794,219
            
            
            0.49Year
                ended December 31, 2005:Granted
            
            
            1,512,000
            
            
            0.71
            
            
            2,348,800
            
            
            0.82Exercised
            
            
            -
            
            
            -
            
            
            (675,000
            )
            
            0.11Reinstated
            
            
            900,000
            
            
            0.56
            
            
            -
            
            
            -Forfeited
            
            
            (386,888
            )
            
            0.12
            
            
            (1,647,833
            )
            
            0.18Outstanding
                atDecember
                31, 2005
            
            
            4,438,792
            
            $
            1.36
            
            
            3,820,186
            
            $
            0.90





Options
      outstanding and exercisable as of December 31, 2005:


-
                -
                Outstanding - -Exercise
                Price
            
            Number
                of Shares
            
            Weighted
                Average Remaining life
            
            Exercisable
                Number of Shares$
                0.10
            
            1,854,792
            
            8.9
                years
            
            1,709,3464.28
            
            310,000
            
            9
                years
            
            252,5002.20
            
            72,000
            
            9
                years
            
            36,0000.38
            
            72,000
            
            10
                years
            
            72,0000.40
            
            190,000
            
            10
                years
            
            190,0000.80
            
            1,170,000
            
            10
                years
            
            1,170,0000.90
            
            770,000
            
            10
                years
            
            128,3334,438,792
            
            
            
            3,558,179





Warrants
      outstanding and exercisable as of December 31, 2005:





-
                -
                Outstanding - -Exercise
                Price
            
            Number
                of Shares
            
            Weighted
                Average Remaining life
            
            Exercisable
                Number of Shares$
                0.01 - 0.50
            
            735,889
            
            1.0
                years
            
            735,8891.00
            
            2,683,800
            
            2.4
                years
            
            2,683,8002.00
            
            317,163
            
            1.1
                years
            
            317,1636.00
            
            83,334
            
            3.0
                years
            
            83,3343,820,186
            
            
            
            3,820,186











44


**NOTE
      14 - CONCENTRATIONS**





One
      customer accounted for 25% and 9% of total revenues in 2005 and 2004,
      respectively. Related parties accounted for 0% and 2% of total revenues in
      2005
      and 2004, respectively.





Blast
      at
      times has cash in bank in excess of Federal Deposit Insurance Corporation
      (“FDIC”) insurance limits. At December 31, 2005, Blast had $735,978 in cash in
      excess of FDIC insurance limits.





Blast
      performs ongoing credit evaluations of its customers’ financial condition and
      does not generally require collateral from them.





**NOTE
      15 - COMMITMENTS & CONTINGENCIES**





Under
      the
      terms of the Landers lateral drilling license (see Note 4), Blast is obligated
      to pay a royalty of $500 for every well in which that technology is utilized.
      The Landers license expires upon the expiration of the underlying patents,
      the
      earliest date being October 2013.





In
      November 2004, Blast entered into a worldwide licensing agreement with Alberta.
      The licensing agreement was replaced in its entirety in August 2005 when Alberta
      sold up to 50% of its interest in the AFJ technology. In return, Blast agreed
      to
      award 3 million shares of Blast stock to Alberta and to fix the price of the
      1
      million previously awarded warrants. Blast also agreed to pay a royalty to
      Alberta based on the greater of 2% of gross revenues or $2,000 per well. The
      agreement awarded Blast 20% ownership, which would accrete to 50% based upon
      license revenue sharing provisions. (See Note 4)





Three
      of
      Blast’s employees are under employment agreements. One agreement was entered
      into June 2003 and provides for a base salary of $150,000 in year one, $180,000
      in year two and $210,000 in year three. This agreement has been amended to
      provide a base of $175,000. The other agreements have a one year term but
      provide for one year renewals. One of the agreements is for a minimum base
      salary of $185,000, while the other agreement provides for a $20,000 escalation
      for two years from the original base salary of $175,000 in 2004. These
      agreements have been amended to provide a base of $200,000.





On
      August
      25, 2005, Blast amended its AFJ Construction Agreement, under which Alberta
      will
      engineer, design, source and build the AFJ Rig, to provide for a lump-sum price
      of $900,000 rather than the earlier price of $850,000. Under the agreement
      the
      first $100,000 of budget overruns will be borne by Alberta, with additional
      overruns being the responsibility of Blast. As of December 31, 2005, Blast
      had
      expended $944,355 towards the rig under construction and anticipates the total
      cost to approximate $1.2 million.





**NOTE
      16 - LITIGATION**





*Claims
      by Investor (Partial Settlement)*


In
      February 2005, we entered into an Agreed Judgment and Order of Severance with
      Gryphon Master Fund, L.P. (“Gryphon”) as to all breach of contract claims
      related to our delay in registering common stock acquired by Gryphon in October
      2003. Under the terms of the Agreed Judgment, we were obligated to pay $500,000
      to Gryphon and has satisfied this obligation, resulting in a discharge of the
      agreed judgment. In connection with the lawsuit, Gryphon has alleged, among
      other things, securities fraud by us. In connection with the lawsuit, Gryphon
      requested actual damages, punitive damages, interest, cost and attorneys’ fees
      among other claims. Gryphon has made a settlement demand on the company for
      $2.1
      million, which it purports to represent the actual damages it has sustained.
      If
      Gryphon prevails on the remaining claims, it may obtain significant damages
      that
      may have a material adverse effect on our financial condition.





*Securities
      and Exchange Commission Investigation*


Blast
      received notice in January 2004 that the Securities and Exchange Commission
      (“SEC”) has initiated a formal investigation into its reporting practices and
      public statements about Blast in 2003.





The
      SEC
      has requested substantiation and documentary evidence from Blast concerning
      the
      performance of certain lateral drilling services by subcontractors in the period
      from May 2003 to September 2003, supervision of such services by Blast‘s
      executive management at the time, revenue recognition related to the performance
      of such services, the third quarter 2003 earnings restatement, public statements
      concerning the services performed, and related matters. The SEC has also
      requested information and documentary evidence related to Blast’s acquisition of
      certain assets of QuikView, Inc., a related party company, in June, 2003. In
      its
      letters to Blast requesting documents, the SEC stated that the staff’s inquiry
      should not be construed as an indication that any violations of securities
      laws
      have occurred or as an adverse reflection on any persons, company or
      security.





45


Since
      December 2003, Blast has taken several steps to address issues related to the
      SEC’s inquiries, including the termination and replacement of the previous Chief
      Executive Officer and Chief Operating Officer and the reassignment of its Chief
      Financial Officer. Two directors have resigned from the Blast‘s board and Blast
      has appointed a new CFO. Internal controls have been strengthened overall,
      particularly with respect to the public release of Blast information and the
      recognition of revenue. Blast had also initiated an internal investigation
      of
      the matters of concern to the SEC. Consequently, Blast restated its second
      and
      third quarter financial statements for fiscal year 2003 and deferred all revenue
      related to the aforementioned period until such time that it can substantiate
      whether or not the services were performed.





Blast
      is
      cooperating fully with the SEC, including the provision of numerous documents
      and voluntary testimony by its current executives. In December 2004, the staff
      of the SEC notified Blast that it was considering recommending that the SEC
      bring a civil injunction (including a possible permanent injunction and a civil
      penalty) against Blast alleging violations of provisions of the Sections 10(b),
      13(b)(2)(A), 13(b)(2)(B) and 15(d) of the Securities Exchange Act of 1934 and
      rules promulgated thereunder in connection with the purchase and sale of
      securities of Blast, recordkeeping, internal controls, certification and
      disclosure obligations. Blast was notified of its right to make a Wells
      submission. Blast has provided information to the SEC setting forth the specific
      steps it has taken to upgrade the quality and effectiveness of its board of
      directors, replace the previous management team with industry experts, improve
      its recordkeeping, internal and disclosure controls, and revenue recognition
      procedures. Although Blast is working to bring the matter to a prompt
      conclusion, it cannot make any assurance that the investigation will be resolved
      positively or that it will not have negative effects on Blast‘s limited
      resources or its ability to raise capital and use its stock as acquisition
      currency during the period of the investigation.





*General*


Blast
      has
      never been in bankruptcy, receivership or any similar legal proceeding. Other
      than the aforementioned legal matters, Blast is not aware of any other
      threatened legal proceedings. The foregoing is also true with respect to each
      officer, director and control shareholder as well as any entity owned by any
      officer, director and control shareholder, over the last five
      years.





As
      part
      of its regular operations, Blast may become party to various pending or
      threatened claims, lawsuits and administrative proceedings seeking damages
      or
      other remedies concerning its’ commercial operations, products, employees and
      other matters. Although Blast can give no assurance about the outcome of these
      or any other pending legal and administrative proceedings and the effect such
      outcomes may have on the company, except as described above, Blast believes
      that
      any ultimate liability resulting from the outcome of such proceedings, to the
      extent not otherwise provided for or covered by insurance, will not have a
      material adverse effect on Blast‘s financial condition or results of
      operations.





**NOTE
      17 - NON-CASH TRANSACTIONS FOR CASH FLOW STATEMENTS**




2005
            
            2004Conversion
                of notes payable and accrued interest to common stock
            
            $
                251,888
            
            $
                1,184,808Stock
                issued for AFJ technology
            
            1,170,000
            
            -Exchange
                of equipment for customer deposit
            
            175,000
            
            -Exchange
                of equipment for accounts payable
            
            3,883
            
            -Conversion
                of accounts payable to common stock
            
            24,916
            
            -Discount
                on notes payable
            
            224,960
            
            133,746





46


**NOTE
      18 - BUSINESS SEGMENTS**





Blast
      has
      two reportable segments: (1) Down-hole Solutions and (2) Satellite
      Communications. A reportable segment is a business unit that has a distinct
      type
      of business based upon the type and nature of services and products
      offered.


Blast
      evaluates performance and allocates resources based on profit or loss from
      operations before other income or expense and income taxes. The accounting
      policies of the reportable segments are the same as those described in the
      summary of significant accounting policies. The table below reports certain
      financial information by reportable segment:





For
                the Years Ended December 31,2005
            
            2004Revenues
                from external customersDown-hole
                Solutions
            
            $
                27,491
            
            $
                738,710Satellite
                Communications
            
            1,131,967
            
            714,634$
                1,159,458
            
            $
                1,453,344Operating
                loss1Down-hole
                Solutions
            
            $
                (778,665)
            
            $
                (1,521,185)Satellite
                Communications
            
            467,142
            
            (195,521)Corporate
            
            (2,823,381)
            
            (6,933,201)$
                (3,134,774)
            
            $
                (8,649,907)1
                -
                Operating loss is total operating revenue less operating expenses,
                selling
                general & administrative expenses, depreciation and amortization, bad
                debts, impairment expense and does not include other income and expense
                or
                income taxes.





Blast
      assets at December 31, 2005 and 2004 were as follows:





For
                the Years Ended December 31,2005
            
            2004Down-hole
                Solutions
            
            $
                2,136,802
            
            $
                1,854,643Satellite
                Communications
            
            180,582
            
            73,936Corporate
            
            1,025,856
            
            313,541$
                3,343,240
            
            $
                2,242,120








All
      of
      Blast‘s long-term assets are attributable to North America.





The
      following table sets forth financial information with respect to Blast’s
      revenues by geographic area:





2005
            
            2004United
                States
            
            $
                978,582
            
            $
                1,279,053Africa
            
            180,876
            
            174,291$
                1,159,458
            
            $
                1,453,344








47


**NOTE
      19 - SUBSEQUENT EVENTS**





In
      January 2006, Blast issued (in lieu of cash) 13,784 shares of common stock
      for
      the payment of 4 th quarter,
      2005 interest on Convertible Promissory Notes at $.80 per share (the average
      five-day closing price at year end).





In
      January 2006, holders of four Convertible Promissory Note Agreements dated
      July
      23, 2004 totaling $350,000 converted their note principal amounts which were
      due
      on December 31, 2005, into shares of Company stock in lieu of cash payment.
      The
      original conversion terms including warrants, but excluding 8% interest, would
      equate to a $1.00 per share investment value. The conversion includes a premium
      in the number of shares converted in order to lower the value of the holder’s
      investment to $.60 per share, which is the same price of the Company’s December
      2005 private placement. Blast issued 175,000 shares of common stock related
      to
      the conversion of the $350,000 in notes at a conversion price of $2.00 per
      share
      and 233,333 shares of common stock related to the premium on the
      conversion.





In
      January 2006, Blast issued 28,000 shares of its common stock to a warrant holder
      who exercised their warrant option at an exercise price of $2,800.





In
      February 2006, Blast and Berg McAfee Companies, our major shareholder, mutually
      agreed to extend the Maturity Date of the AFJ Rig Loans from September 2006
      to
      March 31, 2007.





In
      February 2006, Blast issued 449,100 shares of its common stock to warrant
      holders who exercised their warrants at an average exercise price of $0.20
      and
      generating proceeds of $91,910.





In
        March
        2006, Alberta Energy Partners accelerated the revenue sharing provisions
        of the
        Technology Purchase Agreement and assigned the full 50% ownership of the
        AFJ
        technology to Blast effective immediately. Blast had previously owned only
        20%
        and the receipt of the remaining 30% balance had been contingent upon the
        sharing of future revenues. In exchange for the assignment of the 30% balance,
        Blast agreed to be responsible for 50% of the costs to protect the patents.
        Blast does not expect these costs to have an impact on our financial position,
        results of operation or cash flow.




**NOTE
        20 - RESTATEMENT**
 
 During
          2005, Blast agreed to sell our lateral drilling license for $1.3 million
          in
          cash. Subsequently, we determined that these proceeds should have been
          classified as “Cash from Investing Activities” rather than included in “Cash
          from Operations”. Consequently, the statement of cash flows for 2005 was
          restated for the line items shown below. The net increase in cash during
          the
          period of $ 569,061 remained unchanged.
 
 **For
                    the Year**
                  **Ended
                    December 31,****2005**
                **2005**(as
                    Originally Filed)
                (Restated)**Cash
                    Flows From Operating Activities:**Change
                    in working capital items
                $
                    1,327,289
                $
                    27,289Net
                    Cash Used In Operating Activities
                (566,675)
                (1,866,675)**Cash
                    Flows From Investing Activities:**Proceeds
                    from sale of license
                -
                1,300,000Net
                    Cash Provided by Investing Activities
                $
                    (714,564)
                $
                    585,436




**Item
      8. Changes In / Disagreements with Accountants on Accounting and Financial
      Disclosure**





None.





**Item
      8a. Controls and Procedures**





Our
        management, including the Principal Executive Officer and Principal Financial
        Officer, have conducted an evaluation of the effectiveness of disclosure
        controls and procedures pursuant to Exchange Act Rule 13a-15.  This
        evaluation was conducted as of December 31, 2005. Based on that evaluation,
        the
        Principal Executive Officer and Principal Financial Officer originally concluded
        that the disclosure controls and procedures were effective as of the end
        of the
        period covered by this report to provide reasonable assurance that (i)
        information required to be disclosed by Blast in the reports that it files
        or
        submits under the Exchange Act is accumulated and communicated to Blast
        management, including the Principal Executive Officer and Principal Financial
        Officer, as appropriate to allow timely decisions regarding required disclosure,
        and (ii) information required to be filed in the reports it files or submits
        is
        recorded, processed, summarized and reported, within the time periods specified
        in the SEC’s rules and forms. As of March 23, 2006, it was determined the
        controls and procedures were not effective because the impairment charge
        to
        Intellectual Property was not recognized and disclosed. The Company and its
        independent accountants have instituted a procedure to thoroughly review
        the
        carrying value of its assets relative to indicated market value to determine
        whether the asset should be impaired. There have been no changes in internal
        control over financial reporting that occurred during the last fiscal quarter
        that have materially affected, or are reasonably likely to materially affect
        our
        internal controls over financial reporting.





The
      Audit
      Committee, along with management, has reinforced internal controls and has
      implemented stringent policies regarding business engagements and
      activities.  These policies and procedures cover the areas of approval and
      authority limits, segregation of duties, internal audit procedures, revenue
      recognition, contractual commitments, documentation and customer acceptance,
      and
      staggered levels of internal checks and balances.  Operating documents,
      such as the “Blast Energy Accounting Operations Manual,” “Employee Handbook” and
“Approval Authorities” have been revised and adopted to describe such policies
      and train personnel. Since the earnings restatement in November 2003, the
      Committee has increased the frequency of its meetings and has directly reviewed
      and approved internal policies and procedures. They have also been directly
      involved in recruiting key personnel, namely a new CFO, a new controller and
      meeting with our auditors.











48


**Audit
      Committee Report**





The
      Audit
      Committee has reviewed and discussed the audited financial statements with
      management. The Audit Committee has discussed with the independent auditors
      the
      matters required to be discussed by SAS 61, as may be modified or supplemented.
      The Audit Committee has received the written disclosures and the letter from
      the
      independent accountants required by Independence Standards Board Standard No.
      1,
      as may be modified or supplemented, and has discussed with the independent
      accountant the independent accountant’s independence. Based on the review and
      discussions conducted by the Audit Committee, the Audit Committee recommended
      to
      the Board of Directors that the audited financial statements be included in
      our
      Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005 for
      filing with the Commission.





Joseph
      J.
      Penbera, PhD - Chairman


John
      R.
      Block


O.
      James
      Woodward III








**Sarbanes-Oxley
      Act**


While
      the
      effective date of Section 404 of the Sarbanes-Oxley Act for non-accelerated
      filers like us has been delayed until fiscal years ending on or after July
      15,
      2006, our Board and management remain committed to implementation. We have
      already completed several steps such as an audit committee charter.





**Part
      III**





**Item
      9. Directors and Executive Officers**


The
      names
      of our directors and executive officers and certain additional information
      with
      respect to each of them are set forth below. The dates set forth under “Year
      First Became Director” below indicate the year in which our directors first
      became a director of our predecessor in interest, Verdisys, Inc.





**Name**
            **Age**
            **Current
                Position**
            **Year
                First Became Director**David
                M. Adams
            54
            President
                & Co-CEO
            N/AJohn
                O’Keefe
            57
            Co-CEO
                & CFO
            N/AJohn
                R. Block
            71
            Director1
            2000Roger
                P. (Pat) Herbert
            59
            Director
            2005Joseph
                J. Penbera, Ph.D.
            58
            Director1
            1999Frederick
                R. Ruiz
            62
            Director
            1999O.
                James Woodward, III
            70
            Chairman
                of the Board1
            1999




1
      -
      Member of Audit Committee





Statements
      below pertaining to the time at which an individual became one of our directors,
      executive officers or founders refers to the time at which the respective
      individual achieved his respective status with our predecessor in interest,
      Verdisys, Inc.





***David
      M. Adams*** has
      served as our President and COO since January 2004, and became Co-CEO in May
      2004. From 1989 to 2000, Mr. Adams served as General Manager of Baker
      Hughes, E&P Solutions, and from 2001 to 2004; he served as President and
      General Manager of Subsea Mudlift Drilling Co., LLC, a subsidiary of Hydril
      Co.,
      LP. Mr. Adams has a degree in petroleum engineering from the University of
      Texas and is a registered Professional Engineer.





***John
      O’Keefe*** has
      served as our Executive Vice President and CFO since January 2004 and became
      Co-CEO in May 2004. From 1999 to 2000, Mr. O’Keefe served as Vice President
      of Investor Relations of Santa Fe Snyder, and from 2000 to 2003, he served
      as
      Executive Vice President and CFO of Ivanhoe Energy. Mr. O’Keefe has a B.A.
      in Business from the University of Portsmouth, is a Chartered Accountant and
      graduated from the Program for Management Development (PMD) from the Harvard
      Graduate School of Business in 1985 under sponsorship of Sun Oil
      Company.





49


***John
      R. Block*** has
      served as a director since May 2000. He currently serves as Senior Legislative
      Advisor to Olsson, Frank and Weeda, P.C., an organization that represents the
      food industry. Prior to that, Mr. Block served as Secretary of Agriculture
      for the U.S. Department of Agriculture from 1981 to 1986. He currently serves
      as
      a director of John Deere and Co. and Hormel Foods Corp.





***Roger
      P. (Pat) Herbert*** was
      elected to the Board at the 2005 Annual Meeting held June 6, 2005. He has
      worked in the energy services business for nearly 30 years. He is currently
      serving as a Director and CEO for JDR Cable Systems (Holdings) Ltd - a position
      he has held since 2002. Prior to that, he served as COO of Petris Technology
      for
      a year and before that he was the Chairman & CEO of GeoNet Energy
      Services, a company he founded in 2000. Prior to 2000 Mr. Herbert had
      worked with International Energy Services, Baker Hughes and Smith International.
      Herbert received his M.B.A. from Pepperdine University, his B.S.E. from
      California State University-Northridge and is a registered professional engineer
      in the State of Texas.





***Joseph
      J. Penbera, Ph.D.*** co-founded our company and has served as a director since its inception in
      April
      1999. Since 1985, he has been a Professor of Business at California State
      University, Fresno, where he previously served as Dean of the Craig School
      of
      Business, and was appointed a Senior Fulbright Scholar in 2005. Dr. Penbera
      was Senior Economist at Westamerica Bank, Regency Bancorp and California Bank
      from 1999 to 2002. Dr. Penbera is on the board of Gottschalks, Inc., a
      publicly traded regional department store and Rug Doctor, Inc. Dr. Penbera
      received his Ph.D. from American University, his M.P.A. from Bernard Baruch
      School and his B.A. from Rutgers University.





***Frederick
      R. Ruiz*** has
      served as a director since its inception in April 1999. He co-founded Ruiz
      Food
      Products, Inc., a privately held frozen food company in 1964 and has served
      as
      Chairman of the Board since 1998. Mr. Ruiz currently serves as a director
      of McClatchy Newspapers, Inc. and Gottschalks, Inc., each of which are publicly
      traded, the California Chamber of Commerce and the Hispanic College Fund. During
      2004, Mr. Ruiz was named to the California University System Board of
      Regents.





***O.
      James Woodward III*** has
      served as a director since its inception in April 1999 and was elected Chairman
      of the Board in May 2004. From 1992 to 1999, Mr. Woodward was an attorney
      in private practice in Fresno, California. From 1995 to 2000, he was Chairman
      of
      MJ Construction Co., a Fresno, California based construction company, and from
      2001 to 2003, he served as a consultant in Fresno, California. Mr. Woodward
      has been in private practice as an attorney since 2003 and is currently Of
      Counsel with Baker, Manock and Jensen. He currently serves on the board of
      Gottschalks, Inc. Mr. Woodward received his M.B.A. from Stanford Graduate
      School of Business and his J.D. from the University of California, Berkeley
      Law
      School.





All
      directors will serve in such capacity until the next annual meeting of our
      shareholders and until their successors have been elected and qualified. The
      officers serve at the discretion of our directors. There are no familial
      relationships among the our officers and directors, nor are there any
      arrangements or understanding between any of our directors or officers or any
      other person pursuant to which any officer or director was or is to be selected
      as an officer or director.





We
      have
      group life, health, hospitalization, medical reimbursement or relocation plans
      in effect. Further, we have a 401(k) savings plan in effect and agreements
      which
      provide compensation on the event of termination of employment or change in
      control of us.





We
      pay
      members of our Board of Directors fees for attendance at Board and other
      committee meetings in the form of cash compensation or similar remuneration,
      and
      reimburse them for any out-of-pocket expenses incurred in connection with our
      business. Currently, each independent director earns compensation of $1,000
      per
      month with an additional $1,000 per month for chairing a committee with the
      exception of the audit committee chair who receives an additional $2,000 per
      month and the Chairman of the Board who receives an additional $3,000 per month.
      Meeting fees are earned at a rate of $1,000 per day for regularly scheduled
      Board meetings and $500 per day for committee meetings. Currently, only the
      Chairman of the Board is receiving cash payments towards fees
      earned.





Additionally,
      the Chairman receives options to purchase 24,000 shares of our common stock
      per
      year and all other independent directors receive options to purchase 12,000
      shares per year.





No
      non-compete or non-disclosure agreements exist between our management and any
      prior or current employer. All key personnel are employees or under contracts
      with us.





Our
      directors are aware of no petitions or receivership actions having been filed
      or
      court appointed as to our business activities, officers, directors, or key
      personnel.





We
      have
      not, nor anticipate making loans to any of our officers, directors, key
      personnel, 10% stockholders, relatives thereof, or controllable
      entities.





None
      of
      our officers, directors, key personnel, or 10% stockholders has guaranteed
      or
      co-signed any bank debt, obligation, or any other indebtedness pertaining to
      us.


50


**Audit
      Committee**


Our
      Board
      of Directors has established an Audit Committee. The Audit Committee meets
      with
      management and our independent auditors to determine the adequacy of internal
      controls and other financial reporting matters. In addition, the committee
      provides an avenue for communication between the independent auditors, financial
      management and the Board. Our Board of Directors have determined that for the
      purpose of and pursuant to the instructions of item 401(e) of regulation S-B
      titled Audit Committee Financial Expert, Joseph J. Penbera, PhD possesses the
      attributes of an audit committee financial expert. Dr. Penbera is one of
      our Board members and is the Chairman of the Audit Committee. Dr. Penbera
      is independent as defined by item 401(e)(ii) of regulation S-B. He receives
      compensation for board service only and is not otherwise an affiliated
      person.








**Code
      of Ethics**


We
      have
      adopted a code of ethics that applies to our senior officers such as the
      principal executive officer, principal financial officer, principal accounting
      officer and persons performing similar functions. A code of ethics relates
      to
      written standards that are reasonably designed to deter wrongdoing and to
      promote:





•
            Honest
                and ethical conduct, including the ethical handling of actual or
                apparent
                conflicts of interest between personal and professional
                relationships;





•
            Full,
                fair, accurate, timely and understandable disclosure in reports and
                documents that are filed with, or submitted to, the SEC and in other
                public communications made by an
                issuer;





•
            Compliance
                with applicable governmental laws, rules and
                regulations;





•
            The
                prompt internal reporting of violations of the code to an appropriate
                person or persons identified by the code; and





•
            Accountability
                for adherence to the code.





Our
      code
      of ethics was filed as Exhibit 14.1 of our 10-KSB for the year ended
      December 31, 2003. Our code of ethics is posted on our website at
      www.blastenergyservices.com. We will provide to any person without charge,
      upon
      written request to our corporate secretary at our principal executive office,
      a
      copy of our code of ethics.








**Item
      10. Executive Compensation**





*Compensation
      of Executive Officers*


Other
      than Mr. Adams, and Mr. O’Keefe, we have no other person that is a
      named executive officer as of December 31, 2005.





*Compensation
      Summary*


The
      following table provides certain summary information concerning compensation
      for
      the last three fiscal years earned by or paid to our CEOs and each of our other
      executive officers who had compensation in excess of $100,000 during the last
      fiscal year (collectively the “Named Executive Officers”).








51


**SUMMARY
      COMPENSATION TABLE**







**Annual
                Compensation**
            **Award(s)**
            **Payouts****Position**
            **Year**
            **Salary**
              **($)**
            **Bonus**
              **($)**
            **Other
                Annual Compensation**
              **($)**
            **Restricted
                Stock Award(s)**
              **($)**
            **Securities
                Underlying Options/SARs**
              **(#)**
            **LTIP
                Payouts**
              **($)**
            **All
                Other Compensation**
              **($)****David
                M. Adams**
            2005
            200,000(1)
            70,000(3)
            0
            0
            400,000
            0
            0President,
                Co-CEO
            2004
            181,146(2)
            50,000
            0
            0
            500,000
            0
            02003
            0
            0
            0
            0
            0
            0
            0**John
                O’Keefe**
            2005
            200,000(1)
            70,000(3)
            0
            0
            400,000
            0
            0EVP,
                Co-CEO, CFO
            2004
            172,500(2)
            40,000
            0
            0
            500,000
            0
            02003
            0
            0
            0
            0
            0
            0
            0




During
      the periods indicated, perquisites for each individual named in the Summary
      Compensation Table aggregated less than 10% of the total annual salary and
      bonus
      reported for such individual in the Summary Compensation Table. Accordingly,
      no
      such amounts are included in the Summary Compensation Table.





(1)
      Includes $15,000 deferred by each officer into 2006.


(2)
      Includes $30,833 and $29,167 for Mr. Adams and Mr. O’Keefe, respectively,
      deferred from 2004 and paid in 2005 in shares of common stock with a value
      of
      $0.50 per share.


(3)
      Paid
      in 200,000 shares of common stock valued at $0.35 per share.





**Option
      Grants**


The
      following table provides certain information with respect to options granted
      to
      our Named Executive Officers named in the Summary Compensation Table during
      the
      fiscal year ended December 31, 2005 under our stock option
      plan:





**OPTION
      GRANTS IN 2005**





**Name**
            **Number
                of Securities Underlying Options Granted**
            **Percent
                of Total Granted to Employees in Fiscal Year**
            **Exercise
                Price**
            **Market
                Price on Date of Grant**
            **Expiration
                Date**David
                M Adams
            400,000
            17%
            $
                0.80
            $
                0.79
            12/31/2015John
                O’Keefe
            400,000
            17%
            $
                0.80
            $
                0.79
            12/31/2015





**Option
      Exercises and Values**


The
      following table sets forth the information concerning option exercises and
      the
      value of unexercised options held by our Named Executive Officers named in
      the
      Summary Compensation Table as of the end of the last fiscal year.





**AGGREGATED
      OPTION EXERCISES IN 2005**


**AND
      OPTION VALUES AT DECEMBER 31, 2005**





**Name**
            **Shares
                Acquired on Exercise**
            **Value
                Realized**
            **Number
                of Securities Underlying Unexercised Options Held at December 31,
                2005**
            **Value
                of Unexercised In The Money Options Held at December 31,
                2005****Exercisable**
            **Unexercisable**
            **Exercisable**
            **Unexercisable**David
                M. Adams
            None
            -
            365,000
            535,000
            $
                0
            $
                0John
                O’Keefe
            None
            -
            330,000
            570,000
            $
                0
            $
                0





Note:
      Value of Unexercised In-The-Money Options Held at December 31, 2005
      computed based on the difference between aggregate fair market value and
      aggregate exercise price. The fair market value of our common stock on
      December 31, 2005 was $0.79, based on the closing price on the OTC Bulletin
      Board.


52


**Compensation
      of Directors**


We
      pay
      our directors fees for attendance at board and other committee meetings in
      the
      form of cash compensation or similar remuneration, and reimburse them for any
      out-of-pocket expenses incurred by them in connection with our
      business.





Currently,
      each independent director earns compensation of $1,000 per month with an
      additional $1,000 per month for chairing a committee with the exception of
      the
      audit committee chair who earns an additional $2,000 per month and the chairman
      of the board who earns an additional $3,000 per month. Meeting fees are earned
      at a rate of $1,000 per day for regularly scheduled Board meetings and $500
      per
      day for committee meetings. Currently, only the Chairman of the Board is
      receiving cash payments toward fees earned. Additionally, the Chairman receives
      options to purchase 24,000 shares of our common stock per year and all other
      independent directors receive options to purchase 12,000 shares per
      year.





**Employment
      Agreements**





*David
      M. Adams*





In
      January 2004, we entered into an employment agreement with David Adams. The
      term
      of the agreement is for one year, and it may be renewed at the pleasure of
      both
      parties. Pursuant to the agreement, Mr. Adams serves as our President and
      COO in exchange for a base salary of $185,000 per year. This base salary has
      since been amended to $200,000 per year. Mr. Adams also received an option
      to purchase 150,000 shares of common stock to vest quarterly over the initial
      term of the employment agreement. Mr. Adams also received a signing bonus
      in the amount of $50,000 on the effective date of the employment agreement,
      and
      is entitled to participate in our annual incentive compensation program with
      a
      potential bonus being up to fifty percent of his base salary.





*John
      O’Keefe*





In
      January 2004, we entered into an employment agreement with John O’Keefe. The
      term of the agreement is for one year, and it may be renewed at the pleasure
      of
      both parties. Pursuant to the agreement, Mr. O’Keefe serves in the position
      of Executive Vice President and CFO in exchange for a base annual salary of
      $175,000 for the first twelve months of his employment, $195,000 for the second
      year of employment and $215,000 for the third year of employment. This base
      salary has since been amended to $200,000 per year. Mr. O’Keefe also
      received an option to purchase 80,000 shares of common stock to vest quarterly
      over the initial term of the employment agreement. Mr., O’Keefe received a one
      time payment of $40,000 as a sign-on bonus entitled to participate in our annual
      compensation program with a potential bonus being up to fifty percent of his
      base salary.








53


**Item
      11. Security Ownership of Certain Beneficial Owners and
      Management**


The
      following table presents certain information regarding the beneficial ownership
      of our common stock as of February 28, 2006 by (i) each person who is known
      by us to own beneficially more than 5% of the outstanding shares of our common
      stock, (ii) each of our directors, (iii) our Named Executive Officers,
      and (iv) all directors and executive officers as a group. Each of the
      persons listed in the table has sole voting and investment power with respect
      to
      the shares listed.





Common
      Stock





**Name
                and Address of Beneficial Owner**
            **Amount
                and Nature of Beneficial Owner**
            **Percentage
                of Class (1)**Berg
                McAfee Companies (2)
              100600
                N. De Anza Blvd., #250
              Cupertino,
                California 95014
            9,882,659(3)
            23.0%Alberta
                Energy Partners (15)
              43
                Brookgreen Circle North
              Montgomery,
                Texas 77356
            4,000,000(14)
            9.3%Eric
                McAfee
              100600
                N. De Anza Blvd., #250
              Cupertino,
                California 95014
            1,142,307(4)(5)
            2.7%David
                M. Adams
              President
                & Co-CEO
            762,099(6)
            1.8%John
                O’Keefe
              Co-CEO
                & CFO
            778,334(7)
            1.8%John
                R. Block
              Director
            234,000(8)
            *Roger
                P. (Pat) Herbert
              Director
            10,000(9)
            *Joseph
                J. Penbera
              Director
            1,088,452(10)
            2.5%Frederick
                R. Ruiz
              Director
            493,382(11)
            1.1%O.
                James Woodward III
              Director
            234,000(12)
            *Total
                Shares of 5% or more Beneficial Ownership
            18,625,234(13)
            43.4%Total
                Shares of Officers and Directors as a group
            3,600,267
            8.4%







·
            Less
                than 1%





*Notes:*





*(1)*
            *Each
                beneficial owner’s percentage ownership is based upon 42,954,507 shares of
                common stock outstanding as of February 28, 2006 and assumes the
                exercise
                or conversion of**all**options, warrants and other convertible securities held by such person
                and
                that are exercisable or convertible within 60 days after February
                28,
                2006.*





*(2)*
            *Berg
                McAfee Companies is controlled by Clyde Berg and Eric McAfee.
                Mr. McAfee is our former
                Vice-Chairman.*





54


*(3)*
            *Includes
                520,014 shares issuable upon exercise of warrants and 50,000 shares
                issuable upon conversion of convertible debt.*





*(4)*
            *Includes
                50,000 shares issuable upon exercise of warrants and 50,000 shares
                issuable upon conversion of convertible debt.*





*(5)*
            *Does
                not include shares beneficially owned by Berg McAfee.*





*(6)*
            *Includes
                463,333 shares issuable upon exercise of options.*





*(7)*
            *Includes
                440,000 shares issuable upon exercise of options.*





*(8)*
            *Includes
                92,000 shares issuable upon exercise of options.*





*(9)*
            *10,000
                shares issuable upon exercise of options.*





*(10)*
            *Includes
                92,000 shares issuable upon exercise of options.*





*(11)*
            *Includes
                92,000 shares issuable upon exercise of options.*





*(12)*
            *Includes
                114,000 shares issuable upon exercise of options.*





*(13)*
            *Includes
                shares beneficially owned by Berg McAfee and Eric McAfee.*





*(14)*
            *Includes
                1,000,000 shares issuable upon exercise of
                warrants*





*(15)*
            *Alberta
                Energy Partners is controlled by Mark McAfee and Mark Alley, who
                have
                investment decision and voting powes. Neither Mark McAfee nor Alberta
                Energy Partners are related to or affiliated with Eric McAfee or
                the Berg
                McAfee Companies.*





**Holders**


As
      of
      February 28, 2006, we had 42,954,507 shares of common stock issued and
      outstanding held by approximately 420 shareholders of record, including
      1,150,000 approved shares arising from the class action settlement.








**Item
      12. Certain Relationships and Related Transactions**





*Energy
      2000 NGC, Inc. and Natural Gas Systems, Inc.*


Energy
      2000 NGC, Inc. (“Energy 2000”) is a subsidiary of Berg McAfee Energy, LLC, which
      is a wholly owned subsidiary of Berg McAfee Companies (“Berg McAfee”). Berg
      McAfee has a 24% beneficial interest in us. Natural Gas Systems, Inc. (“NGS”) is
      an independent company with substantial shareholdings owned by Eric McAfee,
      a
      partner and the managing member of Berg McAfee Companies and one of our former
      directors. Energy 2000 and NGS are beneficially owned 80% and 23% respectively
      by Berg McAfee or Eric McAfee personally.





We
      billed
      $666,250 and $153,960 to Energy 2000 and NGS, respectively, for lateral drilling
      services performed in 2003. We received $397,500 and $130,000, respectively.
      However, for Energy 2000 we had inadequate documentation to substantiate whether
      some of the services were performed. For Energy 2000, we were able to
      substantiate $328,750 of revenue leaving $68,750 in deferred revenue. We billed
      $20,457 and $2,000 to Energy 2000 and NGS, respectively, for expenses incurred
      in 2004. The amount billed to Energy 2000 was deemed uncollectible and the
      amount billed to NGS was collected. In October 2004, we entered into an
      agreement with Berg McAfee Companies, Energy 2000 and Eric McAfee to settle
      several outstanding legal issues. Under the agreement, we are entitled to retain
      the $68,750 and Energy 2000 has waived all claims to the funds.





In
      April
      2003, we signed a drilling service contract with Energy 2000 NGC, Inc., whereby
      Energy 2000 would have paid us a minimum of $1,800,000 for the lateral drilling
      of 45 wells. In September, 2003 we entered into another contract with Energy
      2000 for an additional 57 wells with terms similar to the original contract.
      These contracts have been suspended for lack of payment.





Lateral
      drilling services for these two customers ceased in December 2003 because of
      a
      change in our management.





55


*Berg
      McAfee Companies*


In
      addition to the transactions involving Energy 2000 and NGS, we have had
      additional transactions with Berg McAfee.





In
      December 2005, a commission fee (5% cash) was earned for a private placement
      brokered by Chadbourn Securities. Chadbourn Securities is controlled by Eric
      McAfee, partner in Berg McAfee Companies.





In
      December 2004, Berg McAfee purchased 400,000 shares of our common stock at
      a
      price of $0.50 per share in a private transaction valued at $200,000 with two
      year warrants attached to purchase 400,000 shares of our common stock at a
      price
      of $1.00 per share. The proceeds from that transaction were used for general
      corporate purposes.





In
      October 2004, Berg McAfee loaned us $100,000 under the terms of a convertible
      promissory note bearing interest at 8% and maturing May 31, 2006. In
      connection with the note, we issued warrants to purchase 50,000 shares of common
      stock at $2.00 per share during the term of the note to Berg
      McAfee.





On
      July 15, 2005, Blast entered into an agreement to develop its’ initial
      abrasive jetting rig with Berg McAfee Companies, LLC (“BMC”), a major
      shareholder. The arrangement involves two loans for a total of $1 million to
      fund the completion of the initial rig and sharing in the expected rig revenues
      for a ten-year period. Under the terms of the loan agreement with BMC, cash
      revenues will be shared on the basis of allocating 90 percent to Blast and
      10
      percent to BMC for a ten-year period following repayment. After ten years,
      Blast
      will receive all of the revenue from the rig. The loan, which has a senior
      and
      subordinated structure, carries an average interest rate of 7.4 percent, and
      is
      due September 30, 2006. BMC also has the option to fund an additional three
      rigs under these commercial terms.





*Eric
      McAfee*


In
      addition to the transactions involving Energy 2000, NGS and Berg McAfee, we
      had
      the following transactions with Eric McAfee.





On
      January 19, 2005, we entered into a settlement agreement and mutual release
      with Eric McAfee, Edge Capital Group, Inc. (“Edge”) and certain entities
      affiliated with Robert Frazier, Sr. As part of the settlement, Mr. McAfee
      paid us $625,000 and gave us 300,000 shares of NGS common stock in exchange
      for
      500,000 shares of our common stock. The 300,000 shares of NGS common stock
      was
      collateral for a $375,000 required payment to us. That payment was made in
      April
      2005, and the NGS shares were released. The $625,000 in cash was then
      distributed to Edge along with 750,000 shares of our common stock. At the
      closing of the settlement agreement, the parties executed a mutual release
      and
      dismissed all pending claims and litigation between them.





In
      October 2004, Mr. McAfee loaned us $100,000 under the terms of a
      convertible promissory note bearing interest at 8% and maturing May 31,
      2006. In connection with the note, we issued warrants to purchase 50,000 shares
      of common stock at $2.00 per share during the term of the note to
      Mr. McAfee.





We
      had a
      consulting agreement with Mr. McAfee for $10,000 per month through
      April 30, 2005, with $120,000 due during 2004 and $40,000 in 2005. This
      agreement was cancelled upon his resignation as a director.





*Directors
      and Officers*


In
      June
      2005, we granted options to purchase 12,000 shares of our common stock to the
      following directors: John A. Block, Robert P. Herbert, Joseph J. Penbera and
      Frederick R. Ruiz. We also granted options to purchase 24,000 shares of our
      common stock to O. James Woodward III, Chairman of the Board. The options have
      a
      ten-year term and are exercisable at $0.38 per share, the market price at the
      date of grant. The options vest quarterly over 12 months.





In
      March
      2005, the Board of Directors awarded to certain employees and officers a total
      of 560,000 shares of company stock as a bonus payment in lieu of cash for 2004
      performance. These shares were issued in September 2005.





In
      July
      2004, we granted options to purchase 350,000 shares of our common stock to
      David
      M. Adams and options to purchase 420,000 shares of our common stock to John
      O’Keefe. Mr. Adams is our president and Co-CEO, while Mr. O’Keefe is
      our Co-CEO and CFO. The options have a ten year term and are exercisable at
      $0.90 per share, the market price at date of grant. The options vest quarterly
      over three years.





In
      May
      2004, we granted options to purchase 12,000 shares of our common stock to the
      following directors; John R. Block, Joseph J. Penbera, Frederick R. Ruiz and
      Ronald J. Robinson. We also granted options to purchase 24,000 shares of our
      common stock to O. James Woodward III, Chairman of the Board. The options have
      a
      ten year term and are exercisable at $2.20 per share, the market price at date
      of grant. The options vest quarterly over one year.





56


In
      May
      2004, Messrs. Adams, O’Keefe, Penbera and Ruiz loaned $25,000 to us, while
      Mr. Block loaned $10,000. The notes bear interest at 8% and mature on
      May 14, 2005. In connection with the notes we issued warrants to purchase
      5,000 shares of common stock to Messrs. Adams, O’Keefe, Penbera and Ruiz and
      warrants to purchase 2,000 shares of common stock to Mr. Block. The
      warrants are exercisable at $2.00 per share. The notes were exchanged into
      80,000 shares of common stock for each $25,000 of loan principal in May
      2005.





In
      January 2004, we granted options to purchase 150,000 shares of our common stock
      to Mr. Adams and options to purchase 80,000 shares of our common stock to
      Mr. O’Keefe. We also granted options to purchase 20,000 shares of our
      common stock to the following directors; Messrs. Block, Penbera, Ruiz and
      Woodward. The options have a ten year term and are exercisable at $4.28 per
      share, the market price at date of grant. The options granted to the officers
      vest quarterly over one year, while the options granted to the directors vested
      immediately.





In
      January 2004, we entered into an employment agreement with Mr. O’Keefe to
      serve as CFO. The agreement stipulates compensation of $175,000 in year one,
      $195,000 in year two and $215,000 in year three. The salary has since been
      amended to a base of $200,000. The agreement renews annually.





In
      January 2004, we entered into an employment agreement with Mr. Adams to
      serve as CEO. The agreement provides for a base salary of not less than
      $185,000. The salary has since been amended to a base of $200,000. The agreement
      renews annually.











57


**Item
      13. Exhibits and Reports on Form 10-KSB**





***(a)
      Exhibits***


Index
      of Exhibits





Blast
      Energy, Inc. includes by reference, unless otherwise indicated, the following
      exhibits:





**Number**
            
            **Description**2.1
            
            Agreement
                and Plan of Reorganization, dated April 24, 2003, as amended June
                30,
                2003;
              Filed
                July 18, 2003 with the SEC, Report on Form 8-K3.1
            
            Restated
                Articles of Incorporation dated July 15, 2003
              Filed
                June 29, 2004 with the SEC, Form SB-23.2
            
            Bylaws,
                as amended September 25, 2003
              Filed
                June 29, 2004 with the SEC, Form SB-24.1
            
            Form
                of Subscription Agreement
              Filed
                August 11, 2004 with the SEC, Form 10-QSB4.2
            
            Form
                of Warrant Agreement
              Filed
                August 11, 2004 with the SEC, Form 10-QSB4.3
            
            Form
                of Promissory Note
              Filed
                August 11, 2004 with the SEC, Form 10-QSB4.4
            
            Form
                of Convertible Promissory Note
              Filed
                August 11, 2004 with the SEC, Form 10-QSB4.5
            
            Form
                of Registration Rights Agreement
              Filed
                August 11, 2004 with the SEC, Form 10-QSB4.6
            
            $800,000
                Secured Promissory Note dated July 15, 2005 by and among Blast Energy
                Services, Inc. and Berg McAfee Companies, LLC
              Filed
                July 26, 2005 with the SEC, Form 8-K4.7
            
            $200,000
                Secured Subordinated Promissory Note dated July 15, 2005 by and among
                Blast Energy Services, Inc. and Berg McAfee Companies, LLC
              Filed
                July 26, 2005 with the SEC, Form 8-K10.1
            
            Employment
                Agreement - John O’Keefe, dated January 6, 2004
              Filed
                April 15, 2004 with the SEC, Form 10-KSB10.2
            
            Employment
                Agreement - David Adams, dated December 31, 2003
              Filed
                April 15, 2004 with the SEC, Form 10-KSB10.3
            
            Advisor
                Agreement - Dr. Ron Robinson, amended December 11, 2003
              Filed
                April 15, 2004 with the SEC, Form 10-KSB10.4
            
            Employment
                Agreement - Andrew Wilson, dated June 2003
              Filed
                November 20, 2003 with the SEC, Form 10-QSB, as amended10.5
            
            Amendment
                to License Agreement - Carl W. Landers, dated September 4,
                2003;
              Filed
                October 6, 2003 with the SEC, Report on Form 8-K10.6
            
            Second
                Amendment to License Agreement - Carl W. Landers, dated February
                28,
                2004;
              Filed
                February 28, 2004 with the SEC, Report on Form
                8-K








58





10.7
            
            Technology
                Report, “Landers Technology”, dated October 13, 2003
              Filed
                November 20, 2003 with the SEC, Form 10-QSB, as amended10.8
            
            Subscription
                Agreement, Gryphon Master Fund, L.P., dated October 23, 2003 and
                Registration Rights Agreement dated October 24, 2003
              Filed
                October 27, 2003 with the SEC, Report on Form 8-K10.9
            
            Form
                of Registration Rights Agreement, re: Private Placement Offering
                July/August 2003
              Filed
                December 3, 2003 with the SEC, Form 10-QSB, as amended10.10
            
            Alternative
                Form of Registration Rights Agreement, re: Offering July/August
                2003
              Filed
                December 3, 2003 with the SEC, Form 10-QSB, as amended10.11
            
            Placement
                Agency Agreement, Stonegate Securities, Inc., dated August 26,
                2003
              Filed
                November 20, 2003 with the SEC, Form 10-QSB, as amended10.12
            
            Independent
                Contractor Agreement, Terronne Petroleum Corporation, dated August
                1,
                2003
              Filed
                November 20, 2003 with the SEC, Form 10-QSB, as amended10.13
            
            Master
                Services Contract, Esperada Energy Partners, L.L.C., dated March
                2004
              Filed
                April 15, 2004 with the SEC, Form 10-KSB10.14
            
            Services
                Contract, Maxim Energy, Inc., dated March 2004
              Filed
                April 15, 2004 with the SEC, Form 10-KSB10.15
            
            Services
                Contract, Natural Gas Systems, dated January 2004
              Filed
                April 15, 2004 with the SEC, Form 10-KSB10.16
            
            Contract
                - Natural Gas Systems, “Delhi Field”, dated September 22,
                2003;
              Filed
                November 20, 2003 with the SEC, Form 10-QSB, as amended10.17
            
            Services
                Contract, Amvest Osage, Inc.; dated January 2004
              Filed
                April 15, 2004 with the SEC, Form 10-KSB10.18
            
            Acknowledge
                of amounts owed at September 30, 2003
              re.
                Edge Capital Group contract dated June 16, 2003
              Filed
                November 20, 2003 with the SEC, Form 10-QSB, as amended10.19
            
            Contract
                - Edge Capital Group, “Franklin Field”, dated September 27,
                2003
              Filed
                November 20, 2003 with the SEC, Form 10-QSB, as amended10.20
            
            Contract
                - Edge Capital Group, “Monroe Field”, dated June 16, 2003
              Filed
                August 20, 2003 with the SEC, Form 10-QSB, as amended10.21
            
            Addendum
                to Contract, Edge Capital Group, “Monroe Field”, dated November 19,
                2003
              Filed
                November 20, 2003 with the SEC, Form 10-QSB, as amended10.22
            
            Contract
                - Noble Energy, re: Satellite Services, dated September 17,
                2003
              Filed
                November 20, 2003 with the SEC, Form 10-QSB, as amended10.23
            
            Contract
                - Apache Corp., re: Satellite Services, dated September 11,
                2002
              Filed
                November 20, 2003 with the SEC, Form 10-QSB, as amended10.24
            
            Contract
                - Energy 2000 NGC, “Monroe Field”, dated April 30, 2000
              Filed
                August 20, 2003 with the SEC, Form 10-QSB, as amended10.25
            
            Blast
                Energy, Inc. 2003 Stock Option Plan;
              Filed
                November 20, 2003 with the SEC, Form 10-QSB, as
                amended








59





10.26
            
            Master
                Service Contract - BlueRidge Gas Partners, LLC - June 23,
                2004
              Filed
                August 11, 2004 with the SEC, Form 10-QSB10.27
            
            Master
                Service Contract - VJI Natural Resources, LLC - July 20, 2004
              Filed
                August 11, 2004 with the SEC, Form 10-QSB10.28
            
            Contract/Order
                - U.S. Department of Energy dated June 4, 2004 and Letter of Intent,
                Radial Drilling Optimization Services dated April 14, 2004
              Filed
                August 11, 2004 with the SEC, Form 10-QSB10.29
            
            License
                Agreement - Carl W. Landers, dated April 24, 2003;
              Filed
                October 6, 2003 with the SEC, Report on Form 8-K10.30
            
            License
                Agreement between Alberta Energy Holdings, Inc. and Verdisys, Inc.
                for
                Abrasive Fluid Jet Technology, dated October 27, 2004
              Filed
                November 15, 2004 with the SEC, Form 10-QSB10.31
            
            Agreement
                between Verdisys, Berg McAfee Companies, Energy 2000 NGC, and Eric
                McAfee
              Filed
                November 15, 2004 with the SEC, Form 10-QSB10.32
            
            Settlement
                Agreement and Mutual Release dated January 19, 2005 by and among
                Verdisys,
                Inc., Eric McAfee, Edge Capital Group, Inc. and certain entities
                affiliated with Robert Frazier, Sr.
              Filed
                February 4, 2005 with the SEC, Form 8-K10.33
            
            Assignment
                of License Agreement dated March 8, 2005 by and among Verdisys, Inc.
                and
                Maxim TEP, Inc.
              Filed
                March 14, 2005 with the SEC, Form 8-K10.34
            
            License
                Agreement dated March 15, 2005, by and among Edge Capital Group,
                Inc. or
                its assignee and Verdisys, Inc.
              Filed
                May 5, 2005 with the SEC, Form 10-QSB10.35
            
            Abrasive
                Fluid Jet Rig Construction Agreement dated March 17, 2005, by and
                among
                Verdisys, Inc. and Alberta Energy Holding, Inc.
              Filed
                May 5, 2005 with the SEC, Form 10-QSB10.36
            
            Drilling
                Rig Development and Management Agreement dated April 12, 2005, by
                and
                between Verdisys, Inc. and Advanced Drilling Services, LLC
              Filed
                May 5, 2005 with the SEC, Form 10-QSB10.37
            
            Service
                Proposal Apache Corporation and Verdisys, Inc. dated May 16,
                2005
              Filed
                August 11, 2005 with the SEC, Form 10-QSB10.38
            
            First
                Amendment to the Assignment of License Agreement dated July 18, 2005
                by
                and among Blast Energy Services, Inc. and Maxim TEP, Inc.
              Filed
                July 26, 2005 with the SEC, Form 8-K10.39
            
            Second
                Amendment to the Assignment of License Agreement dated July 21, 2005
                by
                and among Blast Energy Services, Inc. and Maxim TEP, Inc.
              Filed
                July 26, 2005 with the SEC, Form 8-K10.40
            
            Third
                Amendment to the Assignment of License Agreement dated July 25, 2005
                by
                and among Blast Energy Services, Inc. and Maxim TEP, Inc.
              Filed
                July 26, 2005 with the SEC, Form 8-K








60





10.41
            
            Fourth
                Amendment to the Assignment of License Agreement dated July 29, 2005
                by
                and among Blast Energy Services, Inc. and Maxim TEP, Inc.
              Filed
                August 12, 2005 with the SEC, Form 10--QSB10.42
            
            Fifth
                Amendment to the Assignment of License Agreement dated August 5,
                2005 by
                and among Blast Energy Services, Inc. an Maxim TEP, Inc.
              Filed
                August 12, 2005 with the SEC, Form 10-QSB10.43
            
            Letter
                of Intent dated August 5, 2005 by and between Blast Energy Services,
                Inc.
                and RadTech North America
              Filed
                August 12, 2005 with the SEC, Form 10-QSB10.44
            
            Abrasive
                Fluid Jet Technology Purchase Agreement among Blast Energy Services,
                Inc.
                and Alberta Energy Holding, Inc.
              Filed
                August 31, 2005 with the SEC, Form 8-K10.45
            
            Amendment
                #1 to the Construction Agreement among Blast Energy Services, Inc.
                and
                Alberta Energy Holding, Inc.
              Filed
                August 31, 2005 with the SEC, Form 8-K10.46
            
            Amendments
                Six through Ten to the Assignment of License Agreement dated August
                and
                September 205 by and among Blast Energy Services, Inc. and Maxim
                TEP,
                Inc.
              Filed
                September 29. 2005 with the SEC, Registration Statement on Form
                SB-2.10.47
            
            Amendment
                eleven to the Assignment of License Agreement dated September 28,
                2005 and
                Demand letters dated October 13thand 18thby
                and among Blast Energy Services, Inc. and Maxim TEP, Inc.
              Filed
                November 14, 2005 with the SEC, Form 10-QSB10.48
            
            Amendments
                to Senior and Subordinated Secured Promissory Notes dated February
                20,
                2006 by and among Blast Energy Services, Inc and Berg McAfee
                Companies.
              Filed
                February 22, 2006 with the SEC, Form 8K10.49
            
            Amended
                Technology Purchase Agreement with Alberta Energy Partners dated
                August
                31, 2005.
              Filed
                March 27, 2006 with the SEC, Form 8K*31.1
            
            Certification
                of Principal Executive Officer pursuant to Section 302*31.2
            
            Certification
                of Principal Accounting Officer pursuant to Section 302*32.1
            
            Certification
                of Principal Executive Officer pursuant to Section 1350*32.2
            
            Certification
                of Principal Accounting Officer pursuant to Section
                1350





*
            Filed
                herewith





***(b)
      Reports on Form 8-K***


During
      the quarter ending December 31, 2005, we had no filings on Form 8-K with the
      Securities and Exchange Commission.





**Item
      14. Principal Accountants Fees and Services**





**Audit
      Fees**


The
      aggregate fees billed for professional services rendered by the principal
      accountant Malone & Bailey, PC for the audit of our annual financial
      statements and for services provided by the accountant in connection with
      statutory and regulatory filings or engagements were: $53,535 in Fiscal Year
      2005 and $95,970 in Fiscal Year 2004.





No
      other
      fees were billed for services by Malone & Bailey, PC other than those
      covered in the preceding paragraph. No professional fees were billed for
      financial information, tax advice or planning, or system design and
      implementation.





Our
      Audit
      Committee has approved all of the services performed by our principal accountant
      for the fiscal year ending December 31, 2005.





61





**Signatures**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





**Blast
                Energy Services, Inc.**(Registrant)By:
            /s/
                David M. AdamsDavid
                M. Adams
              President
              Co-Chief
                Executive Officer
              Principal
                Executive OfficerDate:
            June
                2, 2006











In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.





By:
            /s/
                David M. Adams
            
            By:
            /s/
                John O’KeefeDavid
                M. Adams
              President
              Co-Chief
                Executive Officer
              Principal
                Executive Officer
            
            
            John
                O’Keefe
              Co-Chief
                Executive Officer
              Chief
                Financial Officer
              Principal
                Accounting OfficerDate:
            June
                2, 2006
            
            Date:
            June
                2, 2006By:
            /s/
                John R. Block
            
            By:
            /s/
                Joseph J. Penbera, Ph.D.John
                R. Block
              Director
            
            
            Joseph
                J. Penbera, Ph.D.
              DirectorDate:
            June
                2, 2006
            
            Date:
            June
                2, 2006By:
            /s/
                Roger P. Herbert
            
            By:
            /s/
                Frederick R. RuizRoger
                P. Herbert
              Director
            
            
            Frederick
                R. Ruiz
              DirectorDate:
            June
                2, 2006
            
            Date:
            June
                2, 2006By:
            /s/
                O. James Woodward IIIO.
                James Woodward III
              DirectorDate:
            June
                2, 2006