**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**






**FORM
      10-QSB/A**






**(Mark
      One)**


**x**   **QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**




**For
      the quarterly period ended June 30, 2005**




** ̈**   **TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT**




**For
      the transition period from** **** **to** **** ****




**333-64122**


**(Commission
      file number)**






**B** **LAST** **E** **NERGY** **S** **ERVICES** **,
      I** **NC** **.**


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








**California**
            **22-3755993****(State
                or other jurisdiction of**
              **incorporation
                or organization)**
            **(IRS
                Employer**
              **Identification
                No.)**




**14550
      Torrey Chase Blvd, Suite 330**


**Houston,
      Texas 77014**


**(Address
      of principal executive offices)**




**(281)
      453-2888**


**(Issuer’s
      telephone number)**






**Verdisys,
      Inc.**


**(Former
      name if changed since last report)**






x Check
      whether the 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.




The
      number of shares outstanding of each of the issuer’s classes of common equity as
      of July 31, 2005 - 35,981,332 shares of common stock




The
      common stock of Blast Energy Services, Inc. is traded on the OTC Bulletin Board
      under the symbol “BESV”.




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













**Explanatory
      Note**





Blast
      Energy Services, Inc (fka Verdisys, Inc.) is filing this amended Quarterly
      Report on Form 10-QSB/A for the quarterly period ended June 30, 2005 (the
“Amended Quarterly Report”), to amend its Quarterly Report on Form 10-QSB for
      the quarterly period ended June 30, 2005 (the “Original Quarterly Report”),
      which was filed with the Securities and Exchange Commission on August 11,
      2005.





The
        Amended Annual Report amends the Company’s financial statements to reflect a
        non-cash adjustment to impair the carrying value of the Company’s Intellectual
        Property as of December 31, 2004, including the associated footnotes to the
        financial statements and disclosures under Part I, Item 1 “Financial
        Statements,” Item 2 “Management’s Discussions and Analysis of Financial
        Condition and Plan of Operation - Forward Looking Statements and Item 3
“Controls and Procedures.” Except for these items no other information in the
        original Report is amended hereby .










**Blast
      Energy Services, Inc.**




**Index**




**Page**
              **Number**PART I.
            FINANCIAL
                INFORMATIONItem 1.
            Financial
                Statements
            2Item 2.
            Management’s
                Discussion and Analysis or Plan of Operation
            12Item 3.
            Controls
                and Procedures
            16Part II.
            OTHER
                INFORMATIONItem 1.
            Legal
                Proceedings
            16Item 2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            16Item 4.
            Submission
                of Matters to a Vote of Security Holders
            17Item 6.
            Exhibits
                and Reports on Form 8-K
            17SIGNATURES
            19











1








**BLAST
      ENERGY SERVICES, INC.**


**(FORMERLY
      VERDISYS, INC.)**




**PART
      I. FINANCIAL INFORMATION**




**ITEM
      1. Financial Statements**




**Page**
              **Number**Balance
                Sheet as of June 30, 2005
            3Statements
                of Operations, for the three and six months ended June 30, 2005 and
                2004
            4Statements
                of Cash Flows, for the six months ended June 30, 2005 and
                2004
            5Notes
                to Financial Statements
            6












2


**BLAST
      ENERGY SERVICES, INC.**


**(FORMERLY
      VERDISYS, INC.)**


**BALANCE
      SHEET**


**(Unaudited)**


**June
      30, 2005**




**Assets**
            
            **(Restated)****Current
                Assets:**Cash
            
            $
            78,604Accounts
                receivable, net of allowance for doubtful accounts of
                $10,736
            
            
            123,512License
                Receivable
            
            
            800,000Other
                current assets
            
            
            76,573Total
                Current Assets
            
            
            1,078,689**Equipment,**net of accumulated depreciation of $72,393
            
            
            132,351**Construction
                in progress**
            
            
            590,335**Drilling
                equipment held for sale**
            
            
            129,000Total
                Assets
            
            $
            1,930,375**Liabilities
                and Stockholders’ Deficit****Current
                Liabilities:**Accounts
                payable
            
            $
            706,055Accrued
                expenses
            
            
            1,165,861Advances
                - related parties
            
            
            249,500Deferred
                revenue
            
            
            246,052Customer
                deposits
            
            
            76,850Notes
                payable - related parties, net of unamortized discount of
                $32,864
            
            
            167,136Notes
                payable - other, net of unamortized discount of $34,743
            
            
            365,257Total
                Current Liabilities
            
            
            2,976,711**Long
                Term Liabilities:**Deferred
                revenue, less current portion
            
            
            27,120Total
                Liabilities
            
            
            3,003,831**Commitments
                & Contingencies****Stockholders’
                Deficit:**Common
                Stock, $.001 par value, 100,000,000 shares authorized; 36,791,727
                shares
                issued and outstanding
            
            
            36,792Additional
                paid-in capital
            
            
            27,729,163Accumulated
                deficit
            
            
            (28,839,411
            )Total
                Stockholders’ Deficit
            
            
            (1,073,456
            )Total
                Liabilities and Stockholders’ Deficit
            
            $
            1,930,375


See
      accompanying notes to financial statements.





3


**BLAST
      ENERGY SERVICES, INC.**


**(FORMERLY
      VERDISYS, INC.)**


**STATEMENTS
      OF OPERATIONS**


**(Unaudited)**




**For
                the Three Months Ended**
              **June
                30,**
            
            **For
                the Six Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****Revenue:**
            
            
            **(Restated)**
            
            
            
            
            
            **(Restated)**Satellite
                Communications
            
            $
            235,973
            
            $
            162,519
            
            $
            508,775
            
            $
            254,269Downhole
                Services
            
            
            4,010
            
            
            158,756
            
            
            18,991
            
            
            272,914Total
                Revenue
            
            
            239,983
            
            
            321,275
            
            
            527,766
            
            
            527,183**Cost
                of Services Provided:**Satellite
                Communications
            
            
            211,315
            
            
            154,598
            
            
            385,118
            
            
            318,676Downhole
                Services
            
            
            118,068
            
            
            167,816
            
            
            237,552
            
            
            423,078Total
                Cost of Services Provided
            
            
            329,383
            
            
            322,414
            
            
            622,670
            
            
            741,754**Gross
                Deficit**
            
            
            (89,400
            )
            
            (1,139
            )
            
            (94,904
            )
            
            (214,571
            )**Operating
                Expenses:**Selling,
                general and administrative
            
            
            487,337
            
            
            903,014
            
            
            1,521,964
            
            
            2,845,463Depreciation
                and amortization
            
            
            20,219
            
            
            136,108
            
            
            49,488
            
            
            265,931Bad
                debts
            
            
            —
            
            
            —
            
            
            10,000
            
            
            —**Operating
                Loss**
            
            
            (596,956
            )
            
            (1,040,261
            )
            
            (1,676,356
            )
            
            (3,325,965
            )**Other
                (Income) Expense:**Interest
                expense
            
            
            45,601
            
            
            6,309
            
            
            96,862
            
            
            39,879Gain
                on sale
            
            
            —
            
            
            —
            
            
            (971
            )
            
            —Interest
                income
            
            
            —
            
            
            (8
            )
            
            (4
            )
            
            (18
            )Total
                other (income) expense
            
            
            45,601
            
            
            6,301
            
            
            95,887
            
            
            39,861**Net
                Loss**
            
            $
            (642,557
            )
            $
            (1,046,562
            )
            $
            (1,772,243
            )
            $
            (3,365,826
            )Basic
                and diluted net loss per share
            
            $
            (0.02
            )
            $
            (0.04
            )
            $
            (0.05
            )
            $
            (0.11
            )Weighted
                average shares outstanding
            
            
            36,067,903
            
            
            31,313,963
            
            
            35,440,245
            
            
            30,716,019




See
      accompanying notes to financial statements.








4


**BLAST
      ENERGY SERVICES, INC.**


**(FORMERLY
      VERDISYS, INC.)**


**STATEMENTS
      OF CASH FLOWS**


**(Unaudited)**




**For
                  the Six Months Ended**
                **June
                  30,****2005**
              
              **2004****Cash
                  Flows From Operating Activities:**
              
              
              **(Restated)**Net
                  loss
              
              $
              (1,772,243
              )
              $
              (3,365,826
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Stock
                  issued for services or litigation
              
              
              1,029,361
              
              
              735,192Option
                  and warrant expense
              
              
              50,000
              
              
              160,198Amortization
                  of note discount
              
              
              64,837
              
              
              4,397Depreciation
                  and amortization
              
              
              49,488
              
              
              265,931Gain
                  on sale of property
              
              
              (971
              )
              
              —Bad
                  debts
              
              
              10,000
              
              
              —Change
                  in working capital items
              
              
              (19,700)
              
              
              818,212Net
                  Cash Used In Operating Activities
              
              
              (589,228
              )
              
              (1,381,896
              )**Cash
                  Flows From Investing Activities:**Construction
                  of equipment
              
              
              (590,335
              )
              
              —Proceeds
                  from Sale of License
              
              
              500,000
              
              
              —Net
                  Cash Used In Investing Activities
              
              
              (90,335
              )
              
              —**Cash
                  Flows From Financing Activities:**Proceeds
                  from sale of stock
              
              
              241,500
              
              
              359,000Proceeds
                  from exercise of options and warrants
              
              
              250
              
              
              81,217Advance
                  on future financing
              
              
              249,500
              
              
              —Proceeds
                  from notes payable to stockholders
              
              
              —
              
              
              235,000Payments
                  on note payable related to license
              
              
              —
              
              
              (500,000
              )Net
                  Cash Provided By Financing Activities
              
              
              491,250
              
              
              175,217Net
                  change in cash
              
              
              (188,313
              )
              
              (1,206,679
              )Cash
                  at beginning of period
              
              
              266,917
              
              
              1,373,627Cash
                  at end of period
              
              $
              78,604
              
              $
              166,948**Non-Cash
                  Transactions:**Conversion
                  of liabilities to common stock
              
              $
              253,287
              
              $
              —Exchange
                  of equipment for customer deposit
              
              $
              175,000
              
              $
              —Exchange
                  of equipment for accounts payable
              
              $
              3,883
              
              $
              —Conversion
                  of notes payable and accrued interest to common stock
              
              $
              200,044
              
              $
              1,184,808Discount
                  on notes payable
              
              $
              —
              
              $
              35,157




See
      accompanying notes to financial statements.








5


**BLAST
      ENERGY SERVICES, INC.**


**(FORMERLY
      VERDISYS, INC.)**


**NOTES
      TO FINANCIAL STATEMENTS**


(Unaudited)




**NOTE
      1 - BASIS OF PRESENTATION**




The
      accompanying unaudited interim financial statements of Blast Energy Services,
      Inc. (“Blast Energy”) have been prepared in accordance with accounting
      principles generally accepted in the United States of America for interim
      financial information and with the instructions to Form 10-QSB. Accordingly,
      they do not include all of the information and footnotes required by generally
      accepted accounting principles for complete financial statements and should
      be
      read in conjunction with the Management’s Discussion and Analysis and the
      audited financial statements and notes thereto contained in Blast Energy’s 2004
      Annual Report filed with the SEC on Form 10-KSB. In the opinion of management,
      all adjustments, consisting of normal recurring adjustments, necessary for
      a
      fair presentation of financial position and the results of operations for the
      interim periods presented have been reflected herein. The results of operations
      for the interim periods are not necessarily indicative of the results to be
      expected for the full year. Notes to the financial statements which would
      substantially duplicate the disclosure contained in the audited financial
      statements for 2004 as reported in the 10-KSB have been omitted.




Effective
      June 6, 2005, the Company changed its name to Blast Energy Services, Inc. from
      Verdisys, Inc. in part to reflect its focus on the energy service business.
      The
      Company 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.




*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 Energy incurred a net loss
      of
      $1.8 million for the six months ended June 30, 2005, has an accumulated deficit
      of $28.8 million and a working capital deficit of $1.9 million as of June 30,
      2005 and has several significant future financial obligations. These conditions
      create an uncertainty as to Blast Energy’s ability to continue as a going
      concern. Blast Energy’s drilling operations have ceased until such time as the
      new generation abrasive jetting rig is deployed. As of June 30, 2005, Blast
      Energy has expended $590,000 towards the rig construction project with a formal
      loan commitment of another $285,000. In addition, management expects to spend
      an
      additional $350,000 towards the rig construction, bringing the total cost of
      the
      rig to approximately $1.2 million. Management is trying to raise additional
      capital. The financial statements do not include any adjustments that might
      be
      necessary if Blast Energy is unable to continue as a going concern.




**NOTE
      3 - STOCK OPTIONS**




Blast
      Energy 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 Energy 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.




In
      the
      second quarter of 2005, Blast Energy granted 50,000 ten-year options to an
      employee with an exercise price at the then market price of $0.38. The options
      vest quarterly over 36 months. There was no intrinsic value associated with
      the
      grant, however, fair value totaled $15,706. Blast Energy also granted 72,000
      ten
      year options to non-employee directors in the second quarter of 2005. The
      options vest over 12 months and have an exercise price of $0.38, the market
      price at the date of grant. There was no intrinsic value associated with the
      grants, however, fair value totaled $22,617.




In
      the
      first quarter of 2005, Blast Energy granted 130,000 ten-year options to
      employees with exercise prices at the then market price. The options vest
      quarterly over 36 months. There was no intrinsic value associated with the
      grants, however, fair value totaled $54,231.








6


**BLAST
      ENERGY SERVICES, INC.**


**(FORMERLY
      VERDISYS, INC.)**


**NOTES
      TO FINANCIAL STATEMENTS**


(Unaudited)




In
      the
      second quarter of 2004, Blast Energy granted 72,000 options to non-employee
      directors with an exercise price of $2.20. The options vested immediately.
      There
      was no intrinsic value associated with the grants, however, fair value totaled
      $156,913.




In
      the
      first quarter of 2004, Blast Energy granted 310,000 ten-year options to officers
      and non-employee directors with exercise prices at the then market price of
      $4.28. The options to officers vest monthly over 12 months and the options
      to
      non-employee directors vest immediately. There was no intrinsic value associated
      with the grants, however, fair value totaled $1,200,623.




The
      following table illustrates the effect on net loss and net loss per share if
      Blast Energy had applied the fair value provisions of SFAS No. 123 to
      stock-based employee compensation.




**For the Three Months Ended**
              **June
                30,**
            
            **For
                the Six Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Net
                loss as reported
            
            $
            (642,557
            )
            $
            (1,046,562
            )
            $
            (1,772,243
            )
            $
            (3,365,826
            )Less:
                stock based compensation determined under fair value based
                method
            
            
            (84,171
            )
            
            (379,610
            )
            
            (165,804
            )
            
            (912,145
            )Pro
                forma net loss
            
            $
            (726,728
            )
            $
            (1,426,172
            )
            $
            (1,938,047
            )
            $
            (4,277,971
            )Basic
                and diluted net loss per common share:As
                reported
            
            $
            (.02
            )
            $
            (.04
            )
            $
            (0.05
            )
            $
            (.11
            )Pro
                forma
            
            $
            (.02
            )
            $
            (.05
            )
            $
            (0.05
            )
            $
            (.13
            )




The
      weighted average fair value of the stock options granted during 2005 and 2004
      was $.37 and $3.09, respectively. Variables used in the Black-Scholes
      option-pricing model include (1) 2.0% risk-free interest rate, (2) expected
      option life is the actual remaining life of the options as of each year end,
      (3)
      expected volatility is 133% and 124%, respectively, and (4) zero expected
      dividends.




**NOTE
      4 - EQUIPMENT & LATERAL DRILLING LICENSE**




As
      of
      June 30, 2005, Blast Energy has expended $590,000 in building it’s first
      abrasive jetting rig and has a formal committment for another $295,000. In
      addition, management expects to spend an additional $350,000 bringing the total
      cost of the rig to approximately $1.2 million.




Blast
      Energy entered into a license agreement on April 23, 2003 for the exclusive
      use
      of the Landers lateral drilling process. On March 8, 2005, Blast Energy 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 Verdisys, Inc. As consideration, Maxim agreed to pay Blast Energy a
      total
      of $1.3 million over four installments: $300,000 on March 9, 2005; $100,000
      on
      March 18, 2005; $500,000 on June 3, 2005 and $400,000 on September 2, 2005.
      As
      of June 30, 2005, Blast Energy has received the two installments due in March
      of
      2005 and $100,000 towards the June installment (See Note 12). Blast Energy
      retains a non-exclusive Landers sublicense provided Blast Energy pays all
      required royalties on which the technology is utilized.




In
      connection with the assignment, Blast Energy sold two of its three drilling
      rigs
      for the release of a customer deposit obligation that Blast Energy owed Maxim.
      Maxim took delivery of the first rig during the first quarter and the second
      rig
      will be delivered when the default is cured. The gain on the sale of the first
      rig of $41,890 has been deferred as Blast Energy will recognize a loss on the
      second rig and the rigs were sold as a package. Blast Energy will continue
      to
      depreciate the second rig until its delivery to Maxim.










7


**BLAST
      ENERGY SERVICES, INC.**


**(FORMERLY
      VERDISYS, INC.)**


**NOTES
      TO FINANCIAL STATEMENTS**


(Unaudited)




**NOTE
      5 - ACCRUED EXPENSES**




Accrued
      expenses at June 30, 2005 consisted of the following:




**Description**
            
            
            **Amount**Gryphon
                stock registration delay penalty
            
            $
            500,000Accrued
                payroll
            
            
            416,027Litigation
                settlement
            
            
            55,000Director
                fees
            
            
            76,500Interest
            
            
            58,824Other
            
            
            59,510$
            1,165,861




**NOTE
      6 - ADVANCES - RELATED PARTIES**




Blast
      Energy had entered into an agreement to develop up to five abrasive jetting
      rigs
      with Advanced Drilling Systems, LLC (“ADS”), a Delaware private investment group
      partially owned by a major Blast Energy shareholder. The arrangement involved
      ADS putting up 100% of the capital investment and the two parties sharing in
      the
      expected revenues from the program. The terms of the agreement include funding
      of Blast Energy’s first abrasive fluid jetting rig for $1.2 million gross and
      $1.1 million net of placement fees. ADS was unable to perform under the
      agreement. As of June 30, 2005, funds of $249,500 received under the agreement
      will be accounted for under a separate financing arrangement described in Note
      12.




The
      $249,500 and an additional $250,000 received in July of 2005 were funded
      primarily by Eric McAfee and Clyde Berg and will be used towards the proceeds
      of
      promissory notes with Berg McAfee Companies, LLC (“BMC”) described in Note 12.
      BMC, Eric McAfee and Clyde Berg are considered significant holders of Blast
      Energy’s common stock.




**NOTE
      7 - DEFERRED REVENUE**




Blast
      Energy bills some of its satellite bandwidth contracts in advance over periods
      ranging from 3 to 36 months. Blast Energy recognizes revenue evenly over the
      contract. Deferred revenue related to satellite services totaled $231,282,
      of
      which $204,162 will be recognized in the next twelve months. Deferred revenue
      also includes $41,890 from the sale of a rig (See Note 4).




**NOTE
      8 - COMMITMENT**




In
      March
      2005, Blast Energy entered into an Abrasive Fluid Jet Rig (“AFJ”) Construction
      Agreement with Alberta Energy Holdings Inc. (“Alberta”) in which Alberta will
      engineer, design, source and build the AFJ Coiled Tubing Rig for a lump-sum
      price of $850,000 (See Note 12). Under the agreement the first $100,000 of
      budget overruns will be borne by Alberta, with additional overruns being the
      responsibility of Blast Energy. As of June 30, 2005, Blast Energy had expended
      $539,000 under the agreement. Blast Energy anticipates the total cost of the
      rig
      under construction to approximate $1.2 million.




**NOTE
      9 - STOCKHOLDERS EQUITY**




In
      June
      2005, Blast Energy increased the number of authorized common shares from 50
      million to 100 million.




In
      June
      2005, Blast Energy issued 592,000 shares of common stock for the payment of
      notes payable and accrued interest that matured on May 15, 2005.




During
      the second quarter of 2005, Blast Energy issued 83,000 shares of common stock
      for the payment of legal fees valued at approximately $32,000. In addition,
      Blast Energy issued 64,897 shares of common stock under a program to compensate
      its directors, employees, contractors and former employees for unpaid wages,
      commissions and director fees of $28,500.







8


**BLAST
      ENERGY SERVICES, INC.**


**(FORMERLY
      VERDISYS, INC.)**


**NOTES
      TO FINANCIAL STATEMENTS**


(Unaudited)




In
      March
      2005, Blast Energy entered into an agreement, subject to court approval, to
      settle the class action lawsuit brought by former shareholders in March 2004
      in
      the U.S. District Court for the Southern District. Under the terms of the
      agreement, Blast Energy would issue to the class 1,150,000 shares of common
      stock valued at $448,500 and pay up to $55,000 in legal and administrative
      fees
      for the plaintiffs.




In
      February 2005, Blast Energy sold 83,333 shares of common stock at a price of
      $0.30 per share in continuation of a dispute settlement with a former
      consultant.




In
      January and February 2005, Blast Energy issued 433,000 shares of common stock
      for $216,500 in a private placement for $0.50 per share. Two year warrants
      to
      purchase 433,000 common shares at $1.00 per share were attached to the common
      stock. Offering costs consisted of 15,800 shares of common stock and warrants
      to
      purchase 15,800 shares of common stock at $1.00 per share.




Effective
      January 19, 2005, Blast Energy, Edge Capital Group, Inc. (“Edge”), certain
      entities affiliated with Edge and Eric McAfee entered into a settlement
      agreement and mutual release to fully settle and resolve the disputes between
      them. As part of the settlement, Blast Energy issued an aggregate of 750,000
      shares of common stock along with warrants to purchase 750,000 shares of common
      stock to Edge. 250,000 shares were issued during October 2004 and the remaining
      500,000 shares were issued in 2005 and were valued at $240,000.




In
      January 2005, Blast Energy issued 16,000 shares of common stock for the payment
      of leasing fees valued at approximately $8,000. In addition, 10,666 shares
      of
      common stock, valued at $5,226, were issued to settle unpaid compensation issues
      with two former employees.




During
      the first quarter of 2005, Blast Energy issued 25,000 shares of common stock
      pursuant to warrant exercises for a total consideration of $250. Blast Energy
      also issued 374,340 shares of common stock under a program to compensate its
      directors, employees, contractors and former employees for unpaid wages,
      commissions and director fees of $187,169 accrued in 2004.




**NOTE
      10 - LITIGATION**




In
      March
      2005, Blast Energy entered into an agreement, subject to court approval, to
      settle the class action lawsuit brought by former shareholders in March 2004
      in
      the U.S. District Court for the Southern District. Under the terms of the
      agreement, Blast Energy would issue to the class 1,150,000 shares of common
      stock and pay up to $55,000 in legal and administrative fees for the plaintiffs.




In
      February 2005, Blast Energy 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 Energy is obligated to pay liquidated damages of $500,000 to Gryphon
      on or
      before September 30, 2005. Additionally, Gryphon has agreed to abate their
      remaining claims and related discovery in the lawsuit against Blast Energy
      until
      after September 30, 2005.




Effective
      January 19, 2005, Blast Energy, Edge, certain entities affiliated with Edge
      and
      Eric McAfee entered into a settlement agreement and mutual release to fully
      settle and resolve the disputes. As part of the settlement, Blast Energy issued
      an aggregate of 750,000 shares of common stock along with warrants to purchase
      750,000 shares of common stock to Edge. 250,000 shares were issued during
      October 2004 and the remaining 500,000 shares were issued in 2005. In addition,
      Blast Energy agreed to provide Edge a drilling rig to provide certain lateral
      drilling services in return for a fee per well and a share of the revenues
      generated from each well drilled. Upon closing of the settlement, Blast Energy
      will sublicense the lateral drilling technology to Edge for a period of five
      years and for the purpose of marketing and using the technology and trade
      secrets within North America for the sole purpose of entering into production
      sharing transactions or joint ventures in oil and gas production. As part of
      the
      settlement, the parties to the agreement have agreed to a mutual release and
      to
      dismiss all pending claims and litigation upon performance of the obligations
      in
      the settlement agreement. The remaining obligations under the settlement
      agreement including the payment of $375,000 to Blast Energy by Energy 2000,
      a
      McAfee company, were performed and the lawsuit was closed in the second quarter
      of 2005. The settlement agreement was reflected in the 2004 Statement of
      Operations, but had a minimal impact as the settlement costs were offset by
      the
      write-off of previously accrued liabilities.










9


**BLAST
      ENERGY SERVICES, INC.**


**(FORMERLY
      VERDISYS, INC.)**


**NOTES
      TO FINANCIAL STATEMENTS**


(Unaudited)




**NOTE
      11 - BUSINESS SEGMENTS**




Blast
      Energy has two reportable segments: (1) downhole services 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 Energy evaluates performance and allocates resources based on profit
      or
      loss from operations before other income or expense and income taxes. The table
      below reports certain financial information by reportable segment:




**For the Three Months Ended**
              **June
                30,**
            
            **For
                the Six Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Revenues
                from external customersDownhole
                services
            
            $
            4,010
            
            $
            158,756
            
            $
            18,991
            
            $
            272,914Satellite
                communications
            
            
            235,973
            
            
            162,519
            
            
            508,775
            
            
            254,269$
            239,983
            
            $
            321,275
            
            $
            527,766
            
            $
            527,183Operating
                profit (loss) 1Downhole
                services
            
            $
            (223,152
            )
            $
            (158,977
            )
            $
            (456,664
            )
            $
            (1,165,096
            )Satellite
                communications
            
            
            23,880
            
            
            3,663
            
            
            72,097
            
            
            (69,665
            )Corporate
            
            
            (477,969
            )
            
            (884,947
            )
            
            (1,460,953
            )
            
            (2,091,204
            )$
            (677,241
            )
            $
            (1,040,261
            )
            $
            (1,845,520
            )
            $
            (3,325,965
            )




1-   Operating
      loss is total operating revenue less operating expenses, selling general and
      administrative expenses, depreciation and amortization, bad debts and does
      not
      include other income and expense or income taxes.




**NOTE
      12 - SUBSEQUENT EVENTS**




Blast
      Energy and Maxim have entered into an amended contract, which resulted in a
      $275,000 increase in the value of original Assignment of License Agreement
      (“Assignment”) dated March 8, 2005. The terms of the original Assignment
      required Maxim to make a $500,000 payment on June 3, 2005 and any delay of
      payment beyond a ten day period of the contracted payment date would cause
      a
      default of the contract which could be cured during a 45 day grace period if
      Maxim made a payment of $550,000 before the grace period expired. Maxim was
      unable to cure the default within the grace period, but Blast Energy and Maxim
      have entered into several amendments to extend the period to cure the default.
      The amendments have resulted in an extension of the due date until August 12,
      2005, increased the final payment due on September 2, 2005 from $400,000 to
      $500,000 and assessed delinquency fees. As of August 5, 2005, Maxim has paid
      $135,000 towards the June 3, 2005 payment and has paid $175,000 in delinquency
      fees.




On
      July
      15, 2005, Blast Energy entered into an agreement to develop its initial abrasive
      jetting rig with Berg McAfee Companies (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 August 11, 2005, Blast Energy had received $600,000 in funding
      under this agreement and is scheduled to receive the balance in several payments
      before the end of September 2005. Previously announced negotiations to develop
      up to five abrasive jetting rigs in a profit sharing agreement with Advanced
      Drilling Systems did not materialize. Under the terms of the loan agreement
      with
      BMC, cash revenues will be shared on the basis of allocating 90 percent to
      Blast
      Energy and 10 percent to BMC for a ten-year period following repayment. After
      ten years, Blast Energy will receive all of the revenue from the rig. The loan,
      secured by the rig, has a senior and subordinated structure, carries an average
      interest rate of 7.4% and is due September 15, 2006. BMC also has the option
      to
      fund an additional three rigs under these commercial terms.










10


**BLAST
      ENERGY SERVICES, INC.**


**(FORMERLY
      VERDISYS, INC.)**


**NOTES
      TO FINANCIAL STATEMENTS**


(Unaudited)




On
      August
      5, 2005, Blast Energy entered into a letter of intent to contribute its interest
      in the Landers lateral drilling technology into a joint venture shared equally
      with RadTech North America (“RadTech”). Blast Energy would contribute its
      Landers sublicense for North America and RadTech would contribute management
      and
      drilling operations. The parties have agreed to enter into mutually acceptable
      documentation for the joint venture and the letter of intent is subject to
      Board
      approval of both parties.




On
      August
      8, 2005, Blast Energy entered into a Term Sheet with Alberta Energy to purchase
      up to 50% of the abrasive jetting technology, for which Blast owns a worldwide
      exclusive license. Terms included the award to Alberta Energy of 3 million
      additional shares of Blast Energy with registration rights and a commitment
      to
      pay $2 million in future cash from potential sale of sublicense revenues. The
      parties also agreed to a number of modifications to the licensing and rig
      construction agreements. Key terms were an expanded definition of the
      technology, pricing of 750,000 warrants at $0.45, amended royalty rates, a
      new
      provision for each owner of the IP to offer a right of first refusal to the
      other owner to enter into new business ventures using the technology. Another
      new provision gives Alberta the option to build future rigs at invoice cost
      plus
      $50,000 per rig as well as adjusting the contract cost of the current rig by
      $50,000 to $900,000. Alberta has undertaken to deliver the rig on a best efforts
      basis by October 1, 2005. The Term Sheet is subject to board approvals and
      final
      documentation.




**NOTE
      13 - RESTATEMENT**





The
        2004 financial statements originally included the value of the
        intellectual property at cost because the net present value of the future
        cash flows exceeded the acquisition cost. During 2005, Blast agreed to
        sell the lateral drilling license for $1.3 million in cash over a period of
        time. On March 23, 2006, Blast determined that the asset valuation
        conclusions were incorrect and that the sales agreement established the asset
        value of the intellectual property. Consequently, the value of the lateral
        drilling license was written down with a non-cash impairment charge of
        approximately $3.2 million and the financial statements were
        restated.





The
      accounts affected by the restatement are:








**As
                  reported**
              
              **Adjustments**
              
              **As
                  restated**License
                  asset
              
              $
              4,525,000
              
              $
              (4,525,000
              )
              $
              -Accumulated
                  amortization
              
              
              (717,790
              )
              
              717,790
              
              
              -Net
                  Book Value
              
              
              3,807,210
              
              
              (3,807,210
              )
              
              -License
                  receivable
              
              
              -
              
              
              800,000
              
              
              800,000Accumulated
                  deficit
              
              
              (25,832,201
              )
              
              (3,087,210
              )
              
              (28,839,411
              )Depreciation
                  & amortization
              
              
              102,410
              
              
              (75,228
              )
              
              27,183











11


**Item
      2. Management’s Discussion and Analysis of Financial Condition and Plan of
      Operations**




**Forward-Looking
      Statements**




All
      statements that are included in this Quarterly 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, the following risk factors: 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 our 2004 Annual Report on Form 10-KSB.




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. In 2003, with the acquisition of exclusive
      rights to a proprietary horizontal drilling process we began to deploy lateral
      drilling services in the field. In 2004, it became apparent that this process
      was limited in its application and 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 new capabilities, we continue to believe that we
      can
      deliver a valuable and cost effective production enhancement service to onshore
      oil and gas producers, particularly operators of marginal wells. The goal is
      to
      make this new service reliably predictable and consistently dependable for
      our
      customers. We are currently building our first new generation lateral drilling
      rig with the capability of abrasive fluid jetting by use of much higher
      hydraulic horsepower. Following favorable results and customer acceptance of
      this initial rig’s capabilities, we plan to order the construction of additional
      rigs and significantly grow the deployment of our abrasive jetting service.
      Funding for developing this abrasive cutting capability into commercial
      operation is expected to come from current and future capital commitments as
      well as from the proceeds of the assignment of the exclusive rights acquired
      in
      2003. No assurances can be given that the capital from these sources will be
      adequate. If this is the case, we will be required to obtain additional capital
      from equity markets. No assurances can be given that such capital will be
      available or that the terms will be acceptable.




**Three
      Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004**




*Satellite
      Communications*




Satellite
      Communications’ revenues increased by $74,000 to $236,000 for the quarter ended
      June 30, 2005 compared to $162,000 for the quarter ended June 30, 2004. The
      increase in revenue can be attributed to both new customers and an increase
      in
      service provided to existing customers. The operating margin from Satellite
      Communications improved by $17,000 to a margin of $25,000 for the quarter ended
      June 30, 2005 compared to $8,000 for the quarter ended June 30, 2004. As this
      segment of our business grows, it benefits from economies of scale.




As
      hardware is sold, we recognize the revenue in the period it is delivered to
      the
      customer. There were no significant hardware sales during the quarters ended
      March 31, 2005 and 2004. We bill some of our bandwidth contracts in advance,
      but
      recognize the revenue over the period benefited.




*Downhole
      Services*




Downhole
      Services’ revenues decreased by $155,000 to $4,000 for the quarter ended June
      30, 2005 compared to $159,000 for the quarter ended June 30, 2004. The revenue
      in 2005 is generated from the direct financing lease of one of our older rigs.
      Our drilling operations have ceased until such time as our new generation
      abrasive jetting rig is deployed, currently projected to occur in the third
      quarter of 2005. The revenues earned for the quarter ended March 31, 2004 were
      primarily associated with the Amvest Osage and Maxim Energy contracts and
      recovery of certain third party expenses from related parties.




The
      operating margin from Downhole Services decreased by $105,000 to a loss of
      $114,000 for the quarter ended June 30, 2005 compared to a loss of $9,000 for
      the quarter ended June 30, 2004. The expenses for the quarter ended June 30,
      2005 were primarily labor related as we continued the supervision of the
      construction of the new abrasive fluid jetting rig. Our negative margin results
      for the second quarter of 2004 highlighted the problems of consistency and
      reliability that we encountered with the old technology.









12


*Selling,
      General and Administrative*





Selling,
      general and administrative (“SG&A”) expenses decreased by $416,000 to
      $487,000 for the quarter ended June 30, 2005 compared to $903,000 for the
      quarter ended June 30, 2004. The following table details major components of
      SG&A expense over the periods.




**For The Three Months Ended**
              **June
                30,**
            
            **Increase**
              **(Decrease)****2005**
            
            **2004**Payroll
                and related costs
            
            $
            142
            
            $
            212
            
            $
            (70
            )Option
                and warrant expense
            
            
            25
            
            
            69
            
            
            (44
            )Legal
                fees
            
            
            124
            
            
            132
            
            
            (8
            )External
                services
            
            
            90
            
            
            135
            
            
            (45
            )Insurance
            
            
            50
            
            
            114
            
            
            (64
            )Liquidated
                damages
            
            
            —
            
            
            150
            
            
            (150
            )Travel
                & entertainment
            
            
            12
            
            
            30
            
            
            (18
            )Office
                rent
            
            
            8
            
            
            7
            
            
            1Communications
            
            
            4
            
            
            17
            
            
            (13
            )Miscellaneous
            
            
            32
            
            
            37
            
            
            (5
            )$
            487
            
            $
            903
            
            $
            (416
            )




Due
      to
      the lack of drilling activity during the second quarter of 2005, we focused
      on
      technology development and lowering our controllable overhead, which has
      resulted in a decrease in payroll, external services, travel and entertainment,
      communications and miscellaneous. The decrease in insurance expense can be
      attributable to a reduction in the premium for our directors and officers
      liability coverage. The liquidated damages incurred in the second quarter of
      2004 related to our delay in registering shares that we sold in 2003.




*Net
      Loss*




The
      net
      loss for the second quarter of 2005 decreased to $643,000 from $1.0 million
      for
      the corresponding period in 2004. The decrease is attributable to the major
      revenue and expense 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 the tax benefits will not be realized.




**Six
      Months Ended June 30, 2005 Compared to the Six Months Ended June 30, 2004**




*Satellite
      Communications* **




Satellite
      Communications’ revenues increased by $255,000 to $509,000 for the six months
      ended June 30, 2005 compared to $254,000 for the six months ended June 30,
      2004.
      The increase in revenue can be attributed to both new customers and an increase
      in service provided to existing customers. The operating margin from Satellite
      Communications improved by $188,000 to a margin of $124,000 for the six months
      ended June 30, 2005 compared to a loss of $64,000 for the six months ended
      June
      30, 2004. As this segment of our business grows, it benefits from economies
      of
      scale.




As
      hardware is sold, we recognize the revenue in the period it is delivered to
      the
      customer. There were no significant hardware sales during the six months ended
      June 30, 2005 and 2004. We bill some of our bandwidth contracts in advance,
      but
      recognize the revenue over the period benefited.




*Downhole
      Services* **




Downhole
      Services’ revenues decreased by $254,000 to $19,000 for the six months ended
      June 30, 2005 compared to $273,000 for the six months ended June 30, 2004.
      The
      revenue in 2005 is generated from the direct financing lease of one of our
      older
      rigs. Our drilling operations have ceased until such time as our new generation
      abrasive jetting rig is deployed, currently projected to occur in the third
      quarter of 2005. The revenues earned for the six months ended June 30, 2004
      were
      primarily associated with the Amvest Osage and Maxim Energy contracts and
      recovery of certain third party expenses from related parties.







13


The
      operating margin from Downhole Services decreased by $69,000 to a loss of
      $219,000 for the six months ended June 30, 2005 compared to a loss of $150,000
      for the six months ended June 30, 2004. The expenses for the six months ended
      June 30, 2005 were primarily labor related as we redesigned and improved the
      existing process as well as designing and supervising the construction of the
      new abrasive fluid jetting rig. Our negative margin results for the first six
      months of 2004 highlighted the problems of consistency and reliability that
      we
      encountered with the old technology.




*Selling,
      General and Administrative* **




SG&A
      expenses decreased by $1.3 million to $1.5 million for the six months ended
      June
      30, 2005 compared to $2.8 million for the six months ended June 30, 2004. The
      following table details major components of SG&A expense over the periods.




**For
                The Six Months Ended**
              **June
                30,**
            
            **Increase**
              **(Decrease)****2005**
            
            **2004**Payroll
                and related costs
            
            $
            426
            
            $
            473
            
            $
            (47
            )Option
                and warrant expense
            
            
            50
            
            
            149
            
            
            (99
            )License
                fee
            
            
            —
            
            
            735
            
            
            (735
            )Legal
                fees
            
            
            182
            
            
            263
            
            
            (81
            )External
                services
            
            
            192
            
            
            377
            
            
            (185
            )Insurance
            
            
            92
            
            
            332
            
            
            (240
            )Liquidated
                damages
            
            
            —
            
            
            400
            
            
            (400
            )Travel
                & entertainment
            
            
            18
            
            
            79
            
            
            (61
            )Office
                rent
            
            
            17
            
            
            44
            
            
            (27
            )Communications
            
            
            5
            
            
            36
            
            
            (31
            )Class
                action settlement
            
            
            503
            
            
            —
            
            
            503Miscellaneous
            
            
            37
            
            
            (43
            )
            
            80$
            1,522
            
            $
            2,845
            
            $
            (1,323
            )




Due
      to
      the lack of drilling activity during the first six months of 2005, we focused
      on
      technology development and lowering our controllable overhead, which has
      resulted in a decrease in payroll, external services, travel and entertainment,
      office rent, communications and miscellaneous. The license fee during the first
      six months of 2004 was the result of a renegotiation of the Landers note payable
      and the calculation of license fees payable. The decrease in insurance expense
      can be attributable to a reduction in the premium for our directors and officers
      liability coverage. The liquidated damages incurred in 2004 relate to our delay
      in registering shares that we sold in 2003. The class action settlement expense
      is the value of the 1,150,000 shares of our common stock to be issued to settle
      the lawsuit and the plaintiff’s estimated legal fees of $55,000.




*Net
      Loss* **




The
      net
      loss for the first six months of 2005 decreased to $1.8 million from $3.4
      million for the corresponding period in 2004. The decrease is attributable
      to
      the major revenue and expense 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 the tax benefits will not be realized.




**Liquidity
      and Capital Resources**




As
      of
      June 30, 2005, our cash balance was $79,000 compared to a cash balance of
      $267,000 at December 31, 2004 and $167,000 at June 30, 2004. We continue to
      utilize cash, notes and stock to fund operations. On March 8, 2005 we agreed
      to
      sell our master license for the Landers lateral drilling technology for $1.3
      million in cash to be received over four installments. However, we have retained
      a sub-license in the Landers technology. During the six months ended June 30,
      2005, we received $500,000 of the $1.3 million. We have entered into an amended
      contract with Maxim, which resulted in a $275,000 increase in the value of
      original Assignment of License Agreement (“Assignment”). The terms of the
      original Assignment required Maxim to make a $500,000 payment on June 3, 2005
      and any delay of payment beyond a ten day period of the contracted payment
      date
      would cause a default of the contract which could be cured during a 45 day
      grace
      period if Maxim made a payment of $550,000 before the grace period expired.
      Maxim was unable to cure the default within the grace period, but Blast Energy
      and Maxim have entered into several amendments to extend the period to cure
      the
      default. The amendments have resulted in a extension of the due date until
      August 12, 2005, increased the final payment due on September 2, 2005 from
      $400,000 to $500,000 and assessed delinquency fees. As of August 5, 2005, Maxim
      has paid $135,000 towards the June 3, 2005 payment and has paid $175,000 in
      delinquency fees.


14


We
      have
      used these proceeds and loan advances from Berg McAfee to fund the construction
      of our new generation drilling rig. As of June 30, 2005, we had expended
      $590,000 towards the rig construction project and have a formal commitment
      of
      another $285,000. In addition, we expect to spend an additional $350,000 towards
      the rig construction, bringing the total cost of the rig to approximately $1.2
      million.




We
      have
      $350,000 of convertible notes that become 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 option of the holder and at the rate
      of
      one share for each $2.00 of principal and interest outstanding.




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 are obligated to pay liquidated
      damages of $0.5 million to Gryphon on or before September 30, 2005. Our current
      cash position is not sufficient to meet this obligation. Additional financing
      or
      positive cash flow from operations will be required to satisfy this obligation.
      No assurances can be given that such financing will be available, or, if
      available, on acceptable terms.




Our
      continued 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
      additional financing in the short term to continue in operation and fund future
      growth. We currently plan to raise additional financing. 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 17 to the December 31,
      2004 Financial Statements). The company has arranged interim debt financing
      from
      Berg McAfee to build the initial rig. However, if we are unable to arrange
      new
      financing or generate sufficient cash flow from new business arrangements,
      we
      will be unable to continue in our current form and will be forced to restructure
      or seek creditor protection.




For
      the
      three and six months ended June 30, 2005, we had capital expenditures of
      $340,000 and $590,000, respectively as compared to no capital expenditures
      for
      the three and six months ended June 30, 2004. We expect to have capital
      expenditures of approximately $500,000 for the third quarter of 2005 relating
      to
      the construction of the abrasive jetting rig (see Note 8). ****




**Subsequent
      Events**




Blast
      Energy and Maxim have entered into an amended contract, which resulted in a
      $275,000 increase in the value of original Assignment of License Agreement
      (“Assignment”) dated March 8, 2005. The terms of the original Assignment
      required Maxim to make a $500,000 payment on June 3, 2005 and any delay of
      payment beyond a ten day period of the contracted payment date would cause
      a
      default of the contract which could be cured during a 45 day grace period if
      Maxim made a payment of $550,000 before the grace period expired. Maxim was
      unable to cure the default within the grace period, but Blast Energy and Maxim
      have entered into several amendments to extend the period to cure the default.
      The amendments have resulted in an extension of the due date until August 12,
      2005, increased the final payment due on September 2, 2005 from $400,000 to
      $500,000 and assessed delinquency fees. As of August 5, 2005, Maxim has paid
      $135,000 towards the June 3, 2005 payment and has paid $175,000 in delinquency
      fees.




On
      July
      15, 2005, Blast Energy entered into an agreement to develop its initial abrasive
      jetting rig with Berg McAfee Companies (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 August 11, 2005, Blast Energy had received $600,000 in funding
      under this agreement and is scheduled to receive the balance in several payments
      before the end of September 2005. Previously announced negotiations to develop
      up to five abrasive jetting rigs in a profit sharing agreement with Advanced
      Drilling Systems did not materialize. Under the terms of the loan agreement
      with
      BMC, cash revenues will be shared on the basis of allocating 90 percent to
      Blast
      Energy and 10 percent to BMC for a ten-year period following repayment. After
      ten years, Blast Energy will receive all of the revenue from the rig. The loan,
      secured by the rig, has a senior and subordinated structure, carries an average
      interest rate of 7.4 % and is due September 15, 2006. BMC also has the option
      to
      fund an additional three rigs under these commercial terms.




On
      August
      5, 2005, Blast Energy entered into a letter of intent to contribute its interest
      in the Landers lateral drilling technology into a joint venture shared equally
      with RadTech North America (“RadTech”). Blast Energy would contribute its
      Landers sublicense for North America and RadTech would contribute management
      and
      drilling operations. The parties have agreed to enter into mutually acceptable
      documentation for the joint venture and the letter of intent is subject to
      Board
      approval of both parties.


15


On
      August
      8, 2005, Blast Energy entered into a Term Sheet with Alberta Energy to purchase
      up to 50% of the abrasive jetting technology, for which Blast owns a worldwide
      exclusive license. Terms included the award to Alberta Energy of 3 million
      additional shares of Blast Energy with registration rights and a commitment
      to
      pay $2 million in future cash from potential sale of sublicense revenues. The
      parties also agreed to a number of modifications to the licensing and rig
      construction agreements. Key terms were an expanded definition of the
      technology, pricing of 750,000 warrants at $0.45, amended royalty rates, a
      new
      provision for each owner of the IP to offer a right of first refusal to the
      other owner to enter into new business ventures using the technology. Another
      new provision gives Alberta the option to build future rigs at invoice cost
      plus
      $50,000 per rig as well as adjusting the contract cost of the current rig by
      $50,000 to $900,000. Alberta has undertaken to deliver the rig on a best efforts
      basis by October 1, 2005. The Term Sheet is subject to board approvals and
      final
      documentation.




**Item
      3. Controls and Procedures**




Based
        on
        management’s evaluation as of the end of the period covered by this report, our
        Principal Executive Officer and Principal Financial Officer originally concluded
        that the disclosure controls and procedures were effective in ensuring 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 has
        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 our internal control over financial reporting during
      the
      period covered by this report that have materially affected, or are reasonably
      likely to materially affect, our internal control over financial reporting.




**Part
      II. OTHER INFORMATION**




**Item
      1. Legal Proceedings**




Full
      disclosure of prior or other legal activities may be found in the audited
      financial statements and notes thereto contained in our 2004 Annual Report
      filed
      with the SEC on Form 10-KSB, and in the Quarterly Report on Form 10-QSB for
      the
      quarter ended March 31, 2005, and in the notes to the financial statements
      in this report.




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




In
      June
      2005, we issued 592,000 shares of common stock for the payment of notes payable
      and accrued interest that matured on May 15, 2005.




During
      the second quarter of 2005, we issued 83,000 shares of common stock for the
      payment of legal fees valued at approximately $32,000. In addition, we issued
      64,897 shares of common stock under a program to compensate our directors,
      employees, contractors and former employees for unpaid wages, commissions and
      director fees of $28,500.




No
      funds
      were raised by the issuance of equity securities during the quarter ended June
      30, 2005. All of the stock issuances resulted in the removal of recorded
      liabilities.




16


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




We
      conducted our Annual Meeting of Shareholders on June 6, 2005 and disclose herein
      the final voting results:




**YES**
            **WITHHELD AUTHORITY***Proposal
                One*-
                Election of Directors (voted upon as a block):John
                R. Block,
            21,699,672
            502,405Roger
                P. (Pat) Herbert,
            21,699,672
            502,405Joseph
                J. Penbera, Ph.D.,
            21,699,672
            502,405Frederick
                R. Ruiz,
            21,699,672
            502,405O.
                James Woodward III
            21,699,672
            502,405**YES**
            **NO**
            **ABSTAIN***Proposal
                Two*-
                Increase the number of authorized shares of common stock to
                100,000,000:
            20,629,356
            1,111,101
            461,620*Proposal
                Three*-
                Change the Company’s name to Blast Energy Services, Inc:
            20,667,840
            1,090,617
            443,620*Proposal
                Four*-
                Approval of Independent Public Accountant (Malone & Bailey,
                PC):
            20,669,173
            15,333
            1,517,571








**Item
      6. Exhibits and Reports on Form 8-K**




Reports
      on Form 8-K




During
      the period ending March 31, 2005 and through the date of the filing of this
      Quarterly Report on Form 10-QSB; Verdisys, Inc. had filed the following Reports
      on Form 8-K with the Securities and Exchange Commission on the dates indicated:




June 10, 2005
            Press
                Releases - Voting results of annual meeting of shareholders and new
                trading symbol.April
                7, 2005
            Press
                Release - Closing of Edge Capital Group, Inc. lawsuit settlement
                and
                receipt of $375,000 in cash.




**Exhibits**4.1
            $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, Report on Form 8-K4.2
            $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, Report on Form 8-K10.1
            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, Report on Form 8-K10.2
            Assignment
                of License Agreement dated March 8, 2005 by and among Verdisys, Inc.
                and
                Maxim TEP, Inc.;
              Filed
                March 14, 2005 with the SEC, Report on Form 8-K10.3
            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, Report on Form 10-QSB.


17





10.4
            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, Report on Form 10-QSB.10.5
            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, Report on Form 10-QSB.10.6
            Service
                Proposal Apache Corporation and Verdisys, Inc. dated May 26,
                2005.10.7
            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, Report on Form 8-K10.8
            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, Report on Form 8-K10.9
            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, Report on Form 8-K10.10
            Fourth
                Amendment to the Assignment of License Agreement dated July 29, 2005
                by
                and among Blast Energy Services, Inc. and Maxim TEP,
                Inc.10.11
            Fifth
                Amendment to the Assignment of License Agreement dated August 5,
                2005 by
                and among Blast Energy Services, Inc. and Maxim TEP,
                Inc.10.12
            Letter
                of Intent dated August 5, 2005 by and between Blast Energy Services,
                Inc.
                and RadTech North America.*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










18




**SIGNATURES**




In
      accordance with the requirements 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.**By:
            /s/
                David M. Adams, COODavid
                M. AdamsChief
                Operating OfficerPrincipal
                Executive OfficerDate:
                June 2, 2006By:
            /s/
                John O’Keefe, CFOJohn
                O’KeefeChief
                Financial OfficerPrincipal
                Accounting OfficerDate:
                June 2, 2006