**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 
 **FORM
        10-QSB**
  
 
 **(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, 2006**
 
  ̈  **TRANSITION
        REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT**
 
 **For
        the transition period from** **** **to** ****
 
 **333-64122**
 **(Commission
        file number)**
 
 
 **Blast
        Energy Services, Inc.**
 **(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)**
 
 **(Former
        name, former address and former fiscal year, if changed since last
        report)**
 
 
  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. **Yes** **x** **No** ** ̈**
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act.
 **Yes** ** ̈** **No** **x** ****
 
 The
        number of shares outstanding of each of the issuer’s classes of common equity as
        of June 30, 2006 - 43,640,404
 
 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** ****
 
  1
  **Blast
        Energy Services, Inc.**
 
 **Index**
 
 **Page
                  Number**PART
                  I.
              FINANCIAL
                  INFORMATIONItem
                  1.
              Financial
                  Statements
              3Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and Plan of
                  Operation
              10Item
                  3.
              Controls
                  and Procedures
              14PART
                  II.
              OTHER
                  INFORMATIONItem
                  1.
              Legal
                  Proceedings
              14Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              15Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              15Item
                  6.
              Exhibits
                  and Reports on Form 8-K
              15SIGNATURES
              16
 
  2
  **Blast
        Energy Services, Inc.**
 
 **PART
        I. FINANCIAL INFORMATION**
 
 **ITEM
        1. Financial Statements**
 
 **Page
                  Number**Balance
                  Sheets as of June 30, 2006 and December 31, 2005
              4Statements
                  of Operations, for the three and six months ended June 30, 2006
                  and
                  2005
              5Statements
                  of Cash Flow, for the three and six months ended June 30, 2006
                  and
                  2005
              6Notes
                  to Financial Statements
              7
 
  3
  **BLAST
        ENERGY SERVICES, INC.**
 **BALANCE
        SHEETS**
 **As
        of June 30, 2006 and December 31, 2005**
 
 
 
 **June
                  30, 2006**
              
              **December
                  31, 2005****Assets**
              
              (Unaudited)
              
              (Restated)Current
                  AssetsCash
              
              $
              223,228
              
              $
              835,978Accounts
                  Receivable, net of allowance for doubtful accounts of $10,290 and
                  $10,290
              
              
              135,879
              
              
              156,437Other
                  Assets
              
              
              205,116
              
              
              231,413Current
                  Assets
              
              
              564,223
              
              
              1,223,828Intellectual
                  Property, net of $69,643 and $27,857 accumulated
                  amortization
              
              
              1,100,357
              
              
              1,142,143Equipment,
                  net of $33,252 and $22,416 accumulated depreciation
              
              
              1,076,951
              
              
              977,269Total
                  Assets
              
              $
              2,741,531
              
              $
              3,343,240**Liabilities
                  and Stockholder’s Deficit**Current
                  LiabilitiesAccounts
                  payable
              
              $
              601,255
              
              $
              622,396Accrued
                  expenses
              
              
              416,026
              
              
              533,842Deferred
                  revenue
              
              
              74,593
              
              
              131,425Notes
                  payable-related parties, net of unamortized discount of $-0- and
                  $14,814
              
              
              -
              
              
              185,186Notes
                  payable-other
              
              
              542,500
              
              
              395,000Total
                  Current Liabilities
              
              
              1,634,374
              
              
              1,867,849Long
                  Term LiabilitiesAdvances-related
                  parties
              
              
              1,000,000
              
              
              1,000,000Note
                  payable-other
              
              
              -
              
              
              500,000Deferred
                  revenue, less current portion
              
              
              6,780
              
              
              6,780Total
                  Liabilities
              
              
              2,641,154
              
              
              3,374,629Commitments
                  and Contingencies
              
              
              -
              
              
              -Stockholders’
                  Equity/(Deficit)Common
                  stock, $.001 par value, 100,000,000 shares authorized,
                43,640,404
                  and 42,060,477 shares issued and outstanding
              
              
              44,790
              
              
              42,060Additional
                  paid in capital
              
              
              31,962,163
              
              
              29,855,409Accumulated
                  deficit
              
              
              (31,906,576
              )
              
              (29,928,859
              )Total
                  Stockholders’ Equity/(Deficit)
              
              
              100,377
              
              
              (31,390
              )Total
                  Liabilities and Stockholders’ Equity
              
              $
              2,741,531
              
              $
              3,343,240
 
  See
        accompanying notes to financial statements.
 
  4
  **BLAST
        ENERGY SERVICES, INC.**
 **STATEMENTS
        OF OPERATIONS**
 **Three
        and Six Months Ended June 30, 2006 and 2005**
 **(Unaudited)**
 
 
 
 For
                  the Three Months Ended
              
              For
                  the Six Months EndedJune
                  30,
              
              June
                  30,2006
              
              2005
              
              2006
              
              2005(Restated)
              
              
              
              (Restated)Revenue:Satellite
                  Communications
              
              $
              265,082
              
              $
              235,973
              
              $
              557,044
              
              $
              508,775Down-hole
                  Solutions
              
              
              14,150
              
              
              4,010
              
              
              14,150
              
              
              18,991Total
                  Revenue
              
              
              279,232
              
              
              239,983
              
              
              571,194
              
              
              527,766Cost
                  of Services Provided:Satellite
                  Communications
              
              
              298,126
              
              
              211,315
              
              
              503,269
              
              
              385,118Down-hole
                  Solutions
              
              
              300,602
              
              
              118,068
              
              
              432,847
              
              
              237,552Total
                  Cost of Services Provided
              
              
              598,728
              
              
              329,383
              
              
              936,116
              
              
              622,670Gross
                  Margin (Deficit)
              
              
              (319,494
              )
              
              (89,400
              )
              
              (364,922
              )
              
              (94,904
              )Operating
                  Expenses:Selling,
                  general and administrative
              
              
              593,524
              
              
              487,337
              
              
              1,306,386
              
              
              1,521,964Depreciation,
                  amortization & other
              
              
              25,909
              
              
              20,219
              
              
              52,622
              
              
              59,488Operating
                  Loss
              
              
              (938,927
              )
              
              (596,956
              )
              
              (1,723,930
              )
              
              (1,676,356
              )Other
                  (Income) Expense:Other
                  (income)
              
              
              (39,128
              )
              
              -
              
              
              (81,661
              )
              
              -Interest
                  expense
              
              
              29,571
              
              
              45,601
              
              
              73,448
              
              
              96,862Loss
                  on extinguishment of debt
              
              
              80,000
              
              
              -
              
              
              262,000
              
              
              -Gain
                  on sale
              
              
              -
              
              
              -
              
              
              -
              
              
              (971
              )Interest
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              (4
              )Total
                  other (income)/expense
              
              
              70,443
              
              
              45,601
              
              
              253,787
              
              
              95,887Net
                  Loss
              
              $
              (1,009,370
              )
              $
              (642,557
              )
              $
              (1,977,717
              )
              $
              (1,772,243
              )Basic
                  and diluted net loss per share
              
              $
              (0.02
              )
              $
              (0.02
              )
              $
              (0.05
              )
              $
              (0.05
              )Weighted
                  average shares outstanding
              
              
              43,697,634
              
              
              36,067,903
              
              
              43,199,118
              
              
              35,440,245
 
 
 
 See
        accompanying notes to financial statements.
 
  5
  **BLAST
        ENERGY SERVICES, INC.**
 **STATEMENTS
        OF CASH FLOWS**
 **Six
        Months Ended June 30, 2006 and 2005**
 **(Unaudited)**
 
 
 
 
 **For
                  the Six Months Ended**
                **June
                  30,****2006**
              
              **2005**(Restated)**Cash
                  Flows From Operating Activities:**Net
                  loss
              
              $
              (1,977,717
              )
              $
              (1,772,243
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Stock
                  issued for services or litigation
              
              
              644,000
              
              
              1,029,361Option
                  and warrant expense
              
              
              173,833
              
              
              50,000Amortization
                  of note discount
              
              
              14,814
              
              
              64,837Depreciation
                  and amortization
              
              
              52,622
              
              
              49,488Loss
                  on extinguishment of debt
              
              
              262,000
              
              
              (971
              )Receivable
                  from related party
              
              
              100
              
              
              -Bad
                  debts
              
              
              -
              
              
              10,000Change
                  in working capital items
              
              
              (158,268
              )
              
              (19,700
              )Net
                  Cash Used In Operating Activities
              
              
              (988,616
              )
              
              (589,228
              )**Cash
                  Flows From Investing Activities:**Construction
                  of equipment
              
              
              (68,633
              )
              
              (590,335
              )Proceeds
                  from sale of license
              
              
              -
              
              
              500,000Purchase
                  of property and equipment
              
              
              (21,885
              )
              
              -Net
                  Cash Used In Investing Activities
              
              
              (90,518
              )
              
              (90,335
              )**Cash
                  Flows From Financing Activities:**Proceeds
                  from sale of stock
              
              
              300,000
              
              
              241,500Proceeds
                  from exercise of options and warrants
              
              
              168,885
              
              
              250Advance
                  on future financing
              
              
              
              
              
              249,500Payments
                  on note payable
              
              
              (2,500
              )
              
              -Net
                  Cash Provided By Financing Activities
              
              
              466,385
              
              
              491,250Net
                  change in cash
              
              
              (612,750
              )
              
              (188,313
              )Cash
                  at beginning of period
              
              
              835,978
              
              
              266,917Cash
                  at end of period
              
              $
              223,228
              
              $
              78,604**Non-Cash
                  Transactions:**Conversion
                  of notes payable and interest to common stock
              
              $
              550,000
              
              $
              200,004Shares
                  issued for extinguishment of debt and liabilities
              
              
              282,000
              
              
              253,287Exchange
                  of equipment for customer deposit
              
              
              -
              
              
              175,000Exchange
                  of equipment for accounts payable
              
              
              -
              
              
              3,883
 
 See
        accompanying notes to financial statements.
 
  6
  **BLAST
        ENERGY SERVICES, INC.**
 **NOTES
        TO FINANCIAL STATEMENTS**
 (Unaudited)
 
 **NOTE
        1 - BASIS OF PRESENTATION**
 
 The
        accompanying unaudited interim financial statements of Blast Energy Services,
        Inc. (“Blast”) 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’s 2005 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
        2005
        as reported in the 10-KSB have been omitted.
 
 *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 $1.0
        million for the three months ended June 30, 2006, has an accumulated deficit
        of
        $31.9 million and a working capital deficit of $1.1 million as of June 30,
        2006
        and has several significant future financial obligations. The financial
        statements do not include any adjustments that might be necessary if Blast
        is
        unable to continue as a going concern. These conditions create an uncertainty
        as
        to Blast’s ability to continue as a going concern. Management is trying to raise
        additional capital but there are no assurances that such efforts will be
        successful.
 
 **NOTE
        3 - STOCK OPTIONS AND WARRANTS**
 
 On
        January 1, 2006, Blast adopted SFAS No. 123(R), “Share-Based Payment” (“SFAS
        123(R)”). This replaced SFAS No. 123 and supersedes APB Opinion No. 25. SFAS
        123(R) requires all share-based payments to employees, including grants of
        employee stock options, to be recognized in the financial statements based
        on
        their fair values. The pro forma disclosures previously permitted under SFAS
        123
        are no longer an alternative to financial statement recognition. Blast adopted
        SFAS 123(R) using the modified prospective method which requires the application
        of the accounting standard as of January 1, 2006. The consolidated financial
        statements as of and for the quarter ended June 30, 2006 reflect the impact
        of
        adopting SFAS 123(R). In accordance with the modified prospective method,
        the
        consolidated financial statements for prior periods have not been restated
        to
        reflect, and do not include, the impact of SFAS 123(R).
 
 Prior
        to
        2006, compensation was recorded for stock-based compensation grants based
        on the
        excess of the estimated fair value of the common stock on the measurement
        date
        over the exercise price.
 
 **For
                  the Three Months Ended**
                **June
                  30, 2005**
              
              **For
                  the Six Months Ended**
                **June
                  30, 2005**Net
                  loss as reported
              
              $
              (642,557
              )
              $
              (1,772,243
              )Less:
                  stock based compensation determinedUnder
                  fair value based method
              
              
              (84,171
              )
              
              (165,804
              )Pro
                  forma net loss
              
              $
              (726,728
              )
              $
              (1,938,047
              )Basic
                  and diluted net loss per common share:As
                  reported
              
              $
              (.02
              )
              $
              (.05
              )Pro
                  forma
              
              $
              (.02
              )
              $
              (.05
              )
 
 The
        weighted average fair value of the stock options granted during the three
        months
        ended June 30, 2006 and 2005 was $.61 and $.42 per share, 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 155% and
        153%,
        respectively, and (4) zero expected dividends.
  7
  **NOTE 4
        - INTELLECTUAL PROPERTY**
 
 On
          March
          17, 2006 Blast replaced in their entirety both its August 25, 2005 purchase
          agreement and October 2004 licensing agreement with a revised Technology
          Purchase Agreement with Alberta Energy Partners (“Alberta”) to purchase a
          one-half interest in Alberta’s Abrasive Fluid Jet (“AFJ”) cutting technology.
          Blast issued to Alberta 3,000,000 common shares and 750,000 warrants exercisable
          at $.45 per common share. 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. 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.
 
 At
          June
          30, 2006 the total cost of the Intellectual Property was $1,170,000 with
          $69,643
          of accumulated amortization. The patent-pending 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
        - STOCKHOLDERS EQUITY**
  In
          the
          first quarter of 2006, Blast issued a total of 994,030 shares of common
          stock as
          follows:
 -  135,000
          shares valued at $202,500 were issued to a consultant.
 -  377,100
          shares were issued pursuant to warrants exercised for $74,710 cash.
 -  175,000
          shares were issued for the payment of $350,000 of notes payable that matured
          on
          12/31/05.
 -  233,333
          shares were issued as a premium on the conversion of notes payable that
          matured
          on 12/31/05.
 -  13,783
          shares were issued for the payment of 4 th quarter
          2005 accrued interest on convertible promissory notes.
 -  59,814
          shares of common stock were reinstated to an existing shareholder.
 
 In
          the
          second quarter of 2006, Blast issued a total of 1,735,897 shares of common
          stock
          as follows:
 -
                33,333
                    shares valued at 20,000 were issued in exchange for
                    services.
 -
                159,375
                    shares were issued for the payment of 2005 deferred director
                    fees.
 -
                392,500
                    shares were issued in payment of 2005 executive performance
                    bonus.
 -
                600,000
                    shares were issued pursuant to a private placement resulting
                    in gross cash
                    proceeds in the amount of $300,000.
 -
                309,107
                    shares were issued pursuant to warrants exercised for $94,275
                    cash.
 -
                100,000
                    shares were issued for the payment of $200,000 of notes payable
                    that
                    matured on 05/31/06.
 -
                133,430
                    shares were issued as a premium on the conversion of notes payable
                    that
                    matured on 05/31/06.
 -
                8,152
                    shares were issued for the payment of 2006 accrued interest on
                    notes
                    payable that matured on 05/31/06.
 **NOTE 6
          - NOTES PAYABLE**
 
 In
        January 2006, Blast issued (in lieu of cash) 13,783 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. This conversion value was based upon the same
        value of a private placement closed during December 2005. Blast issued 175,000
        shares of common stock at a conversion price of $2.00 per share and 233,333
        shares of common stock related to the premium on the
        conversion.
  8
  In
        June
        2006, Blast issued (in lieu of cash) 6,666 shares of common stock for the
        payment of 1 st and
        2 nd quarter
        2006 interest on Convertible Promissory Notes at $1.08 per share (the average
        five-day closing price at quarter end March 31, 2006 and for the two months
        ended on May 31, 2006 of $0.60).
 
 In
        June
        2006, holders of two Convertible Promissory Note Agreements dated October
        26,
        2004 totaling $200,000 converted their Note principal amounts which were
        due on
        May 31, 2006, 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 $0.60 per share. This conversion value was based upon the same
        value of a private placement closed during December 2005. Blast issued 200,000
        shares of common stock at a conversion price of $2.00 per share and 133,430
        shares of common stock related to the premium on the conversion.
 
 ***Advances
        - Related Parties***
 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 million 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, secured by the value of the rig, 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.
        In
        consideration for the extension, BMC will earn additional interest during
        the
        extended loan period. BMC also has the option to fund an additional three
        rigs
        under these commercial terms.
 
 **NOTE 7
        - BUSINESS SEGMENTS**
 
 Blast
        has
        two reportable segments: (1) Satellite Communications and (2) Down-hole
        Services. 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 table below
        reports certain financial information by reportable segment:
 
 
 **For
                  the Three Months Ended**
                **June
                  30,**
              
              **For
                  the Six Months Ended**
                **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Revenues
                  from external customersSatellite
                  communications
              
              $
              265,082
              
              $
              235,973
              
              $
              557,044
              
              $
              508,775Down-hole
                  services
              
              
              14,150
              
              
              4,010
              
              
              14,150
              
              
              18,981$
              279,232
              
              $
              239,983
              
              $
              571,194
              
              $
              527,766Operating
                  profit/(loss)1Satellite
                  communications
              
              $
              (41,029
              )
              $
              23,880
              
              $
              39,719
              
              $
              72,097Down-hole
                  services
              
              
              (337,467
              )
              
              (223,152
              )
              
              (517,786
              )
              
              (456,664
              )Corporate
              
              
              (560,436
              )
              
              (397,684
              )
              
              (1,245,863
              )
              
              (1,291,784
              )$
              (938,927
              )
              $
              (596,956
              )
              $
              (1,723,930
              )
              $
              (1,676,356
              )
 
 1 -
        Operating profit/(loss) is total operating revenue less operating expenses,
        selling general and administrative expenses, depreciation and amortization
        and
        bad debts. It does not include other income and expense or income
        taxes.
 
  9
  **NOTE 8
        - RESTATEMENT**
 
 On
          March
          30, 2006, Blast restated its 2004 financial statements included in its
          2004
          Annual Report on Form 10-KSB and the 2005 financial statements included
          in its
          three 2005 Quarterly Reports on Form 10-QSB. These financial statements
          originally included the value of our Intellectual Property asset at cost
          since
          the independent valuation of the net present value of the future cash flows
          exceeded the acquisition cost. During 2005, Blast sold its lateral drilling
          license for $1.3 million over a period of time. Subsequently, it was determined
          that our asset valuation conclusions were incorrect and that the license
          sales
          agreement thereby established the asset value of the IP. Consequently,
          the value
          of the lateral drilling license was written down with a non-cash impairment
          charge of $3.2 million as of December 31, 2004 and the financial statements
          were
          restated.
 
 During
          2005, Blast sold its lateral drilling license for $1.3 million in cash
          over a
          period of time, including $500,000 received during the first six months
          of 2005.
          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 decrease in cash during the period of $188,313
          remained unchanged.
 **For
                  the Six Months**
                **Ended
                  June 30,****2005**
              **2005**(as
                  Originally Filed)
              (Restated)**Cash
                  Flows From Operating Activities:**Change
                  in working capital items
              480,300
              (19,700)Net
                  Cash Used In Operating Activities
              (89,228)
              (589,228)**Cash
                  Flows From Investing Activities:**Proceeds
                  from sale of license
              -
              500,000Net
                  Cash Used In Investing Activities
              (590,335)
              (90,335)
 
 **NOTE 9
        - SUBSEQUENT EVENTS**
 
 In
          July
          2006, the Securities and Exchange Commission (SEC), as part of an agreed
          resolution of claims against Blast, has filed a civil complaint, consents,
          and
          proposed judgments against Blast and two individuals in the US District
          Court
          for the Southern District of Texas. The complaint and proposed judgments
          resolve
          the SEC’s formal investigation relating to Blast’s reporting practices and
          public statements made in 2003. Without admitting or denying the allegations
          in
          the complaint, Blast agreed to a proposed final judgment that includes
          a
          permanent injunction against Blast from violating Section 10(b) of the
          Exchange
          Act of 1934 and Rule 10b-5 thereunder. The proposed final judgment does
          not
          assess any civil penalties against Blast. This settlement is subject to
          the
          approval of the court.
 
 On
          July
          14, 2006 Blast received $150,000 as the remaining cash proceeds due from
          a May
          2006 private placement agreement for 300,000 shares of common stock and
          150,000
          two-year warrants.
  **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, 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 our Annual Report on Form 10-KSB.
  10
  **Three
        Months Ended June 30, 2006 Compared to Three Months Ended June 30,
        2005**
 
 *Satellite
        Communications Services*
 
 Satellite
        Communication Services’ revenues increased by $29,000 to $265,000 for the
        quarter ended June 30, 2006 compared to $236,000 for the quarter ended June
        30,
        2005. The increase in revenue can be attributed to an increase in service
        provided to existing customers. The operating margin from Satellite
        Communication Services increased by $58,000 to a loss of $(33,000) for the
        quarter ended June 30, 2006 compared to a margin of $25,000 for the quarter
        ended June 30, 2005. 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
        June 30, 2006 and 2005. We bill some of our bandwidth contracts in advance,
        but
        recognize the revenue over the period benefited.
 
 *Down-hole
        Solutions*
 
 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 mid 2004, it became apparent that this
        process was limited in its application to a wide variety of oil and gas
        formations. After redesigning and improving the existing process and designing
        and testing some new capabilities, 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. The goal is to make
        this
        new service reliably predictable and consistently dependable for our customers.
        We have completed repairs and are currently deploying 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.
 
 In
        July
        2006 Blast returned to the location of its first field test using its new
        abrasive fluid jetting (AFJ) technology on a well for Oracle Operating located
        in Many, Louisiana. With repairs to the coil tubing unit completed, the Blast
        Rig #1 has resumed operations that include demonstrating the ability to cut
        through the steel well casing at approximately 3,000 feet of vertical depth
        and
        attempting to jet large bore perforations though the window cut in the casing.
 
 While
        on
        this location, the Blast Rig #1 has again successfully demonstrated the ability
        to cut a large (3 x 3 inch) window into the steel well casing using AFJ from
        within the well-bore - a unique attribute in the energy business. Additionally,
        the Company now believes that this cutting process perforated approximately
        three feet into the rock formation beyond the casing wall. This large bore
        perforation service adds to the rig’s existing well service capabilities, which
        include specialty casing cutting and normal coiled tubing well services.
 
 While
        attempting to jet laterally into the formation there were indications that
        the
        formation-cutting nozzles were eroding and that higher strength material
        would
        be needed. Replacement nozzles composed of higher strength carbide have been
        ordered. In the meantime, Blast will take the opportunity to replace some
        of the
        down-hole equipment that may have been damaged during a jetting attempt.
        It is
        expected to take about a week to secure a work-over rig to return to the
        location and switch out the down hole equipment. Once this is completed and
        the
        replacement nozzles are delivered, further lateral jetting operations are
        planned.
 
 Funding
        for developing this abrasive cutting capability into commercial operation
        is
        expected to come from future capital commitments. No assurances can be given
        that such capital will be available or 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.
 
 Down-hole
        Solutions’ revenues were $14,000 for the quarter ended June 30, 2006 compared to
        $4,000 for the quarter ended June 30, 2005. The revenue in 2006 was related
        to
        the initial deployment of the AFJ rig to Many, Louisiana for Oracle Operating
        compared with the revenue in 2005 which was generated from the direct financing
        lease of one of our Lander’s rigs.
 
 The
        operating margin from Down-hole Solutions decreased by $172,000 to a loss
        of
        ($286,000) for the quarter ended June 30, 2006 compared to a loss of ($114,000)
        for the quarter ended June 30, 2005. The expenses for both periods were
        primarily labor related associated with designing and testing the new abrasive
        fluid jetting process.
 
  11
  *Selling,
        General and Administrative*
 
 Selling,
        general and administrative expenses increased by $107,000 to $594,000 for
        the
        quarter ended June 30, 2006 compared to $487,000 for the quarter ended June
        30,
        2005. The following table details major components of expense over the
        periods.
 
 **For
                  the Three Months Ended June 30,**
              
              **Increase**
                **(Decrease)****2006**
              
              **2005**Payroll
                  and related costs
              
              $
              191
              
              $
              142
              
              $
              49Option
                  and warrant expense
              
              
              80
              
              
              25
              
              
              55Legal
                  & settlement costs
              
              
              66
              
              
              124
              
              
              (59
              )External
                  services
              
              
              109
              
              
              90
              
              
              19Insurance
              
              
              90
              
              
              50
              
              
              40Travel
                  & entertainment
              
              
              41
              
              
              12
              
              
              29Office
                  rent, communications, misc.
              
              
              17
              
              
              44
              
              
              (27
              )$
              594
              
              $
              487
              
              $
              107
 
 During
        the quarter we continued to focus on technology development and lowering
        our
        controllable overhead, which has resulted in a slight increase in expenses
        compared to the second quarter of 2005.
 
 *Net
        Loss*
 
 The
        net
        loss for the second quarter of 2006 increased to $1,009,000 from a loss of
        $643,000 for the corresponding period in 2005. The increase is primarily
        attributable to the costs associated with deploying the new AFJ rig. 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, 2006 Compared to Six Months Ended June 30,
        2005**
 
 *Satellite
        Communications Services*
 
 Satellite
        Communication Services’ revenues increased by $48,000 to $557,000 for the six
        months ended June 30, 2006 compared to $509,000 for the six months ended
        June
        30, 2005. The increase in revenue can be attributed to an increase in service
        provided to existing customers. The operating margin from Satellite
        Communication Services decreased by $70,000 to a margin of $54,000 for the
        six
        months ended June 30, 2006 compared to a margin of $124,000 for the six months
        ended June 30, 2005.
 
 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
        June 30, 2006 and 2005. We bill some of our bandwidth contracts in advance,
        but
        recognize the revenue over the period benefited.
 
 *Down-hole
        Solutions*
 
 Down-hole
        Solutions’ revenues were $14,000 for the six months ended June 30, 2006 compared
        to $19,000 for the six months ended June 30, 2005. The revenue in 2006 was
        related to the initial deployment of the AFJ rig to Many, Louisiana for Oracle
        Operating compared with the revenue in 2005 which was generated from the
        direct
        financing lease of one of our Lander’s rigs.
 
 The
        operating margin from Down-hole Solutions decreased by $200,000 to a loss
        of
        ($419,000) for the six months ended June 30, 2006 compared to a loss of
        ($219,000) for the six months ended June 30, 2005. The expenses for both
        periods
        were primarily labor related associated with designing and testing the new
        abrasive fluid jetting process.
 
  12
  *Selling,
        General and Administrative*
 
 Selling,
        general and administrative expenses decreased by $216,000 to $1,306,000 for
        the
        six months ended June 30, 2006 compared to $1,522,000 for the six months
        ended
        June 30, 2005. The following table details major components of expense over
        the
        periods.
 
 **For
                  the Six Months Ended June 30,**
              
              **Increase**
                **(Decrease)****2006**
              
              **2005**Payroll
                  and related costs
              
              $
              296
              
              $
              426
              
              $
              (130
              )Option
                  and warrant expense
              
              
              173
              
              
              50
              
              
              123Legal
                  & settlement costs
              
              
              136
              
              
              685
              
              
              (549
              )External
                  services
              
              
              424
              
              
              191
              
              
              233Insurance
              
              
              144
              
              
              92
              
              
              52Travel
                  & entertainment
              
              
              88
              
              
              18
              
              
              70Office
                  rent, communications, misc.
              
              
              45
              
              
              60
              
              
              (15
              )$
              1,306
              
              $
              1,522
              
              $
              (216
              )
 
 Due
        to
        the lack of drilling activity during the six months quarter of 2006, we focused
        on technology development and lowering our controllable overhead, which has
        resulted in a decrease in payroll. Conversely, external services and travel
        and
        entertainment all increased. Legal and settlement expenses decreased
        significantly as the prior year’s period included $503,000 for the value of the
        1,150,000 shares of our common stock to be issued to settle the class action
        lawsuit and $55,000 of associated expenses.
 
 *Net
        Loss*
 
 The
        net
        loss for the first six months of 2006 decreased to $1,724,000 from a loss
        of
        $1,772,000 for the corresponding period in 2005. This decrease is primarily
        attributable to increased rig deployment costs offset by the reductions in
        overhead expenses. 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, 2006, our cash balance was $223,000 compared to a cash balance of
        $836,000 at December 31, 2005 and $79,000 for the period ended June 30, 2005.
        As
        of August 1, 2006, our cash balance is $165,000. The cash balances were impacted
        by the sale in 2005 of the Landers license for a total of $1.8 million and
        2005
        stock sales of $780,000 that were utilized to pay debt and fund operations.
        We
        continue to utilize cash, stock, and notes to fund operations. We have used
        these proceeds to fund the construction of our new generation drilling rig.
        As
        of June 30, 2006, we had expended approximately $1.2 million to construct
        and
        outfit the AFJ tractor/trailer rig as well as support truck and trailers.
 
 We
        have a
        $42,500 note that is due on demand and a $500,000 note due on June 30, 2007.
        Convertible notes with related parties for $200,000 matured on May 31, 2006
        and
        were converted into common stock in June 2006.
 
 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
        to
        raise 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 negatively impacted
        while we have been under SEC investigation (see Financial Note 16 to the
        December 31, 2005 Financial Statements). 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.
 
 For
        the
        three and six months ended June 30, 2006 we had capital expenditures of $62,000
        and $130,000, respectively as compared to capital expenditures of $340,000
        and
        590,000 for the three and six months ended June 30, 2005. Substantially all
        of
        the above expenditures were attributable to the Company’s AFJ drilling
        technology.
  13
  **Subsequent
        Events**
 
 On
        July
        26, 2006, Blast reported that the SEC, as part of an agreed resolution of
        claims
        against the Company, has filed a civil complaint, consents, and proposed
        judgments against the company and two individuals in the US District Court
        for
        the Southern District of Texas. The complaint and proposed judgments resolve
        the
        SEC’s formal investigation relating to the Company’s reporting practices and
        public statements made in 2003. Without admitting or denying the allegations
        in
        the complaint, Blast agreed to a proposed final judgment that includes a
        permanent injunction against the Company from violating Section 10(b) of
        the
        Exchange Act of 1934 and Rule 10b-5 thereunder. The proposed final judgment
        does
        not assess any civil penalties against the Company. This settlement is subject
        to the approval of the court.
 
 In
        July
        2006 Blast returned to the location of its first field test using its new
        abrasive fluid jetting (AFJ) technology on a well for Oracle Operating located
        in Many, Louisiana. With repairs to the coil tubing unit completed, the Blast
        Rig #1 resumed operations that include demonstrating the ability to cut through
        the steel well casing at approximately 3,000 feet of vertical depth and
        attempting to jet large bore perforations though the window cut in the casing.
 
 While
        on
        this location, the Blast Rig #1 has again successfully demonstrated the ability
        to cut a large (3 x 3 inch) window into the steel well casing using AFJ from
        within the well-bore - a unique attribute in the energy business. Additionally,
        the Company now believes that this cutting process perforated approximately
        three feet into the rock formation beyond the casing wall. This large bore
        perforation service adds to the rig’s existing well service capabilities, which
        include specialty casing cutting and normal coiled tubing well services.
 
 On
        June
        7, 2006, we announced that we had signed a non-binding letter of intent to
        further evaluate the potential of a purchase transaction to acquire several
        U.S.
        rotary land drilling rigs. Subsequently, on June 28, 2006, we entered into
        an
        interim non-binding agreement which superseded the letter of intent. The
        transactions contemplated are non-binding, are subject to the parties entering
        into definitive documentation, financing, acceptable financial statements
        from
        the entity to be acquired, an appraisal acceptable to lenders, and board
        and
        potentially shareholder approvals. It is uncertain if these conditions will
        be
        satisfied or waived. If the transactions are consummated, we would acquire
        all
        of the shares of the entity owning the rigs for $50 million in cash and 500,000
        shares of common stock with registration rights. The transaction would be
        subject to customary conditions and no shop and confidentiality provisions.
        Effective upon closing, we would enter into employment agreements with certain
        of the principals. At this time it is uncertain if this transaction will
        occur.  By
        mutual consent of the parties, the term of this agreement has been extended
        to
        August 18, 2006.
 
 **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 have participated
        in
        the evaluation and concluded that our disclosure controls and procedures
        were
        effective to ensure that information we are required to disclose in reports
        filed or submitted under the Securities Exchange Act of 1934, as amended,
        is
        recorded, processed, summarized, and reported within the periods specified
        and
        in accordance with the SEC’s rules and forms.
 
 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 2005 Annual Report
        filed
        with the SEC on Form 10-KSB. In addition, on July 26, 2006, Blast reported
        that
        the SEC, as part of an agreed resolution of claims against the Company, has
        filed a civil complaint, consents, and proposed judgments against the company
        and two individuals in the US District Court for the Southern District of
        Texas.
        The complaint and proposed judgments resolve the SEC’s formal investigation
        relating to the Company’s reporting practices and public statements made in
        2003. Without admitting or denying the allegations in the complaint, Blast
        agreed to a proposed final judgment that includes a permanent injunction
        against
        the Company from violating Section 10(b) of the Exchange Act of 1934 and
        Rule
        10b-5 thereunder. The proposed final judgment does not assess any civil
        penalties against the Company. This settlement is subject to the approval
        of the
        court.
 
 
  14
  **Item
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds**
 
 In
        the
        second quarter of 2006, Blast issued a total of 1,735,897 shares of common
        stock
        as follows:
  In
          April
 -
                159,375
                    shares were issued for the payment of 2005 deferred director
                    fees.
 
 In
          May
 -
                392,500
                    shares were issued in payment of 2005 executive performance
                    bonus.
 
 In
          June
 -
                33,333
                    shares valued at $20,000 were issued in exchange for
                    services.
 -
                600,000
                    shares were issued pursuant to a private placement resulting
                    in gross cash
                    proceeds in the amount of $300,000.
 -
                309,107
                    shares were issued pursuant to warrants exercised for $94,275
                    cash.
 -
                100,000
                    shares were issued for the payment of $200,000 of notes payable
                    that
                    matured on 05/31/06.
 -
                133,430
                    shares were issued as a premium on the conversion of notes payable
                    that
                    matured on 05/31/06.
 -
                8,152
                    shares were issued for the payment of 2006 accrued interest on
                    notes
                    payable that matured on
                    05/31/06
 
 Each
        of
        the above shares were issued pursuant to the exemption from registration
        under
        the Securities Act of 1933 under the exemption afforded by Section 4(2)
        thereunder [state reason for exemption].
 
 **Item
        4. Submission of Matters to a Vote of Security Holders**
 
 Our
        Annual Meeting was held on May 11, 2006. The results of the voting at such
        meeting are disclosed in that certain Form 10-QSB/A filed on June 5, 2006.
 
 
 **Item
        6. Exhibits**
 
 Exhibits
 
 31.1
              Certification
                  of Principal Executive Officer pursuant to Section 30231.2
              Certification
                  of Principal Accounting Officer pursuant to Section 30232.1
              Certification
                  of Principal Executive Officer pursuant to Section 135032.2
              Certification
                  of Principal Accounting Officer pursuant to Section
                  1350
 
  15
  **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:
              August
                  10, 2006By:
              /s/
                  John O’Keefe, CFOJohn
                  O’KeefeChief
                  Financial OfficerPrincipal
                  Accounting OfficerDate:
              August
                  10, 2006