UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q




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




For
the quarterly period ended March 31, 2008




 ̈
            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)











Texas
            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)







Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes  x    No   ̈




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


Large accelerated
filer   ̈                                                                                           Accelerated
filer    ̈


Non-accelerated filer   ̈                                                                                           Smaller
reporting company  x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes    ̈No   x




APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:


Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.


Yes   x No    ̈





The
number of shares outstanding of each of the issuer’s classes of equity as of
April 30, 2008 is 56,142,404, including 1,150,000 approved but unissued shares
arising from the class action settlement from 2005.









Blast
Energy Services, Inc.





For
the Quarter Ended March 31, 2008





INDEX










PART
      I – FINANCIAL INFORMATION
            PageItem
      1.
            Financial
      StatementsUnaudited
      Consolidated Balance Sheets as of March 31, 2008 and December 31,
      2007
            2Unaudited
      Consolidated Statements of Operations
              For
      the Three Months Ended March 31, 2008 and 2007
            3Unaudited
      Consolidated Statements of Cash Flows
              For
      the Three Months Ended March 31, 2008 and 2007
            4Notes
      to Unaudited Consolidated Financial Statements
            5Item
      2.
            Management’s
      Discussion and Analysis of Condition and Results of
    Operations
            13Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            15Item
      4.
            Controls
      and Procedures
            16PART
      II – OTHER INFORMATIONItem
      1.
            Legal
      Proceedings
            16Item
      1A.
            Risk
      Factors
            18Item
    2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            18Item
      6.
            Exhibits
            20Signatures
            
            21


1











PART
I – FINANCIAL INFORMATION





Item 1.
Financial Statements





BLAST
ENERGY SERVICES, INC.


CONSOLIDATED
BALANCE SHEETS


(Unaudited)









March
      31,
              2008
            
            
            December
      31,
              2007AssetsCurrent
      AssetsCash
            
            $
            1,572,235
            
            
            $
            48,833Accounts
      receivable, net
            
            
            30,790
            
            
            
            46,292Other
      assets
            
            
            157,117
            
            
            
            57,409Total
      Current Assets
            
            
            1,760,142
            
            
            
            152,534Equipment,
      net of accumulated depreciation of $36,052 and $35,488
            
            
            1,081,496
            
            
            
            1,083,645Total
      Assets
            
            $
            2,841,638
            
            
            $
            1,236,179Liabilities
      and Stockholders’ DeficitCurrent
      LiabilitiesAccounts
      payable
            
            $
            427,921
            
            
            $
            1,384,929Accrued
      expenses
            
            
            320,315
            
            
            
            612,476Deferred
      revenue
            
            
            8,650
            
            
            
            10,517Advances-related
      parties
            
            
            -
            
            
            
            1,700,000Notes
      payable – other
            
            
            96,805
            
            
            
            542,500Liabilities
      of discontinued operations
            
            
            1,649,064
            
            
            
            2,112,413Total
      Current Liabilities
            
            
            2,502,755
            
            
            
            6,362,835Long
      Term LiabilitiesSenior
      Debt
            
            
            2,100,000
            
            
            
            2,100,000Notes
      Payable – Related Party
            
            
            1,120,000
            
            
            
            -Notes
      Payable
            
            
            125,000
            
            
            
            125,000Total
      Liabilities
            
            
            5,847,755
            
            
            
            8,587,835Stockholders’
      Deficit:Preferred
      stock, $.001 par value, 20,000,000 shares authorized, 8,000,000 and 0
      shares issued and outstanding
            
            
            8,000
            
            
            
            -Common
      stock, $.001 par value, 180,000,000 shares authorized, 55,947,404 and
      52,027,404 shares issued and outstanding
            
            
            55,947
            
            
            
            52,027Additional
      paid-in capital
            
            
            75,471,776
            
            
            
            70,471,873Accumulated
      deficit
            
            
            (78,541,840
            )
            
            
            (77,875,556
            )Total
      Stockholders’ Deficit
            
            
            (3,006,117
            )
            
            
            (7,351,656
            )Total
      Liabilities and Stockholders’ Deficit
            
            $
            2,841,638
            
            
            $
            1,236,179





See
accompanying notes to consolidated financial statements.




2


BLAST
ENERGY SERVICES, INC


CONSOLIDATED
STATEMENTS OF OPERATIONS


For
the Three Months Ended March 31, 2008 and 2007


(Unaudited)






2008
            
            
            2007Revenue:Satellite
      Communications
            
            $
            71,652
            
            
            $
            162,419Down-hole
      Solutions
            
            
            -
            
            
            
            -Total
      Revenue
            
            
            71,652
            
            
            
            162,419Cost
      of Services Provided:Satellite
      Communications
            
            
            96,300
            
            
            
            117,391Down-hole
      Solutions
            
            
            23,821
            
            
            
            6,793Total
      Cost of Services Provided
            
            
            120,121
            
            
            
            124,184Depreciation
      and amortization
            
            
            2,150
            
            
            
            24,420Gross
      Margin (Deficit)
            
            
            (50,619
            )
            
            
            13,815Operating
      Expenses:Selling,
      general and administrative
            
            
            585,947
            
            
            
            1,879,082Operating
      Loss
            
            
            (636,566
            )
            
            
            (1,865,267
            )Other
      Income (Expense):Other
      income
            
            
            8,000
            
            
            
            -Interest
      income
            
            
            11,103
            
            
            
            1,912Interest
      expense
            
            
            (42,493
            )
            
            
            (20,390
            )Total
      other (income)/expense
            
            
            (23,390
            )
            
            
            (18,478
            )Loss
      from Continuing Operations
            
            
            (659,956
            )
            
            
            (1,883,745
            )Loss
      from Discontinued Operations
            
            
            (6,328
            )
            
            
            (1,645,595
            )Net
      Loss
            
            $
            (666,284
            )
            
            $
            (3,529,340
            )Basic
      and diluted net loss per shareContinuing
      Operations
            
            $
            (0.01
            )
            
            $
            (0.03
            )Discontinued
      Operations
            
            
            -
            
            
            $
            (0.02
            )Total
            
            $
            (0.01
            )
            
            $
            (0.05
            )Weighted
      average common shares outstanding – basic and diluted
            
            
            53,448,942
            
            
            
            67,609,904











See
accompanying notes to consolidated financial statements.




3


BLAST
ENERGY SERVICES, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


For
the Three Months Ended March 31, 2008 and 2007


(Unaudited)




2008
            
            
            2007Cash
      Flows From Operating Activities:Net
      loss
            
            $
            (666,284
            )
            
            $
            (3,529,340
            )Loss
      from discontinued operations
            
            
            6,328
            
            
            
            1,645,595Loss
      from continuing operations
            
            
            (659,956
            )
            
            
            (1,883,745
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
            
            
            2,150
            
            
            
            69,419Option
      and warrant expense
            
            
            51,723
            
            
            
            1,063,069Changes
      in:Accounts
    receivable
            
            
            15,502
            
            
            
            182,809Other current
    assets
            
            
            7,166
            
            
            
            35,128Accounts payable
            
            
            (1,430,845
            )
            
            
            264,760Deferred revenue
            
            
            (1,867
            )
            
            
            (21,196
            )Accrued expenses
            
            
            (11,160
            )
            
            
            (31,836
            )Net
      Cash Used In Operating Activities
            
            
            (2,027,287
            )
            
            
            (321,592
            )Cash
      Flows From Financing Activities:Payments
      on short term debt
            
            
            (552,570
            )
            
            
            (20,529
            )Borrowings
      on DIP financing
            
            
            100,000
            
            
            
            -Repurchase
      of common shares
            
            
            (900
            )
            
            
            -Issuance
      of convertible preferred stock
            
            
            4,000,000
            
            
            
            -Net
      Cash Provided By (Used In) Financing Activities
            
            
            3,546,530
            
            
            
            (20,529
            )Cash
      Flows From Discontinued Operations:Discontinued
      operating activities
            
            
            4,159
            
            
            
            (665,354
            )Discontinued
      investing activities
            
            
            -
            
            
            
            (20,492
            )Discontinued
      financing activities
            
            
            -
            
            
            
            (197,758
            )Net
      Cash Provided By (Used In) Discontinued Operations
            
            
            4,159
            
            
            
            (883,604
            )Net
      change in cash
            
            
            1,523,402
            
            
            
            (1,225,725
            )Cash
      at beginning of period
            
            
            48,833
            
            
            
            1,534,603Cash
      at end of period
            
            $
            1,572,235
            
            
            $
            338,877Supplement
      Disclosures:Cash
      paid for interest
            
            $
            30,615
            
            
            $
            842Cash
      paid for income taxes
            
            
            -
            
            
            
            -Non-Cash
      Transactions:Prepaid
      insurance financed with note payable
            
            
            106,875
            
            
            
            112,907Conversion
      of deferred compensation to common shares
            
            
            161,000
            
            
            
            -Conversion
      of related party advances to common shares
            
            
            800,000
            
            
            
            -Issuance
      of note payable for related party debt and accrued
interest
            
            
            1,120,000
            
            
            
            -




See
accompanying notes to consolidated financial statements.


4


BLAST
ENERGY SERVICES, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





NOTE
1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION





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 and the rules of the
Securities and Exchange Commission and should be read in conjunction with the
audited financial statements and notes thereto contained in Blast’s latest
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 interim periods are not necessarily indicative of the results to be expected
for the full year.  Notes to the financial statements that would
substantially duplicate the disclosure contained in the audited financial
statements for the most recent fiscal year as reported in the Form 10-KSB, have
been omitted.





Blast’s
consolidated financial statements have been prepared on a going concern basis in
accordance with accounting principles generally accepted in the United States of
America (“GAAP). This contemplates the realization of assets and satisfaction of
liabilities in the ordinary course of business. Accordingly, Blast’s
Consolidated Financial Statements do not include any adjustments relating to the
recoverability of assets and classification of liabilities that might be
necessary should Blast be unable to continue as a going concern.




Business. Our mission
is to substantially improve the economics of existing and evolving oil and gas
operations through the application of Blast licensed and owned technologies. We
are an emerging technology company in the energy sector and strive to assist oil
and gas companies in producing more economically. We seek to provide quality
services to the energy industry through our two divisions:


·
            Satellite
      Communication services to remote oilfield locations,
  and


·
            Down-hole
      Solutions, such as our abrasive fluid jetting
  technology.





Our
strategy is to grow our businesses by maximizing revenues from the
communications and down-hole segments and controlling costs while analyzing
potential acquisition and new technology opportunities in the energy service
sector. In the near term, we also seek to maximize value from the customer
litigation proceedings described below.





On
February 26, 2008, the Bankruptcy Court entered an order confirming our Second
Amended Plan of Reorganization (the “Plan”).  This ruling allows Blast
to emerge from Chapter 11 bankruptcy. The overall impact of the confirmed Plan
was for Blast to emerge with unsecured creditors fully paid, have no debt
service scheduled for at least two years, and keep equity shareholders’
interests intact.





Under the
terms of this confirmed Plan, Blast has raised $4.0 million in cash proceeds
from the sale of convertible preferred securities to Clyde Berg and McAfee
Capital, two parties related to Blast’s largest shareholder, Berg McAfee
Companies.  The proceeds from the sale of the securities were used to
pay 100% of the unsecured creditor claims, all administrative claims, and all
statutory priority claims, for a total amount of $2.4 million.  The
remaining $1.6 million will be used to execute an operational plan, including
but not limited to, reinvesting in the Satellite Services and Down-hole
Solutions businesses and pursue an emerging Digital Oilfield Services
business.





Acquisition of
Eagle.  In August 2006, we acquired Eagle Domestic Drilling
Operations LLC (“Eagle”), a drilling contractor which at that time owned three
land rigs, and had three more under construction. As part of  the
financial consideration for the purchase of Eagle, we issued stock and warrants
to the owners of Eagle in exchange for $15 million in cash. We also entered into
a Securities Purchase Agreement with Laurus Master Fund, Ltd. (“Laurus”) to
finance $40.6 million of the total purchase price of Eagle. We had used
assumptions in the acquisition of Eagle that included high revenue and full
utilization rate expectations based upon the five two-year term drilling
contracts Eagle had in place at the time.  The subsequent cancellation
of these contracts by Hallwood Energy/Hallwood Petroleum and Quicksilver
Resources in the fall of 2006 reduced our revenue expectations and consequently
our ability to meet the scheduled payments on the Laurus Note. This cancellation
was in violation of the terms of the drilling contracts and we and Eagle have
subsequently filed suit for breach of those five contracts.





Restructuring.  On
January 19, 2007, Blast and Eagle, filed voluntary petitions with the US
Bankruptcy Court for the Southern District of Texas – Houston Division (the
“Court”) under Chapter 11 of Title 11 of the US Code in order that we may
dispose of burdensome and uneconomical assets and reorganize our financial
obligations and capital structure.


5





In May
2007, Blast entered into a Settlement Agreement with Laurus on the terms of the
satisfaction of substantially all of its secured claims against Blast by the
implementation of an asset purchase agreement. The terms of the Settlement,
including the satisfaction of the remainder of the Laurus claims, were
implemented in the plan of reorganization. The Settlement and the treatment of
the Laurus secured claims provided for the transfer of five land drilling rigs
and associated spare parts to Laurus in settlement of Laurus’ note, accrued
interest and default penalties on the note, save and except a residual $2.1
million that remains as a secured debt owed by Blast to Laurus.





Amendments to Articles of
Incorporation


In
connection with the approval of the Plan, the Bankruptcy Court, and the Board of
Directors of Blast approved a change in domicile of Blast from California to
Texas.  This was implemented by Blast creating a wholly owned
subsidiary, Blast Energy Services, Inc., in the State of Texas, which Blast
merged with and into, the result of which was that Blast became a Texas
corporation (the “Merger”).  Following the Merger, Blast has
200,000,000 authorized shares of stock, of which 180,000,000 shares are common
stock, $0.001 par value per share, and 20,000,000 shares are preferred stock,
$0.001 par value per share.  The Certificate of Formation of the
resulting Texas corporation also allows Blast’s Board of Directors to issue
“blank check” preferred stock with rights and privileges as it may decide in its
sole discretion, but which shares must have voting rights.  Blast also
authorized 8,000,000 shares of Series A Convertible Preferred Stock and adopted
new Bylaws in connection with the Merger.





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





Fair Value of Financial
Instruments.  The carrying amount of Blast’s cash, accounts
receivables, accounts payables, and accrued expenses approximates their
estimated fair values due to the short-term maturities of those financial
instruments. The fair value of related party transactions is not determinable
due to their related party nature.





Credit Risk Blast
does not require collateral from its customers with respect to accounts
receivable but performs periodic credit evaluations of such customer’s financial
condition. Blast determines any required allowance by considering a number of
factors including lengths of time accounts receivable are past due and Blast’s
previous loss history. Blast provides reserves for accounts receivable when they
become uncollectible, and payments subsequently received on such receivables are
credited to the allowance for doubtful accounts. As of March 31, 2008, Blast has
determined that no amount for allowance for doubtful accounts is
required.





Earnings Per
Share.  Basic earnings per share equals net earnings divided by
weighted average shares outstanding during the year.  Diluted earnings
per share include the impact on dilution from all contingently issuable shares,
including options, warrants and convertible securities.  The common
stock equivalents from contingent shares are determined by the treasury stock
method.  Blast has incurred net losses for the quarters ended March
31, 2008 and 2007 and therefore, basic and diluted earnings per share are the
same as all potential common equivalent shares would be
anti-dilutive.





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 $666,284
for the quarter ended March 31, 2008, has an accumulated deficit of $78.5
million and a working capital deficit of $742,613 as of March 31, 2008 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 through
sales of common stock or convertible instruments as well as seeking financing
from third parties.


6


NOTE
3 – EQUIPMENT





Equipment
consisted of the following at March 31, 2008:




Description
              
              LifeComputer
      equipment
              
              3
      years
              24,201Automobile
              
              4
      years
              21,885Service
      Trailer
              
              5
      years
              4,784AFJ
      Rig, in progress
              
              12
      years
              $
      1,066,6781,117,548Less:  accumulated
      depreciation
              
              
              (36,052)$
      1,081,496


NOTE
4 – RELATED PARTY TRANSACTIONS





Convertible Preferred
Stock


Under the
terms of this confirmed Plan, Blast has raised $4.0 million in cash proceeds
from the sale of convertible preferred securities to Clyde Berg and McAfee
Capital, two parties related to Blast’s largest shareholder, Berg McAfee
Companies.  The proceeds from the sale of the securities were used to
pay 100% of the unsecured creditor claims, all administrative claims, and all
statutory priority claims, for a total amount of $2.4 million.  The
remaining $1.6 million will be used to execute an operational plan, including
but not limited to, reinvesting in the Satellite Services and Down-hole
Solutions businesses and pursue an emerging Digital Oilfield Services business.
The sale of the convertible preferred securities was conditioned on approval of
the Plan and as such, the securities were issued after the Merger became
effective in March 2008.





Note
Extension


A
pre-existing secured $1.12 million note with Berg McAfee Companies has been
extended for an additional three years from the Plan effective date of February
27, 2008 at eight-percent (8%) interest, and contains an option for the
principal and interest to be convertible into Company stock at the rate of one
share of common stock for each $0.20 of the note outstanding.





Debtor-in-Possession (“DIP”)
Loan


The
Bankruptcy court approved Blast’s ability to draw $800,000 from Berg McAfee and
related entities to finance Blast on a temporary basis.  The Plan
allowed Berg McAfee to convert the outstanding balance of the DIP loan and
accrued interest into Company common stock at the rate of one share of common
stock for each $0.20 of the DIP loan outstanding.  In March 2008 after
the Merger became effective, 4,000,000 shares of common stock were issued in
full payment of the principal on this loan, and 160,000 shares of common
stock were issued for the accrued interest on the obligation.





Director Fees
Conversions


Blast’s
Directors converted unsecured claims for unpaid directors fees from 2006
totaling $164,000, into 820,000 shares of Blast’s common stock at the rate of
one share of common stock for each $0.20 of the deferred amount
owed.





NOTE
5 – NOTES PAYABLE





Under the
terms of the Plan of Reorganization, Blast will carry three secured
obligations:





·
            A
      $2.1 million interest-free senior obligation with Laurus Master Fund,
      Ltd., secured by the assets of Blast and payable only by way of a 65%
      portion of the proceeds that may be received for the customer litigation
      lawsuits or any asset sales that may occur in the
  future;





·
            A
      $125,000 note to McClain County, Oklahoma for property taxes, which can
      also be paid from the receipt of litigation proceeds, or if not paid, it
      will convert into a six and one half percent (6.5%) interest bearing note
      due February 27, 2010, and due in twelve monthly installments of
      $10,417;  and





·
            A
      pre-existing secured $1.12 million note with Berg McAfee Companies has
      been extended for an additional three years from the effective date of the
      Plan (February 27, 2008) at eight-percent (8%) interest, and contains an
      option for the principal and interest to be convertible into Company stock
      at the rate of one share of common stock for each $0.20 of the note
      outstanding.


7


NOTE
6 – PREFERRED STOCK





In
January 2008, Blast sold the rights to an aggregate of 2,000,000 units each
consisting of four shares of Series A Convertible Preferred Stock, which
Preferred Stock is explained in greater detail below, and one three year warrant
with an exercise price of $0.10 per share (the “Units”), for an aggregate of
$4,000,000 or $2.00 per Unit, to Clyde Berg, an individual and to McAfee Capital
LLC, a limited liability company.  The sale of the Units was
conditioned upon approval of the Plan.  The shares of common stock
issuable in connection with the exercise of the warrants and in connection with
the conversion of the Preferred Stock were granted registration rights in
connection with the sale of the Units.  The proceeds from the sale of
the Units were used to satisfy creditor claims of about $2.4 million under the
terms of the Plan and working capital of $1.6 million.





Series A Convertible
Preferred Stock


The
8,000,000 shares of Series A Preferred Stock of Blast (the “Preferred Stock”)
accrue dividends at the rate of 8% per annum, in arrears for each month that the
Preferred Stock is outstanding.  Blast has the right to repay any or
all of the accrued dividends at any time by providing the holders of the
Preferred Stock at least five days written notice of their intent to repay such
dividends.  In the event Blast receives a “Cash Settlement,” defined
as an aggregate total cash settlement received by Blast, net of legal fees and
expenses, in connection with either (or both) of Blast’s pending litigation
proceedings with (i) Hallwood Petroleum, LLC and Hallwood Energy, LP (Adversary
Proceeding No. 07-03282 in the US Bankruptcy Court in Houston); and/or (ii)
Quicksilver Resources, Inc (Adversary Proceeding No. 07-03292 in the US
Bankruptcy Court in Houston), in excess of $4,000,000, Blast is required to pay
any and all outstanding dividends within thirty days in cash or stock at the
holder’s option.  If the dividends are not paid within thirty days of
the date the Cash Settlement is received, a “Dividend Default” occurs. As of
March 31, 2008, the aggregate and per share arrearages were $29,808 and $0.004,
respectively.





The
Preferred Stock (and any accrued and unpaid dividends on such Preferred Stock)
have optional conversion rights, which provide the holders of the Preferred
Stock the right, at any time, to convert the Preferred Stock into shares of
Blast’s common stock at a conversion price of $0.50 per share. The Preferred
Stock automatically converts into shares of Blast’s common stock at a conversion
price of $0.50 per share, if Blast’s common stock trades for a period of more
than twenty consecutive trading days at a price greater than $3.00 per share and
if the average trading volume of Blast’s common stock exceeds 50,000 shares per
day.





The
Preferred Stock has the right to vote at any shareholder vote the number of
underlying common shares of voting stock that the Preferred Stock is then
convertible into.  The Preferred Stock may be redeemed at the sole
option of Blast upon the receipt by Blast of a Cash Settlement from the pending
litigation in excess of $7,500,000, provided that the holders, at their sole
option, may have six months from the date of Blast’s receipt of the Cash
Settlement to either accept the redemption of the Preferred Stock or convert
such Preferred Stock into shares of Blast’s common stock.





Warrants


In
connection with the issuance of the Preferred Stock, Blast issued warrants to
purchase up to 4,000,000 shares of common stock at an exercise price of $0.10
per share.  These warrants have a three-year term. The relative fair
value of the warrants was approximately $446,000 on the date of
sale.  The relative fair value was determined utilizing the
Black-Scholes model.  The significant assumptions used in the
valuation were: the exercise price of $010; the market value of Blast’s common
stock on the date of issuance, $0.29; expected volatility of 131.41%; risk free
interest rate of 2.25%; and a term of three years.  Management has
evaluated the terms of the Convertible Preferred Stock and the issuance of
warrants in accordance with EITF 98-5 and EITF 00-27, and concluded that there
is not a beneficial conversion feature at the date of issuance.








8


NOTE
7 – BUSINESS SEGMENTS





Blast has
two reportable segments: Satellite Communications and Down-hole Solutions. Blast
evaluates performance and allocates resources based on profit or loss from
operations before other income or expense and income taxes.  The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies.  The table below
reports certain financial information by reportable segment for
the three months ended March 31, 2008 and 2007:





2008
            
            2007Revenues
      from external customersSatellite
      Communication
            
            $71,652
            
            $162,419Down-hole
      Solutions
            
            -
            
            -$71,652
            
            $162,419Operating
      profit (loss) 1Satellite
      Communication
            
            $(24,648)
            
            $45,028Down-hole
      Solutions
            
            (23,821)
            
            (6,793)Corporate
            
            (588,097)
            
            (1,903,502)$(636,566)
            
            $(1,865,267)1 –
      Operating profit/(loss) is total operating revenue less operating
      expenses, selling, general & administrative expenses, impairment of
      intellectual property, depreciation and amortization and bad
      debts.  It does not include other income and expense or income
      taxes.





NOTE
8 - LITIGATION





Emergence from
Bankruptcy





On
February 26, 2008, the Court entered an order confirming our Second Amended Plan
of Reorganization (the “Plan”).  This ruling allows the Debtors to
emerge from Chapter 11 bankruptcy, which became effective February 27,
2008.





The
overall impact of the confirmed Plan was for Blast to emerge from Chapter 11
bankruptcy which allowed unsecured claims to be fully paid, have no debt service
scheduled for at least two years, and to keep equity shareholders’ interests
intact.  The major components of the Plan, which was approved by
creditors and shareholders, are detailed below.





Under the
terms of this confirmed Plan, Blast has raised $4.0 million in cash proceeds
from the sale of convertible preferred securities to Clyde Berg and McAfee
Capital, two parties related to Blast’s largest shareholder, Berg McAfee
Companies.  The proceeds from the sale of the securities were used to
pay 100% of the allowed unsecured  claims, all allowed unsecured
administrative claims, and all statutory priority claims (unless a contrary
agreement was reached), for a total amount of $2.4 million.  The
remaining $1.6 million will be used to execute an operational plan, including
but not limited to, reinvesting in the Satellite Services and Down-hole
Solutions businesses and pursue an emerging Digital Oilfield Services
business.





The sale
of the convertible preferred securities was conditioned on approval of the Plan
and as such, the securities were issued after Blast successfully merged with its
wholly owned subsidiary, Blast Energy Services, Inc., a Texas corporation,
whereby Blast re-domiciled in the State of Texas.





This Plan
also preserves the equity interests of our existing shareholders. Furthermore,
Blast will continue to prosecute the litigation against Quicksilver and
Hallwood, if they are unable to meet the terms of the settlement agreement.
Blast has previously estimated these legal recoveries to be in the range of $15
million to $45 million (gross). Blast can make no assurances as to the outcome
or success of the Quicksilver litigation or that Hallwood can complete their
major financing and satisfy the terms of their settlement
agreement.





9


Non-Bankruptcy Related
Litigation Matters





Hallwood Energy/Hallwood
Petroleum Lawsuit


On
September 1, 2006, Hallwood Petroleum, LLC and Hallwood Energy, LP (“Hallwood”)
filed suit in the state district court of Tarrant County, Texas, against Eagle
Domestic Drilling Operations, LLC (“Eagle”), a wholly owned subsidiary of Blast,
and a separate company, Eagle Drilling, LLC. The lawsuit seeks to rescind two
IADC two-year term day rate drilling contracts between Eagle Drilling and
Hallwood, which had been assigned to Eagle by Eagle Drilling prior to Blast’s
acquisition of the membership interests of Eagle.  Hallwood alleged Eagle
Drilling and Eagle were in breach of the IADC contracts and it ceased
performance under the contracts.  Hallwood claimed that the rigs provided
for use under the IADC contracts did not meet contract specifications and that
the failures to meet such specifications are material breaches of the
contracts.  In addition, Hallwood has demanded that the remaining balance
of funds advanced under the contracts, in the amount of $1.65 million, be
returned. The Hallwood suit pending in Tarrant County, Texas is currently stayed
by operation of the automatic stay provided for in the US Bankruptcy Code as a
result of the Chapter 11 filing of Blast and its subsidiary, Eagle. Eagle
vigorously contests the claims by Hallwood and has instituted proceedings (“the
Adversary Proceeding”) to prosecute causes of action for breach of contract,
tortious interference and business disparagement against Hallwood in the US
Bankruptcy Court for the Southern District of Texas in
Houston.  Hallwood filed its counterclaim in the Adversary Proceeding,
largely mirroring the claim that was filed in the Tarrant County
litigation.





On April
3, 2008, Eagle and Hallwood signed an agreement to settle the litigation between
them for a total settlement amount of approximately $6.5 million. Under the
terms of this agreement, Hallwood will pay to Eagle $2.0 million in cash, issue
$2.75 million in equity from a pending major financing and has agreed to
irrevocably forgive approximately $1.65 million in deposits paid to Eagle
effective immediately. In return, Eagle has agreed to suspend its legal actions
against Hallwood for approximately six months.  Additionally, in the
event Hallwood is able to secure an aggregate of $20 million in bridge financing
prior to June 30, 2008, Hallwood will pay Eagle a $500,000 advance on its cash
obligation. Should Hallwood be unable to complete their major financing by
September 30, 2008, Eagle will immediately resume its legal actions against
Hallwood and the $500,000 advance will not be credited against any future
judgment or settlement amounts.  Upon receipt of the entire settlement
amount by Eagle, the parties and their affiliates will be fully and mutually
released from all and any claims between them. This settlement agreement has
been approved by both companies’ boards of directors but is subject to the
approval of the Bankruptcy Court.





Quicksilver Resources
Lawsuit


On
October 13, 2006, Quicksilver Resources, Inc. (“Quicksilver”) filed suit in the
state district court of Tarrant County, Texas against Eagle and a separate
company, Eagle Drilling, LLC. The lawsuit seeks to rescind three IADC two-year
term day rate contracts between Eagle Drilling and Quicksilver, which had been
assigned to Eagle by Eagle Drilling prior to Blast’s acquisition of Eagle. 
The lawsuit includes further allegations of other material breaches of the
contracts and negligent operation by Eagle and Eagle Drilling under the
contracts. Quicksilver asserts that performance under one of the contracts was
not timely and that mechanical problems of the rig provided under the contract
caused delays in its drilling operations.  Quicksilver repudiated the
remaining two contracts prior to the time for performance set forth in each
respective contract.  After Blast and Eagle filed their petition for
reorganization in the US Bankruptcy Court for the Southern District of Texas in
Houston, Quicksilver moved the lawsuit to the US Bankruptcy Court for the
Northern District of Texas.  On May 7, 2007, the US Bankruptcy Court
for the Northern District of Texas approved the motion filed by Eagle seeking to
have the lawsuit transferred to the US Bankruptcy Court for the Southern
District of Texas in Houston where its petition for reorganization under Chapter
11 of the US Bankruptcy Code was pending.  Subsequent to the transfer,
Eagle and Quicksilver entered into a stipulation that the lawsuit would be tried
in the Bankruptcy Court before a jury and the case was set for a jury trial in
September 2008.  On motion filed by Eagle Drilling, the US Bankruptcy
Court for the Southern District of Texas in Houston recommended that the US
District Court for the Southern District of Texas withdraw its reference of the
adversary proceeding to the Bankruptcy Court.  The District Court has
not yet acted on the Bankruptcy Court’s recommendation.  It is unknown
what, if any, affect the Bankruptcy Court’s recommendation will have on the date
for the trial of this matter.





Steinberger Derivative
Lawsuit (Settled)


Blast
entered into a settlement agreement with Mr. Steinberger in August 2005 in full
settlement of a lawsuit for wrongful dismissal between the parties. Such
settlement resulted in the creation of a $500,000 interest free note being made
in favor of Mr. Steinberger payable at June 30, 2007. Subsequently, Blast was
named as a party in the derivative lawsuit between Mr. Steinberger and his
attorney, Mr. Sessions but this case has now been settled and Mr. Steinberger
was paid $500,000 in full February 27, 2008.





10


Alberta Energy
Partners


Alberta
took a number of actions adverse to Blast during the course of the Chapter 11
case. Alberta filed a motion to appoint a trustee. That motion was denied.
Alberta filed a motion to deem rejected the Technology Purchase Agreement (the
“Agreement”) between Alberta and Blast. That motion was denied. Alberta filed a
motion to require Blast to reject the Agreement. That motion was denied, and
Alberta appealed the bankruptcy court’s rulings. No decision has been rendered
on that consolidated appeal of two orders. Alberta objected to the confirmation
of Blast’s plan of reorganization. That objection was overruled by the
bankruptcy court, and Alberta appealed. This appeal was dismissed by the
district court as moot. Blast objected to the proof of claim filed by Alberta
seeking rescission of the Agreement. Blast’s objection to the proof of claim was
sustained, and Alberta’s claim for rescission was disallowed by the bankruptcy
court. Alberta appealed the ruling on its claim, and that appeal is still
pending before the district court.





General


Other
than the aforementioned legal matters, Blast is not aware of any other pending
or threatened legal proceedings.  The foregoing is also true with
respect to each officer, director and control shareholder as well as any entity
owned by any officer, director and control shareholder, over the last five
years.





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





NOTE
9 – OTHER SUBSEQUENT EVENTS





Under the
Plan, Blast’s Board of Directors was given the authority to enter into long-term
warrant agreements with Blast’s senior management, and grant such senior
management the right to purchase up to 4,000,000 warrants to purchase shares of
Blast’s common stock at $0.20 per share, for a period of five
years.  During a meeting held in April 2008, the Compensation
Committee recommended to the Board of Directors that management be awarded
900,000 warrants out of the pool of 4,000,000. Upon full Board approval, such
warrant grants will be issued.





NOTE
10 – DISCONTINUED OPERATIONS





There are
no assets associated with the discontinued operations.  The
liabilities of the discontinued operations of Eagle are presented separately
under the captions “Current liabilities of discontinued operations” in the
accompanying balance sheet and are represented by the following:





March
      31,
              2008
            
            
            December
      31,
              2007Liabilities:Current
      Liabilities:Accrued
      liabilities
            
            $
            1,648,600
            
            
            $
            1,783,557Accounts
      payable
            
            
            464
            
            
            
            328,856Total
      Current Liabilities
            
            
            1,649,064
            
            
            
            2,112,413Long
      Term Liabilities:Notes
      payable
            
            
            125,000
            
            
            
            125,000Total
      Liabilities
            
            $
            1,774,064
            
            
            $
            2,237,413





11


Loss from
the discontinuance of drilling operations for the three months ended
March 31, 2008 and 2007 are as follows:





2008
            
            
            2007Revenue:Drilling
      Services
            
            $
            -
            
            
            $
            1,102,150Cost
      of services provided:Drilling
      Services
            
            
            3,667
            
            
            
            1,301,074Total
      Cost of Services Provided
            
            
            (3,667
            )
            
            
            (198,924
            )Depreciation
      and amortization
            
            
            -
            
            
            
            95,196Gross
      (deficit)
            
            
            (3,667
            )
            
            
            (294,120
            )Operating
      expenses:Selling,
      general and administrative
            
            
            644
            
            
            
            10,184Interest
      expense
            
            
            1,047
            
            
            
            1,348,402Total
      operating expenses
            
            
            1,691
            
            
            
            1,358,586Loss
      from discontinued operations
            
            
            (5,358
            )
            
            
            (1,652,706
            )Other
      Expenses
            
            
            (1,007
            )
            
            
            -Interest
      Income
            
            
            37
            
            
            
            7,111Net
      loss from discontinued operations
            
            $
            (6,328
            )
            
            $
            (1,645,595
            )





12


Item
2. Management’s Discussion and Analysis of Financial Condition and Results
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.





All
dollar amounts discussed in “Item 2” are rounded to the nearest $1,000
increment, or for larger numbers, to the nearest tenth of a million (e.g. “$1.4
million”).  Please consult the financial statements in “Item 1” for
exact dollar amounts.




Quarter
Ended March 31, 2008 Compared to March 31, 2007




Satellite Communications
Services





Satellite
Communication Services’ revenues decreased by $90,000 to $72,000 for the quarter
ended March 31, 2008 compared to $162,000 for the quarter ended March 31, 2007.
The decrease can be attributed to the decline in new business and existing
customer renewals during the time the Company was in Chapter 11. The operating
margin from Satellite Communication Services decreased by $70,000 to a loss of
$25,000 for the quarter ended March 31, 2008 compared to a gross profit of
$45,000 for the quarter ended March 31, 2007.





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, 2008 and 2007. We bill some of our bandwidth contracts in advance, but
recognize the revenue over the period benefited.





Down-hole
Solutions





There
were no Down-hole Solutions’ revenues for the quarters ended March 31, 2008 and
March 31, 2007. The development of this technology was put on hold due to cash
constraints prior to and while the Company was in Chapter 11 bankruptcy. The
operating loss from Down-hole Solutions increased by $17,000 to a loss of
$24,000 for the quarter ended March 31, 2008 compared to a loss of $7,000 for
the quarter ended March 31, 2007. Cost of services provided for Down-hole
Solutions for the quarter ended March 31, 2008 represent the payments made to
unsecured creditors following the settlement of claims during the bankruptcy
process for costs incurred while testing and repairing the AFJ process prior to
filing for Chapter 11 in January 2007.





Selling,
General and Administrative




Selling,
general and administrative (“SG&A”) expenses decreased by $1,293,000 to
$586,000 for the quarter ended March 31, 2008 compared to $1,879,000 for the
quarter ended March 31, 2007. The following table details major components of
SG&A expense over the periods (in thousands).




For
      the Quarter Ended March 31,
            Increase
              (Decrease)2008
            2007Payroll
      and related costs
            $
      169
            $
      81
            $
      88Option
      and warrant expense
            52
            1,063
            (1,011)Legal
      & settlement costs
            227
            547
            (320)External
      services
            71
            98
            (27)Insurance
            31
            41
            (10)Travel
      & entertainment
            13
            25
            (12)Office
      rent, Communications etc.
            23
            24
            (1)$
      586
            $
      1,879
            $
      (1,293)


13




Lower
administrative costs were primarily a result of our efforts to reduce
overhead costs while in Chapter 11, including lower legal fees as the bankruptcy
proceedings wound down.  Additionally, the administrative costs in
2007 included the calculation of non-cash expense associated with the employee
options issued with the rig acquisition while there were no such issuances in
the first quarter of 2008.







Depreciation
and Amortization





Depreciation
and amortization expense decreased by $22,000 to $2,000 for the quarter ended
March 31, 2008 compared to $24,000 for the quarter ended March 31,
2007.





Other
Expense





Total
other expense increased by $5,000 to $23,000 for the quarter ended March 31,
2008 compared to total other expense of $18,000 for the quarter ended March 31,
2007.





Loss from Continuing
Operations





Loss from
continuing operations decreased by $1,224,000 to $660,000 for the quarter ended
March 31, 2008 compared to $1,884,000 for the quarter ended March 31, 2007
primarily due to lower expenses.





Loss from Discontinued
Operations





The loss
from discontinued operations decreased by $1,639,000 to a loss of $6,000 for the
quarter ended March 31, 2008 compared to a loss of $1,646,000 for the quarter
ended March 31, 2007.    The decrease in loss is primarily
due to the significant reduction in operational activity resulting from
operations being discontinued during the first quarter of 2008.





Net Loss




The net
loss for the first quarter of 2008 decreased substantially to $0.6 million from
a loss of $3.5 million for the corresponding period in 2007. This decrease is
primarily related to the lower loss from discontinued operations arising from
the sale of our contract drilling business during 2007 and lower administrative
costs as described 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




Blast had
total current assets of $1,760,000 as of March 31, 2008, including a cash
balance of $1,572,000, compared to total current assets of $153,000 as of
December 31, 2007, including a cash balance of $49,000.  The increase
in current assets is principally due to the net cash remaining from the $4.0
million cash infusion from the sale of convertible preferred securities after
payments were made to creditors and legal professionals following confirmation
of the Plan.





Blast had
total assets as of March 31, 2008 of $2.8 million compared to total assets of
$1.2 million for the year ended December 31, 2007.  This increase is
related to the increase in current assets as described above.





Blast had
total liabilities of $5.8 million as of March 31, 2008, consisting of current
liabilities of $2.5 million compared to total liabilities of $8.6 million as of
December 31, 2007, consisting of current liabilities of $6.4
million.  The decrease in liabilities is principally due to the
reduction in accrued liabilities and accounts payable from payments made to
creditors and legal professionals following confirmation of the
Plan.





Included
in total current liabilities was $1.65 million payable in connection with
Blast’s discontinued operations and is related to the dispute with Hallwood.
However, under the terms of the April 2008 Settlement Agreement, Hallwood has
forgiven this obligation.





14


Included
in total long-term liabilities were:





·
            A
      $2.1 million interest-free senior obligation with Laurus Master Fund,
      Ltd., secured by the assets of Blast and payable only by way of a 65%
      portion of the proceeds that may be received for the customer litigation
      lawsuits or any asset sales that may occur in the
  future;





·
            A
      $125,000 note to McClain County, Oklahoma for property taxes, which can
      also be paid from the receipt of Quicksilver litigation proceeds, or if
      not paid, it will convert into a six and one half percent (6.5%) interest
      bearing note due February 27, 2010, and due in twelve monthly installments
      of $10,417;  and





·
            A
      pre-existing secured $1.12 million note with Berg McAfee Companies has
      been extended for an additional three years from the effective date of the
      Plan (February 27, 2008) at eight-percent (8%) interest, and contains an
      option for the principal and interest to be convertible into Company stock
      at the rate of one share of common stock for each $0.20 of the note
      outstanding.





Blast had
a negative net working capital of $0.7 million and a total accumulated deficit
of $78.6 million as of March 31, 2008.





Cash
Flows from Operating Activities





We had
net cash used in operating activities of approximately $1,773,000 for the
quarter ended March 31, 2008, which was mainly due to a $666,000 net loss and a
$957,000 decrease in accounts payable.





Cash Flows from Financing
Activities





We had
net cash provided by financing activities of $3,558,000 for the quarter ended
March 31, 2008. Net cash provided by financing activities for the quarter ended
March 31, 2008, included $4,000,000 from issuing convertible preferred stock and
$100,000 of borrowings under our DIP loan facility offset by $543,000 of
payments on short term debt.





In
connection with the approval of Blast’s Bankruptcy Plan, Blast raised $4.0
million in cash proceeds from the sale of convertible preferred securities to
Clyde Berg and McAfee Capital, two parties related to Blast’s largest
shareholder, Berg McAfee Companies.  The proceeds from the sale of the
securities were used to pay 100% of the unsecured creditor claims, all
administrative claims, and all statutory priority claims, for a total amount of
approximately $2.4 million.  The remaining approximately $1.6 million
will be used to execute an operational plan, including but not limited to,
reinvesting in the Satellite Services and Down-hole Solutions businesses and
pursue an emerging Digital Oilfield Services business.





We have
no current commitment from our officers and Directors or any of our shareholders
to supplement our operations or provide us with financing in the future. If we
are unable to raise additional capital from conventional sources and/or
additional sales of stock in the future, we may be forced to curtail or cease
our operations. Even if we are able to continue our operations, the failure to
obtain financing could have a substantial adverse effect on our business and
financial results.




In the
future, we may be required to seek additional capital by selling debt or equity
securities, selling assets, or otherwise be required to bring cash flows in
balance when we approach a condition of cash insufficiency. The sale of
additional equity or debt securities, if accomplished, may result in dilution to
our then shareholders. We provide no assurance that financing will be available
in amounts or on terms acceptable to us, or at all.




Cash Flows from Discontinued
Operations
 
 We had
approximately $4,000 and ($884,000) of net cash provided by (or used
in) discontinued operations for the three months ended March 31, 2008
and 2007, respectively.


Item
3. Quantitative and Qualitative Disclosures about Market Risk





Pursuant
to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to
provide the information required by this Item as it is a “smaller reporting
company,” as defined by Rule 229.10(f)(1).





15


Item
4. 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





Emergence from
Bankruptcy





On
February 26, 2008, the Court entered an order confirming our Second Amended Plan
of Reorganization (the “Plan”).  This ruling allows the Debtors to
emerge from Chapter 11 bankruptcy, which became effective February 27,
2008.





The
overall impact of the confirmed Plan was for Blast to emerge with allowed
unsecured claims fully paid, have no debt service scheduled for at least two
years, and to keep equity shareholders’ interests intact.  The major
components of the Plan, which was overwhelmingly approved by creditors and
shareholders, are detailed below.





Under the
terms of this confirmed Plan, Blast has raised $4.0 million in cash proceeds
from the sale of convertible preferred securities to Clyde Berg and McAfee
Capital, two parties related to Blast’s largest shareholder, Berg McAfee
Companies.  The proceeds from the sale of the securities were used to
pay 100% of the allowed unsecured  claims, all allowed unsecured
administrative claims, and all statutory priority claims (unless a contrary
agreement was reached), for a total amount of $2.4 million.  The
remaining $1.6 million will be used to execute an operational plan, including
but not limited to, reinvesting in the Satellite Services and Down-hole
Solutions businesses and pursue an emerging Digital Oilfield Services
business.





The sale
of the convertible preferred securities was conditioned on approval of the Plan
and as such, the securities were issued after Blast successfully merged with its
wholly owned subsidiary, Blast Energy Services, Inc., a Texas corporation,
whereby Blast re-domiciled in the State of Texas.





This Plan
also preserves the equity interests of our existing shareholders. Furthermore,
Blast will continue to prosecute the litigation against Quicksilver and
Hallwood, if they are unable to meet the terms of the settlement agreement.
Blast has previously estimated these legal recoveries to be in the range of $15
million to $45 million (gross). Blast can make no assurances as to the outcome
or success of the Quicksilver litigation or that Hallwood can complete their
major financing and satisfy the terms of their settlement
agreement.





Under the
terms of the Plan, Blast will carry three secured obligations:





·
            A
      $2.1 million interest-free senior obligation with Laurus, that is secured
      by the assets of Blast and is payable only by way of a 65% portion of the
      proceeds that may be received for the customer litigation lawsuits or any
      asset sales that may occur in the future;
and





·
            A
      $125,000 note to McClain County, Oklahoma for property taxes, which can
      also be paid from the receipt of litigation proceeds from Quicksilver, or
      if not paid, it will convert into a six and one half percent (6.5%)
      interest bearing note in February 27, 2010, due in twelve monthly
      installments of
$10,417;  and





·
            A
      pre-existing secured $1.12 million eight-percent (8%) note with Berg
      McAfee Companies has been extended for an additional three years from
      February 27, 2008 and contains an option to be convertible into Company
      stock at the rate of one share of common stock for each $0.20 of the note
      outstanding.


16


Non-Bankruptcy Related
Litigation Matters





Hallwood Energy/Hallwood
Petroleum Lawsuit


On
September 1, 2006, Hallwood Petroleum, LLC and Hallwood Energy, LP (“Hallwood”)
filed suit in the state district court of Tarrant County, Texas, against Eagle
Domestic Drilling Operations, LLC (“Eagle”), a wholly owned subsidiary of Blast,
and a separate company, Eagle Drilling, LLC. The lawsuit seeks to rescind two
IADC two-year term day rate drilling contracts between Eagle Drilling and
Hallwood, which had been assigned to Eagle by Eagle Drilling prior to Blast’s
acquisition of the membership interests of Eagle.  Hallwood alleged Eagle
Drilling and Eagle were in breach of the IADC contracts and it ceased
performance under the contracts.  Hallwood claimed that the rigs provided
for use under the IADC contracts did not meet contract specifications and that
the failures to meet such specifications are material breaches of the
contracts.  In addition, Hallwood has demanded that the remaining balance
of funds advanced under the contracts, in the amount of $1.65 million, be
returned. The Hallwood suit pending in Tarrant County, Texas is currently stayed
by operation of the automatic stay provided for in the US Bankruptcy Code as a
result of the Chapter 11 filing of Blast and its subsidiary, Eagle. Eagle
vigorously contests the claims by Hallwood and has instituted proceedings (“the
Adversary Proceeding”) to prosecute causes of action for breach of contract,
tortious interference and business disparagement against Hallwood in the US
Bankruptcy Court for the Southern District of Texas in
Houston.  Hallwood filed its counterclaim in the Adversary Proceeding,
largely mirroring the claim that was filed in the Tarrant County
litigation.  Eagle and Hallwood have discussed potential settlements
to this litigation; however, there can be no assurance that any settlement will
be reached, or that it will be on favorable terms to Eagle.  The
parties’ have agreed to try the case in the US Bankruptcy Court for the Southern
District of Texas in Houston.  This agreement was approved by the US
Bankruptcy Court and a trial date was scheduled for May 20, 2008 prior to the
parties entering into the settlement agreement described below.





On April
3, 2008, Eagle and Hallwood signed an agreement to settle the litigation between
them for a total settlement amount of approximately $6.5 million. Under the
terms of this agreement, Hallwood will pay to Eagle $2.0 million in cash, issue
$2.75 million in equity from a pending major financing and has agreed to
irrevocably forgive approximately $1.65 million in Eagle payment obligations
effective immediately. In return, Eagle has agreed to suspend its legal actions
against Hallwood for approximately six months.  Additionally, in the
event Hallwood is able to secure an aggregate of $20 million in bridge financing
prior to June 30, 2008, Hallwood will pay Eagle a $500,000 advance on its cash
obligation. Should Hallwood be unable to complete their major financing by
September 30, 2008, Eagle will immediately resume its legal actions against
Hallwood and the $500,000 advance will not be credited against any future
judgment or settlement amounts.  Upon receipt of the entire settlement
amount by Eagle, the parties and their affiliates will be fully and mutually
released from all and any claims between them. This settlement agreement has
been approved by both companies’ boards of directors but is subject to the
approval of the Bankruptcy Court.





Quicksilver Resources
Lawsuit


On
October 13, 2006, Quicksilver Resources, Inc. (“Quicksilver”) filed suit in the
state district court of Tarrant County, Texas against Eagle and a separate
company, Eagle Drilling, LLC. The lawsuit seeks to rescind three IADC two-year
term day rate contracts between Eagle Drilling and Quicksilver, which had been
assigned to Eagle by Eagle Drilling prior to Blast’s acquisition of the
membership interests of Eagle.  The lawsuit includes further allegations of
other material breaches of the contracts and negligent operation by Eagle and
Eagle Drilling under the contracts. Quicksilver asserts that performance under
one of the contracts was not timely and that mechanical problems of the rig
provided under the contract caused delays in its drilling
operations.  Quicksilver repudiated the remaining two contracts prior
to the time for performance set forth in each respective contract.  After
Blast and Eagle filed their petition for reorganization in the US Bankruptcy
Court for the Southern District of Texas in Houston, Quicksilver removed the
lawsuit to the US Bankruptcy Court for the Northern District of
Texas.  On May 7, 2007, the US Bankruptcy Court for the Northern
District of Texas approved the motion filed by Eagle seeking to have the lawsuit
transferred to the US Bankruptcy Court for the Southern District of Texas in
Houston where its petition for reorganization under Chapter 11 of the US
Bankruptcy Code was pending.  Subsequent to the transfer, Eagle and
Quicksilver entered into a stipulation that the lawsuit would be tried in the
Bankruptcy Court before a jury and the case was set for a jury trial in
September 2008.  On motion filed by Eagle Drilling, the US Bankruptcy
Court for the Southern District of Texas in Houston recommended that the US
District Court for the Southern District of Texas withdraw its reference of the
adversary proceeding to the Bankruptcy Court.  The District Court has
not yet acted on the Bankruptcy Court’s recommendation.  It is unknown
what, if any, affect the Bankruptcy Court’s recommendation will have on the date
for the trial of this matter.





17


Steinberger Derivative
Lawsuit (Settled)


Blast
entered into a settlement agreement with Mr. Steinberger in August 2005 in full
settlement of a lawsuit for wrongful dismissal between the parties. Such
settlement resulted in the creation of a $500,000 interest free note being made
in favor of Mr. Steinberger on Blast’s books payable at June 30, 2007.
Subsequently, Blast was named as a party in the derivative lawsuit between Mr.
Steinberger and his attorney, Mr. Sessions but this case has now been settled
and Mr. Steinberger was paid $500,000 in full February 27, 2008.





Alberta Energy
Partners


Alberta
took a number of actions adverse to Blast during the course of the Chapter 11
case. Alberta filed a motion to appoint a trustee. That motion was denied.
Alberta filed a motion to deem rejected the Technology Purchase Agreement (the
“Agreement”) between Alberta and Blast. That motion was denied. Alberta filed a
motion to require Blast to reject the Agreement. That motion was denied, and
Alberta appealed the bankruptcy court’s rulings. No decision has been rendered
on that consolidated appeal of two orders. Alberta objected to the confirmation
of Blast’s plan of reorganization. That objection was overruled by the
bankruptcy court, and Alberta appealed. This appeal was dismissed by the
district court as moot. Blast objected to the proof of claim filed by Alberta
seeking rescission of the Agreement. Blast’s objection to the proof of claim was
sustained, and Alberta’s claim for rescission was disallowed by the bankruptcy
court. Alberta appealed the ruling on its claim, and that appeal is still
pending before the district court.





General


Other
than the aforementioned legal matters, Blast is not aware of any other pending
or threatened legal proceedings.  The foregoing is also true with
respect to each officer, director and control shareholder as well as any entity
owned by any officer, director and control shareholder, over the last five
years.





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





Item
1A. Risk Factors





There
have been no material changes from the risk factors previously disclosed in the
registrant’s Form 10-K.





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





In
January 2008, Blast sold the rights to an aggregate of 2,000,000 units each
consisting of four shares of Series A Convertible Preferred Stock, which
Preferred Stock is explained in greater detail below, and one three year warrant
with an exercise price of $0.10 per share (the “Units”), for an aggregate of
$4,000,000 or $2.00 per Unit, to Clyde Berg, an individual and to McAfee Capital
LLC, a limited liability company.  The sale of the Units was
conditioned upon approval of the Plan.  The shares of common stock
issuable in connection with the exercise of the warrants and in connection with
the conversion of the Preferred Stock were granted registration rights in
connection with the sale of the Units.  We claim an exemption from
registration afforded by Section 4(2) of the Act since the foregoing issuances
did not involve a public offering, the recipients took the Units for investment
and not resale and we took appropriate measures to restrict transfer.  The
proceeds from the sale of the Units were used to satisfy creditor claims of
about $2.4 million under the terms of the Plan and working capital of $1.6
million.





Series A Convertible
Preferred Stock


The
8,000,000 shares of Series A Preferred Stock of Blast (the “Preferred Stock”)
accrue dividends at the rate of 8% per annum, in arrears for each month that the
Preferred Stock is outstanding.  Blast has the right to repay any or
all of the accrued dividends at any time by providing the holders of the
Preferred Stock at least five days written notice of their intent to repay such
dividends.  In the event Blast receives a “Cash Settlement,” defined
as an aggregate total cash settlement received by Blast, net of legal fees and
expenses, in connection with either (or both) of Blast’s pending litigation
proceedings with (i) Hallwood Petroleum, LLC and Hallwood Energy, LP (Adversary
Proceeding No. 07-03282 in the US Bankruptcy Court in Houston); and/or (ii)
Quicksilver Resources, Inc (Adversary Proceeding No. 07-03292 in the US
Bankruptcy Court in Houston), in excess of $4,000,000, Blast is required to pay
any and all outstanding dividends within thirty days in cash or stock at the
holder’s option.  If the dividends are not paid within thirty days of
the date the Cash Settlement is received, a “Dividend Default” occurs. As of
March 31, 2008, the aggregate and per share arrearages were $29,808 and $0.004,
respectively.


18


Additionally,
the Preferred Stock (and any accrued and unpaid dividends on such Preferred
Stock) have optional conversion rights, which provide the holders of the
Preferred Stock the right, at any time, to convert the Preferred Stock into
shares of Blast’s common stock at a conversion price of $0.50 per share. The
Preferred Stock automatically converts into shares of Blast’s common stock at a
conversion price of $0.50 per share, if Blast’s common stock trades for a period
of more than twenty consecutive trading days at a price greater than $3.00 per
share and if the average trading volume of Blast’s common stock exceeds 50,000
shares per day.





The
Preferred Stock has the right to vote at any shareholder vote the number of
underlying common shares of voting stock that the Preferred Stock is then
convertible into.  The Preferred Stock may be redeemed at the sole
option of Blast upon the receipt by Blast of a Cash Settlement from the pending
litigation in excess of $7,500,000, provided that the holders, at their sole
option, may have six months from the date of Blast’s receipt of the Cash
Settlement to either accept the redemption of the Preferred Stock or convert
such Preferred Stock into shares of Blast’s common stock.





Warrants


In
connection with the issuance of the Preferred Stock, Blast issued warrants to
purchase up to 4,000,000 shares of common stock at an exercise price of $0.10
per share.  These warrants have a three-year term. The relative fair
value of the warrants was approximately $446,000 on the date of
sale.  The relative fair value was determined utilizing the
Black-Scholes model.  The significant assumptions used in the
valuation were: the exercise price of $010; the market value of Blast’s common
stock on the date of issuance, $0.29; expected volatility of 131.41%; risk free
interest rate of 2.25%; and a term of three years.  Management has
evaluated the terms of the Convertible Preferred Stock and the issuance of
warrants in accordance with EITF 98-5 and EITF 00-27, and concluded that there
is not a beneficial conversion feature at the date of issuance.





Debtor-in-Possession (“DIP”)
Loan


The
Bankruptcy court approved Blast’s ability to draw $800,000 from Berg McAfee and
related entities to finance Blast on a temporary basis.  The Plan
allowed Berg McAfee to convert the outstanding balance of the DIP loan and
accrued interest into Company common stock at the rate of one share of common
stock for each $0.20 of the DIP loan outstanding.  In March 2008 after
the Merger became effective, 4,000,000 shares of common stock were issued in
full payment of the principal on this loan, and 160,000 shares of common stock
were issued for the accrued interest on the obligation.  We claim an
exemption from registration afforded by Section 4(2) of the Act since the
foregoing issuances did not involve a public offering, the recipients took the
shares for investment and not resale and we took appropriate measures to
restrict transfer. No underwriters or agents were involved in the foregoing
issuances and no underwriting discounts or commissions were paid by
us.





Director Fees
Conversions


Blast’s
Directors converted unsecured claims for unpaid directors fees from 2006
totaling $164,000, into 820,000 shares of Blast’s common stock at the rate of
one share of common stock for each $0.20 of the deferred amount
owed.  We claim an exemption from registration afforded by Section
4(2) of the Act since the foregoing issuances did not involve a public offering,
the recipients took the shares for investment and not resale and we took
appropriate measures to restrict transfer. No underwriters or agents were
involved in the foregoing issuances and no underwriting discounts or commissions
were paid by us.





Additionally,
under the Plan, Blast’s Board was given the authority to enter into long-term
warrant agreements with senior management, and grant them the right to purchase
up to 4,000,000 warrants to purchase shares of Blast’s common stock at $0.20 per
share, for a period of five years.  During a meeting held in April
2008, the Compensation Committee recommended to the Board of Directors that
management be awarded 900,000 warrants out of the pool of 4,000,000. Upon full
Board approval, such warrant grants will be issued.  We will claim an
exemption from registration afforded by Section 4(2) of the Act since the
foregoing issuances will not involve a public offering, the recipients will take
the warrants for investment and not resale and we will take appropriate measures
to restrict transfer. No underwriters or agents were involved in the foregoing
grants and no underwriting discounts or commissions were paid by
us.





Second Bridge Share
Cancellation


Under the
terms of the Plan and pursuant to the settlement agreement approved on May 14,
2007, Blast repurchased 900,000 shares of common stock previously issued to
Second Bridge LLC for $900. These shares were returned to Blast’s transfer agent
and cancelled.





19


Item
6. Exhibits





2.1
            
            Agreement
      and Plan of Reorganization, dated April 24, 2003, as amended June 30,
      2003;
              Filed
      July 18, 2003 with the SEC, Report on Form 8-K2.2
            
            Articles
      of Merger (California and Texas)
              Filed
      on April 7, 2008, as an Exhibit to our Form 10-KSB
  filing3.1
            
            Certificate
      of Formation Texas
              Filed
      March 6, 2008 with the SEC, Form 8-K3.2
            
            Certificate
      of Designation of Series A Preferred Stock
              Filed
      March 6, 2008 with the SEC, Form 8-K3.3
            
            Bylaws
      of Blast Energy Services, Inc., Texas
              Filed
      March 6, 2008 with the SEC, Form 8-K4.1
            
            $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, 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, Form 8-K10.1
            
            Second
      Amended Plan of Reorganization
              Filed
      March 6, 2008 with the SEC, Form 8-K10.2
            
            First
      Amended Plan of Reorganization
              Filed
      March 6, 2008 with the SEC, Form 8-K10.3
            
            Subscription
      Agreement and Related Exhibits with Clyde Berg
              Filed
      March 6, 2008 with the SEC, Form 8-K10.4
            
            Subscription
      Agreement and Related Exhibits with McAfee Capital, LLC
              Filed
      March 6, 2008 with the SEC, Form 8-K10.5
            
            Laurus
      Master Fund, Ltd. $2.1 million Security Agreement
              Filed
      March 6, 2008 with the SEC, Form 8-K10.6
            
            Berg
      McAfee Companies $1.12 million Note
              Filed
      March 6, 2008 with the SEC, Form 8-K10.7
            
            Settlement
      Agreement
              Filed
      on May 14, 2007 with the SEC, Form 8-K10.8
            
            Eagle
      Domestic Drilling Operations LLC and Hallwood Energy, LP and Hallwood
      Petroleum LLC  Settlement Agreement
              Filed
      on April 7, 2008, as an Exhibit to our Form 10-KSB
  filing*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


20





SIGNATURES




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




Blast Energy Services,
  Inc.By:
            /s/
      John O’Keefe, CEOJohn
      O’KeefeChief
      Executive OfficerPrincipal
      Executive OfficerDate:
      April 30, 2008By:
            /s/
      John MacDonald, CFOJohn
      MacDonaldChief
      Financial OfficerPrincipal
      Accounting OfficerDate:
      April 30, 2008