**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
        10-QSB/A**




(Mark
      One)




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




For
      the
      quarterly period ended September 30, 2005




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




For
      the
      transition period from  to




**333-64122**


**(Commission
      file number)**




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


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




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




**14550
      Torrey Chase Blvd, Suite 330**


**Houston,
      Texas 77014**


**(Address
      of principal executive offices)**




**(281)
      453-2888**


**(Issuer’s
      telephone number)**




**Verdisys,
      Inc.**


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




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  ̈ No 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




The
      number of shares outstanding of each of the issuer’s classes of common equity as
      of November 8, 2005: 40,482,206 shares of common stock




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




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






1


**Explanatory
          Note**
  Blast
          Energy Services, Inc. (fka Verdisys, Inc.) is filing this amended Quarterly
          Report on Form 10-QSB/A for the quarterly period ended September 30, 2005
          (the
“Amended Quarterly Report”), to amend its Quarterly Report on Form 10-QSB for
          the quarterly period ending September 30, 2005 (the “Original Quarterly
          Report”), which was filed with the Securities and Exchange Commission on
          November 14, 2005.
 
 The
          Amended Quarterly Report amends the disclosure under the Part I, Item 1
          “Financial Statements,” Part I, Item 2 “Management’s Discussion and Analysis and
          Plan of Operation” and Part I, Item 3 “Controls and Procedures.” Except for
          these items, no other information in the Original Quarterly Report is amended
          hereby.








**Blast
      Energy Services, Inc.**




**Index**




**Page**
              **Number**PART I.
            FINANCIAL
                INFORMATIONItem 1.
            Financial
                Statements
            3Item 2.
            Management’s
                Discussion and Analysis or Plan of Operation
            13Item 3.
            Controls
                and Procedures
            17Part II.
            OTHER
                INFORMATIONItem 1.
            Legal
                Proceedings
            17Item 2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            17Item 4.
            Submission
                of Matters to a Vote of Security Holders
            17Item 6.
            Exhibits
                and Reports on Form 8-K
            18SIGNATURES
            20





2


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


**(F** **ORMERLY** **V** **ERDISYS** **,
      I** **NC** **.)**




**PART
      I. FINANCIAL INFORMATION**




**ITEM 1.**  **Financial
      Statements**




**Page**
              **Number**Balance
                Sheet as of September 30, 2005
            4Statements
                of Operations, for the three and nine months ended September 30, 2005
                and 2004
            5Statements
                of Cash Flow, for the nine months ended September 30, 2005 and
                2004
            6Notes
                to Financial Statements
            7




3


BLAST
      ENERGY SERVICES, INC.


(Formerly
      Verdisys, Inc.)


BALANCE
      SHEET


(Unaudited)


September
      30, 2005




Assets
              
              **(Restated)**Current
                  Assets:Cash
              
              $
              311,715Accounts
                  receivable, net of allowance for doubtful accounts of
                  $10,290
              
              
              197,015License
                  Receivable
              
              
              765,000Other
                  current assets
              
              
              69,055Total
                  Current Assets
              
              
              1,342,785Equipment,
                  net of accumulated depreciation of $143,611
              
              
              1,055,088Licenses,
                  net of accumulated amortization of $6,964
              
              
              1,163,036Total
                  Assets
              
              $
              3,560,909Liabilities
                  and Stockholder’s EquityCurrent
                  LiabilitiesAccounts
                  payable
              
              $
              696,824Accrued
                  expenses
              
              
              952,301Advances-related
                  parties
              
              
              900,000Deferred
                  revenue
              
              
              216,668Customer
                  deposits
              
              
              76,850Notes
                  payable-related parties, net of unamortized discount of
                  $23,840
              
              
              176,160Notes
                  payable-other, net of unamortized discount of $17,369
              
              
              377,631Total
                  Current Liabilities
              
              
              3,396,434Long
                  Term Liabilities:Note
                  payable-other
              
              
              500,000Deferred
                  revenue, less current portion
              
              
              6,780Total
                  Liabilities
              
              
              3,903,214Commitments
                  and Contingencies
              
              
              —Stockholder’
                  Equity:Common
                  Stock, $.001 par value, 100,000,000 shares authorized; 40,486,206
                  shares
                  issued and outstanding
              
              
              40,482Additional
                  paid in capital
              
              
              29,176,819Accumulated
                  deficit
              
              
              (29,559,606
              )Total
                  Stockholders’ Equity
              
              
              (342,305
              )Total
                  Liabilities and Stockholders’ Equity
              
              $
              3,560,909




4


BLAST
      ENERGY SERVICES, INC.


(Formerly
      Verdisys, Inc.)


STATEMENTS
      OF OPERATIONS


(Unaudited)




**For
                  the Three Months**
                **Ended
                  September 30,**
              
              **For
                  the Nine Months**
                **Ended
                  September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Revenue:
              
              
              **(Restated)**
              
              
              
              
              
              **(Restated)**Satellite
                  Communications
              
              $
              293,937
              
              $
              154,906
              
              $
              802,712
              
              $
              401,705Downhole
                  Services
              
              
              8,500
              
              
              427,519
              
              
              27,491
              
              
              694,180Total
                  Revenue
              
              
              302,437
              
              
              582,425
              
              
              830,203
              
              
              1,095,885Cost
                  of Services Provided:Satellite
                  Communications
              
              
              217,979
              
              
              153,668
              
              
              603,097
              
              
              464,874Downhole
                  Services
              
              
              113,493
              
              
              272,080
              
              
              351,045
              
              
              688,906Total
                  Cost of Services Provided
              
              
              331,472
              
              
              425,748
              
              
              954,142
              
              
              1,153,780Gross
                  Margin (Deficit)
              
              
              (29,035
              )
              
              156,677
              
              
              (123,939
              )
              
              (57,895
              )Operating
                  Expenses:Selling,
                  general and administrative
              
              
              963,581
              
              
              936,591
              
              
              2,485,545
              
              
              3,382,053Depreciation
                  and amortization
              
              
              27,182
              
              
              130,051
              
              
              76,670
              
              
              395,982Bad
                  debts
              
              
              —
              
              
              50,000
              
              
              10,000
              
              
              50,000Operating
                  Loss
              
              
              (1,019,798
              )
              
              (959,965
              )
              
              (2,696,154
              )
              
              (3,885,930
              )Other
                  (Income) Expense:Interest
                  expense
              
              
              50,400
              
              
              14,544
              
              
              147,262
              
              
              454,422(Gain)
                  loss on sale of equipment
              
              
              —
              
              
              1,900
              
              
              (971
              )
              
              1,900Other
                  Income
              
              
              (350,000
              )
              
              
              
              
              (350,000
              )Interest
                  income
              
              
              —
              
              
              (31
              )
              
              (4
              )
              
              (48
              )Total
                  other (income) expense
              
              
              (299,600
              )
              
              16,413
              
              
              (203,713
              )
              
              456,274Net
                  Loss
              
              $
              (720,198
              )
              $
              (976,378
              )
              $
              (2,492,441
              )
              $
              (4,342,204
              )Basic
                  and diluted net loss per share
              
              $
              (0.02
              )
              $
              (0.03
              )
              $
              (0.07
              )
              $
              (0.14
              )Weighted
                  average shares outstanding
              
              
              38,034,048
              
              
              31,523,265
              
              
              36,309,792
              
              
              30,986,520




5


BLAST
      ENERGY SERVICES, INC.


(Formerly
      Verdisys, Inc.)


STATEMENTS
      OF CASH FLOWS


(Unaudited)




**For
                  the Nine Months**
                **Ended
                  September 30,****2005**
              
              **2004**Cash
                  Flows from Operating Activities:
              
              
              **(Restated)**Net
                  loss
              
              $
              (2,492,441
              )
              $
              (4,342,204
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Stock
                  issued for services or litigation
              
              
              1,066,761
              
              
              948,192Option
                  and warrant expense
              
              
              75,000
              
              
              290,844Amortization
                  of note discount
              
              
              91,235
              
              
              25,685Depreciation
                  and amortization
              
              
              76,670
              
              
              395,982(Gain)
                  loss on sale of equipment
              
              
              (971
              )
              
              1,900Note
                  payable issued for lawsuit settlement
              
              
              500,000
              
              
              —Bad
                  debts
              
              
              10,000
              
              
              50,000Change
                  in working capital items
              
              
              395,699
              
              
              844,726Net
                  Cash Used in Operating Activities
              
              
              (278,047
              )
              
              (1,784,875
              )Cash
                  Flows from Investing Activities:Purchase
                  of property and equipment
              
              
              (1,000
              )
              
              (3,705
              )Proceeds
                  from sale of equipment
              
              
              —
              
              
              12,500Construction
                  of equipment
              
              
              (812,955
              )
              
              —Net
                  Cash Provided by Investing Activities
              
              
              (813,955
              )
              
              8,795Cash
                  Flows from Financing Activities:Proceeds
                  from sale of stock
              
              
              241,500
              
              
              359,000Proceeds
                  from exercise of options and warrants
              
              
              300
              
              
              81,217Advance
                  on future financing
              
              
              900,000
              
              
              —Proceeds
                  from notes payable to stockholders
              
              
              —
              
              
              220,000Payments
                  on notes payable
              
              
              (5,000
              )
              
              —Payments
                  on notes payable to stockholders
              
              
              —
              
              
              (35,000
              )Payments
                  on note payable related to license
              
              
              —
              
              
              (500,000
              )Proceeds
                  from convertible notes
              
              
              —
              
              
              400,000Net
                  Cash Provided by Financing Activities
              
              
              1,136,800
              
              
              525,217Net
                  change in cash
              
              
              44,798
              
              
              (1,250,863
              )Cash
                  at beginning of period
              
              
              266,917
              
              
              1,373,627Cash
                  at end of period
              
              $
              311,715
              
              $
              122,764Non-Cash
                  Transactions:Conversion
                  of accounts payable to common stock
              
              $
              206,737
              
              $
              —Exchange
                  of equipment for customer deposit
              
              
              175,000
              
              
              —Exchange
                  of equipment for accounts payable
              
              
              3,883
              
              
              —Conversion
                  of notes payable and accrued interest to common stock
              
              
              225,966
              
              
              1,184,808Conversion
                  of accrued bonuses to common stock
              
              
              197,474
              
              
              —Discount
                  on notes payable
              
              
              —
              
              
              133,746Exchange
                  of intangible for 3 million shares of common stock
              
              
              1,170,000
              
              
              —




6


**BLAST
      ENERGY SERVICES, INC.**


**(F** **ORMERLY** **V** **ERDISYS** **,
      I** **NC** **.)**


**NOTES
      TO FINANCIAL STATEMENTS**


(Unaudited)




**NOTE
      1 - BASIS OF PRESENTATION**




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




Effective
      June 6, 2005, the Company changed its name to Blast Energy Services, Inc.
      from Verdisys, Inc. in part to reflect its focus on the energy service business.
      The Company believes such a name change creates better name recognition related
      to the types of service that it intends to provide and the ability to trademark
      new applications and services in a way to uniquely identify them with our
      company.




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




**NOTE
      2 - GOING CONCERN**




As
        shown
        in the accompanying financial statements, Blast Energy incurred a net loss
        of
        $2.5 million for the nine months ended September 30, 2005, has an
        accumulated deficit of $29.6 million and a working capital deficit of $2.0
        million as of September 30, 2005 and has several significant future
        financial obligations. These conditions create an uncertainty as to Blast
        Energy’s ability to continue as a going concern. Management is trying to raise
        additional capital. The financial statements do not include any adjustments
        that
        might be necessary if Blast Energy is unable to continue as a going concern.




**NOTE
      3 - STOCK OPTIONS**




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




In
      the
      third quarter of 2005, Blast Energy granted 90,000 ten-year options to employees
      with an exercise price at the then market price of $0.40. The options vest
      quarterly over 36 months. There was no intrinsic value associated with the
      grant, however, fair value totaled $27,114. Blast Energy also reinstated 900,000
      options related to a settlement agreement in the third quarter of 2005. The
      options are fully vested at date of issue and have an exercise price of $0.10.
      Only 300,000 of the options may be exercised in the first year. The options
      replaced a previous reservation of 1.6 million warrants.




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




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


7


fair
      value totaled $54,231. Of these, 30,000 options were subsequently cancelled
      due
      to the voluntary resignation of an employee included in the original award.




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




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




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




**For
                  the Three Months Ended**
                **September 30,**
              
              **For
                  the Nine Months Ended**
                **September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Net
                  loss as reported
              
              $
              (720,198
              )
              $
              (976,378
              )
              $
              (2,492,441
              )
              $
              (4,342,204
              )Less:
                  stock based compensation determined under fair value based
                  method
              
              
              (93,113
              )
              
              (49,776
              )
              
              (258,917
              )
              
              (710,775
              )Pro
                  forma net loss
              
              $
              (813,311
              )
              $
              (1,026,154
              )
              $
              (2,751,358
              )
              $
              (5,052,979
              )Basic
                  and diluted net loss per common share:As
                  reported
              
              $
              (.02
              )
              $
              (.03
              )
              $
              (.07
              )
              $
              (.14
              )Pro
                  forma
              
              $
              (.02
              )
              $
              (.03
              )
              $
              (.08
              )
              $
              (.16
              )




The
      weighted average fair value of the stock options granted during 2005 and 2004
      was $.35 and $3.09, 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 133% and 124%, respectively,
      and (4) zero expected dividends.




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




Blast
        Energy entered into a license agreement on April 23, 2003 for the exclusive
        use of the Landers lateral drilling process. On March 8, 2005, Blast Energy
        assigned its rights in that license to Maxim TEP, Inc. (“Maxim”) along with all
        current and future assignments, sublicenses or territorial royalty pertaining
        to
        the license. The President and CEO of Maxim is Dan Williams, a former President
        and CEO of Verdisys, Inc. As consideration, Maxim agreed to pay Blast Energy
        a
        total of $1.3 million over four installments: $300,000 on March 9, 2005;
        $100,000 on March 18, 2005; $500,000 on June 3, 2005 and $400,000 on
        September 2, 2005. As of September 30, 2005, Blast Energy has received
        the two installments due in March of 2005 and $135,000 towards the June
        installment. Blast Energy retains a non-exclusive Landers sublicense provided
        Blast Energy pays all required royalties in which the technology is utilized.




Blast
      Energy and Maxim have entered into a series of contract amendments, which have
      resulted in a $350,000 increase in the value of original Assignment of License
      Agreement (“Assignment”) dated March 8, 2005. The original terms required
      Maxim to make a $500,000 payment on June 3, 2005 and any delay of payment
      beyond a ten day period of the contracted payment date would cause a default
      of
      the contract which could be cured during a 45 day grace period if Maxim made
      a
      payment of $550,000 before the grace period expired. Maxim was unable to cure
      the default within the grace period, but Blast Energy and Maxim have entered
      into several amendments to extend the period to cure the default. The current
      arrangement is for Maxim to pay $500,000 in October, which has been received,
      $200,000 by November 30 and $215,000 by December 31, 2005. As of
      September 30, 2005, Maxim has paid $135,000 towards the June 3, 2005
      payment and has paid $350,000 in delinquency fees.




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




On
      August 5, 2005, Blast Energy entered into a letter of intent to contribute
      its interest in the Landers lateral drilling technology into a joint venture
      shared equally with RadTech North America (“RadTech”). Blast Energy would
      contribute its


8


Landers
      sublicense for North America and RadTech would contribute management and
      drilling operations. The parties have agreed to enter into mutually acceptable
      documentation for the joint venture and the letter of intent is subject to
      Board
      approval of both parties.




On
      July 15, 2005, Blast Energy 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 September 30, 2005, Blast Energy received
      $900,000 in funding under this agreement and received the balance in October
      of
      2005. Under the terms of the loan agreement with BMC, cash revenues will be
      shared on the basis of allocating 90 percent to Blast Energy and 10 percent
      to
      BMC for a ten-year period following repayment. After ten years, Blast Energy
      will receive all of the revenue from the rig. The loan, which carries an average
      interest rate of 7.4%, has a senior and subordinated structure due
      September 15, 2006 and September 30, 2006, respectively. BMC also has
      the option to fund an additional three rigs under these commercial terms.




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




**NOTE
      5 - ACCRUED EXPENSES**




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




**Description**
            
            
            **Amount**Gryphon
                liquidated damages
            
            $
            500,000Accrued
                payroll
            
            
            204,759Class
                Action Litigation settlement
            
            
            25,000Director
                fees
            
            
            107,000Interest
            
            
            56,301Other
            
            
            59,241$
            952,301




**NOTE
      6 - ADVANCES - RELATED PARTIES**




As
      of
      September 30, 2005, funds of $900,000 have been received under a financing
      arrangement with Berg McAfee Companies, LLC (see note 4), funded primarily
      by
      Eric McAfee and Clyde Berg, each of whom are considered significant holders
      of
      Blast Energy. The use of proceeds for the funds are to build Blast Energy’s
      first abrasive fluid jetting rig




**NOTE
      7 - DEFERRED REVENUE**




Blast
      Energy bills some of its satellite bandwidth contracts in advance over periods
      ranging from 3 to 36 months. Blast Energy recognizes revenue evenly over the
      contract term. Deferred revenue related to satellite services totaled $223,448,
      of which $216,668 will be recognized in the next twelve months. Deferred revenue
      also includes $41,890 from the sale of a rig (See Note 4).











9


**NOTE
      8 - COMMITMENT**




On
      August 25, 2005, Blast Energy amended its AFJ Construction Agreement, under
      which Alberta will engineer, design, source and build the AFJ Rig, to provide
      for a lump-sum price of $900,000 rather than the earlier price of $850,000.
      Under the agreement the first $100,000 of budget overruns will be borne by
      Alberta, with additional overruns being the responsibility of Blast Energy.
      As
      of September 30, 2005, Blast Energy had expended $813,000 towards the rig
      under construction and anticipates the total cost to approximate $1.2 million.




**NOTE
      9 - STOCKHOLDERS EQUITY**




During
      the third quarter of 2005, Blast Energy issued 487,355 shares of common stock
      for the payment of accrued bonuses to employees totaling $192,974 and 58,124
      shares of common stock for the payment of accrued interest totaling $25,922.
      In
      addition, 95,000 shares of common stock were issued for consulting fees totaling
      $37,400.




In
      September 2005, 3,000,000 shares of Blast Energy restricted common stock were
      issued to Alberta pursuant to the technology purchase agreement dated
      August 25, 2005 (see note 4).




In
      August
      2005, 50,000 shares of common stock were issued pursuant to the exercise of
      warrants for $50 cash.




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




In
      June
      2005, Blast Energy issued 592,000 shares of common stock for the payment of
      $200,044 of notes payable and accrued interest that matured on May 15,
      2005.




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




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




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




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




Effective
      January 19, 2005, Blast Energy, Edge Capital Group, Inc. (“Edge”), certain
      entities affiliated with Edge and Eric McAfee entered into a settlement
      agreement and mutual release to fully settle and resolve the disputes between
      them. As part of the settlement, Blast Energy issued an aggregate of 750,000
      shares of common stock, valued at $240,000, along with three-year warrants
      to
      purchase 750,000 shares of common stock to Edge at an exercise price of $1.00
      per share. Of the 750,000 shares issued, 250,000 shares were issued during
      October 2004 and the remaining 500,000 shares were issued in 2005.




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




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


10





**NOTE
      10 - LITIGATION AND NOTE PAYABLE**




On
      September 8, 2005, Blast Energy and certain of its executives were named as
      parties to a lawsuit concerning a $170,000 contractual dispute and an additional
      claim of fraudulent misrepresentation between Metro Energy Group, Maxim Energy
      TEP and certain individuals. Blast Energy believes that it has no liability
      in
      the case and intends to vigorously defend itself.




In
      July
      2004, we were informed that one of our former Chief Executive Officers filed
      a
      lawsuit against us for breach of contract and wrongful discharge. The lawsuit
      seeks relief in excess of $0.5 million related to an alleged employment
      agreement and damages related to an excess of 4 million stock options
      claimed due pursuant to the alleged employment agreement. The lawsuit was filed
      in state court in San Diego, California. On August 11, 2005, Blast Energy
      entered into a settlement agreement with Charles Steinberger. The settlement
      involves neither admitting nor denying liability as well as the reinstatement
      of
      900,000 stock options at a price of $0.10 per share and the creation of a
      Promissory Note by Blast Energy for $500,000. The Note becomes due on
      June 30, 2007 and carries no interest. Mr. Steinberger may exercise up
      to 300,000 options until July 1, 2006, but if he does, Blast Energy may
      reduce the carrying value of the Note with the amount of the net proceeds he
      receives. Blast Energy also has the option to pay the Note early and in the
      event that the price of Blast Energy common stock trades on average greater
      that
      $2.00 per share for the 20 trading days prior to the due date, the Note will
      no
      longer be payable.




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




In
      February 2005, Blast Energy entered into an Agreed Judgment and Order of
      Severance with Gryphon Master Fund, L.P. (“Gryphon”) as to all breach of
      contract claims related to Blast Energy’s delay in registering common stock
      acquired by Gryphon in October 2003. Under the terms of the Agreed Judgment,
      Blast Energy is obligated to pay liquidated damages of $500,000 to Gryphon
      on or
      before September 30, 2005, which payment it has failed to make.
      Additionally, Gryphon had agreed to abate their remaining claims and related
      discovery in the lawsuit against Blast Energy until after September 30,
      2005. In November 2005 the Company paid $250,000 in partial settlement of the
      agreed judgment and Gryphon has postponed its next deposition until January,
      2006.




In
      February 2004, we had initiated a lawsuit against Edge Capital requesting a
      declaratory judgment that a purported agreement between us and Edge was not
      enforceable. The lawsuit arose from Edge’s contention that one of our
      ex-officers committed us to purchase certain alleged oil and gas properties
      from
      Edge. Edge had filed a counterclaim against us and asserted claims against
      Dan
      Williams (our former President and CEO), Eric McAfee, Ron Robinson (our former
      CEO and then current Board member), Andrew Wilson (our former CFO) and our
      remaining then current Board members. Edge had sought to enforce the agreement
      we challenged and alleged several causes of action including claims for fraud,
      breach of contract, negligence and conspiracy. Edge had asserted actual damages
      in excess of $85 million and has claimed punitive damages as well.




Furthermore,
      effective January 19, 2005, Blast Energy, Edge, certain entities affiliated
      with Edge and Eric McAfee entered into a settlement agreement and mutual release
      to fully settle and resolve the disputes. As part of the settlement, Blast
      Energy issued an aggregate of 750,000 shares of common stock valued at $240,000,
      along with three-year warrants to purchase 750,000 shares of common stock to
      Edge at an exercise price of $1.00 per share. Of the 750,000 shares issued,
      250,000 shares were issued during October 2004 and the remaining 500,000 were
      issued in 2005. In addition, Blast Energy agreed to provide Edge a drilling
      rig
      to provide certain lateral drilling services in return for a $2,500 fee per
      well
      and a ten per cent share of the pre tax revenues generated from each well
      drilled. Upon closing of the settlement, Blast Energy will sublicense the
      lateral drilling technology to Edge for a period of five years and for the
      purpose of marketing and using the technology and trade secrets within North
      America for the sole purpose of entering into production sharing transactions
      or
      joint ventures in oil and gas production. As part of the settlement, the parties
      to the agreement have agreed to a mutual release and to dismiss all pending
      claims and litigation upon performance of the obligations in the settlement
      agreement. The remaining obligations under the settlement agreement including
      the payment of $375,000 to Blast Energy by Energy 2000, a McAfee company, were
      performed and the lawsuit was closed in the second quarter of 2005. The
      settlement agreement was reflected in the 2004 Statement of Operations, but
      had
      minimal impact as the settlement costs were offset by the write-off of
      previously accrued liabilities.




**NOTE
      11 - BUSINESS SEGMENTS**




Blast
      Energy has two reportable segments: (1) satellite communications and
      (2) downhole 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


11


Energy
      evaluates performance and allocates resources based on profit or loss from
      operations before other income or expense and income taxes. The table below
      reports certain financial information by reportable segment:




**For the Three Months Ended**
                **September 30,**
              
              **For
                  the Nine Months Ended**
                **September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**Revenues
                  from external customersSatellite
                  communications
              
              $
              293,937
              
              $
              154,906
              
              $
              802,712
              
              $
              401,705Downhole
                  services
              
              
              8,500
              
              
              427,519
              
              
              27,491
              
              
              694,180$
              302,437
              
              $
              582,425
              
              $
              830,203
              
              $
              1,095,885Operating
                  profit (loss) 1Satellite
                  communications
              
              $
              65,821
              
              $
              (50,038
              )
              $
              137,918
              
              $
              (119,703
              )Downhole
                  services
              
              
              (212,359
              )
              
              (5,607
              )
              
              (669,023
              )
              
              (1,174,128
              )Corporate
              
              
              (573,660
              )
              
              (904,320
              )
              
              (1,961,336
              )
              
              (2,592,099
              )$
              (720,198
              )
              $
              (959,965
              )
              $
              (2,492,441
              )
              $
              (3,885,930
              )




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




**NOTE
      12 - SUBSEQUENT EVENTS**




As
      of
      November 1, 2005, Blast Energy received the entire amount due for October
      under the current arrangement with Maxim. To date, Maxim has paid $885,000
      toward the purchase price of the license and $500,000 in delinquency payments.
      Such payments include $350,000 toward the purchase price of the license and
      $150,000 in delinquency payments subsequent to the quarter end.




On
      October 25, 2005, Blast Energy conveyed one of its two remaining Landers
      technology rigs to Edge Capital as part of the Settlement Agreement &
Mutual Release entered into between the parties.




On
      October 21, 2005, Blast Energy settled an outstanding account payable with
      Clayton & McEvoy with 30,000 shares of Blast Energy and $22,000 in
      cash, payable in four installments of $5,500 per month from November 2005
      through February 2006.




On
      October 4, 2005, under the agreement to develop its initial abrasive
      jetting rig with Berg McAfee Companies, the final installment of the $1 million
      rig funding loan agreement was received.




Under
      the
      terms of the Agreed Judgment, Blast Energy was obligated to pay liquidated
      damages of $500,000 to Gryphon Master Fund on or before September 30, 2005
      (Note 10). The Company has failed to make this payment but did pay $250,000
      in
      partial settlement of the agreed judgment in November 2005 and Gryphon has
      postponed its next deposition until January 2006.




**NOTE
          13 - RESTATEMENT**
 
 On
          March
          22, 2006, the Company determined that it needed to amend and restate certain
          of
          its previously issued financial statements. The 2005 financial statements
          have been restated to reflect an agreement to sell our lateral drilling
          license
          for $1.3 million and the non-cash impairment of our License asset as of
          December
          31, 2004.
 
 The
          accounts affected by the restatement are:
 
 
 **As
                    reported**
                
                **Adjustments**
                
                **As
                    restated**License
                    asset
                
                $
                5,310,000
                
                $
                (4,140,000
                )
                $
                1,170,000Accumulated
                    amortization
                
                
                (799,983
                )
                
                793,019
                
                
                (6,964
                )Net
                    Book Value
                
                
                4,510,107
                
                
                (3,347,071
                )
                
                1,163,036License
                    receivable
                
                
                -
                
                
                765,000
                
                
                765,000Depreciation
                    & amortization
                
                
                82,193
                
                
                (75,228
                )
                
                6,964Other
                    Income and expense
                
                
                -
                
                
                350,000
                
                
                350,000


12





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




**Forward-Looking
      Statements**




All
      statements that are included in this Quarterly Report, other than statements
      of
      historical fact, are forward-looking statements. You can identify
      forward-looking statements by words such as “anticipate”, “believe” and similar
      expressions and statements regarding our business strategy, plans and objectives
      for future operations. Although management believes that the expectations
      reflected in these forward-looking statements are reasonable, it can give no
      assurance that such expectations will prove to have been correct. The
      forward-looking statements in this filing involve known risks and uncertainties,
      which may cause our actual results in future periods to be materially different
      from any future performance suggested in this report. Such factors may include,
      but are not limited to, the following risk factors: changes in technology,
      reservoir or sub-surface conditions, the introduction of new services,
      commercial acceptance and viability of new services, fluctuations in customer
      demand and commitments, pricing and competition, reliance upon subcontractors,
      the ability of our customers to pay for our services, delays in construction
      and
      deployment of new technologies together with such other risk factors as may
      be
      included in our 2004 Annual Report on Form 10-KSB.




We
      have
      been striving to develop a commercially viable lateral drilling technology
      with
      the potential to penetrate through well casing and into reservoir formations
      to
      stimulate oil and gas production. In 2003, with the acquisition of exclusive
      rights to a proprietary horizontal drilling process we began to deploy lateral
      drilling services in the field. In 2004, it became apparent that this process
      was limited in its application and not able to succeed in a wide variety of
      oil
      and gas formations. After redesigning and improving the existing process and
      designing and testing some new capabilities, we continue to believe that we
      can
      deliver a valuable and cost effective production enhancement service to onshore
      oil and gas producers, particularly operators of marginal wells. The goal is
      to
      make this new service reliably predictable and consistently dependable for
      our
      customers. We are currently building our first new generation lateral drilling
      rig with the capability of abrasive fluid jetting by use of much higher
      hydraulic horsepower. Abrasive fluid jetting utilizes high-pressure fluid mixed
      with a small volume of abrasive materials, such as fine garnet sand, to cut
      through surfaces as tough as four inches of steel as well as granite rock.




Should
      we
      achieve favorable results and customer acceptance of this initial rig’s
      capabilities, we plan to order the construction of additional rigs and
      significantly grow the deployment of our abrasive jetting service. Funding
      for
      developing this abrasive cutting capability into commercial operation is
      expected to come from current and future capital commitments as well as from
      the
      proceeds of the assignment of the exclusive technology rights acquired in 2003.
      No assurances can be given that the capital from these sources will be adequate.
      If this is the case, we will be required to obtain additional capital from
      equity or debt markets. No assurances can be given that such capital will be
      available or that the terms will be acceptable.




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




*Satellite
      Communications*




Satellite
      Communications’ revenues increased by $139,000 to $294,000 for the quarter ended
      September 30, 2005 compared to $155,000 for the quarter ended
      September 30, 2004. The increase in revenue can be attributed to both new
      customers and an increase in service provided to existing customers. The
      operating margin from Satellite Communications improved by $75,000 to a margin
      of $76,000 for the quarter ended September 30, 2005 compared to $1,000 for
      the quarter ended September 30, 2004. As this segment of our business
      grows, it benefits from economies of scale.




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




*Downhole
      Services*




Downhole
      Services’ revenues decreased by $419,000 to $8,000 for the quarter ended
      September 30, 2005 compared to $427,000 for the quarter ended
      September 30, 2004. The revenue in 2005 is generated from the direct
      financing lease of one of our older rigs. Our drilling operations have ceased
      until such time as our new generation abrasive jetting rig is deployed, which
      is
      currently projected to occur in the fourth quarter of 2005. The revenues earned
      for the quarter ended September 30, 2004 were primarily associated with the
      performance of a contract with the Department of Energy, work performed for
      Maxim Energy and the rental of a rig to Advanced Hydraulics. The operating
      margin from Downhole Services decreased by $260,000 to a loss of $105,000 for
      the quarter ended September 30, 2005 compared to a margin of $155,000 for
      the quarter


13


ended
      September 30, 2004. The expenses for the quarter ended September 30,
      2005 were primarily labor related as we continued the supervision of the
      construction of the new abrasive fluid jetting rig.




*Selling,
      General and Administrative*




Selling,
      general and administrative (“SG&A”) expenses increased by $27,000 to
      $964,000 for the quarter ended September 30, 2005 compared to $937,000 for
      the quarter ended September 30, 2004. The following table details major
      components of SG&A expense over the periods.




**For The Three Months Ended**
              **September 30,**
            
            **Increase**
              **(Decrease)****2005**
            
            **2004**Payroll
                and related costs
            
            $
            104,361
            
            $
            124,346
            
            $
            (19,985
            )Option
                and warrant expense
            
            
            25,000
            
            
            342,537
            
            
            (317,537
            )Legal
                fees
            
            
            117,566
            
            
            216,933
            
            
            (99,367
            )External
                services
            
            
            135,411
            
            
            62,247
            
            
            73,164Insurance
            
            
            48,920
            
            
            102,619
            
            
            (53,699
            )Legal
                settlement
            
            
            500,000
            
            
            —
            
            
            500,000Travel &
                entertainment
            
            
            10,063
            
            
            33,296
            
            
            (23,233
            )Office
                rent
            
            
            8,479
            
            
            9,389
            
            
            (910
            )Communications
            
            
            2,766
            
            
            10,024
            
            
            (7,258
            )Miscellaneous
            
            
            11,015
            
            
            35,200
            
            
            (24,185
            )$
            963,581
            
            $
            936,591
            
            $
            26,990




Due
      to
      the lack of drilling activity during the third quarter of 2005, we focused
      on
      technology development and lowering our controllable overhead, which has
      resulted in a decrease in almost all SG&A cost components. The decrease in
      insurance expense is attributable to a reduction in the premium for our
      directors and officers liability coverage. The increase in legal settlement
      expense results from the settlement agreement entered into with a former CEO
      of
      the company.(Note 10)




*Net
      Loss*




The
        net
        loss for the third quarter of 2005 was reduced by $256,000 to $720,000 from
        $976,000 for the corresponding period in 2004. This improvement is attributable
        to the major revenue and expense items explained above. The tax benefit
        associated with our loss has been fully reserved as we have recurring net
        losses
        and it is more likely than not that the tax benefits will not be realized.




**Nine
      Months Ended September 30, 2005 Compared to the Nine Months Ended
      September 30, 2004**




*Satellite
      Communications*




Satellite
      Communications’ revenues increased by $401,000 to $803,000 for the nine months
      ended September 30, 2005 compared to $402,000 for the nine months ended
      September 30, 2004. The increase in revenue can be attributed to both new
      customers and an increase in service provided to existing customers. The
      operating margin from Satellite Communications improved by $263,000 to a margin
      of $200,000 for the nine months ended September 30, 2005 compared to a loss
      of $63,000 for the nine months ended September 30, 2004. As this segment of
      our business grows, it benefits from economies of scale.




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




*Downhole
      Services*




Downhole
      Services’ revenues decreased by $667,000 to $27,000 for the nine months ended
      September 30, 2005 compared to $694,000 for the nine months ended
      September 30, 2004. The revenue in 2005 is generated from the direct
      financing lease of one of our older rigs. Our drilling operations have ceased
      until such time as our new generation abrasive jetting rig is deployed, which
      is
      currently projected to occur in the fourth quarter of 2005. The revenues earned
      for the nine months ended September 30, 2004 were primarily associated the
      Amvest Osage, Maxim Energy, and Department of Energy contracts as well as
      recovery of certain third party expenses from related parties.




The
      operating margin from Downhole Services decreased by $329,000 to a loss of
      $324,000 for the nine months ended September 30, 2005 compared to a margin
      of $5,000 for the nine months ended September 30, 2004. The expenses for
      the


14


nine
      months ended September 30, 2005 were primarily labor related as we
      redesigned and improved the existing process as well as designing and
      supervising the construction of the new abrasive fluid jetting rig.




*Selling,
      General and Administrative*




SG&A
      expenses decreased by $896,000 to $2.5 million for the nine months ended
      September 30, 2005 compared to $3.4 million for the nine months ended
      September 30, 2004. The following table details major components of
      SG&A expense over the periods.




**For
                The Nine Months Ended**
              **September 30,**
            
            **Increase**
              **(Decrease)****2005**
            
            **2004**Payroll
                and related costs
            
            $
            530,123
            
            $
            534,648
            
            $
            (4,525
            )Option
                and warrant expense
            
            
            75,000
            
            
            491,984
            
            
            (416,984
            )License
                fee
            
            
            —
            
            
            735,192
            
            
            (735,192
            )Legal
                fees
            
            
            299,339
            
            
            394,563
            
            
            (95,224
            )External
                services
            
            
            326,976
            
            
            295,485
            
            
            31,491Insurance
            
            
            140,661
            
            
            335,332
            
            
            (194,671
            )Liquidated
                damages
            
            
            —
            
            
            400,000
            
            
            (400,000
            )Legal
                settlements
            
            
            1,003,500
            
            
            —
            
            
            1,003,500Travel &
                entertainment
            
            
            28,504
            
            
            100,607
            
            
            (72,103
            )Office
                rent
            
            
            25,523
            
            
            44,176
            
            
            (18,653
            )Communications
            
            
            8,059
            
            
            41,101
            
            
            (33,042
            )Miscellaneous
            
            
            47,860
            
            
            8,965
            
            
            38,895$
            2,485,545
            
            $
            3,382,053
            
            $
            (896,508
            )




Due
      to
      the lack of drilling activity during the first nine months of 2005, we focused
      on technology development and lowering our controllable overhead, which has
      resulted in a decrease in almost all SG&A cost components. The license fee
      during the first nine months of 2004 was the result of a renegotiation of the
      Landers note payable and the calculation of license fees payable. The decrease
      in insurance expense is attributable to a reduction in the premium for our
      directors and officers liability coverage. The liquidated damages incurred
      in
      2004 relate to our delay in registering shares that we sold in 2003. The legal
      settlement expense is the value of the 1,150,000 shares of our common stock
      to
      be issued to settle the class action lawsuit and the plaintiff’s estimated legal
      and distribution fees of $55,000, totaling $503,500, and $500,000 related to
      the
      settlement agreement with a former CEO of the company. (note 10)




*Net
      Loss*




The
        net
        loss for the first nine months of 2005 decreased by $1.8 million to $2.5
        million
        from $4.3 million for the corresponding period in 2004. The decrease is
        attributable to the major revenue and expense items explained above. The
        tax
        benefit associated with our loss has been fully reserved as we have recurring
        net losses and it is more likely than not that the tax benefits will not
        be
        realized.




**Liquidity
      and Capital Resources**




As
      of
      September 30, 2005, our cash balance was $312,000 compared to a cash
      balance of $267,000 at December 31, 2004. We continue to utilize cash,
      notes, license proceeds and stock to fund operations. On March 8, 2005 we
      agreed to sell our master license for the Landers lateral drilling technology
      for $1.3 million in cash to be received over four installments. However, we
      have
      retained a sub-license in the Landers technology. During the nine months ended
      September 30, 2005, we received $500,000 of the $1.3 million. We have
      entered into an amended contract with Maxim, which resulted in a $275,000
      increase in the value of original Assignment of License Agreement
      (“Assignment”). The terms of the original Assignment required Maxim to make a
      $500,000 payment on June 3, 2005 and any delay of payment beyond a ten day
      period of the contracted payment date would cause a default of the contract
      which could be cured during a 45 day grace period if Maxim made a payment of
      $550,000 before the grace period expired. Maxim was unable to cure the default
      within the grace period, but Blast Energy and Maxim have entered into several
      amendments to extend the period to cure the default. The current arrangement
      is
      for Maxim to pay $500,000 in October, of which $500,000 has been received,
      $200,000 by November 30 and $215,000 by December 31, 2005. As of
      September 30, 2005, Maxim has paid $135,000 towards the June 3, 2005
      payment and has paid $350,000 in delinquency fees. We are substantially
      dependent on the ability of Maxim to timely pay these obligations to satisfy
      our
      short-term liquidity requirements.


15




On
      July 15, 2005, Blast Energy entered into an agreement to develop its
      initial abrasive jetting rig with Berg McAfee Companies, LLC, 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 September 30, 2005, Blast Energy had received
      $900,000 in funding under this agreement and has received the balance in October
      of 2005. Under the terms of the loan agreement with Berg McAfee, cash revenues
      will be shared on the basis of allocating 90% to Blast Energy and 10% to BMC
      for
      a ten-year period following repayment. After ten years, Blast Energy will
      receive all of the revenue from the rig. The loan, which has a senior and
      subordinated structure, carries an average interest rate of 7.4 % and is
      due September 15, 2006 and September 30, 2006 respectively. Berg
      McAfee also has the option to fund an additional three rigs under these
      commercial terms.




We
      have
      used the proceeds from the Maxim Assignment and loan advances from Berg McAfee
      to fund the construction of our new generation drilling rig. Due to the delay
      in
      these funding sources and other factors, we have slowed down the construction
      of
      our first abrasive jetting rig. Based upon our current schedule, we believe
      this
      rig will be completed and commercially ready for service by December 31,
      2005. As of September 30, 2005, we had expended $813,000 towards the rig
      construction project. In addition, we expect to spend an additional $387,000
      towards the rig construction, bringing the total cost of the rig to
      approximately $1.2 million.




We
      have
      $350,000 of convertible notes that become due on December 31, 2005 and a
      $50,000 note that is due on demand. In addition, we have $200,000 of convertible
      notes with related parties that mature on May 31, 2006. Both sets of
      convertible notes are convertible into common stock at the option of the holder
      and at the rate of one share for each $2.00 of principal and interest
      outstanding.




In
      February 2005, we entered into an Agreed Judgment and Order of Severance with
      Gryphon Master Fund, L.P. (“Gryphon”) as to all breach of contract claims
      related to our delay in registering common stock acquired by Gryphon in October
      2003. Under the terms of the Agreed Judgment, we are obligated to pay liquidated
      damages of $0.5 million to Gryphon on or before September 30, 2005. The
      Company has failed to make this payment but did pay $250,000 in November 2005
      and Gryphon has agreed to postpone any depositions in connection with collection
      of any further amounts under the Agreed Judgment until January 2006.




Additional
      financing, positive cash flow from operations or proceeds from the sale of
      license technology to Maxim will be required to satisfy the obligations
      discussed above. We will not have cash flow from operations until the new
      drilling rig is commercially deployed and sufficient revenue is received from
      customers. No assurances can be given that financing will be available, or,
      if
      available, on acceptable terms.




Our
      continued operating losses raise substantial doubt as to our ability to continue
      as a going concern. We are in an early stage of development and are rapidly
      depleting our cash resources, therefore we have determined that we will need
      additional financing in the short term to continue in operation and fund future
      growth. We currently plan to raise additional financing. The use of stock for
      currency in financing or making acquisitions has been heavily curtailed while
      we
      have been under SEC investigation (see Financial Note 17 to the
      December 31, 2004 Financial Statements). The company has arranged debt
      financing from Berg McAfee to build the initial rig. However, if we are unable
      to arrange new financing, generate sufficient cash flow from new business
      arrangements or collect the proceeds from the sale of license technology to
      Maxim, we will be unable to continue in our current form and will be forced
      to
      restructure or seek creditor protection.




For
      the
      nine months ended September 30, 2005, we had capital expenditures of
      $813,000 as compared to $4,000 in capital expenditures for the nine months
      ended
      September 30, 2004. We expect to have capital expenditures of approximately
      $387,000 for the fourth quarter of 2005 relating to the construction of the
      abrasive jetting rig (see Note 8).




**Subsequent
      Events**




As
      of
      November 1, 2005, Blast Energy received the entire amount due for October
      under the current arrangement with Maxim. To date, Maxim has paid $885,000
      toward the purchase price of the license and $500,000 in delinquency payments.
      Such payments include $350,000 toward the purchase price of the license and
      $150,000 in delinquency payments subsequent to the quarter end.




On
      October 25, 2005, Blast Energy conveyed one of its two remaining Landers
      technology rigs to Edge Capital as part of the Settlement Agreement &
Mutual Release entered into between the parties.




On
      October 21, 2005, Blast Energy settled an outstanding account payable for
      legal services with Clayton & McEvoy with 30,000 shares of Blast Energy
      and $22,000 in cash, payable in four installments of $5,500 per month from
      November 2005 through February 2006.


16




On
      October 4, 2005, under the agreement to develop its initial abrasive
      jetting rig with Berg McAfee Companies, the final installment of the $1 million
      rig funding loan agreement was received.




Under
      the
      terms of the Agreed Judgment, Blast Energy was obligated to pay liquidated
      damages of $500,000 to Gryphon Master Fund on or before September 30, 2005
      (note 10). The Company has failed to make this payment but did pay $250,000
      in
      partial settlement of the agreed judgment in November 200 and Gryphon has
      postponed its next deposition until January 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, relative to the valuation of the Company’s
        intellectual property, our disclosure controls and procedures were not 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. The Company’s management and audit
        committee have discussed the restatement issues with Malone & Bailey, its
        independent registered accounting firm. The Company believes it has addressed
        the deficiencies by fully impairing the carrying value of the intellectual
        property. In the future, the Company and its independent accountants will
        institute a procedure to thoroughly review the carrying value of its intangible
        assets relative to indicated market value, including without limitation the
        net
        present value of future cash flows from the IP, to indicate whether the asset
        should be impaired.




There
      have been no changes in our internal control over financial reporting during
      the
      period covered by this report that have materially affected, or are reasonably
      likely to materially affect, our internal control over financial reporting.
      The
      full time Controller left the Company during the third quarter and his duties
      have been reassigned to a part time consulting CPA and two existing employees.




**Part
      II. OTHER INFORMATION**




**Item 1.**  **Legal
      Proceedings**




Full
      disclosure of prior or other legal activities may be found in the audited
      financial statements and notes thereto contained in our 2004 Annual Report
      filed
      with the SEC on Form 10-KSB, and in the Quarterly Reports on Form 10-QSB for
      the
      quarters ended March 31 and June 30, 2005, and in the notes to the
      financial statements in this report.




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




During
      the third quarter of 2005, Blast Energy issued 487,355 shares of common stock
      for the payment of accrued bonuses to employees totaling $192,974 and 58,124
      shares of common stock for the payment of accrued interest totaling $25,922.
      In
      addition, 35,000 shares of common stock were issued for website designs fees
      and
      60,000 shares for investor relations consulting fees totaling $37,400.




In
      September 2005, 3,000,000 shares of restricted common stock were issued to
      Alberta Energy Holdings pursuant to the Blast Energy agreement with Alberta
      dated August 25, 2005.




We
      believe the issuances of securities described above to be exempt from
      registration under Section 4(2) of the Securities Act. Furthermore, the
      securities are restricted pursuant to Rule 144 by operation of provisions made
      in the underlying agreements.




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




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




There
      were no matters submitted to a vote of security holders during the quarter
      ended
      September 30, 2005.























17


**Item 6.**  **Exhibits**




4.1
            $800,000
                Secured Senior Promissory Note dated July 15, 2005 by and among Blast
                Energy Services, Inc. and Berg McAfee Companies, LLC.Filed
                July 26, 2005 with the SEC, Report on Form 8-K4.2
            $200,000
                Secured Subordinated Promissory Note dated July 15, 2005 by and among
                Blast Energy Services, Inc. and Berg McAfee Companies,
                LLC.Filed
                July 26, 2005 with the SEC, Report on Form 8-K10.1
            Settlement
                Agreement and Mutual Release dated January 19, 2005 by and among
                Verdisys,
                Inc., Eric McAfee, Edge Capital Group, Inc. and certain entities
                affiliated with Robert Frazier, Sr.;Filed
                February 4, 2005 with the SEC, Report on Form 8-K10.2
            Assignment
                of License Agreement dated March 8, 2005 by and among Verdisys, Inc.
                and
                Maxim TEP, Inc.;Filed
                March 14, 2005 with the SEC, Report on Form 8-K10.3
            License
                Agreement dated March 15, 2005, by and among Edge Capital Group,
                Inc. or
                its assignee and Verdisys, Inc.Filed
                May 5, 2005 with the SEC, Report on Form 10-QSB.10.4
            Abrasive
                Fluid Jet Rig Construction Agreement dated March 17, 2005, by and
                among
                Verdisys, Inc. and Alberta Energy Holding, Inc.Filed
                May 5, 2005 with the SEC, Report on Form 10-QSB.10.5
            Drilling
                Rig Development and Management Agreement dated April 12, 2005, by
                and
                between Verdisys, Inc. and Advanced Drilling Services,
                LLCFiled
                May 5, 2005 with the SEC, Report on Form 10-QSB.10.6
            Service
                Proposal Apache Corporation and Verdisys, Inc. dated May 26, 2005.
                Filed
                August 11, 2005 with the SEC, Report on Form 10-QSB.10.7
            First
                Amendment to the Assignment of License Agreement dated July 18, 2005
                by
                and among Blast Energy Services, Inc. and Maxim TEP, Inc. Filed July
                26,
                2005 with the SEC, Report on Form 8-K10.8
            Second
                Amendment to the Assignment of License Agreement dated July 21, 2005
                by
                and among Blast Energy Services, Inc. and Maxim TEP, Inc. Filed July
                26,
                2005 with the SEC, Report on Form 8-K10.9
            Third
                Amendment to the Assignment of License Agreement dated July 25, 2005
                by
                and among Blast Energy Services, Inc. and Maxim TEP, Inc. Filed July
                26,
                2005 with the SEC, Report on Form 8-K10.10
            Fourth
                Amendment to the Assignment of License Agreement dated July 29, 2005
                by
                and among Blast Energy Services, Inc. and Maxim TEP, Inc. Filed August
                11,
                2005 with the SEC, Report on Form 10-QSB10.11
            Fifth
                Amendment to the Assignment of License Agreement dated July 29, 2005
                by
                and among Blast Energy Services, Inc. and Maxim TEP, Inc. Filed August
                11,
                2005 with the SEC, Report on Form 10-QSB10.12
            Letter
                of Intent dated August 5, 2005 by and between Blast Energy Services,
                Inc.
                and RadTech North America. Filed August 11, 2005 with the SEC, Report
                on
                Form 10-QSB10.14
            Settlement
                Agreement dated August 12, 2005 between Blast Energy Services and
                Charles
                Steinberger. Filed August 17, 2005 with the SEC, Report on Form
                8-K.


18





10.15
            Abrasive
                Fluid Jet Technology Purchase Agreement dated August 25, 2005 between
                Blast Energy Services, Inc. and Alberta Energy Holding, Inc. Filed
                August
                31, 2005 with the SEC, Report on Form 8-K.10.16
            Amendment
                #1 dated August 25, 2005 to the Construction Agreement between Blast
                Energy Services, Inc. and Alberta Energy Holding, Inc. Filed August
                31,
                2005 with the SEC, Report on Form 8-K.10.17
            Amendments
                Six through Ten to the Assignment of License Agreement dated August
                and
                September 2005 by and among Blast Energy Services, Inc. and Maxim
                TEP,
                Inc. Filed September 29, 2005 with the SEC, Registration Statement
                on Form
                SB-2.10.18
            Amendment
                eleven to the Assignment of License Agreement dated September 28,
                2005 and
                Demand letters dated October 13th and 18th by and among Blast Energy
                Services, Inc. and Maxim TEP, Inc.*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


19




**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/    DAVIDM.
                ADAMS,
                COO**David
                M. Adams**
              **Chief
                Operating Officer**
              **Principal
                Executive Officer**




Date:
      March 29, 2006




By:
            /s/    JOHNO’KEEFE,
                CFO**John
                O’Keefe**
              **Chief
                Financial Officer**
              **Principal
                Accounting Officer**




Date:
      March 29, 2006




20