10QSB

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

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

For the quarterly period ended June 30, 2005

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

For the transition period from              to             

333-64122

(Commission file number)

BLAST ENERGY SERVICES, INC.

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

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

14550 Torrey Chase Blvd, Suite 330

Houston, Texas 77014

(Address of principal executive offices)

(281) 453-2888

(Issuer’s telephone number)

Verdisys, Inc.

(Former name if changed since last report)

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

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

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

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

Blast Energy Services, Inc.

Index

		Page Number
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis or Plan of Operation	13
Item 3.	Controls and Procedures	18
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 4.	Submission of Matters to a Vote of Security Holders	18
Item 6.	Exhibits and Reports on Form 8-K	19
SIGNATURES		20

BLAST ENERGY SERVICES, INC.

(FORMERLY VERDISYS, INC.)

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

	Page Number
Balance Sheet as of June 30, 2005	4
Statements of Operations, for the three and six months ended June 30, 2005 and 2004	5
Statements of Cash Flows, for the six months ended June 30, 2005 and 2004	6
Notes to Financial Statements	7

Page 3

BLAST ENERGY SERVICES, INC.

(FORMERLY VERDISYS, INC.)

BALANCE SHEET

(Unaudited)

June 30, 2005

Assets
Current Assets:
Cash	$	78,604
Accounts receivable, net of allowance for doubtful accounts of $10,736		123,512
Other current assets		76,573
Total Current Assets		278,689
Equipment, net of accumulated depreciation of $72,393		132,351
Construction in progress		590,335
Drilling equipment held for sale		129,000
License, net of accumulated amortization of $717,790		3,807,210
Total Assets	$	4,937,585
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	706,055
Accrued expenses		1,165,861
Advances – related parties		249,500
Deferred revenue		246,052
Customer deposits		76,850
Notes payable – related parties, net of unamortized discount of $32,864		167,136
Notes payable – other, net of unamortized discount of $34,743		365,257
Total Current Liabilities		2,976,711
Long Term Liabilities:
Deferred revenue, less current portion		27,120
Total Liabilities		3,003,831
Commitments & Contingencies
Stockholders’ Equity:
Common Stock, $.001 par value, 100,000,000 shares authorized; 36,791,727 shares issued and outstanding		36,792
Additional paid-in capital		27,729,163
Accumulated deficit		(25,832,201	)
Total Stockholders’ Equity		1,933,754
Total Liabilities and Stockholders’ Equity	$	4,937,585

See accompanying notes to financial statements.

4

BLAST ENERGY SERVICES, INC.

(FORMERLY VERDISYS, INC.)

STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2005			2004			2005			2004
Revenue:
Satellite Communications	$	235,973		$	162,519		$	508,775		$	254,269
Downhole Services		4,010			158,756			18,991			272,914
Total Revenue		239,983			321,275			527,766			527,183
Cost of Services Provided:
Satellite Communications		211,315			154,598			385,118			318,676
Downhole Services		118,068			167,816			237,552			423,078
Total Cost of Services Provided		329,383			322,414			622,670			741,754
Gross Deficit		(89,400	)		(1,139	)		(94,904	)		(214,571	)
Operating Expenses:
Selling, general and administrative		487,337			903,014			1,521,964			2,845,463
Depreciation and amortization		100,504			136,108			218,652			265,931
Bad debts		—			—			10,000			—
Operating Loss		(677,241	)		(1,040,261	)		(1,845,520	)		(3,325,965	)
Other (Income) Expense:
Interest expense		45,601			6,309			96,862			39,879
Gain on sale		—			—			(971	)		—
Interest income		—			(8	)		(4	)		(18	)
Total other (income) expense		45,601			6,301			95,887			39,861
Net Loss	$	(722,842	)	$	(1,046,562	)	$	(1,941,407	)	$	(3,365,826	)
Basic and diluted net loss per share	$	(0.02	)	$	(0.04	)	$	(0.05	)	$	(0.11	)
Weighted average shares outstanding		36,067,903			31,313,963			35,440,245			30,716,019

See accompanying notes to financial statements.

5

BLAST ENERGY SERVICES, INC.

(FORMERLY VERDISYS, INC.)

STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Six Months Ended June 30,
	2005			2004
Cash Flows From Operating Activities:
Net loss	$	(1,941,407	)	$	(3,365,826	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock issued for services or litigation		1,029,361			735,192
Option and warrant expense		50,000			160,198
Amortization of note discount		64,837			4,397
Depreciation and amortization		218,652			265,931
Gain on sale of property		(971	)		—
Bad debts		10,000			—
Change in working capital items		(19,700	)		818,212
Net Cash Used In Operating Activities		(589,228	)		(1,381,896	)
Cash Flows From Investing Activities:
Proceeds from sale of license		500,000			—
Construction of equipment		(590,335	)		—
Net Cash Used In Investing Activities		(90,335	)		—
Cash Flows From Financing Activities:
Proceeds from sale of stock		241,500			359,000
Proceeds from exercise of options and warrants		250			81,217
Advance on future financing		249,500			—
Proceeds from notes payable to stockholders		—			235,000
Payments on note payable related to license		—			(500,000	)
Net Cash Provided By Financing Activities		491,250			175,217
Net change in cash		(188,313	)		(1,206,679	)
Cash at beginning of period		266,917			1,373,627
Cash at end of period	$	78,604		$	166,948
Non-Cash Transactions:
Conversion of liabilities to common stock	$	253,287		$	—
Exchange of equipment for customer deposit	$	175,000		$	—
Exchange of equipment for accounts payable	$	3,883		$	—
Conversion of notes payable and accrued interest to common stock	$	200,044		$	1,184,808
Discount on notes payable	$	—		$	35,157

See accompanying notes to financial statements.

6

BLAST ENERGY SERVICES, INC.

(FORMERLY VERDISYS, INC.)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - BASIS OF PRESENTATION

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

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

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

NOTE 2 – GOING CONCERN

As shown in the accompanying financial statements, Blast Energy incurred a net loss of $1.9 million for the six months ended June 30, 2005, has an accumulated deficit of $25.8 million and a working capital deficit of $2.7 million as of June 30, 2005 and has several significant future financial obligations. These conditions create an uncertainty as to Blast Energy’s ability to continue as a going concern. Blast Energy’s drilling operations have ceased until such time as the new generation abrasive jetting rig is deployed. As of June 30, 2005, Blast Energy has expended $590,000 towards the rig construction project with a formal loan commitment of another $285,000. In addition, management expects to spend an additional $350,000 towards the rig construction, bringing the total cost of the rig to approximately $1.2 million. Management is trying to raise additional capital. The financial statements do not include any adjustments that might be necessary if Blast Energy is unable to continue as a going concern.

NOTE 3 – STOCK OPTIONS

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

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

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

7

BLAST ENERGY SERVICES, INC.

(FORMERLY VERDISYS, INC.)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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

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

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

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2005			2004			2005			2004
Net loss as reported	$	(722,842	)	$	(1,046,562	)	$	(1,941,407	)	$	(3,365,826	)
Less: stock based compensation determined under fair value based method		(84,171	)		(379,610	)		(165,804	)		(912,145	)
Pro forma net loss	$	(807,013	)	$	(1,426,172	)	$	(2,107,211	)	$	(4,277,971	)
Basic and diluted net loss per common share:
As reported	$	(.02	)	$	(.04	)	$	(0.05	)	$	(.11	)
Pro forma	$	(.02	)	$	(.05	)	$	(0.06	)	$	(.13	)

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

NOTE 4 – EQUIPMENT & LATERAL DRILLING LICENSE

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

Blast Energy entered into a license agreement on April 23, 2003 for the exclusive use of the Landers lateral drilling process. On March 8, 2005, Blast Energy assigned its rights in that license to Maxim TEP, Inc. (“Maxim”) along with all current and future assignments, sublicenses or territorial royalty pertaining to the license. The President and CEO of Maxim is Dan Williams, a former President and CEO of Verdisys, Inc. As consideration, Maxim agreed to pay Blast Energy a total of $1.3 million over four installments: $300,000 on March 9, 2005; $100,000 on March 18, 2005; $500,000 on June 3, 2005 and $400,000 on September 2, 2005. As of June 30, 2005, Blast Energy has received the two installments due in March of 2005 and $100,000 towards the June installment (See Note 12). The carrying value of the license has been and will continue to be reduced for installments received. Blast Energy retains a non-exclusive Landers sublicense provided Blast Energy pays all required royalties on which the technology is utilized.

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

8

BLAST ENERGY SERVICES, INC.

(FORMERLY VERDISYS, INC.)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 – ACCRUED EXPENSES

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

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

NOTE 6 – ADVANCES – RELATED PARTIES

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

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

NOTE 7 – DEFERRED REVENUE

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

NOTE 8 – COMMITMENT

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

NOTE 9 – STOCKHOLDERS EQUITY

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

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

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

9

BLAST ENERGY SERVICES, INC.

(FORMERLY VERDISYS, INC.)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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

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

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

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

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

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

NOTE 10 – LITIGATION

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

In February 2005, Blast Energy entered into an Agreed Judgment and Order of Severance with Gryphon Master Fund, L.P. (“Gryphon”) as to all breach of contract claims related to Blast Energy’s delay in registering common stock acquired by Gryphon in October 2003. Under the terms of the Agreed Judgment, Blast Energy is obligated to pay liquidated damages of $500,000 to Gryphon on or before September 30, 2005. Additionally, Gryphon has agreed to abate their remaining claims and related discovery in the lawsuit against Blast Energy until after September 30, 2005.

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

10

BLAST ENERGY SERVICES, INC.

(FORMERLY VERDISYS, INC.)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 – BUSINESS SEGMENTS

Blast Energy has two reportable segments: (1) downhole services and (2) satellite communications. A reportable segment is a business unit that has a distinct type of business based upon the type and nature of services and products offered. Blast Energy evaluates performance and allocates resources based on profit or loss from operations before other income or expense and income taxes. The table below reports certain financial information by reportable segment:

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

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

NOTE 12 – SUBSEQUENT EVENTS

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

On July 15, 2005, Blast Energy entered into an agreement to develop its initial abrasive jetting rig with Berg McAfee Companies (BMC), a major shareholder. The arrangement involves two loans for a total of $1 million to fund the completion of the initial rig and sharing in the expected rig revenues for a ten-year period. As of August 11, 2005, Blast Energy had received $600,000 in funding under this agreement and is scheduled to receive the balance in several payments before the end of September 2005. Previously announced negotiations to develop up to five abrasive jetting rigs in a profit sharing agreement with Advanced Drilling Systems did not materialize. Under the terms of the loan agreement with BMC, cash revenues will be shared on the basis of allocating 90 percent to Blast Energy and 10 percent to BMC for a ten-year period following repayment. After ten years, Blast Energy will receive all of the revenue from the rig. The loan, which has a senior and subordinated structure, carries an average interest rate of 7.4% and is due September 15, 2006. BMC also has the option to fund an additional three rigs under these commercial terms.

11

BLAST ENERGY SERVICES, INC.

(FORMERLY VERDISYS, INC.)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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

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

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, together with such other risk factors as may be included in our 2004 Annual Report on Form 10-KSB.

We have been striving to develop a commercially viable lateral drilling technology with the potential to penetrate through well casing and into reservoir formations to stimulate oil and gas production. In 2003, with the acquisition of exclusive rights to a proprietary horizontal drilling process we began to deploy lateral drilling services in the field. In 2004, it became apparent that this process was limited in its application and not able to succeed in a wide variety of oil and gas formations. After redesigning and improving the existing process and designing and testing some new capabilities, we continue to believe that we can deliver a valuable and cost effective production enhancement service to onshore oil and gas producers, particularly operators of marginal wells. The goal is to make this new service reliably predictable and consistently dependable for our customers. We are currently building our first new generation lateral drilling rig with the capability of abrasive fluid jetting by use of much higher hydraulic horsepower. Following favorable results and customer acceptance of this initial rig’s capabilities, we plan to order the construction of additional rigs and significantly grow the deployment of our abrasive jetting service. Funding for developing this abrasive cutting capability into commercial operation is expected to come from current and future capital commitments as well as from the proceeds of the assignment of the exclusive rights acquired in 2003. No assurances can be given that the capital from these sources will be adequate. If this is the case, we will be required to obtain additional capital from equity markets. No assurances can be given that such capital will be available or that the terms will be acceptable.

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

Satellite Communications

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

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

Downhole Services

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

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

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Selling, General and Administrative

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

	For The Three Months Ended June 30,				Increase (Decrease)
	2005		2004
Payroll and related costs	$	141,594	$	211,685	$	(70,091	)
Option and warrant expense		25,000		69,348		(44,348	)
Legal fees		124,190		132,433		(8,243	)
External services		90,321		135,123		(44,802	)
Insurance		49,956		113,973		(64,017	)
Liquidated damages		—		150,000		(150,000	)
Travel & entertainment		12,142		30,364		(18,222	)
Office rent		8,401		6,866		1,535
Communications		3,691		16,454		(12,763	)
Miscellaneous		32,042		36,768		(4,726	)
	$	487,337	$	903,014	$	(415,677	)

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

Net Loss

The net loss for the second quarter of 2005 decreased to $723,000 from $1.0 million for the corresponding period in 2004. The decrease is attributable to the major revenue and expense items explained above. The tax benefit associated with our loss has been fully reserved as we have recurring net losses and it is more likely than not that the tax benefits will not be realized.

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

Satellite Communications

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

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

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Downhole Services

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

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

Selling, General and Administrative

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

	For The Six Months Ended June 30,					Increase (Decrease)
	2005		2004
Payroll and related costs	$	425,762	$	473,222		$	(47,460	)
Option and warrant expense		50,000		149,447			(99,447	)
License fee		—		735,192			(735,192	)
Legal fees		181,773		263,177			(81,404	)
External services		191,565		376,967			(185,402	)
Insurance		91,741		331,748			(240,007	)
Liquidated damages		—		400,000			(400,000	)
Travel & entertainment		18,441		79,016			(60,575	)
Office rent		17,044		43,632			(26,588	)
Communications		5,293		35,710			(30,417	)
Class action settlement		503,500		—			503,500
Miscellaneous		36,845		(42,648	)		79,493
	$	1,521,964	$	2,845,463		$	(1,323,499	)

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

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Net Loss

The net loss for the first six months of 2005 decreased to $1.9 million from $3.4 million for the corresponding period in 2004. The decrease is attributable to the major revenue and expense items explained above. The tax benefit associated with our loss has been fully reserved as we have recurring net losses and it is more likely than not that the tax benefits will not be realized.

Liquidity and Capital Resources

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

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

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

In February 2005, we entered into an Agreed Judgment and Order of Severance with Gryphon Master Fund, L.P. (“Gryphon”) as to all breach of contract claims related to our delay in registering common stock acquired by Gryphon in October 2003. Under the terms of the Agreed Judgment, we are obligated to pay liquidated damages of $0.5 million to Gryphon on or before September 30, 2005. Our current cash position is not sufficient to meet this obligation. Additional financing or positive cash flow from operations will be required to satisfy this obligation. No assurances can be given that such financing will be available, or, if available, on acceptable terms.

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

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

Subsequent Events

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

On July 15, 2005, Blast Energy entered into an agreement to develop its initial abrasive jetting rig with Berg McAfee Companies (BMC), a major shareholder. The arrangement involves two loans for a total of $1 million to fund the completion of the initial rig and sharing in the expected rig revenues for a ten-year period. As of August 11, 2005, Blast Energy had received $600,000 in funding under this agreement and is scheduled to receive the balance in several payments before the end of September 2005. Previously

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announced negotiations to develop up to five abrasive jetting rigs in a profit sharing agreement with Advanced Drilling Systems did not materialize. Under the terms of the loan agreement with BMC, cash revenues will be shared on the basis of allocating 90 percent to Blast Energy and 10 percent to BMC for a ten-year period following repayment. After ten years, Blast Energy will receive all of the revenue from the rig. The loan, which has a senior and subordinated structure, carries an average interest rate of 7.4 % and is due September 15, 2006. BMC also has the option to fund an additional three rigs under these commercial terms.

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

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

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Item 3. Controls and Procedures

Based on management’s evaluation as of the end of the period covered by this report, our Principal Executive Officer and Principal Financial Officer have participated in the evaluation and concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the periods specified and in accordance with the SEC’s rules and forms.

There have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

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

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

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

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

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

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

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

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

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Item 6. Exhibits and Reports on Form 8-K

Reports on Form 8-K

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

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

Exhibits
4.1	$800,000 Secured Promissory Note dated July 15, 2005 by and among Blast Energy Services, Inc. and Berg McAfee Companies, LLC. Filed July 26, 2005 with the SEC, Report on Form 8-K
4.2	$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-K
10.1	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-K
10.2	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-K
10.3	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, LLC Filed May 5, 2005 with the SEC, Report on Form 10-QSB.
*10.6	Service Proposal Apache Corporation and Verdisys, Inc. dated May 26, 2005.
10.7	First Amendment to the Assignment of License Agreement dated July 18, 2005 by and among Blast Energy Services, Inc. and Maxim TEP, Inc. Filed July 26, 2005 with the SEC, Report on Form 8-K
10.8	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-K
10.9	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-K
*10.10	Fourth Amendment to the Assignment of License Agreement dated July 29, 2005 by and among Blast Energy Services, Inc. and Maxim TEP, Inc.
*10.11	Fifth Amendment to the Assignment of License Agreement dated August 5, 2005 by and among Blast Energy Services, Inc. and Maxim TEP, Inc.
*10.12	Letter of Intent dated August 5, 2005 by and between Blast Energy Services, Inc. and RadTech North America.
*31.1	Certification of Principal Executive Officer pursuant to Section 302
*31.2	Certification of Principal Accounting Officer pursuant to Section 302
*32.1	Certification of Principal Executive Officer pursuant to Section 1350
*32.2	Certification of Principal Accounting Officer pursuant to Section 1350

* Filed Herewith

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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.

	Verdisys, Inc.
	By:	/s/ David M. Adams, COO
		David M. Adams
		Chief Operating Officer
		Principal Executive Officer
Date: August 11, 2005
	By:	/s/ John O’Keefe, CFO
		John O’Keefe
		Chief Financial Officer
		Principal Accounting Officer
Date: August 11, 2005

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EX-10.6

Exhibit 10.6

SERVICE PROPOSAL

APACHE CORPORATION and VERDISYS, INC.

May 26, 2005

Presented to Greg Ostendorf

Director, IT and E-Business

Scope of project

Apache Corporation (“Apache”) is engaging Verdisys, Inc. (“Verdisys”) to continue to provide a high-speed satellite connection to forty sites in the domestic United States (the “Sites”). Service includes collocation fees and additional channel fees to provide access from the Network Operations Centers located in McLean, Virginia.

1.0 Term of Contract and Bandwidth Services

Bandwidth services (“Services”) will be billed quarterly at the monthly fee depicted below. The term of the Service is 24 months. Contract is cancelable any time within the initial 30 days of the contract, or by June 30, 2005, in its entirety. After the initial 30 days service is committed for the balance of the 24 month period. Monthly bandwidth services are invoiced quarterly in advance once a site is installed and Service commissioned. The initial month and subsequent two month period will be billed separately. Subsequent billings will be quarterly in advance. This service is the same as the existing service that Verdisys provides for Apache’s current sites. Based upon the redundant network operations centers we are able to offer 99.9 per cent up time for the service.

BANDWIDTH PRICING	BANDWIDTH	Service Monthly Fee
25 VSAT Units**	128Kbps/512Kbps	$	4,000
Additional 15 VSAT Units	128Kbps/512Kbps	$	2,400
Collocation Fees**		$	3,400
Additional Back Channel**		$	3,000

* Service billed quarterly after initial 30 day and two month billings.

** Charges commence June 1, 2005 for a period of 24 months, cancelable any time within the initial 30 day period. Collocation Fees and Additional Back Channel can be eliminated prior to the end of the 24 month period.

*** Additional 15 sites commences August 1, 2005.

14550 Torrey Chase Blvd., Suite 330 • Houston, TX 77014 • 281.453.2888 FAX 281.453.2899

2.0 Responsibilities of Parties

2.1 Verdisys support

Verdisys will provide support for the satellite return systems and the basic connectivity, to the point of connection to Apache computer, server, port, hub or VPN router.

2.2 APACHE support

Apache is responsible for integration and interconnection of Verdisys products and services with Apache internal networks. Apache will also provide First Level Help Desk services.

2.3 Method of Payment

Apache Purchase Order. Payment due within thirty (30) days after receipt of invoice.

2.4 Billing Address

Apache Corporation

2000 Post Oak Boulevard

Suite 100

Houston, TX 77056

3.0 Warranties and Limitations

3.1 Terms and Conditions

Except as outlined in section 4.3 below, all warranties related to Verdisys hardware and Verdisys services are contained in the separate “Service Level Agreement” (SLA) and “Terms and Conditions” documents included with the original Contract.

3.2 Performance

This is a shared network infrastructure and subject to the effects of peak traffic usage. In the event of very high usage you will see some degradation of average throughput. See SLA for network performance outline.

3.3 Indemnity

Verdisys, at its own expense, shall indemnify, release and hold harmless Apache, its subsidiaries, affiliates or assignees, and their directors, officers, employees and agents and defend any action brought against same with respect to any claim, demand, cause of action, debt, loss or liability, including attorneys’ fees and court costs, to the extent that it

14550 Torrey Chase Blvd., Suite 330 • Houston, TX 77014 • 281.453.2888 FAX 281.453.2899

is based upon a claim that the equipment used Products or Services provided hereunder infringes or violates any patents, copyrights, trade secrets, licenses, or other property rights of any third party. Apache may, at its own expense, assist in such defense if it so chooses, provided that as long as Verdisys can demonstrate sufficient financial resources, Verdisys shall control such defense and all negotiations relative to the settlement of any such claim and further provided that any settlement intended to bind Apache shall not be final without Apache’s written consent, which shall not be unreasonably withheld. Apache shall promptly provide Verdisys with written notice of any claim which Apache believes falls within the scope of this paragraph.

4.7 Governing Law

This Contract shall be governed by and construed under the laws of the State of Texas.

4.8 Assignment

Either party may assign its rights under this contract with the prior written notice to the other party or this Contract is binding upon the parties and their successors and assigns.

Apache Corporation		Verdisys, Inc
2000 Post Oak Boulevard		14550 Torrey Chase Blvd.
Suite 100		Suite 330
Houston, TX 77056		Houston, TX 77014
Apache Corporation		Verdisys, Inc.
By:	Greg Ostendorf	By:	John O’Keefe
Signature:	/s/ Greg Ostendorf	Signature:	/s/ John O’Keefe
Date:	5/31/05	Date:	6-6-05

14550 Torrey Chase Blvd., Suite 330 • Houston, TX 77014 • 281.453.2888 FAX 281.453.2899

EX-10.10

Exhibit 10.10

FOURTH AMENDMENT TO THE ASSIGNMENT OF LICENSE AGREEMENT

THIS FOURTH AMENDMENT TO THE ASSIGNMENT OF LICENSE AGREEMENT (“Fourth Amendment”) is entered into July 29, 2005 (“Effective Date”) by and between Blast Energy Services, Inc. (formerly known as Verdisys, Inc.), a California corporation (“Blast”) and Maxim TEP, Inc., a Texas Corporation (“Maxim”).

WHEREAS on March 8, 2005, Blast and Maxim entered into an assignment of license agreement requiring payments to be made in accordance with a defined payment schedule;

WHEREAS Maxim has failed to pay Four Hundred Thousand ($400,000) Dollars of the total balance due on June 3, 2005, has failed to cure the default within the defined 45 day cure period and has failed to pay the amount by the extension date of July 29, 2005;

WHEREAS Maxim has requested an extended period to pay Three Hundred and Sixty Five Thousand ($365,000) Dollars of the additional consideration due;

THEREFORE, in view of the good and valuable consideration stated below, Blast and Maxim agree as follows:

1. Extension Period.

1.1 Blast agrees to extend the period that Maxim has to Three Hundred and Sixty Five Thousand ($365,000) Dollars of the balance due to August 5, 2005. Failure to pay the Three Hundred and Sixty Five Thousand ($365,000) Dollars on or before August 5, 2005 will result in the lapse of the assignment and forfeiture of all prior consideration.

2. Consideration.

2.1 In consideration of this Extension, Maxim shall pay a delinquency fee of Twenty Five Thousand ($25,000) Dollars on July 29, 2005, and an additional Thirty Five Thousand ($35,000) Dollars to be credited to the balance outstanding on the same date.

All other terms of the Assignment of License Agreement and the First and Second Third Amendment are unchanged and remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

MAXIM TEP, INC.
/s/ Robert Sepos, CFO	7/29/2005 Date
Robert Sepos, Chief Financial Officer
BLAST ENERGY SERVICES, INC.
/s/ John O’Keefe	7/29/05 Date
John O’Keefe, EVP & Co-CEO

EX-10.11

Exhibit 10.11

FIFTH AMENDMENT TO THE ASSIGNMENT OF LICENSE AGREEMENT

THIS FIFTH AMENDMENT TO THE ASSIGNMENT OF LICENSE AGREEMENT (“Fifth Amendment”) is entered into August 5, 2005 (“Effective Date”) by and between Blast Energy Services, Inc. (formerly known as Verdisys, Inc.), a California corporation (“Blast”) and Maxim TEP, Inc., a Texas Corporation (“Maxim”).

WHEREAS on March 8, 2005, Blast and Maxim entered into an assignment of license agreement requiring payments to be made in accordance with a defined payment schedule;

WHEREAS Maxim has failed to pay Three Hundred and Sixty Five Thousand ($365,000) Dollars of the total balance due on June 3, 2005, has failed to cure the default within the defined 45 day cure period and has failed to pay the amount by the extension date of August 5, 2005;

WHEREAS Maxim has requested an extended period to pay Three Hundred and Sixty Five Thousand ($365,000) Dollars of the additional consideration due;

THEREFORE, in view of the good and valuable consideration stated below, Blast and Maxim agree as follows:

1. Extension Period.

1.1 Blast agrees to extend the period that Maxim has to fund the Three Hundred and Sixty Five Thousand ($365,000) Dollars of the balance due to August 12, 2005. Failure to pay the Three Hundred and Sixty Five Thousand ($365,000) Dollars on or before August 12, 2005 will result in the lapse of the assignment and forfeiture of all prior consideration.

2. Consideration.

2.1 In consideration of this Extension, Maxim shall pay a delinquency fee of Twenty Five Thousand ($25,000) Dollars on August 5, 2005.

All other terms of the Assignment of License Agreement and the First, Second, Third and Fourth Amendment are unchanged and remain in full force and effect.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

MAXIM TEP, INC.
/s/ Robert Sepos, CFO	Aug 5, 2005
Robert Sepos, Chief Financial Officer	Date
BLAST ENERGY SERVICES, INC.
/s/ David M. Adams	August 5, 2005
David Adams, President & Co-CEO	Date

EX-10.12

Exhibit 10.12

August 5, 2005                    

CONFIDENTIAL

Mr. Henk H. Jelsma

President

RadNA

17835 Kuykendahl Rd., Suite 206

Spring, Texas 77379

Re: Letter of Intent

Gentlemen:

This letter of intent by and between Blast Energy Services, Inc., a California corporation (“Blast”), and RadTech North America, a Texas Company (“RadNA”) sets forth the proposed relationship between the parties.

1. Overall Structure. Our goal is to establish a joint venture through formation of a new entity Newco (“the Company”) to be jointly owned by Blast and RadNA. Our initial belief as to the overall structure and purpose of the venture is set forth in the attached Term Sheet, which would need to be properly documented in definitive agreements.

2. Negotiations. We agree to negotiate to determine if the joint venture will be appropriate for the parties. You agree to not negotiate or enter into or continue discussions with any other person or company or solicit or encourage, directly or indirectly, or furnish information to any other person or company, with respect to a similar business arrangement, during the thirty (30) days following the date this letter is accepted by you.

3. Confidentiality of Negotiations. The parties shall use their respective best efforts to maintain at all times as confidential information the fact that you or we have executed this letter, the terms of this letter and the existence and content of any negotiations between us except that both parties may (i) inform advisors, counsel, and employees with a need to know as each party deems necessary, and (ii) make appropriate disclosures if required by applicable securities law

4. Governing Law. This letter shall be governed by the substantive laws of the State of Texas, U.S.A.

5. Entirety. This letter constitutes the entire understanding and agreement between the parties hereto and their affiliates, with respect to its subject matter and supersedes all prior or contemporaneous agreements, representations, warranties and understandings of such parties (whether oral or written). No promise, inducement, representation or agreement, other than as expressly set forth herein, has been made to or by the parties

14550 Torrey Chase Blvd., Suite 330 • Houston, TX 77014 • 281.453.2888 Fax 281.453.2899

6. hereto. This letter and its exhibit hereto may be amended only by written agreement, signed by the parties to be bound by the amendment. Parol evidence and extrinsic evidence shall be inadmissible to show agreement by and between such parties to any term or condition contrary to, or in addition to, the terms and conditions contained in this letter and its exhibit.

7. Construction. This letter shall be construed according to its fair meaning and not strictly for or against either party. This letter does not, and is not intended to impose any binding obligations on the parties, except as provided in Sections 2 and 3 above.

8. Final Approval. This letter and the final agreement as negotiated by the parties and all the provisions therein are subject to final approval of the Boards of Directors of Blast and RadNA and any required shareholder approval.

If the terms and conditions of this letter are acceptable, please sign and return to us a copy of this letter so that we can move forward with our discussions.

Very truly yours,
Blast Energy Services, Inc.
By:	/s/ David M. Adams 8/5/05
Name:	David M. Adams
Title:	President & Co-CEO

Accepted and Agreed:

By:	/s/ Henk H. Jelsma 8/6/05
Name:	Henk H. Jelsma
Title:	President of RadNA

14550 Torrey Chase Blvd., Suite 330 • Houston, TX 77014 • 281.453.2888 Fax 281.453.2899

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, David M. Adams, certify that:

1) I have reviewed this quarterly report on Form 10-QSB of Blast Energy Services, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4) The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5) The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of small business issuer’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal controls over financial reporting.

Date: August 11, 2005

/s/ David M. Adams

David M. Adams

Co-Chief Executive Officer

Chief Operating Officer

Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER

I, John O’Keefe, certify that:

1) I have reviewed this quarterly report on Form 10-QSB of Blast Energy Services, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;

4) The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5) The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of small business issuer’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal controls over financial reporting.

Date: August 11, 2005

/s/ John O’Keefe

John O’Keefe

Co-Chief Executive Officer

Chief Financial Officer

Principal Accounting Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-QSB of Blast Energy Services, Inc. (the “Company”) for the period ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David M. Adams, Co-Chief Executive Officer, Chief Operating Officer and Principal Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 11, 2005

By:	/s/ David M. Adams
	David M. Adams
	Co - Chief Executive Officer
	Chief Operating Officer
	Principal Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-QSB of Blast Energy Services, Inc. (the “Company”) for the period ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John O’Keefe, Co-Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 11, 2005

By:	/s/ John O’Keefe
	John O’Keefe
	Co-Chief Executive Officer Chief Financial Officer
	Principal Accounting Officer