Our
History
Blast was originally incorporated in September
2000 as Rocker & Spike Entertainment, Inc,
a California corporation. On January 1, 2001, we
purchased the assets of Accident Reconstruction
Communications Network and changed our name to
Reconstruction Data Group, Inc. In April 2003,
we entered into a merger agreement with Verdisys,
Inc., which was initially incorporated as TheAgZone
Inc. in 1999 as a California corporation. Its purpose
was to provide e-Commerce satellite services to
agribusiness. The merger agreement called for us
to be the surviving company. Our name was changed
to Verdisys, Inc., our articles of incorporation
and bylaws remained in effect, each share of Verdisys’ common
stock was converted into one share of our common
stock, our accident reconstruction assets were
sold, and our business focus was changed to the
oil and gas industry. In June 2005, we changed
our name to Blast Energy Services, Inc. (“Blast”)
to reflect our focus on the energy services business.
Previous Bankruptcy Proceedings
In August 2006, we acquired Eagle Domestic Drilling
Operations LLC (“Eagle”), a drilling
contractor which owned three completed land rigs
and three more under construction. The Eagle acquisition
included five two-year term International Association
of Drilling Contractors (“IADC”) contracts
with day rates of $18,500 per day and favorable
cost sharing provisions. The assumptions used in
the Eagle acquisition included a steady and high
revenue stream and full utilization rate expectations
based upon these five contracts. The subsequent
cancellation of these contracts by Hallwood Petroleum,
LLC and Hallwood Energy, LP (collectively, “Hallwood”)
and Quicksilver Resources, Inc. (“Quicksilver”)
in the fall of 2006 severely impacted our ability
to service the note incurred with the acquisition
of the drilling rig business. We filed suit for
breach of those contracts.
In January 2007, Blast and Eagle filed voluntary
petitions with the U.S. Bankruptcy Court for the
Southern District of Texas – Houston Division
(the “Court”) under Chapter 11 of Title
11 of the U.S. Bankruptcy Code in order that we
could dispose of burdensome and uneconomical assets
and reorganize our financial obligations and capital
structure. We operated our businesses as “debtors-in
possession” under the jurisdiction of the
Court and in accordance with the applicable provisions
of the Bankruptcy Code and orders of the Court.
In May 2007 we executed an agreement with our lender on the terms of an asset
purchase agreement intended to offset the full amount of our then outstanding
$40.6 million senior Note, including accrued interest and default penalties.
Under the terms of this agreement, only the five land drilling rigs and associated
spare parts were sold to repay the Note. As a result, our satellite communication
business and our applied fluid jetting technology remained with us subsequent
to the sale of the rigs.
In February 2008, the Bankruptcy Court entered
an order confirming our Second Amended Plan of
Reorganization (the “Plan”). The overall
impact of the confirmed Plan was for Blast to emerge
with unsecured creditors fully paid, have no debt
service scheduled for at least two years, and keep
equity shareholders’ interests intact.
Under the terms of the Plan, Blast raised $4 million
in cash proceeds from the sale of convertible preferred
securities to Clyde Berg and McAfee Capital (as
described in greater detail below under “Preferred
Stock”), two parties related to Blast’s
largest shareholder, Berg McAfee Companies. The
proceeds from the sale of the securities were used
to pay 100% of the unsecured creditor claims, all
administrative claims, and all statutory priority
claims, for a total amount of approximately $2.4
million. The remaining $1.6 million was used to
execute an operational plan, including but not
limited to, reinvesting in the Satellite Services
and Down-hole Solutions businesses and pursue an
emerging Digital Oilfield Services business.
Under the terms of the Plan, Blast carried three
secured obligations:
• A $2.1 million interest-free senior obligation
with Laurus Master Fund, Ltd., (“Laurus”)
secured by the assets of Blast and payable only
by way of a 65% portion of the proceeds received
in the Hallwood and Quicksilver litigation, or
from any asset sales that may occur in the future;
• A $125,000 note to McClain County, Oklahoma
for property taxes, to be paid from the receipt
of litigation proceeds from Quicksilver; and
• A pre-existing secured $1.12 million note
with Berg McAfee Companies, which was extended
for an additional three years from the effective
date of the Plan (February 27, 2008) at an 8% interest
rate, and which contains an option to be convertible
into Company stock at the rate of one share of
common stock for each $0.20 of the note outstanding.
In October 2008 the notes owed to Laurus and McClain
County were paid in full from the Hallwood and
Quicksilver lawsuit settlement proceeds.
Preferred Stock
In January 2008, Blast sold the rights to an aggregate
of 2,000,000 units, each unit consisting of four
shares of Series A Convertible Preferred Stock
(the “Preferred Stock”), and one three
year warrant with an exercise price of $0.10 per
share (the “Units”), for an aggregate
of $4,000,000 or $2.00 per Unit, to Clyde Berg
and to McAfee Capital LLC. The shares of common
stock issuable in connection with the exercise
of the warrants and the conversion of the Preferred
Stock were granted piggy-back registration rights.
The proceeds from the sale of the Units were used
to satisfy creditor claims of $2.4 million under
the terms of the Plan and provide working capital
of $1.6 million.
Series A Convertible
Preferred Stock
The 8,000,000 shares of Series A Preferred Stock accrue dividends at the rate
of 8% per annum, in arrears for each month that the Preferred Stock is outstanding.
Blast has the right to repay any or all of the accrued dividends at any time
by providing the holders of the Preferred Stock at least five days written
notice of their intent to repay such dividends. In the event Blast receives
a “Cash Settlement,” defined as an aggregate total cash settlement
received by Blast, net of legal fees and expenses, in connection with Blast’s
litigation proceedings with Hallwood and Quicksilver in excess of $4 million,
Blast is required to pay outstanding dividends within thirty days in cash or
stock at the holder’s option. If the dividends are not paid within thirty
days of the date the Cash Settlement is received, a “Dividend Default” occurs.
As of December 31, 2009, the aggregate and per share arrearages on the outstanding
Preferred Stock were $493,151 and $0.08, respectively. Also included in the
arrearages per share calculation were additional dividends in arrearage of
$50,630 related to the 2,000,000 preferred shares that were redeemed in October
2008 (as described below).
The Preferred Stock and any accrued and unpaid
dividends, have optional conversion rights into
shares of Blast’s common stock at a conversion
price of $0.50 per share. The Preferred Stock automatically
converts if Blast’s common stock trades for
a period of more than twenty consecutive trading
days at a price greater than $3.00 per share and
if the average trading volume of Blast’s
common stock exceeds 50,000 shares per day.
In October 2008, Blast paid $1 million to redeem
2,000,000 shares of Preferred Stock, 1,000,000
shares each held by Clyde Berg and McAfee Capital,
LLC, at $0.50 per share face value, and 6,000,000
shares of Preferred Stock are remain outstanding
as of the date of this filing.
Warrants
Blast also granted warrants to the Preferred Stockholders to purchase up to
2,000,000 shares of common stock at an exercise price of $0.10 per share.
These warrants have a three-year term. The relative fair value of the warrants
determined utilizing the Black-Scholes option-pricing model was approximately
$446,000 on the date of sale. The significant assumptions used in the valuation
were: the exercise price of $0.10; the market value of Blast’s common
stock on the date of issuance of $0.29; expected volatility of 131%; risk
free interest rate of 2.25%; and an expected term of three years. Management
has evaluated the terms of the Convertible Preferred Stock and the grant
of warrants and concluded that there was not a beneficial conversion feature
at the date of grant.
Re-domicile
to Texas
Pursuant to the Plan,
Blast was re-domiciled in Texas. Blast filed
a certificate of formation for Blast Energy
Services, Inc, a Texas corporation and wholly-owned
subsidiary of Blast, in March 2008. Immediately
upon the formation of this subsidiary, Blast
filed Articles of Merger in Texas and California,
whereby Blast merged with and into the Texas
Corporation, which became the surviving entity.
Blast adopted and replaced its articles of
incorporation and bylaws with those of the
Texas Corporation to effect the merger.
|
