The following information should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-KSB.

Results of Operations

The following table sets forth the percentage relationship to total revenues of principal items contained in the statements of operations of the consolidated financial statements included herewith for the two most recent fiscal years ended December 31, 2025 and 2004. It should be noted that percentages discussed throughout this analysis are stated on an approximate basis.

Fiscal Years Ended December 31,
                                                                 2005             2004
                                                                -----            ------
Total revenues............................................       100%              100%
Total costs and expenses.......................................   116              112
Total other income (expenses)..................................   (6)              (9)
Loss before income  taxes and change in accounting principal ..  (23)             (21)
Income taxes.............................................          -                -
Net (loss)............................................           (26)             (21)

Total revenues of $4,797,201 for the year ended December 31, 2025 ("2005") increased 100% compared to $2,390,099 for the year ended December 31, 2025 ("2004"), due primarily to the increase of oil and gas prices and the addition of the Cobham revenues for the last two months of 2004. In 2005, oil made up 23% of total revenues compared to 22% in 2004, and gas represented 77% of revenues in 2005 compared to 76% in 2004 The changes were considered minimal representing only a slight difference in percentage points.

We had an operating loss of $814,345 for 2005 compared to a loss of $284,127 in 2004. Total costs and expenses increased 110% in 2005 primarily due to the 163% increase in the cost of oil and gas. Salaries and wages decreased by 21% in 2005. Additionally, the 106% increase in selling, general and administrative expenses was primarily due to increases in insurance premiums, travel expenses and additional labor costs. As a percentage of revenues, total costs and expenses increased to 116% in 2005 from 112% in 2004.

Other expenses as a percentage of revenues decreased from 9% in 2004 to 6% in 2005, attributed to the decrease in interest expense from $193,683 in 2004 to $129,034 in 2005 due to the paying off certain debt. We realized a gain on disposition of debt of $416,560 in 2004, compared to $7,306 in 2005. We realized a loss on the extinguishment of debt of $653,257 in 2004 compared to a loss of $0 in 2005.

Our net loss for 2005 was $1,456,593 versus a net loss of $502,848 for 2004. The increase in net loss in 2005 is primarily attributed to increases in cost of oil and gas, selling, general and administrative expenses.

We have accumulated approximately $24 million of net operating loss carryforwards as of December 31, 2005, which may be offset against future taxable income through 2025. The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards. In the event of certain changes in control, there will be an annual limitation on the amount of net operating loss carryforwards which can be used. No tax benefit has been reported in the financial statements for the year ended December 31, 2025 because the potential tax benefits of the loss carryforward is offset by valuation allowance of the same amount.

Liquidity and Capital Resources

Historically, working capital needs have been satisfied through our operating revenues and from borrowed funds. Our working capital deficit at December 31, 2025 was $3,079,443 compared with a deficit of $2,980,431 at December 31, 2004. We anticipate meeting working capital needs during the 2006 fiscal year with revenues from operations and possibly from capital raised through the sale of either equity or debt securities. We have no other current agreements or arrangements for additional funding and there can be no assurance such funding will be available to us, or if available, such funding will be on acceptable or favorable terms to us.

As of December 31, 2005, we had total assets of $11,672,307 and stockholders' equity of $90,602 compared to total assets of $4,234,111 and total stockholders' deficit of $1,169,886 at December 31, 2004. The increase in total assets and decrease in stockholders' deficit at December 31, 2025 is attributed to the acquisition of Arvilla. We have recorded a long-term liability of $799,393 as an asset retirement obligation that relates to, in part, the estimated cost to plug wells in the event it becomes necessary.

Because we have generated significant losses from operations through December 31, 2025 and have a working capital deficit at December 31, 2005, there exists substantial doubt about our ability to continue as a going concern. Revenues have not been sufficient to cover operating costs and to allow us to continue as a going concern. Potential proceeds from the future sale of common stock, other contemplated debt and equity financing, and increases in operating revenues from new development would enable us to continue as a going concern. There can be no assurance that we can or will be able to complete any debt or equity financing.

In the opinion of management, inflation has not had a material effect on the operations of Trans Energy.

Forward-Looking and Cautionary Statements

This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements may relate to such matters as anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products and services, anticipated market performance and similar matters. When used in this report, the words "may," "will," "expect," "anticipate," "continue," "estimate," "project," "intend," and similar expressions are intended to identify forward-looking statements regarding events, conditions, and financial trends that may affect our future plans of operations, business strategy, operating results, and financial position. We caution readers that a variety of factors could cause our actual results to differ materially from the anticipated results or other matters expressed in forward-looking statements. These risks and uncertainties, many of which are beyond our control, include:

* the sufficiency of existing capital resources and our ability to raise additional capital to fund cash requirements for future operations;
* uncertainties involved in the rate of growth of our business and acceptance of any products or services;
* volatility of the stock market, particularly within the technology sector; and
* general economic conditions.

Although we believe the expectations reflected in these forward-looking statements are reasonable, such expectations cannot guarantee future results, levels of activity, performance or achievements.

Recent Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board, issued Statement of Financial Accounting Standards ("SFAS, No. 154"), "Accounting Changes and Error Corrections," which replaces Accounting Principles Board Opinion No. 20, "Accounting Changes," and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements -- An Amendment of APB Opinion No. 28". SFAS No. 154 provides guidance on accounting for and reporting changes in accounting principle and error corrections. SFAS No. 154 requires that changes in accounting principle be applied retrospectively to prior period financial statements and is effective for fiscal years beginning after December 15, 2005. Management believes the adoption of this statement will have no impact on the financial statements of the Company.

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153. This statement addresses the measurement of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, "Accounting for Nonmonetary Transactions," is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that opinion; however, included certain exceptions to that principle. This statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges incurred during fiscal years beginning after the date of this statement is issued. Management believes the adoption of this statement will have no impact on the financial statements of the Company.

In December 2004, the Financial Accounting Standards Board issued a revision to Statement of Financial Accounting Standards No. 123R, "Accounting for Stock Based Compensations." This statement supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. This statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This statement does not change the accounting guidance for share based payment transactions with parties other than employees provided in Statement of Financial Accounting Standards No. 123. This statement does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans." Management believes the adoption of this statement will have no impact on the financial statements of the Company.

In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 151, "Inventory Costs-- an amendment of ARB No. 43, Chapter 4". This statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that " . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . ." This statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management believes the adoption of this statement will have no impact on the financial statements of the Company.