**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM 10-K**




**x ANNUAL
      REPORT
      PURSUANT TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**




**FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2005**




**o TRANSITION
      REPORT
      PURSUANT TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**




**FOR
      THE TRANSITION PERIOD FROM  __________ TO
      __________**




**COMMISSION
      FILE NUMBER 1-31679**




**TETON
      ENERGY CORPORATION**


(Exact
      name of registrant as specified in its charter)




**DELAWARE**
            
            **84-1482290**(State
                or other jurisdiction of incorporation or organization)
            
            (IRS
                Employer Identification No.)**410
                17****th****Street – Suite 1850****Denver,
                Colorado**
            
            **80202**(Address
                of principal executive offices)
            
            (Zip
                Code)




Registrant’s
      telephone number, including area code: **(303)
      565-4600**




Securities
      registered pursuant to Section 12(b) of the Act:




**Title
                of each class**
            
            **Name
                of each exchange on which registered**Common
                Stock, par value $0.001
            
            American
                Stock Exchange




Securities
      registered pursuant to Section 12(g) of the Act: **None**




Indicate
      by check mark if the registrant is a well-known seasoned issuer (as defined
      in
      Rule 405 of the Act). Yes o No  x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes o No  x




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter periods that the registrant
      was required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days. Yes x No o




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III or this Form 10-K or any
      amendment to this Form 10-K. o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
      the Act). Large accelerated filer o Accelerated
      filer o Non-accelerated
      filer   x




Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Act). Yes o No   x




1




As
      of
      December 31, 2005, approximately 11,329,652 shares of common stock were
      outstanding. The aggregate market value of the common stock held by
      non-affiliates of the issuer, as of December 31, 2005, was approximately
      $55,484,102 based on the closing bid of $5.90 for the issuer’s common stock as
      reported on the American Stock Exchange. Shares of common stock held by each
      director, each officer named in Item 12, and each person who owns 10% or more
      of
      the outstanding common stock have been excluded from this calculation in that
      such persons may be deemed to be affiliates. The determination of affiliate
      status is not necessarily conclusive.





As
      of
      March 3, 2006 the issuer had 11,666,079 shares of common stock
      outstanding.





DOCUMENTS
      INCORPORATED BY REFERENCE - NONE




2








**FORM
      10-K**


**FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 200** **5**





**INDEX**








Page**PART
                I**Item
                1
            Business
            6Item
                1A
            Risk
                Factors
            11Item
                2
            Description
                of Properties
            14Item
                3
            Legal
                Proceedings
            16Item
                4
            Submission
                of Matters to a Vote of Security Holders
            16**PART
                II**Item
                5
            Market
                for the Registrant’s Common Equity and Related Stockholder
                Matters
            17Item
                6
            Selected
                Financial Data
            18Item
                7
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            19Item
                7A
            Quantitative
                and Qualitative Disclosures about Market Risks
            26Item
                8
            Financial
                Statements and Supplementary Data
            27Item
                9
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            61Item
                9A
            Controls
                and Procedures
            61Item
                9B
            Other
                Information
            61**PART
                III**Item
                10
            Directors
                and Executive Officers of the Registrant
            62Item
                11
            Executive
                Compensation
            65Item
                12
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            68Item
                13
            Certain
                Relationships and Related Transactions
            70Item
                14
            Principal
                Accountant Fees and Services
            70**PART
                IV**Item
                15
            Exhibits
                and Financial Statement Schedules
            72**SIGNATURES**







3


**Forward-Looking
      Statements**





We
      have
      included in this report, statements which are intended as “forward-looking
      statements” under the Private Securities Litigation Reform Act of 1995. These
      include statements that are not simply a statement of historical fact but
      describe what we “believe,” “anticipate,” or “expect” will occur. We caution you
      not to place undue reliance on the forward-looking statements made in this
      report. Although we believe these statements are reasonable, there are many
      factors, which may affect our expectation of our operations. These factors
      include, among other things, the following:





·
            general
                economic conditions


·
              the
                  market price of, and demand for, oil and natural
                  gas


·
              our
                  ability to service future
                  indebtedness


·
              our
                  success in completing development and exploration
                  activities


·
              expansion
                  and other development trends of the oil and gas
                  industry


·
              our
                  present company structure


·
              our
                  accumulated deficit


·
              acquisitions
                  and other business opportunities that may be presented to and pursued
                  by
                  us


·
              our
                  ability to integrate our acquisitions into our company structure


·
              changes
                  in laws and regulations





**Glossary
      of Commonly Used Terms, Abbreviations, and Measurements**





Within
      this Report, the following terms and conventions have specific meanings:





*Commonly
      Used Terms and Abbreviations*





**Barrels
      of oil equivalent (BOE)** - Gas
      volume that is expressed in terms of its energy equivalent in barrels of oil,
      which is calculated as 6,000 cubic feet of gas equals 1 barrel of oil equivalent
      (BOE); or 42 U.S. gallons of oil at 40 degrees Fahrenheit.





**basin** - A
      depressed sediment-filled area, roughly circular or elliptical in shape,
      sometimes very elongated. Regarded as a good area to explore for oil and gas.




**basis** - **** When
      referring to natural gas, the difference between the futures price for a
      commodity and the corresponding sales price at various regional sales points.
      The differential commonly is related to factors such as product quality,
      location and contract pricing.




**Btu** - **** One
      British thermal unit - a measure of the amount of energy required to raise
      the
      temperature of one pound of water one degree Fahrenheit.




**cash
      flow hedge** - **** A
      derivative instrument that complies with Statement of Financial Accounting
      Standards No. 133, “Accounting for Derivative Instruments and Hedging
      Activities,” as amended, and is used to reduce the exposure to variability in
      cash flows from the forecasted physical sale of gas production whereby the
      gains
      (losses) on the derivative transaction are anticipated to offset the losses
      (gains) on the forecasted physical sale.




**collar** - **** A
      financial arrangement that effectively establishes a price range for the
      underlying commodity. The producer bears the risk of fluctuation between the
      minimum (floor) price and the maximum (ceiling) price.





**Denver-Julesburg
      (“DJ”) Basin** -
      A
      geologic depression encompassing Eastern Colorado and Western
      Nebraska.




**development
      well** - **** A
      well
      drilled into a known producing formation in a previously discovered
      field.




4


**exploratory
      well** - **** A
      well
      drilled into a previously untested geologic prospect to determine the presence
      of gas or oil.




**farm
      tap** -
      Natural gas supply service in which the customer is served directly from a
      well
      or gathering pipeline.





**field** - A
      geographic region situated over one or more subsurface oil and gas reservoirs
      encompassing at least the outermost boundaries of all oil and gas accumulations
      known to be within those reservoirs vertically projected to the land surface.




**futures
      contract** - **** An
      exchange-traded legal contract to buy or sell a standard quantity and quality
      of
      a commodity at a specified future date and price.




**gas** - **** All
      references to “gas” in this report refer to natural gas.




**gross** - **** “Gross”
      natural gas and oil wells or “gross” acres equal the total number of wells or
      acres in which the Company has a working interest.




**hedging** - **** The
      use
      of derivative commodity and interest rate instruments to reduce financial
      exposure to commodity price and interest rate volatility.




**net** - **** “Net”
gas
      and oil wells or “net” acres are determined by summing the fractional ownership
      working interests the Company has in gross wells or acres.





**Piceance
      Basin** - A
      6,000 square mile area in Western Colorado encompassing portions of Garfield
      and
      Mesa counties, with portions extending northward into Rio Blanco County and
      south into Gunnison and Delta counties





**productive** - Able
      to economically produce oil and/or gas.




**proved
      reserves** -
      Reserves that, based on geologic and engineering data, appear with reasonable
      certainty to be recoverable in the future from known oil and gas reserves under
      existing economic and operating conditions.




**proved
      developed reserves** - Proved
      reserves which can be expected to be recovered through existing wells with
      existing equipment and operating methods.




**proved
      undeveloped reserves** - Proved
      reserves that are expected to be recovered from new wells on undrilled proved
      acreage or from existing wells where a relatively major expenditure is required
      for completion.




**reserves
      -** The
      estimated value of oil, gas and/or condensate, which is economically
      recoverable.





**reservoir** - **** A
      porous
      and permeable underground formation containing a natural accumulation of
      producible natural gas and/or oil that is confined by impermeable rock or water
      barriers and is separate from other reservoirs.




**transportation** - Moving
      gas through pipelines on a contract basis for others.




**throughput** - **** Total
      volumes of natural gas sold or transported by an entity.




**working
      interest** - **** An
      interest that gives the owner the right to drill, produce and conduct operating
      activities on a property and receive a share of any production.





*Measurements*




**Barrel** = **** Equal to
      42 U.S. gallons.


**Bbl** = barrel


**Bcf** =
      billion cubic feet


**Bcfe** = billion cubic feet of natural gas equivalents


**Mcf** =
      thousand cubic feet


**Mcfe** =
      thousand cubic feet of natural gas equivalents


**MMBtu** =
      million British thermal units


**MMcf** =
      million cubic feet


**MMcfe** =
      million cubic feet of natural gas equivalents




5


**PART
      I**





**Item
      1. BUSINESS.**





**Background**





Teton
      Energy Corporation (the “Company”, “Teton”, “we” or “us”) was formed in
      November 1996 and is incorporated in the State of Delaware. We are an
      independent energy company engaged primarily in the development, production
      and
      marketing of natural gas and oil in North America.  Our strategy is to
      increase shareholder value by profitably growing reserves and production,
      primarily through acquiring under-valued properties with reasonable risk-reward
      potential and by participating in or actively conducting drilling operations
      in
      order to exploit our properties.  We seek high-quality exploration and
      development projects with potential for providing long-term drilling inventories
      that generate high returns.




The
      Company’s current operations are focused in two basins in the Rocky Mountain
      Region of the United States.  From its inception until 2004, the Company
      was primarily engaged in oil and gas exploration, development, and production
      in
      Western Siberia, Russia.  In July 2004, the Company’s shareholders
      voted to sell its Russian operations to the Company’s Russian partner. The gross
      proceeds received by the Company totaled $15,000,000.




Since
      July 2004, the Company has actively pursued opportunities primarily in
      North America in order (1) to redeploy the cash generated in the sale of its
      Goloil asset and (2) to continue the Company’s growth. During the first six
      months of 2005, we acquired approximately 182,000 undeveloped acres in the
      Eastern Denver-Julesburg Basin (the “DJ Basin”) located in Nebraska on the
      Nebraska-Colorado border. The properties carry a net revenue interest of
      approximately 81.0%.




In
      February 2005, the Company acquired 25% of the membership interests in
      Piceance Gas Resources, LLC, a Colorado limited liability company (“Piceance
      LLC”). Piceance LLC owns certain oil and gas rights and leasehold assets
      covering 6,314 acres in the Piceance Basin in Western Colorado. The properties
      owned by Piceance LLC carry a net revenue interest of 78.75%.





**Recent
      Events**




On
      January 27, 2006, the Company closed an acreage earning agreement (the “Acreage
      Agreement”) with Noble Energy, Inc. (“Noble”). If the terms of the Acreage
      Agreement are fulfilled, Noble will earn an undivided 75% working interest
      in
      our DJ Basin acreage. Under
      the
      terms of the Acreage Agreement, Noble will earn the 75% working interest in
      the
      DJ Basin project by (1) the payment of $3 million; and (2) the drilling and
      completion of 20 wells on or before March 1, 2007, with a minimum of 10 wells
      to
      be drilled and completed by December 31, 2006. In the event Noble fails to
      complete the minimum wells called for by each of these milestones, its right
      to
      drill additional oil and gas wells will terminate; however, Noble will retain
      an
      interest in the wells drilled, but without the right to drill additional wells
      on the portion of the drilled lease so assigned.





On
      February 28, 2006, Orion Energy Partners, L.P., the holder of 50% of the
      membership interests in Piceance LLC and Piceance LLC’s contract operator sold
      its interest to Berry Petroleum Company (“Berry”) for an announced price of
      $159,000,000. Berry also announced February 28, 2006, that it was increasing
      its
      2006 capital budget by $48,000,000 to develop the Piceance LLC acreage during
      2006.





**Business
      Strategy**





The
      Company’s objective is to expand its natural gas and oil reserves, production
      and revenues through a strategy that includes the following key
      elements:




***Pursue
      Attractive Reserve and Leasehold Acquisitions.*** To
      date,
      acquisitions have been critical in establishing our asset base. We believe
      that
      we are well positioned, given our initial success in identifying and quickly
      closing on attractive opportunities in the Piceance and DJ Basins, to effect
      opportunistic acquisitions that can provide upside potential, including
      long-term drilling inventories and undeveloped leasehold positions with
      attractive return characteristics. Our focus is to acquire assets that provide
      the opportunity for developmental drilling and/or the drilling of extensional
      step out wells, which we believe provide us with significant upside potential
      while not exposing us to the risks associated with drilling new field wildcat
      wells in frontier basins.





***Pursuit
      of Selective Complementary Acquisitions.*** ** We seek
      to acquire long-lived producing properties with a high degree of operating
      control, or oil and gas entities that are known to be competent in the
      area,  that offer opportunities profitably to increase our natural gas and
      crude oil reserves.





6


***Drive
      Growth Through Drilling.*** We
      plan
      to supplement our long-term reserve and production growth through drilling
      operations. In 2005, we participated in drilling 10 gross wells on our
      Piceance Basin acreage, of which we have a 25% interest, and our current plans
      are to participate in drilling an additional 20 gross wells on Piceance acreage
      and 10 gross wells on our DJ Basin acreage in 2006.





***Maximize
      Operational Control.*** To
      date,
      we do not own any assets where we are the operator. It is strategically
      important to our future growth and maturation as an independent exploration
      and
      production company to be able to serve as operator of our properties when
      possible, as that will enable us to exert greater control over costs and timing
      in and manner of our exploration, development and production
      activities.





***Operate
      Efficiently, Effectively, and Maximize Economies of Scale Where
      Practical.*** Our
      objective is to generate profitable growth and high returns for our
      stockholders, and we expect that our unit cost structure will benefit from
      economies of scale as we grow and from our continuing cost management
      initiatives. As we manage our growth, we are actively focusing on reducing
      lease
      operating expenses, general and administrative costs and finding and development
      costs. In addition, our acquisition efforts are geared toward pursuing opportunities that fit well
      within existing operations or in areas where the Company is establishing new
      operations or where it believes that a base of existing production will produce
      an adequate foundation for economies of scale necessary to grow a business
      within a geography or business segment.





**Governmental
      Regulation**





The
      Company’s business and the oil and natural gas industry in general are heavily
      regulated.  The availability of a ready market for natural gas production
      depends on several factors beyond the Company’s control.  These factors
      include regulation of natural gas production, federal and state regulations
      governing environmental quality and pollution control, the amount of natural
      gas
      available for sale, the availability of adequate pipeline and other
      transportation and processing facilities and the marketing of competitive
      fuels.  State and federal regulations generally are intended to prevent
      waste of natural gas, protect rights to produce natural gas between owners
      in a
      common reservoir and control contamination of the environment.  Pipelines
      are subject to the jurisdiction of various federal, state, and local
      agencies.




The
      Company believes that it is in substantial compliance with such statutes, rules,
      regulations and governmental orders, although there can be no assurance that
      this is or will remain the case.  Failure to comply with such laws and
      regulations can result in substantial penalties.  The regulatory burden on
      the industry increases our cost of doing business and affects our
      profitability.  Although we believe we are in substantial compliance with
      all applicable laws and regulations, such laws and regulations are frequently
      amended or reinterpreted so we are unable to predict the future cost or impact
      of complying with such laws and regulations.




The
      following discussion of the regulation of the United States natural gas industry
      is not intended to constitute a complete discussion of the various statutes,
      rules, regulations and environmental orders to which the Company’s operations
      may be subject.




*Regulation
      of Oil and Natural Gas Exploration and Production*





The
      Company’s oil and natural gas operations are subject to various types of
      regulation at the federal, state and local levels.  Prior to commencing
      drilling activities for a well, the Company  (or its operating
      subsidiaries, operating entities, or operating partners) must procure permits
      and/or approvals for the various stages of the drilling process from the
      applicable federal, state and local agencies in the state in which the area
      to
      be drilled is located.  Such permits and approvals include those for the
      drilling of wells, and such regulation includes maintaining bonding requirements
      in order to drill or operate wells and regulating the location of wells, the
      method of drilling and casing wells, the surface use and restoration of
      properties on which wells are drilled, the plugging and abandoning of wells
      and
      the disposal of fluids used in connection with operations.  The Company’s
      operations are also subject to various conservation laws and regulations. 
      These include the regulation of the size of drilling and spacing units or
      proration units and the density of wells which may be drilled and the
      unitization or pooling of natural gas properties.  In this regard, some
      states allow the forced pooling or integration of tracts to facilitate
      exploration while other states rely primarily or exclusively on voluntary
      pooling of lands and leases.  In areas where pooling is voluntary, it may
      be more difficult to form units, and therefore, more difficult to develop a
      project if the operator owns less than 100% of the leasehold.  In addition,
      state conservation laws may establish maximum rates of production from oil
      and
      natural gas wells, generally prohibit the venting or flaring of natural gas
      and
      impose certain requirements regarding the ratability of
      production.




The
      effect of these regulations may limit the amount of oil and natural gas the
      Company can produce from its wells and may limit the number of wells or the
      locations at which the Company can drill.  The regulatory burden on the oil
      and natural gas industry increases the Company’s costs of doing business and,
      consequently, affects its profitability.  Inasmuch as such laws and
      regulations are frequently expanded, amended and reinterpreted, the Company
      is
      unable to predict the future cost or impact of complying with such
      regulations.




7





*Natural
      Gas Marketing, Gathering, and Transportation*





Federal
      legislation and regulatory controls have historically affected the price of
      the
      natural gas and the manner in which production is transported and
      marketed.  Under the Natural Gas Act of 1938, the Federal Energy Regulatory
      Commission (“FERC”) regulates the interstate sale for resale of natural gas and
      the transportation of natural gas in interstate commerce, although facilities
      used in the production or gathering of natural gas in interstate commerce are
      generally exempted from FERC jurisdiction.  Effective January 1, 1993,
      the Natural Gas Wellhead Decontrol Act deregulated natural gas prices for all
      “first sales” of natural gas, which definition covers all sales of our own
      production.  In addition, as part of the broad industry restructuring
      initiatives described below, FERC has granted to all producers such as us a
      “blanket certificate of public convenience and necessity” authorizing the sale
      of gas for resale without further FERC approvals.  As a result, all natural
      gas that we produce in the future may now be sold at market prices, subject
      to
      the terms of any private contracts that may be in effect.




Natural
      gas sales prices nevertheless continue to be affected by intrastate and
      interstate gas transportation regulation, because the prices that companies
      such
      as ours receive for our production are affected by the cost of transporting
      the
      gas to the consuming market.  Through a series of comprehensive
      rulemakings, beginning with Order No.436 in 1985 and continuing through Order
      No.636 in 1992 and Order No. 637 in 2000, FERC has adopted regulatory changes
      that have significantly altered the transportation and marketing of natural
      gas.
      These changes were intended by FERC to foster competition by, among other
      things, transforming the role of interstate pipeline companies from wholesale
      marketers of gas to the primary role of gas transporters, and by increasing
      the
      transparency of pricing for pipeline services.  FERC has also developed
      rules governing the relationship of the pipelines with their marketing
      affiliates, and implemented standards relating to the use of electronic data
      exchange by the pipelines to make transportation information available on a
      timely basis and to enable transactions to occur on a purely electronic
      basis.




In
      light
      of these statutory and regulatory changes, most pipelines have divested their
      gas sales functions to marketing affiliates, which operate separately from
      the
      transporter and in direct competition with all other merchants, and most
      pipelines have also implemented the large-scale divestiture of their gas
      gathering facilities to affiliated or non-affiliated companies.  Interstate
      pipelines thus now generally provide unbundled, open and nondiscriminatory
      transportation and transportation-related services to producers, gas marketing
      companies, local distribution companies, industrial end users and other
      customers seeking such services.  Sellers and buyers of gas have gained
      direct access to the particular pipeline services they need, and are better
      able
      to conduct business with a larger number of counterparties.







*Environmental
      Regulations*





The
      Company’s operations are subject to numerous laws and regulations governing the
      discharge of materials into the environment or otherwise relating to
      environmental protection.  Public interest in the protection
      of the environment has increased dramatically in recent years.  The trend
      of more expansive and stricter environmental legislation and regulations could
      continue.  To the extent laws are enacted or other governmental action is
      taken that restricts drilling or imposes environmental protection requirements
      that result in increased costs to the natural gas industry in general, the
      business and prospects of the Company could be adversely
      affected.




The
      nature of the Company’s business operations results in the generation of wastes
      that may be subject to the Federal Resource Conservation and Recovery Act
      (“RCRA”) and comparable state statutes.  The U.S. Environmental Protection
      Agency (“EPA”) and various state agencies have limited the approved methods of
      disposal for certain hazardous and non-hazardous wastes.  Furthermore,
      certain wastes generated by the Company’s operations that are currently exempt
      from treatment as “hazardous wastes” may in the future be designated as
“hazardous wastes,” and therefore be subject to more rigorous and costly
      operating and disposal requirements.




Stricter
      standards in environmental legislation may be imposed on the industry in the
      future.  For instance, legislation has been proposed in Congress from time
      to time that would reclassify certain exploration and production wastes as
      “hazardous wastes” and make the reclassified wastes subject to more stringent
      handling, disposal and clean-up restrictions.  If such legislation were to
      be enacted, it could have a significant impact on our operating costs, as well
      as on the industry in general.  Compliance with environmental requirements
      generally could have a materially adverse effect upon our capital expenditures,
      earnings or competitive position.




8


The
      Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”),
      also known as the “Superfund” law, imposes liability, without regard to fault or
      the legality of the original conduct, on certain classes of persons who are
      considered to be responsible for the release of a “hazardous substance” into the
      environment.  These persons include the present or past owners or operators
      of the disposal site or sites where the release occurred and the companies
      that
      transported or arranged for the disposal of the hazardous substances at the
      site
      where the release occurred.  Under CERCLA, such persons may be subject to
      joint and several liability for the costs of cleaning up the hazardous
      substances that have been released into the environment, for damages to natural
      resources and for the costs of certain health studies.  It is not uncommon
      for neighboring landowners and other third parties to file claims for personal
      injury and property damages allegedly caused by the release of hazardous
      substances or other pollutants into the environment.  Furthermore, although
      petroleum, including natural gas and crude oil, is exempt from CERCLA, at least
      two courts have ruled that certain wastes associated with the production of
      crude oil may be classified as “hazardous substances” under CERCLA and thus such
      wastes may become subject to liability and regulation under CERCLA.  State
      initiatives further to regulate the disposal of crude oil and natural gas wastes
      are also pending in certain states, and these various initiatives could have
      adverse impacts on our business.




In
      August 2005, the Energy Policy Act of 2005 was enacted (the “Energy
      Act”).  The Energy Act contains certain provisions that facilitate oil and
      gas leasing and permitting on federal lands. The Energy Act also provides for
      certain incentives for oil and gas productions.




The
      Company’s operations may be subject to the Clean Air Act (the “CAA”) and
      comparable state and local requirements.  Amendments to the CAA were
      adopted in 1990 and contain provisions that may result in the gradual imposition
      of certain pollution control requirements with respect to air emissions from
      the
      operations of the Company.  The EPA and states have been developing
      regulations to implement these requirements.  The Company may be required
      to incur certain capital expenditures in the next several years for air
      pollution control equipment in connection with maintaining or obtaining
      operating permits and approvals addressing other air emission-related
      issues.




The
      Federal Water Pollution Control Act (the “FWPCA” or the “Clean Water Act”) and
      resulting regulations, which are implemented through a system of permits, also
      govern the discharge of certain contaminants into waters of the United
      States.  Sanctions for failure to comply strictly with the Clean Water Act
      are generally resolved by payment of fines and correction of any identified
      deficiencies.  However, regulatory agencies could require us to cease
      construction or operation of certain facilities that are the source of water
      discharges and compliance could have a materially adverse effect on our capital
      expenditures, earnings, or competitive position.




Our
      operations are subject to local, state and federal laws and regulations to
      control emissions from sources of air pollution.  Payment of fines and
      correction of any identified deficiencies generally resolve penalties for
      failure to comply strictly with air regulations or permits.  Regulatory
      agencies could also require us to cease construction or operation of certain
      facilities that are air emission sources.  We believe that we substantially
      comply with the emission standards under local, state, and federal laws and
      regulations.







*Operating
      Hazards and Insurance*





The
      Company’s exploration and production operations include a variety of operating
      risks, including the risk of fire, explosions, above-ground and underground
      blowouts, craterings, pipe failure, casing collapse, abnormally pressured
      formations, and environmental hazards such as gas leaks, ruptures and discharges
      of toxic gas, the occurrence of any of which could result in substantial losses
      to the Company due to injury and loss of life, severe damage to and destruction
      of property, natural resources and equipment, pollution and other environmental
      damage, clean-up responsibilities, regulatory investigation and penalties and
      suspension of operations.  The Company’s pipeline, gathering and
      distribution operations are subject to the many hazards inherent in the natural
      gas industry.  These hazards include damage to wells, pipelines and other
      related equipment, and surrounding properties caused by hurricanes, floods,
      fires and other acts of God, inadvertent damage from construction equipment,
      leakage of natural gas and other hydrocarbons, fires and explosions and other
      hazards that could also result in personal injury and loss of life, pollution
      and suspension of operations.




Any
      significant problems related to its facilities could adversely affect the
      Company’s ability to conduct its operations.  In accordance with customary
      industry practice, the Company maintains insurance against some, but not all,
      potential risks; however, there can be no assurance that such insurance will
      be
      adequate to cover any losses or exposure for liability.  The occurrence of
      a significant event not fully insured against could materially adversely affect
      the Company’s operations and financial condition.  The Company cannot
      predict whether insurance will continue to be available at premium levels that
      justify its purchase or whether insurance will be available at all.




9




**Employees**




As
      of
      December 31, 2005, the Company had 6 employees, and 2 part-time consultants
      that
      dedicate over 25% of their time to the Company.




The
      Company’s employees are not covered by a collective bargaining agreement. The
      Company considers relations with its employees to be excellent.




10


**Item
      1A.** **RISK
      FACTORS**





**Risks
      Related to our Business**




**We
      have incurred significant losses. We expect future losses and we may never
      become profitable.**




We
      have
      incurred significant losses in the past. The Company incurred net losses from
      continuing operations for the years ended December 31, 2005, 2004, and 2003
      of $3,777,449, $5,193,281, and $4,036,164, respectively. In addition, we had
      an
      accumulated deficit of $24,499,726 at December 31, 2005. We may fail to
      achieve significant revenues or sustain profitability. There can be no assurance
      of when, if ever, we will be profitable or be able to maintain
      profitability.




**If
      we are unable to obtain additional funding our business operations will be
      harmed.**




We
      believe that our current cash position and estimated 2006 cash from operations
      will not be sufficient to meet our current estimated operating and general
      and
      administrative expenses and capital expenditures through the end of fiscal
      year
      2006. As a result, the Company will require additional funding. In addition,
      should our operating partners increase their capital expenditures beyond
      currently anticipated levels, we may be unable to participate in additional
      wells if we are unable to secure such additional funding. Additionally, we
      do
      not know if additional financing will be available when needed, or if it is
      available, if it will be available on acceptable terms. Insufficient funds
      may
      prevent us from implementing our business strategy.




**Our
      business depends on the level of activity in the oil and gas industry, which
      is
      significantly affected by volatile energy prices.**




Our
      business depends on the level of activity in oil and gas exploration,
      development and production in markets worldwide. Oil and gas prices, market
      expectations of potential changes in these prices and a variety of political
      and
      economic and weather-related factors significantly affect this level of
      activity. Oil and gas prices are extremely volatile and are affected by numerous
      factors, including:




**•**
              worldwide
                    demand for oil and
                    gas;
 **•**
              the ability of the Organization of
                Petroleum
                Exporting Countries, commonly called “OPEC,” to set and maintain
                production levels and pricing;
 **•**
              the level of production in non-OPEC
                countries;
 **•**
              the policies of the various governments
                regarding exploration and development of their oil and gas
                reserves;
 **•**
              local
                weather;
 **•**
              fluctuating pipeline takeaway
                capacity;
 **•**
              advances in exploration and development
                technology;
 **•**
              the political environment surrounding
                the
                production of oil and gas;
 **•**
              level of consumer product demand;
                and
 **•**
              the
                  price and availability of alternative
                  fuels.






**Our
      business involves numerous operating hazards.**




Our
      operations are subject to certain hazards inherent in drilling for oil or
      natural gas, such as blowouts, reservoir damage, loss of production, loss of
      well control, punchthroughs, craterings, or fires. The occurrence of these
      events could result in the suspension of drilling operations, weather, equipment
      shortages, damage to or destruction of the equipment involved and injury or
      death to rig personnel. Operations also may be suspended because of machinery
      breakdowns, abnormal drilling conditions, failure of subcontractors to perform
      or supply goods or services or personnel shortages. Damage to the environment
      could also result from our operations, particularly through oil spillage or
      extensive uncontrolled fires. We may also be subject to damage claims by other
      oil and gas companies.




Although
      we and/or our operating partners maintain insurance in the areas in which we
      operate, pollution and environmental risks generally are not fully insurable.
      Our insurance policies and contractual rights to indemnity may not adequately
      cover our losses, and we do not have insurance coverage or rights to indemnity
      for all risks. If a significant accident or other event occurs and is not fully
      covered by insurance or contractual indemnity, it could adversely affect our
      financial position and results of operations.




11


**All
        of our current producing properties are located in the Rocky Mountains, making
        us vulnerable to risks associated with operating in one major geographic
        area.**


Our
      current operations are focused on the Rocky Mountain region, which means our
      producing properties are geographically concentrated in that area.  As a
      result, we may be disproportionately exposed to the impact of delays or
      interruptions of production from these wells caused by significant governmental
      regulation, transportation capacity constraints, curtailment of production
      or
      interruption of transportation of natural gas produced from the wells in these
      basins.




**Competition
      in the oil and natural gas industry is intense, which may adversely affect
      our
      ability to succeed.**




The
      oil
      and natural gas industry is intensely competitive, and we compete with other
      companies that are significantly larger and have greater resources.  Many
      of these companies not only explore for and produce oil and natural gas, but
      also carry on refining operations and market petroleum and other products on
      a
      regional, national or worldwide basis.  These companies may be able to pay
      more for productive oil and natural gas properties and exploratory prospects
      or
      define, evaluate, bid for and purchase a greater number of properties and
      prospects than our financial or human resources permit.  In addition, these
      companies may have a greater liability to continue exploration activities during
      periods of low oil and natural gas market prices.  Our larger competitors
      may be able to absorb the burden of present and future federal, state, local
      and
      other laws and regulations more easily than we can, which would adversely affect
      our competitive position.  Our ability to acquire additional properties and
      to discover reserves in the future will be dependent upon our ability to
      evaluate and select suitable properties and to consummate transactions in a
      highly competitive environment.




**If
      oil and natural gas prices decrease, we may be required to take write-downs
      of
      the carrying values of our oil and natural gas properties.**




Generally
      accepted accounting principles require that we periodically review the carrying
      value of our oil and natural gas properties for possible impairment. Based
      on
      specific market factors and circumstances at the time of the prospective
      impairment reviews, and the continuing evaluation of development plans,
      production data, economics and other factors, we may be required to write down
      the carrying value of our oil and natural gas properties. A write-down
      constitutes a non-cash charge to earnings. We may incur impairment charges
      in
      the future, which could have material adverse effect on our results of
      operations in the periods taken.




**Governmental
      laws and regulations may add to our costs or limit our drilling
      activity.**




Our
      operations are affected from time to time in varying degrees by governmental
      laws and regulations. We may be required to make significant capital
      expenditures to comply with governmental laws and regulations. It is also
      possible that these laws and regulations may in the future add significantly
      to
      our operating costs or may significantly limit drilling activity.  Failure
      to comply with these laws and regulations may result in the suspension or
      termination of our operations and subject us to administrative, civil and
      criminal penalties, including assessment of natural resource
      damage.




**There
      are risks associated with forward-looking statements made by us and actual
      results may differ.**




Some
      of
      the information in this 10K contains forward-looking statements that involve
      substantial risks and uncertainties. You can identify these statements by
      forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,”
“estimate” and “continue,” or similar words. You should read statements that
      contain these words carefully because they:




•  discuss
      our future expectations;


•  contain
      projections of our future results of operations or of our financial condition;
      and


•  state
      other “forward-looking” information.




We
      believe it is important to communicate our expectations. However, there may
      be
      events in the future that we are not able to accurately predict and/or over
      which we have no control. The risk factors listed in this section, other risk
      factors about which we may not be aware, as well as any cautionary language
      in
      this prospectus, provide examples of risks, uncertainties and events that may
      cause our actual results to differ materially from the expectations we describe
      in our forward-looking statements. You should be aware that the occurrence
      of
      the events described in these risk factors could have an adverse effect on
      our
      business, results of operations and financial condition (See Cautionary Note
      Regarding Forward-Looking Statements on page 4).




**Risks
      Relating To Our Common Stock**




**Our
      stock price and trading volume may be volatile, which could result in losses
      for
      our stockholders.**




The
      equity trading markets may experience periods of volatility, which could result
      in highly variable and unpredictable pricing of equity securities.  The
      market price of our common stock could change in ways that may or may not be
      related to our business, our industry or our operating performance and financial
      condition.  In addition, the trading volume in our common stock may
      fluctuate and cause significant price variations to occur.  Some of the
      factors that could negatively affect our share price or result in fluctuations
      in the price or trading volume of our common stock include:




12


**•** actual or anticipated quarterly variations in our operating
      results;


**•** changes in expectations as to our future financial performance or changes in
      financial estimates, if any, of public market analysts;


**•** announcements relating to our business or the business of our
      competitors;


**•** conditions generally affecting the oil and natural gas industry;


**•** the success of our operating strategy; and


**•** the operating and stock price performance of other comparable
      companies.




Many
      of
      these factors are beyond our control, and we cannot predict their potential
      effects on the price of our common stock.  We cannot assure you that the
      market price of our common stock will not fluctuate or decline significantly
      in
      the future.  In addition, the stock markets in general can experience
      considerable price and volume fluctuations.





**Our
      Insiders beneficially own a significant portion of our
      stock.**





As
      of
      December 31, 2005 our executive officers, directors and affiliated persons
      beneficially own approximately 18.24% of our common stock. As a result, our
      executive officers, directors and affiliated persons will have significant
      influence to:




**•**   elect
      or
      defeat the election of our directors;


**•**   amend
      or
      prevent amendment of our articles of incorporation or bylaws;


**•**   effect
      or
      prevent a merger, sale of assets or other corporate transaction;
      and


**•**   affect
      the outcome of any other matter submitted to the stockholders for
      vote.





In
      addition, sales of significant amounts of shares held by our directors and
      executive officers, or the prospect of these sales, could adversely affect
      the
      market price of our common stock. Management’s stock ownership may discourage a
      potential acquirer from making a tender offer or otherwise attempting to obtain
      control of us, which in turn could reduce our stock price or prevent our
      stockholders from realizing a premium over our stock price.





**We
      do not expect to pay dividends in the foreseeable future. As a result, holders
      of our common stock must rely on stock appreciation for any return on their
      investment.**




We
      do not
      anticipate paying cash dividends on our common stock in the foreseeable future.
      Certain of our existing credit agreements prohibit the payment of cash dividends
      without lender consent. Any payment of cash dividends will also depend on our
      financial condition, results of operations, capital requirements and other
      factors and will be at the discretion of our board of directors. Accordingly,
      holders of our common stock will have to rely on capital appreciation, if any,
      to earn a return on their investment in our common stock. Furthermore, we may
      in
      the future become subject to contractual restrictions on, or prohibitions
      against, the payment of dividends.




13


**Item
      2. DESCRIPTION OF PROPERTIES.**




We
      currently operate in two basins in the Rocky Mountain Region of the United
      States: the Piceance Basin, which is located in northwestern Colorado and the
      Denver-Julesburg (“DJ”) Basin, which is located in eastern Colorado and western
      Nebraska.


***Eastern
      DJ Basin***





Teton
      acquired its interest in this moderate risk exploration play in April 2005.
      The
      Company’s acreage in this area, consisting of over 182,000 gross leased acres
      with a working interest of 100% and average net revenue interest of
      approximately 81%, is located on the eastern flank of the DJ basin in Chase,
      Dundy, Perkins, and Keith counties in Nebraska. The drilling target of this
      play
      is primarily the Niobrara formation, within which is trapped biogenic gas in
      the
      Beecher Island chalk of the Upper Cretaceous Niobrara formation. The gas is
      contained in shallow structural traps at depths ranging from 1,700-2,500 feet.
      The acreage is located approximately 20 to 30 miles to the east of the main
      Niobrara gas productive trend that has been established to the west in Yuma,
      Phillips, and Sedgwick counties, Colorado and in Duell and Garden counties,
      Nebraska. Based on current service company rates, the Company anticipates that
      gross drilling and completion costs for a Niobrara well are approximately
      $150,000 - $200,000.





It
      was
      the Company’s intent to acquire this large acreage position and subsequently
      sell an undivided interest across the acreage to a large, reputable operator
      with experience in the area in order to (i), reduce the risks associated with
      a
      large, moderately-risked exploration play and (ii), leverage the Company’s
      interests to an operator with the financial and personnel resources to quickly
      analyze the potential, identify locations and efficiently drill and complete
      a
      large number of wells in a timely fashion.





In
      January 2006, the Company announced the closing of a transaction with Noble,
      whereby Noble will operate and will earn a 75% working interest in Teton's
      over
      182,000 acres by (i), paying Teton $3 million dollars and (ii), drilling and
      completing 20 wells at no cost to Teton. The Parties anticipate that the 20
      wells will be drilled and completed by the first quarter of 2007. During that
      time, Teton will receive 25% of any revenues derived from the first 20 wells.
      After completion of the first 20 wells, Teton and Noble will split all costs
      associated with future drilling according to each party's working interest
      percentage.





***Piceance
      Basin***





Teton’s
      properties in the Piceance Basin consists of a 25% working interest (19.69%
      net
      revenue interest) in a 6,3 14-acre
      block located in Garfield County, Colorado, townships T5S-96W and T6S-96-97W,
      immediately to the northwest of Grand Valley gas field, the westernmost of
      the
      four gas fields that comprise the continuous, basin-centered, tight gas sand
      accumulation (“the Piceance Fairway”).





These
      properties are in the vicinity of major gas production from continuous
      basin-centered, tight gas sand accumulations within the Williams Fork formation
      of the Upper Cretaceous Mesaverde group and the shallower Lower Tertiary Wasatch
      formation. The primary targets for drilling on this large acreage position
      are
      the 1,200’-1,500’ thick, gas-saturated sands of the middle and lower Williams
      Fork formation at approximately 8,300’-9,700’ in depth.





In
      addition, the subject acreage is surrounded on the west, east, and southeast
      by
      completed gas wells. To the northwest of the block is the Trail Ridge gas field
      (Wasatch and Mesaverde). To the west, south, and east are gas wells of the
      greater Grand Valley field.





The
      Company estimates, based on current service company costs, that drilling and
      completion costs for a Williams Fork well will be, on average, approximately
      $1,7 00,000.
      Based on currently approved field spacing rules, the Company estimates that
      the
      venture partners can drill as many as 628 wells on the 6,300 acre block with
      an
      estimated average 1.3 BCF ultimate recovery per well. Our natural gas production
      in this area is gathered by our own gathering system and delivered to markets
      through the Williams Pipeline.





The
      chart
      below sets forth certain production data for the fiscal year ending December
      31,
      2005, for the period ending June 30, 2004, prior to such sale, and for the
      fiscal year ending December 31, 2003. Additional oil and gas disclosure can
      be
      found in Note 12 of the Financial Statements. Production data with respect
      to
      2004 and 2003 represents results of discontinued operations from the Company’s
      former operations in the western Siberian region of the Russian Federation.
      Teton sold its interest in these assets effective as of July 1, 2004.





14







**PRODUCTION
      DATA**





2005
            
            2004
            
            2003Total
                gross oil production, barrels
            
            
            -
            
            
            1,393,616
            
            
            2,528,260Total
                gross gas production, MCF
            
            
            457,331
            
            
            -
            
            
            -Net
                oil production, barrel (1)
            
            
            -
            
            
            348,404
            
            
            632,065Net
                gas production, MCF (1)
            
            
            90,037
            
            
            -
            
            
            -Average
                oil sales price, $/Bbl (2)
            
            
            -
            
            $
            18.98
            
            $
            18.11Average
                gas sales price,$/MCF
            
            $
            7.86
            
            
            -
            
            
            -Average
                production cost per barrel (3)
            
            
            -
            
            $
            16.12
            
            $
            16.11Average
                production cost per MCFincluding
                production taxes
            
            $
            1.10
            
            
            -
            
            
            -Gross
                productive wellsOil
            
            
            -
            
            
            24.0
            
            
            21.0Gas
            
            
            3.0
            
            
            -
            
            
            -Total
            
            
            3.0
            
            
            24.0
            
            
            21.0Net
                productive wellsOil
            
            
            -
            
            
            12.0
            
            
            10.5Gas
            
            
            .75
            
            
            -
            
            
            -Total
            
            
            .75
            
            
            12.0
            
            
            10.5





(1)
            Net
                production and net well count is based on Teton's effective net interest
                as of the end of each year.


(2)
            Average
                oil sales price is a combination of domestic (Russian) and export
                price.


(3)
            Excludes
                production payment toLimited
                Liability Company Energosoyuz-A.


The
                  following chart sets forth the number of productive wells and dry
                  exploratory and productive wells drilled and completed during the
                  last
                  three fiscal years. For the year ended December 31, 2004 and 2003,
                  the
                  wells are in the Goloil license area prior to the sale of Teton’s interest
                  in Goloil:








15




**NET
      WELLS DRILLED**





Year
                Ended December 31,
            
            2005
            
            2004
            
            2003Gross
            
            Net
                (1)
            
            Gross
            
            Net
                (1)
            
            Gross
            
            Net
                (1)Number
                of Wells DrilledExploratoryProductive
            
            
            3.0
            
            
            .75
            
            
            -
            
            
            -
            
            
            -
            
            
            -In
                progress
            
            
            7.0
            
            
            1.75
            
            
            -
            
            
            -
            
            
            -
            
            
            -Dry
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
            
            
            10.0
            
            
            2.50
            
            
            -
            
            
            -
            
            
            -
            
            
            -DevelopmentProductive
            
            
            -
            
            
            -
            
            
            3.0
            
            
            1.5
            
            
            7.0
            
            
            3.5In
                progress
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Dry
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
            
            
            -
            
            
            -
            
            
            3.0
            
            
            1.5
            
            
            7.0
            
            
            3.5TotalProductive
            
            
            3.0
            
            
            .75
            
            
            3.0
            
            
            1.5
            
            
            7.0
            
            
            3.5In
                progress
            
            
            7.0
            
            
            1.75Dry
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
            
            
            10.0
            
            
            2.50
            
            
            3.0
            
            
            1.5
            
            
            7.0
            
            
            3.5





(1)
            Net
                well count is based on Teton's effective net interest as of the end
                of
                each year.





**Developed
      and Undeveloped Acreage**





The
      following table sets forth the total gross and net developed acres and total
      gross and net undeveloped acres of the Company as of December 31, 2005:





Developed
                Acres
            
            Undeveloped
                AcresGross
            
            Net
            
            Gross
            
            NetPiceance
                Basin, Colorado
            
            
            30
            
            
            6
            
            
            6,284
            
            
            1,571Eastern
                DJ Basin, Nebraska
            
            
            0
            
            
            0
            
            
            195,251
            
            
            183,864Total
            
            
            30
            
            
            6
            
            
            201,535
            
            
            185,435








Our
      offices are located in Denver, Colorado. We lease our offices from an
      unaffiliated third party. The term of such lease is three years, and the lease
      expires in July 2008.




**Item
      3. LEGAL PROCEEDINGS.**





We
      are
      not a party to any legal proceedings.




**Item
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**





No
      matters were submitted to a vote of our security holders during the fourth
      quarter of 2005.





16


**PART
      II**





**Item
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS** **MATTERS.**





Teton's
      common stock is listed and principally traded on the American Stock Exchange,
      under the symbol “TEC.” Our common stock is also listed for trading on the
      Frankfurt Stock Exchange (Germany) under the symbol “TP9.”





The
      following table sets forth, on a per share basis, the high and low closing
      price
      on the American Stock Exchange:





High
            
            Low2005
                periodFirst
                quarter
            
            $
            3.81
            
            $
            1.32Second
                quarter
            
            $
            4.53
            
            $
            2.06Third
                quarter
            
            $
            8.00
            
            $
            4.45Fourth
                quarter
            
            $
            7.20
            
            $
            4.902004
                periodFirst
                quarter
            
            $
            5.24
            
            $
            3.36Second
                quarter
            
            $
            4.00
            
            $
            1.80Third
                quarter
            
            $
            2.55
            
            $
            1.25Fourth
                quarter
            
            $
            1.85
            
            $
            1.20








Holders:
      As of December 31, 2005, there were approximately 154 holders of record of
      our
      common stock.





Dividends:
      Teton has not paid any dividends on its common stock since inception. Teton
      does
      not anticipate declaration or payment of any dividends at any time in the
      foreseeable future.




**Recent
      Issuances of Unregistered Securities**





During
      the fourth quarter, there were no issuances of unregistered
      securities.





**Equity
      Compensation Plan Information**





The
      following table sets forth information about our equity compensation plans
      at
      December 31, 2005:





Plan
                category
            
            Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            
            
            Weighted
                average exercise price of outstanding options, warrants and
                rights
            
            Number
                of securities remaining available for future issuanceEquity
                compensation plans approved by security holders:2005
                Long-term Incentive Plan(1)
            
            
            800,000
            (3)
            
            
            (4)
            
            
            (1)2004
                Non-Employee Stock Compensation Plan(2)
            
            
            287,500
            
            
            
            (4)2003
                Employee Stock Compensation Plan(2)
            
            
            2,875,334
            
            
            $
            3.54
            
            
            --






17





(1)
            The
                Company’s Long-Term Incentive Plan provides for the issuance of a maximum
                number of shares of common stock equalto
                20% of the total number of shares of Common Stock outstanding as
                of the
                effective date for the plan’s first year and for each subsequent plan
                year, (i) that number of shares equal to 10% of the total number
                of shares
                of Common Stock outstanding as of the first day of each respective
                plan
                year, plus (ii) that number of shares of Common Stock reserved and
                available for issuance but unissued during any prior plan year during
                the
                Term of the Plan; provided, however, in no event shall the number
                of
                shares of Common Stock available for issuance under the Plan as of
                the
                beginning of any Plan Year plus the number of shares of Common Stock
                reserved for outstanding awards under the Plan exceed 35% percent
                of the
                total number of shares of Common Stock outstanding at that time,
                based on
                a three-year period of grants.


(2)
            The
                2004 Non-Employee Stock Compensation Plan and the 2003 Employee Stock
                Compensation Plan were terminated upon the adoption of the 2005 Long-term
                Incentive Plan.


(3)
            Includes
                800,000 performance share units awarded in July 2005. A*performance
                share unit*is
                equal in value to one share of the Company’s common stock and subject to
                vesting on the basis of the achievement of specified performance
                targets
                as specified in the applicable administration document or award agreement.
                Upon vesting, performance share Units will be settled by delivery
                of
                shares to the Participant equal to the number of vested performance
                share
                units. In January 2006, the Compensation Committee determined that
                the
                2005 performance targets had not been met.  As a result, 160,000
                performance share units from the original grant of 800,000 will not
                vest
                under the 2005 Grant.


(4)
            Not
                applicable.





See
      Note
      7 to the financial statements for discussion of options issued in
      2005.





**Item
      6. SELECTED FINANCIAL DATA.**





The
      following table sets forth selected financial data, derived from the financial
      statements, regarding Teton’s financial position and results of operations as of
      the dates indicated. This selected financial data should be read in conjunction
      with our financial statements and notes to the financial
      statements.





As
                of and for the Year Ended December 31,2005
            
            2004
            
            2003
            
            2002
            
            2001Summary
                of OperationsLoss
                from continuing operations
            
            $
            (3,777,449
            )
            $
            (5,193,281
            )
            $
            (4,036,164
            )
            $
            (10,191,307
            )
            $
            (1,373,470
            )Discontinued
                operations, net of tax
            
            
            (255,000
            )
            
            12,383,582
            
            
            (1,598,680
            )
            
            (782,616
            )
            
            (284,138
            )Net
                income (loss)
            
            
            (4,032,449
            )
            
            7,190,301
            
            
            (5,634,844
            )
            
            (10,973,923
            )
            
            (1,657,608
            )Income
                (loss) per share for:Continuing
                operations
            
            $
            (.38
            )
            $
            (.64
            )
            $
            (1.00
            )
            $
            (3.28
            )
            $
            (.05
            )Discontinued
                operations
            
            
            (.02
            )
            
            1.37
            
            
            (.23
            )
            
            (.25
            )
            
            (.01
            )Net
                income
            
            
            (.40
            )
            
            .73
            
            
            (1.23
            )
            
            (3.53
            )
            
            (.06
            )Balance
                SheetTotal
                assets
            
            
            22,131,495
            
            
            17,611,565
            
            
            20,718,375
            
            
            10,012,395
            
            
            2,211,312Notes
                payable
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            844,210Cash
                dividends per common share
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --








18


**Item
      7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.**





The
      following discussion and analysis of our plan of operation should be read in
      conjunction with the financial statements and the related notes.  This
      management’s discussion and analysis of financial condition and results of
      operations is intended to provide investors with an understanding of our past
      performance, financial condition, and prospects. The following will be discussed
      and analyzed:





·
            Overview
                of Business





·
            Industry
                and Operating Trends





·
            Components
                of Our Operating Results





·
            Results
                of Operations & Comparison of Results Between
                Years





·
            Outlook
                for 2006





·
            Liquidity
                and Capital Resources





·
            Subsequent
                Events





·
            Critical
                Accounting Policies and Estimates





·
            Recent
                Accounting Pronouncements





**Overview**





We
      are an
      independent oil and gas exploration and production company with operations
      in
      the Rocky Mountain region of the U.S. We generate revenues by the production
      of
      oil and gas from properties which we own independently or with other parties.
      Currently we have interests in two different plays: We own a 25% interest in
      a
      drilling program in the Piceance Basin in western Colorado on 6,314 gross acres
      (1,579 net to the Company) and a separate acreage play of over 182,000 acres
      in
      the eastern DJ Basin in Nebraska. Prior to July 1, 2004 our primary focus was
      oil and gas exploration, development and production in the Russian Federation
      and former Commonwealth of Independent States (“CIS”)(see Note 3 to the
      financial statements). Since January 2005, our focus has been on acquiring
      and
      developing assets in North America, with a particular emphasis on the Rocky
      Mountain Region in the United States. At December 31, 2005, our Piceance program
      had three wells on production. There was no production at December 31, 2005,
      in
      respect of the acreage in the DJ Basin.





Financial
      highlights for the year ended December 31, 2005 include the
      following:





·
            The
                Company sold 90,037 mcf of natural gas from its Piceance Basin properties
                at an average wellhead price of $8.90. Actual price realization after
                fuel, gathering, marketing, and transportation averaged $7.86 per
                mcf,
                resulting in revenues net to the Company of $707,420.




·
            The
                Company’s net loss from continuing operations decreased to $3,777,449 in
                2005 ($.38 per share) from $5,193,281 in 2004 ($.64 per
                share).





The
      following summarizes the Company’s operational highlights during
      2005:





·
            On
                February 15, 2005 the Company acquired a 25% interest in Piceance
                LLC
                which owns 6,314
                acres in the Piceance Basin for a total purchase price, including
                the fair
                value of stock and warrants issued of approximately $6.4
                million.




·
            During
                the second quarter of 2005 the Company acquired an interest in over
                182,000 acres in the Eastern DJ Basin for a total investment, including
                the fair value of stock and warrants issued of approximately $4.2
                million.




·
            Piceance
                LLC drilled and completed three wells in 2005 and drilled to total
                depth
                an additional seven wells, which seven wells are planned to be on
                production in the first half of
                2006.






19




·
            Effective
                December 31, 2005 the Company entered into an acreage earning agreement,
                which allows Noble Energy, Inc. to earn a 75% interest in our eastern
                DJ
                Basin acreage for $3.0 million and a carry on 20 wells to be drilled
                and
                completed by March 1, 2007. The Company entered into a definitive
                agreement in December 2005 and closed on January 27,
                2006.




·
            Further
                evaluation and restructuring of its cost structure resulting in the
                elimination of its Moscow office and the consolidation of the functions
                of
                its Steamboat Springs, Colorado offices into its corporate headquarters
                in
                Denver, Colorado.




During
      2005, the Company concentrated on developing opportunities in the Rocky Mountain
      region of the United States. It concentrated on close-in exploration and/or
      extension development projects involving resource plays in basins deemed to
      be
      prolific. To that end, during 2005 the Company participated in the drilling
      and
      completion of wells in the Piceance Basin and further participated in the
      drilling of an additional seven wells to total depth. The Company began its
      exploration program on over 182,000 acres in the eastern DJ Basin and entered
      into an acreage earning agreement with Noble.





Results
      of Operations 2005 Compared to 2004




The
      Company had a net loss from continuing operations for 2005 of $3,777,449
      compared to a net loss of $5,193,281 for the same period in 2004. Factors
      contributing to the smaller net loss for the year included the following:





Oil
      and
      gas production net to the Company’s interest in 2005 was 90,037 mcf resulting in
      $707,420 in oil and gas sales, at an average wellhead price of $8.90 per mcf
      for
      the year. The Company’s price net of fuel, gathering, transportation and
      marketing fees totaling $89,209 or $7.86 per mcf. The Company’s net production
      began in July 2005. Oil and gas production net to the Company in 2004 was
      384,404 bbls. Revenues between 2005 and 2004 are not comparable, as effective
      July 1, 2004 the Company sold its Russian oil production.





Lease
      operating expenses for the year were $50,932 and production taxes were $48,196
      (or 7% of revenues) net to the Company resulting in operating income from oil
      and gas activities from Piceance LLC of $608,292 before depreciation and
      depletion, exploration costs, general and administrative expenses and other
      income. Lease operating expenses include $30,909 incurred directly by Teton
      for
      consultants working directly on the Piceance Basin properties.





During
      2005, general and administrative expense decreased from $5,332,991 during 2004
      to $4,006,747 for 2005. General and administrative expenses include the non-cash
      expense of $795,375 recorded in conjunction with the issuance of common stock
      to
      certain individuals affiliated with the Company. Factors contributing to the
      decrease in administrative expense in 2005 included reduced due diligence costs
      associated with the pursuit of acquisitions (including acquisitions that failed
      to close), elimination of the Company’s Moscow, Steamboat Springs, and Houston
      offices, reduction in investor relations-related expenses, and reduction of
      corporate personnel associated with its overseas operations.





Significant
      changes in general and administrative expenses, exclusive of the $795,375
      non-cash charge relating to the issuance of stock for the year ended December
      31, 2005 compared to 2004 include:





·
            Advertising
                and public relations and related consulting expenses decreased $457,820
                in
                2005 primarily due to the fact that the Company eliminated several
                consulting contracts in the second quarter of 2004 and expensed the
                costs
                to terminate such contracts during such
                quarter.


·
            The
                Company expensed $415,494 in due diligence costs in 2004 compared
                to
                $28,886 in 2005 related to acquisitions that were not
                completed.


·
            The
                Company’s public company compliance expense and related legal and
                accounting expenses decreased $251,476 in 2005. Significant costs
                were
                incurred in 2004 related to the sale of Goloil, legal and accounting
                expense incurred on acquisitions that did not close and costs to
                prepare
                the proxy to solicit votes for the sale of Goloil. Components of
                Company’s
                compliance and legal costs incurred in 2005 include costs incurred
                in
                respect to the establishment of the shareholders rights plan, the
                Long
                Term Incentive Plan, the preparation of three registration statements,
                and
                legal costs associated with the departure of a former Officer and
                Director
                of the Company.


·
            Franchise
                taxes, included in general and administrative expenses decreased
                $64,483
                in 2005.


·
            Travel
                and entertainment expenses decreased $217,581 in 2005 relative to
                2004 as
                the Company no longer incurs the significant costs of traveling to
                Russia.


·
            Compensation
                paid to employees decreased $572,911 in 2005 relative to 2004 because
                the
                Company has reduced its number of employees from 11 to 6, partially
                offset
                by an increase in severance paid to employees of $222,000 primarily
                related to the severance costs recorded for a former Officer and
                Director
                of the Company.






20


Exploration
      expenses for 2005 relate to delay rentals and geological and geophysical
      expenses incurred by the Company primarily on the eastern DJ Basin leases that
      were acquired in April.





Results
      of Operations 2004 Compared to 2003





The
      Company had a net loss from continuing operations for the year ending December
      31, 2004 of $5,193,281 compared to a loss of $4,036,164 for the prior year,
      an
      increase of $1,157,117 .
      The
      increase from 2003 to 2004 was primarily due to the increase in general and
      administrative expenses from $3,920,791 for the year ending December 31, 2003
      to
      $5,332,291 for the year ending December 31, 2004. This was due to several
      reasons including:





·
            The
                Company unsuccessfully pursued several acquisitions which resulted
                in the
                expensing of the various due diligence costs incurred on such acquisitions
                of $409,000.


·
            The
                Company increased its payroll during the early part of 2004 as it
                increased its staffing levels to begin its investment and acquisition
                program, incurring expense of
                $358,000.


·
            Based
                on a performance review of management for 2003, the Board paid out
                bonuses
                to senior management in the first quarter of 2004 of
                $300,000.


·
            The
                Company began compensating outside Directors in cash and stock payments
                of
                $140,000.


·
            The
                Company incurred significant legal, investor relations, accounting
                and
                other expenses in selling its interest in Goloil and in preparation
                of the
                related proxy statement in order to obtain shareholder approval of
                such
                sale of $188,000.


·
            The
                Company incurred severance and other one-time costs associated with
                the
                reduction of staff, offices and other commitments of
                $218,000.


·
            The
                  Companyincurred
                  additional costs of $70,000 associated with the maintenance and
                  ultimate
                  closing of its Moscow office in 2004.1




Discontinued
      Operations 2004 Compared to 2003





See
      Note
      3 to financial statements for a summary of the income (loss) from discontinued
      operations. The Company considered the sale of Goloil to be effective July
      1,
      2004. Accordingly, the operating activities of Goloil for the six months ended
      June 30, 2004 were included in the Company’s 2004 statement of operations as a
      net loss from discontinued operations. Goloil’s operating revenues and expenses
      for six months of 2004 were less than 2003 because Teton had recorded a full
      year of operations for 2003. Goloil sold its production in 2004 at an average
      price of $18.98 per barrel compared
      to the $18.11 price for oil sold in 2003. However, 2004 production was sold
      exclusively to the domestic and near abroad markets and not the export market
      which during 2004 yielded prices substantially above the price received in
      the
      domestic and near abroad markets. Prior to September 30, 2003, Goloil had sold
      its oil for a blended oil price which included sales to the export
      market.





The
      $13,086,761 gain included the $8,960,000 proceeds from the sale of Goloil stock,
      net of $997,000 in expenses plus the elimination of approximately $5.1 million
      in net liabilities reflecting the Company’s pro-rata share of Goloil as of June
      30, 2004





The
      Company’s net loss from continuing operations decreased from $10,191,307 in 2002
      to a net loss of $4,036,164 in 2003. This was primarily due to the fact that
      general and administrative expenses decreased from $4,744,952 in 2002 to
      $3,920,791 in 2003, primarily due to a decrease of $1,562,575 in fees paid
      to
      consultants for capital raising activities offset by increases in compensation
      to officers and employees ($323,951) professional fees ($109,146) travel and
      entertainment ($193,773), and expenses related to marketing, advertising, and
      investor relations ($167,987).





Financing
      charges recorded decreased from $5,498,106 in 2002 to $132,818 in 2003. In
      2002,
      the Company recorded a $4,715,000 non-cash financing charge as a result of
      warrants issued with debentures and in-the-money conversion features present
      at
      issuance.





1  The
        Company opened a representative office in Moscow in December 2003 to manage
        its
        Russian operations, as well as to establish a higher profile in the Russian
        oil
        industry and facilitate greater deal flow as it pursued acquisition
        opportunities in Russia and in other FSU states. The Moscow office was closed
        in
        December 2004 as a result of the Company’s decision to exit Russia and the
        Company incurred closing costs which were included in continuing operations
        at
        December 31, 2004.




21





**Outlook
      for 2006**





The
      following summarizes the goals and objectives for the Company for
      2006:




·  Continue
      to sustain the Piceance Basin drilling program.




·  Negotiate
      and finalize a senior debt facility.




·  Execute
      the eastern DJ exploration and drilling program with Noble.




·  Build
      up
      the operating capabilities of the Company.




·  Pursue
      additional asset and project opportunities.





**Liquidity
      and Capital Resources**





The
      Company had a cash balance of $7,064,295 at December 31, 2005 and a working
      capital surplus of $4,987,397.





The
      Company currently estimates the cost of its development and exploration programs
      to be $12 million for the year ending December 31, 2006. Our
      capital budget could be substantially increased if Berry, as operator for the
      Piceance play, increases the drilling program. The Company is undertaking to
      put
      in place a senior debt facility during 2006. The Company expects that its
      current cash balances, combined with operating cash flow, amounts available
      from
      a senior debt facility (assuming such facility is in fact established), proceeds
      from the exercise of warrants and the proceeds from the acreage earning
      agreement of the eastern DJ Basin will provide it with adequate resources to
      meet its capital needs for 2006.





The
      Company may require additional financing during 2006 if the Company identifies
      other acquisitions that meet its investment criteria. Such additional financing
      may be debt or equity or a combination of both. See Sources and Uses of Funds
      below.





**Sources
      and Uses of Funds**





Historically,
      Teton’s primary source of liquidity has been cash provided by equity
      offerings. Equity
      offerings are expected to continue to play an important role in financing
      Teton’s business for the foreseeable future. In addition, the Company is working
      to establish a borrowing facility with one or more commercial banks, most likely
      in the form of a revolving line of credit that will be used primarily for the
      acquisition of producing properties and for developmental drilling and other
      capital expenditures. We also expect that revenue will play an increasing role
      in 2006 in its sources of funds owing to increased production from its current
      and anticipated future wells.





**Cash
      Flows and Capital Expenditures**





During
      the year ended December 31, 2005 the Company expended $2,496,087 in its
      operating activities primarily to finance its efforts in respect of potential
      acquisitions and in respect of personnel costs. This amount compares to
      $4,420,775 used in operating activities in 2004.





During
      2005, the Company used $11,302,692 in its investing activities related to the
      completion of its acquisition of the membership interest in Piceance, LLC,
      the
      commencement of drilling and completion operations in the Piceance and on
      acquiring the DJ Basin acreage.





During
      2005, 743,868 warrants were exercised, purchasing common shares of the Company
      for net proceeds to the Company of $3,497,501.





**Commitments**





The
      Company has entered into a three year lease for office space which expires
      in
      July 2008. Future contractual commitments under such lease are $56,967 for
      2006,
      $56,967 for 2007 and $33,231 for 2008.





22


**Income
      Taxes, Net Operating Losses and Tax Credits**





At
      December 31, 2005 the Company has a net operating loss carry forward for U.S.
      income tax purposes of $24,000,000. Approximately $19 million of such net
      operating loss is subject to U.S. Internal Revenue Code Section 382 limitations.
      Utilization of this portion of the NOL is limited to approximately $900,000
      per
      annum.





The
      Company has established a valuation allowance for deferred taxes that reduces
      its net deferred tax assets as management currently believes that these losses
      will not be utilized in the near term. The allowance recorded was $8.8 million
      and $4.6 million for 2005 and 2004, respectively.





**Subsequent
      Events**





Subsequent
      to December 31, 2005 the members of Piceance LLC applied to the fee owner of
      the
      land on which Piceance LLC’s oil and gas rights and leases are located to
      transfer the interests directly to each of the members. Such transfer occurred
      on February 28, 2006.





Subsequent
      to December 31, 2005 the Company closed on an Acreage
      Earning Agreement with Noble Energy, Inc. and received $2.7 million in
      cash.





**Critical
      Accounting Policies and Estimates**





The
      discussion and analysis of the Company’s financial condition and results of
      operations were based upon the consolidated financial statements, which have
      been prepared in accordance with accounting principles generally accepted in
      the
      United States. The preparation of these financial statements requires the
      Company to make estimates and judgments that affect the reported amounts of
      assets, liabilities, revenues and expenses. Significant accounting policies
      are
      described in Note 2 to the financial statements. In response to SEC Release
      No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical
      Accounting Policies,” the Company has identified certain of these policies as
      being of particular importance to the portrayal of the financial position and
      results of operations and which require the application of significant judgment
      by management. The Company analyzes our estimates, including those related
      to
      oil and gas reserves, bad debts, oil and gas properties, marketable securities,
      income taxes, derivatives and contingencies, and bases those estimates on
      historical experience and various other assumptions that management believes
      are
      reasonable under the circumstances. Actual results may differ from these
      estimates under different assumptions or conditions. The Company believes the
      following critical accounting policies affect the more significant judgments
      and
      estimates used in the preparation of the financial statements.





**Successful
      Efforts Method of Accounting**





The
      Company accounts for natural gas and crude oil exploration and development
      activities utilizing the successful efforts method of accounting. Under this
      method, costs of productive exploratory wells, development dry holes and
      productive wells and undeveloped leases are capitalized. Oil and gas lease
      acquisition costs are also capitalized. Exploration costs, including personnel
      costs, certain geological and geophysical expenses and delay rentals for gas
      and
      oil leases, are charged to expense as incurred. Exploratory drilling costs
      are
      initially capitalized, but charged to expense if and when the well is determined
      not to have found reserves in commercial quantities. The sale of a partial
      interest in a proved property is accounted for as a cost recovery and no gain
      or
      loss is recognized as long as this treatment does not significantly affect
      the
      unit-of-production amortization rate. A gain or loss is recognized for all
      other
      sales of producing properties.





The
      application of the successful efforts method of accounting requires managerial
      judgment to determine that proper classification of wells designated as
      developmental or exploratory which will ultimately determine the proper
      accounting treatment of the costs incurred. The results from a drilling
      operation can take considerable time to analyze and the determination that
      commercial reserves have been discovered requires both judgment and industry
      experience. Wells may be completed that are assumed to be productive and
      actually deliver gas and oil in quantities insufficient to be economic, which
      may result in the abandonment of the wells at a later date. Wells are drilled
      that have targeted geologic structures that are both developmental and
      exploratory in nature and an allocation of costs is required to properly account
      for the results. Delineation seismic incurred to select development locations
      within an oil and gas field is typically considered a development cost and
      capitalized, but often these seismic programs extend beyond the reserve area
      considered proved and management must estimate the portion of the seismic costs
      to expense. The evaluation of gas and oil leasehold acquisition costs requires
      managerial judgment to estimate the fair value of these costs with reference
      to
      drilling activity in a given area. Drilling activities in an area by other
      companies may also effectively condemn leasehold positions.





The
      successful efforts method of accounting can have a significant impact on the
      operational results reported when entering a new exploratory area in hopes
      of
      finding a gas and oil field that will be the focus of future development
      drilling activity. The initial exploratory wells may be unsuccessful and will
      be
      expensed. Seismic costs can be substantial which will result in additional
      exploration expenses when incurred.




23


**Reserve
      Estimates**





Estimates
      of gas and oil reserves, by necessity, are projections based on geologic and
      engineering data, and there are uncertainties inherent in the interpretation
      of
      such data as well as the projection of future rates of production and the timing
      of development expenditures. Reserve engineering is a subjective process of
      estimating underground accumulations of gas and oil that are difficult to
      measure. The accuracy of any reserve estimate is a function of the quality
      of
      available data, engineering and geological interpretation and judgment.
      Estimates of economically recoverable gas and oil reserves and future net cash
      flows necessarily depend upon a number of variable factors and assumptions,
      such
      as historical production from the area compared with production from other
      producing areas, the assumed effects of regulations by governmental agencies
      and
      assumptions governing future gas and oil prices, future operating costs,
      severance taxes, development costs and workover gas costs, all of which may
      in
      fact vary considerably from actual results. The future drilling costs associated
      with reserves assigned to proved undeveloped locations may ultimately increase
      to an extent that these reserves may be later determined to be uneconomic.
      For
      these reasons, estimates of the economically recoverable quantities of gas
      and
      oil attributable to any particular group of properties, classifications of
      such
      reserves based on risk of recovery, and estimates of the future net cash flows
      expected therefrom may vary substantially. Any significant variance in the
      assumptions could materially affect the estimated quantity and value of the
      reserves, which could affect the carrying value of gas and oil properties and/or
      the rate of depletion of the gas and oil properties. Actual production, revenues
      and expenditures with respect to the Company’s reserves will likely vary from
      estimates, and such variances may be material.





24


**Impairment
      of Gas and Oil Properties**





The
      Company reviews oil and gas properties for impairment whenever events and
      circumstances indicate a decline in the recoverability of their carrying value.
      The Company estimates the expected future cash flows of the developed proved
      properties and compares such future cash flows to the carrying amount of the
      proved properties to determine if the carrying amount is recoverable. If the
      carrying amount exceeds the estimated undiscounted future cash flows, an
      adjustment will be made to the carrying amount of the oil and gas properties
      to
      their fair value. The factors used to determine fair value include, but are
      not
      limited to, estimates of proved reserves, future commodity pricing, future
      production estimates, anticipated capital expenditures, and a discount rate
      commensurate with the risk associated with realizing the expected cash flows
      projected.





Given
      the
      complexities associated with gas and oil reserve estimates and the history
      of
      price volatility in the gas and oil markets, events may arise that would require
      the Company to record an impairment of the recorded book values associated
      with
      gas and oil properties. We did not record an impairment during the years ended
      December 31, 2005, 2004 or 2003.





**Stock
      Based Compensation**





The
      Company adopted a Long-Term Incentive plan in 2005 under which the Company
      will
      issue performance share units convertible into common shares of the Company
      subject to vesting on the basis of the achievement of specified performance
      targets. Quarterly, the Company will compare actual results to the performance
      targets (which are on an annual basis) and accrue its best estimate of the
      fair
      value of shares to be issued, at the end of the plan year, as compensation
      expense.





**Recently
      Issued Accounting Standards and Pronouncements**





In
      May 2005, the FASB issued SFAS No. 154, *Accounting
      Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB
      Statement No. 3* (“Statement
      154”). SFAS 154 requires retrospective application to prior periods’ financial
      statements for changes in accounting principle, unless it is impracticable
      to
      determine either the period-specific effects or the cumulative effect of the
      change. SFAS 154 also requires that a change in depreciation, amortization,
      or
      depletion method for long-lived, non-financial assets be accounted for as a
      change in accounting estimate affected by a change in accounting principle.
      SFAS
      154 is effective for accounting changes and corrections of errors made in fiscal
      years beginning after December 15, 2005. The implementation of SFAS 154 is
      not expected to have a material impact on our condensed consolidated results
      of
      operations, financial position or cash flows.





In
      December 2004, the FASB issued SFAS No. 153 “Exchanges of Non-monetary
      Assets—an amendment of APB Opinion No. 29.” This Statement amended APB
      Opinion No. 29 to eliminate the exception for non-monetary exchanges of
      similar productive assets and replaces it with a general exception for exchanges
      of non-monetary assets that do not have commercial substance. A non-monetary
      exchange has commercial substance if the future cash flows of the entity are
      expected to change significantly as a result of the exchange. The Company
      believes the impact of this new standard will not have a material impact upon
      the Company’s financial position, results of operations or cash flows. SFAS 153
      is effective for all reporting periods beginning after June 15,
      2005.




In
      December 2004, the Financial Accounting Standards
      Board ("FASB") issued SFAS No. 123 (revised 2004), "Share-Based Payment."
      SFAS
      No. 123R replaced SFAS No. 123 and superseded APB 25. SFAS No. 123R will require
      compensation cost related to share-based payment transactions to be recognized
      in financial statements. As permitted by SFAS No. 123, the Company elected
      to
      follow the guidance of APB 25, which allowed companies to use the intrinsic
      value method of accounting to value their share-based payment transactions
      with
      employees. Based on this method, the Company did not recognize compensation
      expense in its financial statements as the stock options granted had an exercise
      price equal to the fair market value of the underlying Common Stock on the
      date
      of the grant. SFAS No. 123R requires measurement of the cost of share-based
      payment transactions to employees at the fair value of the award on the grant
      date and recognition of expense over the requisite service or vesting period.
      SFAS No. 123R requires implementation using a modified version of prospective
      application, under which compensation expense for the unvested portion of
      previously granted awards and all new awards will be recognized on or after
      the
      date of adoption. SFAS No. 123R also allows companies to adopt SFAS No. 123R
      by
      restating previously issued financial statements, basing the amounts on the
      expense previously calculated and reported in their pro forma footnote
      disclosures required under SFAS No. 123. The provisions of SFAS No. 123R will
      be
      adopted by the Company effective January 1, 2006, using the modified prospective
      application method. The effect of the adoption of SFAS No. 123R is expected
      to
      be significant to future financial statements as a result of applying the
      current fair value recognition provisions of SFAS No. 123. The amount of
      unvested stock compensation as of December 31, 2005 is $98,625, which
      will be recorded in future periods as earned.




In
      February 2005, the staff of the Securities and Exchange Commission sent a
      letter to oil and gas registrants regarding situations that require additional
      financial statement disclosures, pending final resolution of accounting
      treatment. The following are items related to registrants using the successful
      efforts method of accounting:




25





**•**
            
            Companies
                may enter concurrent commodity buy/sale arrangements, or transactions
                in
                contemplation of other transactions, often to assure that the commodity
                is
                available at a specific location. Pending resolution of accounting
                questions with the Emerging Issues Task Force, the Commission staff
                has
                requested additional disclosures for any such material arrangements,
                including separate disclosure on the face of the income statement
                of any
                related proceeds and costs reported on a gross basis. These disclosures
                are not applicable, since the Company has not entered any transactions
                of
                this nature.**•**
            
            Statement
                of Financial Accounting Standards No. 19, Financial Accounting and
                Reporting by Oil and Gas Producing Companies, specifies that drilling
                costs for completed exploratory wells should be expensed if the related
                reserves cannot be classified as proved within one year unless certain
                criteria are met. In April 2005, the FASB issued FASB Staff Position
                19-1, Accounting for Suspended Well Costs. FSP 19-1 provides guidance
                for
                evaluating whether sufficient progress is being made to determine
                whether
                reserves can be classified as proved. FSP 19-1 is effective for all
                reporting periods beginning after April 4, 2005, however, early
                application is permitted. Pending adoption of FSP 19-1, the Commission
                staff has requested additional disclosures be included in registrants’
                financial statements regarding their accounting policy for capitalization
                of exploratory drilling costs, as well as disclosure of capitalized
                exploratory drilling cost amounts included in the financial statements.At
                December 31, 2005, the Company had $2,105,884 in 7 exploratory wells
                which
                had been drilled to total depth. These wells will be completed in
                the
                first half of 2006.




**Item
      7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISKS.**





Market
      risk is the potential loss arising from adverse changes in market rates and
      prices, such as foreign currency exchange and interest rates and commodity
      prices. As of August, 2004, when the Company sold its interest in Goloil, the
      Company is no longer exposed to foreign currency exchange risk.





Currently,
      the Company is not involved in any hedge contracts, although we may consider
      hedge agreements in the future to manage the exposure to commodity price
      risk.





26





**Item
      8.**  **FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**





















**Consolidated
      Financial Statements**


**and**


**Independent
      Auditors' Report**


**December
      31,** **2005,
      2004 and 2003**





27





**TETON** **ENERGY
        CORPORATION**





Table
      of Contents







**Page**Report
                of Independent Registered Public Accounting Firm
            
            
            F
                - 1Consolidated
                Financial StatementsConsolidated
                Balance Sheets
            
            
            F
                - 2Consolidated
                Statements of Operations and Comprehensive Loss
            
            
            F
                - 4Consolidated
                Statements of Changes in Stockholders' (Deficit) Equity
            
            
            F
                - 5Consolidated
                Statements of Cash Flows
            
            
            F
                - 6Notes
                to Consolidated Financial Statements
            
            
            F
                - 9


















**REPORT
      OF** **INDEPENDENT
      REGISTERED PUBLIC ACCOUNTING FIRM**











Board
      of
      Directors and Stockholders


Teton Energy
      Corporation


Denver,
      Colorado








We
      have
      audited the accompanying consolidated balance sheets of Teton Energy Corporation
      (formerly Teton Petroleum Company) and subsidiaries as of December 31, 2005
      and
      2004, and the related consolidated statements of operations and comprehensive
      loss, changes in stockholders' (deficit) equity and cash flows for each of
      the
      years in the three year period ended December 31, 2005. These consolidated
      financial statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.





We
      conducted our audits in accordance with standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. The Company
      is not required to have, nor were we engaged to perform, an audit of its
      internal control over financial reporting. Our audits included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall consolidated financial statement
      presentation. We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Teton Energy Corporation
      and
      subsidiaries as of December 31, 2005 and 2004, and the results of their
      operations and their cash flows for each of the years in the three year period
      ended December 31, 2005 in conformity with accounting principles generally
      accepted in the United States of America.








/s/Ehrhardt
      Keefe Steiner & Hottman PC


Ehrhardt
      Keefe Steiner & Hottman PC


Denver,
      Colorado


March
      7,
      2006











**TETON** **ENERGY
        CORPORATION**




**Consolidated
      Balance Sheets**


**December
      31, 2005 and 2004**




December
                31,2005
            
            2004AssetsCurrent
                assetsCash
                and cash equivalents
            
            $
            7,064,295
            
            $
            17,433,424Trade
                accounts receivable
            
            
            247,769
            
            
            -Advances
                to operator
            
            
            224,429
            
            
            -Prepaid
                expenses and other assets
            
            
            137,729
            
            
            100,917Total
                current assets
            
            
            7,674,222
            
            
            17,534,341Property
                and equipmentOil
                & gas properties (using successful efforts method of
                accounting)Proved
            
            
            1,717,213
            
            
            -Unproved
            
            
            10,636,279
            
            
            -Wells
                in progress
            
            
            2,105,884
            
            
            -Facilities
                in progress
            
            
            120,554
            
            
            -Fixed
                assets
            
            
            71,045
            
            
            64,621Total
                property and equipment
            
            
            14,650,975
            
            
            64,621Less
                accumulated depreciation and depletion
            
            
            (193,702
            )
            
            (12,397
            )Net
                property and equipment
            
            
            14,457,273
            
            
            52,224Other
                assets
            
            
            -
            
            
            25,000Total
                non-current assets
            
            
            14,457,273
            
            
            77,224Total
                assets
            
            $
            22,131,495
            
            $
            17,611,565





See
      notes to consolidated financial
      statements.





F-2


TETON
ENERGY
      CORPORATION




**Consolidated
      Balance Sheet** **s**


**December
      31, 2005 and 2004**




December
                31,2005
            
            2004Liabilities
                and Stockholders' EquityCurrent
                liabilitiesAccounts
                payable
            
            $
            1,281,457
            
            $
            136,984Accrued
                liabilities
            
            
            297,351
            
            
            88,072Accrued
                payroll and severance
            
            
            396,589
            
            
            75,689Accrued
                royalties
            
            
            94,403
            
            
            -Accrued
                franchise taxes payable
            
            
            62,025
            
            
            111,000Deposit
                on sale of assets
            
            
            300,000
            
            
            -Accrued
                liability of discontinued operations
            
            
            255,000
            
            
            -Total
                current liabilities
            
            
            2,686,825
            
            
            411,745Non-current
                liabilitiesAsset
                retirement obligation
            
            
            3,851
            
            
            -Total
                non-current liabilities
            
            
            3,851
            
            
            -Total
                liabilities
            
            
            2,690,676
            
            
            411,745CommitmentsStockholders'
                equitySeries
                A convertible preferred stock, $.001 par value, 25,000,000 shares
                authorized, 0 and 281,460 issued and outstanding at December 31,
                2005 and
                2004. Liquidation preference at December 31, 2005 and 2004 of $0
                and
                $1,248,838
            
            
            -
            
            
            281Common
                stock, $.001 par value, 250,000,000 shares authorized, 11,329,652
                shares
                issued and outstanding at December 31, 2005 and 9,130,257 shares
                issued
                and outstanding at December 31, 2004
            
            
            11,329
            
            
            9,130Additional
                paid-in capital
            
            
            43,929,216
            
            
            37,657,686Accumulated
                deficit
            
            
            (24,499,726
            )
            
            (20,467,277
            )Total
                stockholders' equity
            
            
            19,440,819
            
            
            17,199,820Total
                liabilities and stockholders' equity
            
            $
            22,131,495
            
            $
            17,611,565




See
      notes
      to consolidated financial statements.





F-3


TETON
ENERGY
      CORPORATION




**Consolidated
      Statements of Operations and Comprehensive Loss**




For
                the Years Ended
              December
                31,2005
            
            2004
            
            2003Oil
                and gas sales
            
            $
            707,420
            
            $
            -
            
            $
            -Cost
                of sales and expenses:Lease
                operating expenses
            
            
            50,932
            
            
            -
            
            
            -Production
                taxes
            
            
            48,196
            
            
            -
            
            
            -General
                and administrative
            
            
            4,006,747
            
            
            5,332,991
            
            
            3,920,791Depletion,
                depreciation and amortization
            
            
            181,276
            
            
            -
            
            
            -Exploration
            
            
            445,108
            
            
            -
            
            
            -Total
                cost of sales and expenses
            
            
            4,732,259
            
            
            5,332,991
            
            
            3,920,791Loss
                from operations
            
            
            (4,024,839
            )
            
            (5,332,991
            )
            
            (3,920,791
            )Other
                income (expense)Other
                income
            
            
            247,390
            
            
            139,710
            
            
            17,445Financing
                charges
            
            
            -
            
            
            -
            
            
            (132,818
            )Total
                other income (expense)
            
            
            247,390
            
            
            139,710
            
            
            (115,373
            )Loss
                from continuing operations
            
            
            (3,777,449
            )
            
            (5,193,281
            )
            
            (4,036,164
            )Discontinued
                operations, net of tax
            
            
            (255,000
            )
            
            12,383,582
            
            
            (1,598,680
            )Net
                income (loss)
            
            
            (4,032,449
            )
            
            7,190,301
            
            
            (5,634,844
            )Imputed
                preferred stock dividends for inducements and beneficial conversion
                charges
            
            
            -
            
            
            (521,482
            )
            
            (2,780,693
            )Preferred
                stock dividends
            
            
            (61,455
            )
            
            (105,949
            )
            
            --Net
                income (loss) applicable to common shares
            
            
            (4,093,904
            )
            
            6,562,870
            
            
            (8,415,537
            )Other
              comprehensive income (loss), net of taxeffect
                  of exchange rates
            
            
            -
            
            
            (898,756
            )
            
            168,256Comprehensive
                (loss) income
            
            $
            (4,093,904
            )
            $
            5,664,114
            
            $
            (8,247,281
            )Basic
                and diluted weighted average common shares outstanding
            
            
            10,282,394
            
            
            9,028,967
            
            
            6,840,303Basic
                and diluted loss per common share for continuing
                operations
            
            $
            (0.38
            )
            $
            (0.64
            )
            $
            (1.00
            )Basic
                and diluted weighted average income (loss) per common shares for
                discontinued operations
            
            $
            (0.02
            )
            $
            1.37
            
            $
            (0.23
            )Basic
                and diluted income (loss) per common share
            
            $
            (0.40
            )
            $
            0.73
            
            $
            (1.23
            )





See
      notes to consolidated financial
      statements.





F-4




**TETON
ENERGY
      CORPORATION**




**Consolidated
      Statements of Changes in Stockholders' (Deficit) Equity**




Preferred
                  Stock
              
              Common
                  Stock
              
              Additional
                Paid-in
              
              Unamortized
                Preferred
                  Stock
              
              Foreign
                  Currency Translation
              
              Accumulated
              
              Total
                  Stockholders' (Deficit)Shares
              
              Amount
              
              Shares
              
              Amount
              
              Capital
              
              Dividends
              
              Adjustment
              
              Deficit
              
              EquityBalance
                  - December 31, 2002
              
              
              -
              
              $
              -
              
              
              6,289,520
              
              $
              6,289
              
              $
              26,165,215
              
              $
              -
              
              $
              730,500
              
              $
              (22,022,734
              )
              $
              4,879,270Common
                  stock issued for cash - net of commissions of $98,100
              
              
              -
              
              
              -
              
              
              437,012
              
              
              437
              
              
              1,091,463
              
              
              -
              
              
              -
              
              
              -
              
              
              1,091,900Common
                  stock issued for settlement of accounts payable and accrued
                  liabilities
              
              
              -
              
              
              -
              
              
              79,793
              
              
              80
              
              
              219,920
              
              
              -
              
              
              -
              
              
              -
              
              
              220,000Options
                  issued to advisory board and common stock issued for
                  services
              
              
              -
              
              
              -
              
              
              1,035
              
              
              1
              
              
              97,901
              
              
              -
              
              
              -
              
              
              -
              
              
              97,902Warrants
                  issued with notes payable
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              110,170
              
              
              -
              
              
              -
              
              
              -
              
              
              110,170Preferred
                  stock issued for cash, net of commissions of $473,838 (cash) and
                  $99,168
                  (non-cash)
              
              
              2,226,680
              
              
              2,226
              
              
              -
              
              
              -
              
              
              9,110,830
              
              
              -
              
              
              -
              
              
              -
              
              
              9,113,056Preferred
                  stock converted to common stock
              
              
              (1,645,099
              )
              
              (1,645
              )
              
              1,776,708
              
              
              1,776
              
              
              (131
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Preferred
                  stock issued in exchange for notes payable and accrued interest
                  of$9,225
              
              
              36,650
              
              
              37
              
              
              -
              
              
              -
              
              
              159,389
              
              
              -
              
              
              -
              
              
              -
              
              
              159,426In-the-money
                  conversion feature charges to be amortized
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,182,452
              
              
              (1,182,452
              )
              
              -
              
              
              -
              
              
              -Amortization
                  of in-the-money conversion feature charges
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,063,842
              )
              
              1,063,842
              
              
              -
              
              
              -
              
              
              -Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (5,634,844
              )
              
              (5,634,844
              )Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              168,256
              
              
              -
              
              
              168,256Balance
                  - December 31, 2003
              
              
              618,231
              
              
              618
              
              
              8,584,068
              
              
              8,583
              
              
              37,073,367
              
              
              (118,610
              )
              
              898,756
              
              
              (27,657,578
              )
              
              10,205,136Common
                  stock issued for settlement of accrued liabilities
              
              
              -
              
              
              -
              
              
              13,750
              
              
              14
              
              
              58,686
              
              
              -
              
              
              -
              
              
              -
              
              
              58,700Common
                  stock issued for services
              
              
              -
              
              
              -
              
              
              32,175
              
              
              33
              
              
              101,296
              
              
              -
              
              
              -
              
              
              -
              
              
              101,329Warrants
                  issued for services
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              149,061
              
              
              -
              
              
              -
              
              
              -
              
              
              149,061Preferred
                  stock issued for cash, net of commissions of $50,000(cash) and
                  $22,863
                  (non-cash)
              
              
              126,436
              
              
              126
              
              
              -
              
              
              -
              
              
              499,872
              
              
              -
              
              
              -
              
              
              -
              
              
              499,998Preferred
                  stock converted to common stock
              
              
              (463,207
              )
              
              (463
              )
              
              500,264
              
              
              500
              
              
              (37
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Amortization
                  of Preferred Stock dividends
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (118,610
              )
              
              118,610
              
              
              -
              
              
              -
              
              
              -Preferred
                  stock dividends
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (105,949
              )
              
              -
              
              
              -
              
              
              -
              
              
              (105,949
              )Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (898,756
              )
              
              -
              
              
              (898,756
              )Net
                  income for year
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              7,190,301
              
              
              7,190,301Balance
                  - December 31, 2004
              
              
              281,460
              
              
              281
              
              
              9,130,257
              
              
              9,130
              
              
              37,657,686
              
              
              -
              
              
              -
              
              
              (20,467,277
              )
              
              17,199,820Common
                  stock issued for settlement of accrued liabilities
              
              
              -
              
              
              -
              
              
              12,828
              
              
              13
              
              
              10,487
              
              
              -
              
              
              -
              
              
              -
              
              
              10,500Common
                  stock issued for services
              
              
              -
              
              
              -
              
              
              298,276
              
              
              298
              
              
              944,726
              
              
              -
              
              
              -
              
              
              -
              
              
              945,024Common
                  stock issued for asset acquisitions
              
              
              -
              
              
              -
              
              
              862,963
              
              
              863
              
              
              1,467,143
              
              
              -
              
              
              -
              
              
              -
              
              
              1,468,006Warrants
                  issued for asset acquisition
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              413,872
              
              
              -
              
              
              -
              
              
              -
              
              
              413,872Warrants
                  exercised net of AMEX fees of $48,862
              
              
              -
              
              
              -
              
              
              743,868
              
              
              744
              
              
              3,496,757
              
              
              -
              
              
              -
              
              
              -
              
              
              3,497,501Preferred
                  stock converted to common stock
              
              
              (281,460
              )
              
              (281
              )
              
              281,460
              
              
              281
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Preferred
                  stock dividends
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (61,455
              )
              
              -
              
              
              -
              
              
              -
              
              
              (61,455
              )Net
                  loss for year
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (4,032,449
              )
              
              (4,032,449
              )Balance
                  - December 31, 2005
              
              
              -
              
              $
              -
              
              
              11,329,652
              
              $
              11,329
              
              $
              43,929,216
              
              $
              -
              
              $
              -
              
              $
              (24,499,726
              )
              $
              19,440,819





See
      notes to consolidated financial
      statements.





F-5


**TETON
ENERGY
        CORPORATION**





**Consolidated
      Statements of Cash Flows**




For
                the Years EndedDecember 31,2005
            
            2004
            
            2003Cash
                flows from operating activitiesNet
                (loss) incomeAdjustments
                to reconcile net (loss) income to net cash used in operating
                activities
            
            $
            (4,032,449
            )
            $
            7,190,301
            
            $
            (5,634,844Depreciation,
                depletion, and amortization
            
            
            181,276
            
            
            11,380
            
            
            1,046Gain
                on sale of discontinued operations
            
            
            -
            
            
            (13,086,761
            )
            
            -Stock,
                stock options and warrants issued for services and
                interest
            
            
            834,774
            
            
            250,390
            
            
            107,128Warrants
                issued for notes payable extensions
            
            
            -
            
            
            -
            
            
            110,170Changes
                in assets and liabilitiesFrom
                discontinued operations
            
            
            255,000
            
            
            1,149,609
            
            
            2,045,001Trade
                accounts receivable
            
            
            (247,769
            )
            
            -
            
            
            -Advances
                to operators
            
            
            (224,429
            )
            
            -
            
            
            -Prepaid
                expenses and other assets
            
            
            (36,812
            )
            
            (5,224
            )
            
            (4,247
            )Royalties
                and payroll taxes payable
            
            
            333,492
            
            
            -
            
            
            -Accounts
                payable and accrued liabilities
            
            
            140,829
            
            
            69,530
            
            
            311,9011,236,361
            
            
            (11,611,076
            )
            
            2,570,999Net
                cash used in operating activities
            
            
            (2,796,088
            )
            
            (4,420,775
            )
            
            (3,063,845
            )Cash
                flows from investing activitiesSales
                deposit liability
            
            
            300,000
            
            
            -
            
            
            -Proceeds
                from sale of discontinued operations
            
            
            -
            
            
            7,963,450
            
            
            -Repayments
                of loan from discontinued operating entity
            
            
            -
            
            
            6,040,000
            
            
            -Increase
                in deposits
            
            
            -
            
            
            (25,000
            )
            
            -Increase
                in oil and gas properties
            
            
            (11,302,692
            )
            
            -Increase
                in fixed asset additions
            
            
            (6,395
            )
            
            (45,420
            )
            
            (20,684
            )Increase
                in non-current assets of discontinued operating entity
            
            
            -
            
            
            (2,988,882
            )
            
            (7,072,462
            )Net
                cash (used in) provided by investing activities
            
            
            (11,009,087
            )
            
            10,944,148
            
            
            (7,093,146
            )Cash
                flows from financing activitiesFrom
                discontinued operations
            
            
            -
            
            
            3,258,378
            
            
            4,470,984Proceeds
                from stock subscription
            
            
            -
            
            
            -
            
            
            1,939,610Proceeds
                from issuance of stock, net of $50,000 and $473,838
                commissions
            
            
            -
            
            
            499,998
            
            
            10,251,924Proceeds
                from exercise of warrants, net of AMEX fees of $48,462
            
            
            3,497,501
            
            
            -
            
            
            -Proceeds
                from notes payable
            
            
            -
            
            
            -
            
            
            628,750Payments
                on notes payable
            
            
            -
            
            
            -
            
            
            (478,750
            )Dividends
            
            
            (61,455
            )
            
            (81,463
            )
            
            -Net
                cash provided by financing activities
            
            
            3,436,046
            
            
            3,676,913
            
            
            16,812,518Effect
                of exchange rates of cash and cash equivalents
            
            
            -
            
            
            (282,856
            )
            
            168,256Net
                (decrease) increase in cash and cash equivalents
            
            
            (10,369,129
            )
            
            9,917,430
            
            
            6,823,783Cash
                and cash equivalents - beginning of year
            
            
            17,433,424
            
            
            7,515,994
            
            
            692,211Cash
                and cash equivalents - end of year
            
            $
            7,064,295
            
            $
            17,433,424
            
            $
            7,515,994





(Continued
      on the following page.)





See
      notes
      to consolidated financial statements.





F-6


**TETON
      ENERGY
      CORPORATION**




**Consolidated
      Statements of Cash Flows**








(Continued
      from the previous page.)





Supplemental
      disclosure of cash flow information:





Cash
                paid for:
            
            Interest2005
            
            $
            --2004
            
            $
            --2003
            
            $
            18,202








Supplemental
      disclosure of non-cash activity:





During
      the year
      ended December 31, 2005, the Company had the following
      transactions:





The
      Company issued 12,828 shares of common stock to outside directors for settlement
      of accrued liabilities of $10,500 at December 31, 2004.





The
      Company issued 281,460 shares of common stock upon the conversion of 281,460
      shares of preferred stock.





The
      Company issued 450,000 shares of common stock, valued at $837,000 and 200,000
      warrants, valued at $251,949 in conjunction with the purchase of a 25% interest
      in Piceance Gas Resources, LLC.





The
      Company issued 412,962 shares of common stock, valued at $631,006 and 206,481
      warrants, valued at $161,923, in conjunction with the purchase of acreage in
      the
      eastern Denver-Julesburg Basin.





The
      Company issued 287,500 shares to three consultants of the Company, valued at
      $905,624 for services, $110,250 of which has been capitalized in oil and gas
      properties.





The
      Company issued 10,776 shares of common stock valued at $39,400 for services
      rendered by the outside directors.





The
      Company recorded an asset retirement obligation in the amount of $3,851, with
      a
      corresponding increase to oil and gas properties.





$1,256,259
      of capital expenditures are included in accounts payable at December 31,
      2005.








(Continued
      on the following page.)




See
      notes to consolidated financial
      statements.





F-7


**TETON
      ENERGY CORPORATION**





**Consolidated
      Statements of Cash Flows**





(Continued
      from the previous page.)





During
      the year
      ended December 31, 2004, the Company had the following
      transactions:





The
      Company has issued warrants to consultants for services valued at
      $149,061.





13,750
      shares of common stock were issued for the settlement of accrued liabilities
      at
      December 31, 2003 valued at $58,700.





The
      Company has issued 32,175 shares of common stock for services to consultants
      and
      outside directors valued at $101,329.





Approximately
      $1,317,000 of capital expenditures for discontinued operations were included
      in
      current liabilities of discontinued operations at June 30, 2004 and
      approximately $1,786,000 of capital expenditures were in accounts payable at
      December 31, 2003 for a decrease during the six months ended June 30, 2004
      of
      $469,000.





Conversion
      of 463,207 shares of preferred stock, plus dividends of 37,057 shares converted
      into 500,264 shares of common stock.





The
      Company accrued dividends to preferred stockholders of $24,486 at December
      31,
      2004.





During
      the year ended December 31, 2003, the Company had the following
      transactions:





128,700
      warrants issued with debt and valued at $110,170 were initially recorded as
      a
      discount on the note payable. At December 31, 2003, the full amount of the
      discount had been amortized as financing costs.





79,793
      shares of common stock were issued for settlement of accounts payable and
      accrued liabilities valued at $220,000.




$150,000
      of promissory notes payable and accrued
      interest of $9,225 were converted into 36,650 shares of convertible preferred
      stock.





The
      Company issued 30,000 non-qualified options to advisory board members valued
      at
      $94,702.





The
      Company issued 1,035 shares of common stock for services valued at
      $3,201.





The
      Company has accrued a liability for $46,968 related to the obligation to issue
      57,420 warrants to a consultant for capital raising services.





12,000
      preferred shares were issued to consultants for services valued at $52,200
      related to capital raising.





Approximately
      $1,786,000 of capital expenditures for oil and gas properties were included
      in
      current liabilities of discontinued operations at December 31,
      2003.




See
      notes to consolidated financial
      statements.





F-8


**TETON** **ENERGY
      CORPORATION**





**Notes
      to Consolidated Financial Statements**





**Note
      1 – Nature of Organization**





Teton Energy
      Corporation (“Teton” or the “Company”) is an independent oil and gas exploration
      and production company with operations in the Rocky Mountain region of the
      U.S.
      which currently include a drilling program in the Piceance Basin in western
      Colorado (see Note 4 to financial statements) and a separate acreage play of
      over 180,000 acres in the eastern DJ Basin (see Note 5 to financial statements).
      Prior to July 1, 2004 Teton’s primary focus was oil and gas exploration,
      development and production in the Russian Federation and former Commonwealth
      of
      Independent States through ownership of a 35.30% interest in ZAO Goloil, a
      Russian closed joint-stock company (“Goloil”). The Company sold all of its
      interest in Goloil effective July 1, 2004 (see Note 3 to financial statements).





The
      United States dollar is the principal currency of the Company's business and,
      accordingly, these consolidated financial statements are expressed in United
      States dollars.





**Note
      2 – Summary of Significant Accounting
      Policies**





Discontinued
      Operations and Principles
      of Consolidation





See
      Note
      3 for a summary of the income (loss) from discontinued operations. The Company
      completed the sale of Goloil to be effective July 1, 2004 for accounting
      purposes. Accordingly the operating activities of Goloil for the six months
      ended June 30, 2004 and the year ended December 31, 2003 have been included
      in
      the results from discontinued operations. The Company has accrued, at December
      31, 2005, as part of its Goloil discontinued operations, $255,000 relating
      to a
      potential refund of a grant from the U.S. Trade and Development Agency (“TDA”)
      (see Note 3 to financial statements).





The
      accompanying consolidated financial statements include the accounts of Teton,
      its wholly owned subsidiaries Teton Piceance LLC, Teton DJ LLC and through
      June
      30, 2004, its wholly owned subsidiary, Goltech Petroleum, LLC ("Goltech").
      The
      Company consolidates its investment in Piceance Gas Resources, LLC, a Colorado
      limited liability company ("Piceance LLC"), using pro rata consolidation,
      whereby the Company has included its 25% pro rata share of Piceance LLC’s
      assets, liabilities, revenues, expenses and oil and gas reserves (See Note
      12)
      in its financial statements. All intercompany accounts and transactions have
      been eliminated in consolidation.





F-9


**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**




**Note
      2 - Summary of Significant Accounting Policies
      (continued)**





Use
      of
      Estimates





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities, disclosures of contingent assets and liabilities at the date of
      the
      financial statements and the reported amounts of revenues and expenses during
      the reporting period. Actual results could differ from those
      estimates.





Cash
      and Cash Equivalents





The
      Company considers all highly liquid instruments purchased with an original
      maturity of three months or less to be cash equivalents. The Company continually
      monitors its positions with, and the credit quality of, the financial
      institutions it invests with. As of the balance sheet date, the Company had
      no
      cash equivalents.





Revenue
      Recognition





The
      Company recognizes crude oil or natural gas sales revenue at the point in time
      crude oil or natural gas quantities have been delivered to
      purchasers.





Comprehensive
      Income





Comprehensive
      income is defined as the change in equity during a period from transactions
      and
      other events from non-owner sources. Comprehensive income is the total of net
      income or loss and other comprehensive income or loss. The Company currently
      does not have any items which constitutes other comprehensive income or
      loss.





Oil
      and Gas Properties





The
      Company uses the successful efforts method of accounting for oil and gas
      producing activities. Costs to acquire mineral interests in oil and gas
      properties, to drill and equip exploratory wells that find proved reserves
      and
      to drill and equip development wells are capitalized. Costs to drill exploratory
      wells that do not find proved reserves, geological and geophysical costs and
      costs of carrying and retaining unproved properties are expensed. The Company
      also evaluates costs capitalized for exploratory wells, and if proved reserves
      cannot be determined within one year from drilling exploration wells, those
      costs are written-off and recorded as an expense. At
      December 31, 2005, the Company had $2,105,884 in 7 exploratory wells which
      had
      been drilled to total depth. These wells will be completed in the first half
      of
      2006.





Unproved
      oil and gas properties that are individually significant are periodically
      assessed for impairment of value and a loss is recognized at the time of
      impairment by providing an impairment allowance. Other unproved properties
      are
      amortized based on the Company's experience of successful drilling and average
      holding period.





F-10




**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**







**Note
      2 - Summary of Significant Accounting Policies
      (continued)**





Capitalized
      costs of producing oil and gas properties are depreciated and depleted by the
      unit-of-production method using proved reserves. Significant development
      projects are excluded from the depletion calculation prior to assessment of
      the
      existence of proven reserves that are ready for commercial production. The
      Company did not have any significant development projects in process at December
      31, 2005 that were excluded from the calculation of depletion. Support equipment
      and other property and equipment are depreciated over their estimated useful
      lives.





On
      the
      sale or retirement of a complete unit of a proved property, the cost and related
      accumulated depreciation, depletion, and amortization are eliminated from the
      property accounts and the resulting gain or loss is recognized. On the
      retirement or sale of a partial unit of proved property, the cost is charged
      to
      accumulated depreciation, depletion, and amortization with a resulting gain
      or
      loss recognized in income based on the amount of proceeds.





On
      the
      sale of an entire interest in an unproved property for cash or cash equivalent
      the gain or loss on the sale is recognized, taking into consideration the amount
      of any recorded impairment if the property had been assessed individually.
      If a
      partial interest in an unproved property is sold, the amount received is treated
      as a reduction of the cost of the interest retained (See Note 5).





The
      net
      carrying value of the Company's oil and gas properties is limited to an
      estimated net recoverable amount. The net recoverable amount is based on
      undiscounted future net revenues and is determined by applying factors based
      on
      historical experience and other data such as primary lease terms of properties
      and average holding periods. If it is determined that the net recoverable value
      is less than the net carrying value of the oil and gas properties, any
      impairment is charged to operations.





Property
      and Equipment





Property
      and equipment is stated at cost. Depreciation is provided utilizing the
      straight-line method over the estimated useful lives for owned assets, ranging
      from 5 to 7
      years.





Impairment
      of Long-Lived Assets





The
      Company evaluates its long-lived assets for impairment, in accordance with
      the
      provisions established under Statement of SFAS No.
      144,
“Accounting for the Impairment or Disposal of Long-Lived Assets”, when events or
      changes in circumstances indicate that the related carrying amount may not
      be
      recoverable. An impairment is considered to exist if the estimated fair value
      (based upon market selling prices, if available), or the total estimated future
      cash flows on an undiscounted basis is less than the carrying amount of the
      related assets. An impairment loss is measured and recorded based on the
      discounted estimated future cash flows. Changes in significant assumptions
      underlying future cash flow estimates or fair values of assets may have a
      material effect on the Company’s financial position and results of
      operations.




F-11




**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**





**Note
      2 - Summary of Significant Accounting Policies
      (continued)**








Asset
      Retirement Obligations





The
      Company has applied the provisions of SFAS No. 143, "Accounting for Asset
      Retirement Obligations." For the year ending December 31, 2005, the Company
      has
      recorded $3,851 as the fair value of the Company’s estimated liability for the
      retirement of its oil and gas assets in the Piceance Basin of Colorado, along
      with a corresponding increase in the carrying value of the related oil and
      gas
      properties.





During
      2003, the Company recorded $126,500 as the fair value of the Company’s estimated
      liability for the retirement of its Russian oil and gas assets along with a
      corresponding increase in the carrying value of the related oil and gas
      properties. The Company’s interest in these properties were sold during the
      third quarter of 2004 and the Company no longer has any retirement obligations
      associated with its former Russian oil and gas assets.








Stock-Based
      Compensation





The
      Company has adopted the disclosure-only provisions of Statement of Financial
      Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
      Accordingly, no compensation cost has been recognized for stock options issued
      to employees, officers and directors under the stock option plan. Had
      compensation cost for the Company's options issued to employees, officers and
      directors been determined based on the fair value at the grant date for awards
      consistent with the provisions of SFAS No. 123, as amended by SFAS No. 148,
      the
      Company's net loss and basic loss per common share would have been changed
      to
      the pro forma amounts indicated below:





For
                the Years Ended December 31,2005
            
            2004
            
            2003Netincome
                (loss) applicable tocommon
                shareholders - as reported
            
            $
            (4,093,904
            )
            $
            6,562,870
            
            $
            (8,415,537
            )Deduct
                fair value of employee compensation - as reported
            
            
            --
            
            
            --
            
            
            --Add
                fair value of employee compensation expense
            
            
            19,725
            
            
            3,512,305
            
            
            4,974,141Net
                income (loss) applicable tocommon
                shareholders - pro forma
            
            $
            (4,113,629
            )
            $
            3,050,565
            
            $
            (13,389,678
            )Basic
                income (loss) per common share - as reported
            
            $
            (.40
            )
            $
            .73
            
            $
            (1.23
            )Basic
                income (loss) per common share - pro forma
            
            $
            (.40
            )
            $
            .34
            
            $
            (1.96
            )





F-12





**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**





**Note
      2 - Summary of Significant Accounting Policies
      (continued)**





The
      fair
      value of each option grant is estimated on the date of grant using the
      Black-Scholes option-pricing model with the following weighted-average
      assumptions used:





For
                the Years Ended December 31,2005
            
            2004
            
            2003Approximate
                risk free rate
            
            
            3.71
            %
            
            4.06
            %
            
            4.00
            %Average
                expected life
            
            
            10
                years
            
            
            10
                years
            
            
            10
                yearsDividend
                yield
            
            
            -
            %
            
            -
            %
            
            -
            %Volatility
            
            
            109.0
            %
            
            55.0
            %
            
            100
            %Estimated
                fair value of total options granted
            
            $
            118,350
            
            $
            3,512,305
            
            $
            4,974,141Estimated
                fair value per option granted
            
            $
            2.63
            
            $
            2.48
            
            $
            3.15




Foreign
      Currency Translation





All
      assets and liabilities of the Company's subsidiary were
      translated into U.S. dollars using the prevailing exchange rates as of the
      balance sheet date. Income and expenses are translated using the weighted
      average exchange rates for the period. Stockholders' investments are translated
      at the historical exchange rates prevailing at the time of such investments.
      Any
      gains or losses from foreign currency translation are included as a separate
      component of stockholders' equity. The prevailing exchange rates at June 30,
      2004 and December 31, 2003 were approximately 1 U.S. dollar to 29.03 and 29.45,
      Russian rubles, respectively. For the six months ended June 30, 2004 and the
      year ended December 31, 2003, the average exchange rate for 1 U.S. dollar was
      28.76 and 30.66, Russian rubles, respectively.





Basic
      Loss Per Share





The
      Company applies the provisions of Statement of Financial Accounting Standard
      No.
      128, "Earnings Per Share" (FAS 128). All dilutive potential common shares have
      an antidilutive effect on diluted per share amounts and therefore have been
      excluded in determining net loss per share. The Company's basic and diluted
      loss
      per share are equivalent and accordingly only basic loss per share has been
      presented.





The
      following table reflects the effects of dilutive securities as of December
      31 :





2005
            
            2004
            
            2003Dilutive
                effects of options
            
            
            2,875,334
            
            
            2,993,037
            
            
            1,578,037Dilutive
                effects of warrants
            
            
            1,731,764
            
            
            7,359,728
            
            
            7,389,981Dilutive
                effects of convertible preferred shares
            
            
            --
            
            
            281,460
            
            
            2,381,351Dilutive
                effects of restricted shares(1)
            
            
            195,000
            
            
            --
            
            
            --Dilutive
                effects of performance share units(2)
            
            
            800,000
            
            
            --
            
            
            --5,602,098
            
            
            10,634,225
            
            
            11,349,369





(1)
            Such
                shares vest in equal tranches over three years beginning January
                1,
                2006.








F-13


**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**





**Note
      2 - Summary of Significant Accounting Policies
      (continued)**





(2)
            Such
                performance share units were awarded in July 2005.  A*performance
                share unit*is
                equal in value to one share of the Company’s common stock and subject to
                vesting on the basis of the achievement of specified performance
                targets
                as specified in the applicable administration document or award agreement.
                Upon vesting, performance share Units will be settled by delivery
                of
                shares to the Participant equal to the number of vested performance
                share
                units. Subsequent to December 31, 2005, 160,000 performance share
                units
                were forfeited, as the performance targets for 2005 were not
                met.





During
      December, 2005, the Board of Directors approved an additional 2,000,000
      performance share units to be reserved for 2006 grants.





Such
      securities have been excluded from the earnings per share calculation as their
      effect was anti-dilutive. However, such securities could dilute future earnings,
      if achieved. The 2003 share and per share amounts have been adjusted to reflect
      the 1 for 12 reverse split approved by the shareholders on March 19,
      2003.





Fair
      Value of Financial Instruments





The
      carrying amounts of financial instruments including cash and cash
      equivalents, accounts payable and accrued liabilities approximated fair value
      as
      of December 31, 2005 and 2004 because of the relatively short maturity of these
      instruments.





The
      Company was exposed to foreign currency risks to the extent that transactions
      and balances were denominated in currencies other than the United States dollar.
      The Company currently does not have any currencies denominated in other than
      the
      United States dollar.





Income
      Taxes





The
      Company recognizes deferred tax liabilities and assets based on the differences
      between the tax basis of assets and liabilities and their reported amounts
      in
      the financial statements that will result in taxable or deductible amounts
      in
      future years. The measurement of deferred tax assets may be reduced by a
      valuation allowance based upon management’s assessment of available evidence if
      it is deemed more likely than not some or all of the deferred tax assets will
      not be realizable.




F-14


**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**




**Note
      2 - Summary of Significant Accounting Policies
      (continued)**





Recently
      Issued Accounting Pronouncements





In
      May 2005, the FASB issued SFAS No. 154, *Accounting
      Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB
      Statement No. 3* (“Statement
      154”). SFAS 154 requires retrospective application to prior periods’ financial
      statements for changes in accounting principle, unless it is impracticable
      to
      determine either the period-specific effects or the cumulative effect of the
      change. SFAS 154 also requires that a change in depreciation, amortization,
      or
      depletion method for long-lived, non-financial assets be accounted for as a
      change in accounting estimate affected by a change in accounting principle.
      SFAS
      154 is effective for accounting changes and corrections of errors made in fiscal
      years beginning after December 15, 2005. The implementation of SFAS 154 is
      not expected to have a material impact on our condensed consolidated results
      of
      operations, financial position or cash flows.





In
      December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
      No.
      123 (revised 2004), "Share-Based Payment ."
      SFAS
      No. 123R replaced SFAS No. 123 and superseded APB 25. SFAS No. 123R will require
      compensation cost related to share-based payment transactions to be recognized
      in financial statements. As permitted by SFAS No. 123, the Company elected
      to
      follow the guidance of APB 25, which allowed companies to use the intrinsic
      value method of accounting to value their share-based payment transactions
      with
      employees. Based on this method, the Company did not recognize compensation
      expense in its financial statements as the stock options granted had an exercise
      price equal to the fair market value of the underlying Common Stock on the
      date
      of the grant. SFAS No. 123R requires measurement of the cost of share-based
      payment transactions to employees at the fair value of the award on the grant
      date and recognition of expense over the requisite service or vesting period.
      SFAS No. 123R requires implementation using a modified version of prospective
      application, under which compensation expense for the unvested portion of
      previously granted awards and all new awards will be recognized on or after
      the
      date of adoption. SFAS No. 123R also allows companies to adopt SFAS No. 123R
      by
      restating previously issued financial statements, basing the amounts on the
      expense previously calculated and reported in their pro forma footnote
      disclosures required under SFAS No. 123. The provisions of SFAS No. 123R will
      be
      adopted by the Company effective January 1, 2006, using the modified prospective
      application method. The effect of the adoption of SFAS No. 123R is expected
      to
      be significant to future financial statements as a result of applying the
      current fair value recognition provisions of SFAS No. 123. The amount of
      unvested stock compensation as of December 31, 2005 is $98,625, which
      will be recorded in future periods as earned.




In
      December 2004, the FASB issued SFAS No. 153 “Exchanges of Non-monetary
      Assets—an amendment of APB Opinion No. 29 .”
This
      Statement amended APB Opinion No. 29 to eliminate the exception for
      non-monetary exchanges of similar productive assets and replaces it with a
      general exception for exchanges of non-monetary assets that do not have
      commercial substance. A non-monetary exchange has commercial substance if the
      future cash flows of the entity are expected to change significantly as a result
      of the exchange. The Company believes the impact of this new standard will
      not
      have a material impact upon the Company’s financial position, results of
      operations or cash flows. SFAS 153 is effective for all reporting periods
      beginning after June 15, 2005.





F-15








**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**




**Note
      2 - Summary of Significant Accounting Policies
      (continued)**





In
      February 2005, the staff of the Securities and Exchange Commission sent a
      letter to oil and gas registrants regarding situations that require additional
      financial statement disclosures, pending final resolution of accounting
      treatment. The following are items related to registrants using the successful
      efforts method of accounting:





**•**
            
            Companies
                may enter concurrent commodity buy/sale arrangements, or transactions
                in
                contemplation of other transactions, often to assure that the commodity
                is
                available at a specific location. Pending resolution of accounting
                questions with the Emerging Issues Task Force, the Commission staff
                has
                requested additional disclosures for any such material arrangements,
                including separate disclosure on the face of the income statement
                of any
                related proceeds and costs reported on a gross basis. These disclosures
                are not applicable, since the Company has not entered any transactions
                of
                this nature.**•**
            
            Statement
                of Financial Accounting Standards No. 19, Financial Accounting and
                Reporting by Oil and Gas Producing Companies, specifies that drilling
                costs for completed exploratory wells should be expensed if the related
                reserves cannot be classified as proved within one year unless certain
                criteria are met. In April 2005, the FASB issued FASB Staff Position
                19-1, Accounting for Suspended Well Costs. FSP 19-1 provides guidance
                for
                evaluating whether sufficient progress is being made to determine
                whether
                reserves can be classified as proved. FSP 19-1 is effective for all
                reporting periods beginning after April 4, 2005, however, early
                application is permitted. Pending adoption of FSP 19-1, the Commission
                staff has requested additional disclosures be included in registrants’
                financial statements regarding their accounting policy for capitalization
                of exploratory drilling costs, as well as disclosure of capitalized
                exploratory drilling cost amounts included in the financial statements.At
                December 31, 2005, the Company had $2,105,884 in exploratory wells
                in
                process, all of which have been determined to be successful subsequent
                to
                year end.





**Note
      3 - Sale of Goloil**





As
      described in Note 1, the Company completed the sale of Goloil effective July
      1,
      2004. Accordingly, the operating activities of Goloil for the six months ended
      June 30, 2004 and the year ended December 31, 2003 have been included in the
      results from discontinued operations, summarized as follows:





2005
            
            2004
            
            2003Sales
            
            $
            --
            
            $
            6,552,138
            
            $
            11,437,802Cost
                of sales and expenses
            
            
            255,000
            
            
            7,072,272
            
            
            12,604,234Loss
                from operations
            
            
            (255,000
            )
            
            (520,134
            )
            
            (1,166,432
            )Other
                income (expense)Interest
                expense
            
            
            --
            
            
            (166,216
            )
            
            (347,740
            )Net
                loss from discontinued operations, before tax
            
            
            (255,000
            )
            
            (686,350
            )
            
            (1,514,172
            )Income
                tax
            
            
            --
            
            
            (16,829
            )
            
            (84,508
            )Net
                loss from discontinued operations, before gain on disposal
            
            
            (255,000
            )
            
            (703,179
            )
            
            (1,598,680
            )Gain
                on sale of Goloil stock
            
            
            --
            
            
            13,086,761
            
            
            --Income
                (loss) from discontinued operations
            
            $
            (255,000
            )
            $
            12,383,582
            
            $
            (1,598,680
            )






F-16


**TETON
        ENERGY CORPORATION**
 
 **Notes
        to Consolidated Financial Statements**


The
      gain on sale of Goloil stock is calculated as
      follows:


Sale
                  price for Goloil shares
              
              $
              8,960,229Less
                  direct transaction expenses:Investment
                  banking fee
              
              
              (750,000
              )Net
                  fees and expenses
              
              
              (246,779
              )****Net
                  proceeds
              
              
              7,963,450Net
                  deficit of investment in Goloil at date of sale
              
              
              5,123,311Gain
                  on disposal of ZAO Goloil
              
              $
              13,086,76




On
      September 20, 1999 Goloi l
      entered
      into a Grant Agreement (the “Agreement”) with the U.S. Trade and Development
      Agency (“TDA”) in which the TDA agreed to grant to Goloil, subject to the
      satisfaction of certain conditions, up to $300,000 (“the Grant”) partially to
      fund the cost of goods and services required for a feasibility study (the
“Study”) of the Eguriakhskiy License Territory Pipeline Project in Russia. In
      turn, Goloil contracted with the Company to perform the Study. During the fourth
      quarter of 1999 the Company received $255,000 of the $300,000. Such amount
      was
      recorded as a reduction of the Russian property expenditures. In conjunction
      with the finalization of the Company’s discontinued Russian activities, the
      Company has determined that certain “success fee” criteria contained in the
      Agreement were met which would require it to refund the $255,000 to the TDA,
      and, accordingly, has recorded as a liability at December 31, 2005 the full
      amount received ($255,000) and included such amount as an expense of
      discontinued activities for the year ended December 31, 2005. On February 28,
      2006, the Company provided the TDA with a final success fee report and refunded
      the amount of the Grant.





**Note
      4-Investment in Piceance Gas Resources, LLC**





On
      February 15, 2005, the Company signed a membership interest purchase agreement
      with PGR Partners, LLC ("PGR") whereby the Company acquired 25% of the
      membership interest in Piceance LLC. Piceance LLC owns certain oil and gas
      rights and leasehold assets covering approximately 6,300 acres in the Piceance
      Basin in western Colorado. The properties owned by Piceance LLC carry a net
      revenue interest of 78.75%.





The
      purchase price for the membership interest in Piceance LLC was $5.25 million
      in
      cash, the issuance of 450,000 shares of the Company’s common stock, which had a
      fair market value of $837,000, and the issuance of warrants to purchase 200,000
      shares of the Company’s common stock, exercisable for a period of five years at
      an exercise price of $2.00 per share. Assuming a volatility of 85%, a risk
      free
      interest rate of 3.71% and $0 dividends, the warrants had a fair value, using
      the Black Scholes method of valuation, of approximately $252,000 at the date
      of
      issuance.








F-17




**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**






**Note
      4-Investment in Piceance Gas Resources, LLC
      (continued)**





Subsequent
      to December 31, 2005 the members of Piceance LLC applied to and received the
      consent of the fee owner of the land on which Piceance LLC’s oil and gas rights
      and leases are located for Picenace LLC to transfer the underlying interest
      directly to each of the members. As a result, as of February 28, 2006, Teton’s
      25% interest in the oil and gas rights and leases were transferred directly
      to
      Teton Piceance LLC, our wholly owned subsidiary.





**Note
      5- Acquisition of Eastern Denver-Julesburg Basin Acreage and Deposit on Sale
      of
      Assets**





The
      Company entered into a formal Purchase and Sale Agreement on January 10, 2005
      with Apollo Energy, LLC and ATEC Energy Ventures, LLC to acquire certain
      undeveloped acreage in the eastern Denver-Julesburg (“DJ”) Basin located in
      Nebraska. During the second quarter of 2005 the Company closed, in three
      different tranches, on leasehold interests covering over 182,000 acres. The
      properties carry a net revenue interest of approximately 81%.





The
      total
      consideration for the acres was $3,683,744, consisting of $2,890,744 in cash
      plus 412,962 in shares of common stock valued at $631,000 and warrants to
      purchase 206,481 shares of common stock, exercisable at $1.75 per share for
      a
      period of three years with a fair value, using Black Scholes of approximately
      $162,000 assuming a volatility of 82%, a risk-free interest rate of 3.21% and
      $0
      dividends.





Included
      in capitalized costs at December 31, 2005 is $367,000 in legal and due diligence
      costs incurred during the negotiation and acquisition of such properties and
      $110,250 which is the fair value of the shares issued to a consultant engaged
      to
      perform due diligence for the Company.





Effective
      December 31, 2005 the Company entered into an Acreage Earning Agreement (the
      “Agreement”) with Noble Energy, Inc. (“Noble”), which closed on January 27,
      2006. Under the terms of the Agreement, Noble will earn a 75% working interest
      in Teton’s DJ acreage after payment of the $3,000,000 and after drilling twenty
      wells by March 1, 2007 at no cost to Teton. During that time, Teton will receive
      25% of any revenues derived from the first 20 wells. After completion of the
      first 20 wells, Teton and Noble will split all costs associated with future
      drilling according to each party’s working interest percentage.





The
      Company intends to record the entire $3,000,000 as a reduction of its investment
      in the Eastern DJ during the first quarter of 2006.





**Note
      6 - Notes Payable**





During
      2003:





The
      Company received proceeds of $628,750 from the issuance of promissory notes
      to
      three shareholders. In connection with these notes, 128,700 warrants valued
      at
      $110,170 were issued. At December 31, 2003, the full amount of the discount
      had
      been amortized and recorded as a non-cash financing charge. The Company
      ha d
      recorded the value of these warrants using the Black-Scholes option-pricing
      model using the following assumptions: volatility of 73%, a risk-free rate
      of
      3.5%, zero dividend payments, and a life of one year.




F-18


**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**




**Note****6
      - Notes Payable (continued)**





The
      Company paid $478,750 of the promissory notes issued during 2003.
      The
      remaining $150,000 along with accrued interest of $9,225 was exchanged for
      Teton’s 8% convertible preferred shares.





**Note
      7****- Stockholders' Equity**





Changes
      in Stockholders’ Equity during 2005





Private
      Placements of Common Stock





During
      the year ended December 31, 2005, 311,104 common shares were issued for (i)
      the
      settlement of accrued liabilities of $10,500; (ii) services provided by
      consultants of $905,624 and (iii) services provided by the advisory board of
      $39,400. The services were valued based upon the value of the shares issued,
      which management deemed to be the more readily determinable value.





The
      Company issued 450,000 shares of common stock, valued at $837,000 and 200,000
      warrants, valued at $251,949 in conjunction with the purchase of a 25% interest
      in Piceance LLC.





The
      Company issued 412,962 shares of common stock, valued at $631,006 and 206,481
      warrants, valued at $161,923, in conjunction with the purchase of acreage in
      the
      eastern DJ.





During
      the year ended December 31, 2005, 743,868 warrants were exercised, purchasing
      743,868 common shares of the Company for net proceeds of $3,497,501, net of
      related AMEX fees of $48,862.





On
      June
      2, 2005, the Board of Directors of the Company declared a dividend distribution
      of one Preferred Stock Purchase Right (each a “Right” and collectively the
“Rights”) for each outstanding share of Common Stock, $0.001 par value (“Common
      Stock”), of the Company. The distribution was paid as of June 14, 2005 (the
“Record Date”), to stockholders of record on that date. Each Right entitles the
      registered holder to purchase from the Company one one-hundredth of a share
      of
      the Company’s Series C Preferred Stock, $0.001 par value at a price of $22.00,
      subject to adjustment on the occurrence of certain events which generally
      involve a person acquiring 15% of the Company’s Common Stock without the
      permission of the Board of Directors. The description and terms of the Rights
      are set forth in the Rights Agreement dated as of June 3, 2005, between the
      Company and Computershare Investor Services, LLC, as Rights Agent.





Convertible
      Preferred Stock





The
      terms
      of the certificate of designation for the Company’s Preferred Stock
      include d
      “automatic conversion” to Common Stock once the Company’s Common Stock averaged
      $6.00 per share for a period of 30 days. On September 23, 2005, the Company
      notified holders of its Series A Preferred Stock and its Series B Preferred
      Stock (the “Preferred Stock”) that their shares of Preferred Stock would be
      automatically converted into shares of the Company’s Common Stock effective
      September 30, 2005, as such condition had been met, 281,460 outstanding shares
      of Preferred Stock were converted to 281,460 shares of common
      stock.




F-19





**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**




**Note
      7****- Stockholders' Equity (continued)**





Changes
      in Stockholders’ Equity during 2004





Private
      Placements of Common Stock





During
      the year ended December 31, 2004, 45,925 common shares were issued for (i)
      the
      settlement of accrued liabilities of $58,700; and (ii) services provided by
      consultants of $43,329 and (iii) services provided by the advisory board of
      $58,000.





50,000
      warrants were issued to settle a liability at December 31, 2003 valued at
      $46,967. The Company also issued 100,000 warrants to a consultant valued at
      $102,094 for services. The services were valued based upon the value of the
      shares issued, which management deemed to be the more readily determinable
      value.





Private
      Placements of Series A Convertible Preferred Stock





The
      Company received the following proceeds from the issuance of privately placed
      preferred stock at a price of $4.35 per share:





Proceeds
      of $499,998 (net of cash costs of $50,000) from the issuance of 126,436 shares
      of 8% convertible preferred stock.





The
      preferred stock carried an 8% dividend, payable quarterly commencing January
      1,
      2004 and was convertible into common stock at a price of $4.35 per share. The
      preferred stock was entitled to vote on all matters presented to the Company’s
      common stockholders, with the number of votes being equal to the number of
      underlying common shares. The preferred stock also contained a liquidation
      preference of $4.35 per share plus accrued unpaid dividends. The preferred
      stock
      could be redeemed by the Company after one year for $4.35 per share upon proper
      notice of redemption being provided by the Company.





Changes
      in Stockholders’ Equity during 2003





On
      March
      19, 2003, the stockholders authorized an increase in the Company’s common shares
      from 100,000,000 to 250,000,000 and authorized 25,000,000 shares of preferred
      stock for future issuance. In addition, the stockholders approved a 1 to 12
      reverse stock split.





Private
      Placements of Common Stock





During
      the year ended December 31, 2003 the Company received the following proceeds
      from the issuance of privately placed common stock:





$1,091,900
      (net of costs of $98,100) from the issuance of 437,012 shares of common stock
      and 396,667 common stock warrants. In connection with the private placement,
      the
      Company also issued a warrant for each $3.00 stock investment. The warrants
      have
      a term of two years and an exercise price of $6.00,





$1,939,610
      during the year ended December 31, 2003 related to outstanding stock
      subscriptions receivable at December 31, 2002,





F-20


**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**







**Note
      7****- Stockholders' Equity (continued)**





80,828
      common shares valued at $317,902 were issued for (i) settlement of accounts
      payable and accrued liabilities of $220,000; and (ii) services provided by
      the
      advisory board of $97,902. The
      services were valued based upon the value of the shares issued, which management
      deemed to be the more readily determinable value.





Private
      Placements of Series A Convertible Preferred Stock





During
      the year ended December 31, 2003 the Company received the following proceeds
      from the issuance of privately placed preferred stock issued at an offering
      price of $4.35 per share.





Proceeds
      of $9,145,450 (net of cash costs of $473,888 and net of $46,968 related to
      the
      obligation to issue warrants for capital raising) from the issuance of 2,266,680
      shares of 8% convertible preferred stock.





$14,574
      from the issuance of 40,000 preferred shares in exchange for a $150,000 note
      payable outstanding and accrued interest of $9,426.





We
      also
      issued 12,000 preferred shares to a consultant for capital raising services
      valued at $52,200.





The
      preferred shares carried an 8% dividend, payable quarterly commencing January
      1,
      2004 and were convertible into common stock at a price of $4.35 per share.
      The
      preferred stock was entitled to vote on all matters presented to the Company’s
      common stockholders, with the number of votes being equal to the number of
      underlying common shares. The preferred stock also contained a liquidation
      preference of $4.35 per share plus accrued unpaid dividends.





F-21


**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**





**Note
      7****- Stockholders' Equity (continued)**





In
      connection with the preferred share private placement for Tranches 1 and 2,
      certain placements were entered into when the underlying price of the common
      stock to which the preferred shares were convertible into, exceeded $4.35,
      the
      stated conversion rate. As a result of the underlying shares being in-the-money,
      the Company was required to compute a beneficial conversion charge, which was
      calculated as the difference between the conversion price of $4.35 and the
      closing stock price on the effective date of each offering, multiplied by the
      total of the related common shares to be issued upon conversion of the preferred
      stock. These charges were reflected as a dividend to the preferred shareholders
      and were recognized over the period in which the preferred stock first became
      convertible. For the Tranche 1 shares the charge was immediately recognized
      as
      the shares were immediately convertible into common shares. For Tranche 2 the
      shares could not be converted until a shareholder vote on January 27, 2004
      took
      place approving the issuance of additional common shares. The calculated
      beneficial conversion feature on Tranche 2 was therefore amortized from the
      effective date of each issuance through January 27, 2004. This resulted in
      total
      beneficial conversion charges of $1,182,452, of which $1,063,842 was recorded
      during the fourth quarter of 2003, and $118,610 were amortized and recorded
      as
      preferred dividends in January of 2004.





The
      Company also sent each preferred shareholder an inducement offer to convert
      their shares of preferred into common shares. If converted within 60 days of
      closing, the investors were entitled to receive (i) dividends payable in common
      stock equivalent to one year’s worth of dividends; and (ii) Class B Warrants to
      purchase two shares of common stock for each $10 invested, exercisable at $6.00
      per share.





In
      connection with the preferred share private placement for Tranche 1,
      shareholders converted 1,645,099 of 8% convertible preferred shares to common
      stock at a price of $4.35 per share. Common share dividends of 8% for a full
      year were paid totaling $546,173 and 1,431,237 warrants were issued valued
      at
      $1,170,678, for a total inducement charge of $1,716,851 recognized as a
      preferred dividend during the fourth quarter for those investors which accepted
      the inducement offer. The warrants issued were valued using the Black-Scholes
      option pricing model using the following assumptions: volatility of 55%, a
      risk-free rate of 1.875%, zero dividend payments, and a life of two
      years.





In
      connection with the preferred share private placement for Tranche 2, a common
      share dividend of 8% for a full year was paid totaling $157,601 and 402,991
      warrants were issued valued at $337,805, for a total inducement charge of
      $495,406 which was recognized as a preferred dividend in the first quarter
      of
      2004, associated with the preferred stock inducement offer ending on March
      27,
      2004. The warrants issued were valued using the Black-Scholes option pricing
      model using the following assumptions: volatility of 55%, a risk-free rate
      of
      1.875%, zero dividend payments, and a life of two years.





Warrants
      to Purchase Common Shares





During
      2003, the Company issued 440,140 warrants to entities for their services
      directly related to raising capital under private placements. The Company also
      issued 128,700 warrants in conjunction with debt valued at
      $110,170.





During
      2003, the Company issued 1,019,883 warrants in connection with common stock
      private placement offerings, with an exercise price of $6.00 that expire
      December 30, 2004.





F-22


**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**




**Note
      7****- Stockholders' Equity (continued)**








The
      following table presents the activity for warrants outstanding:


WeightedAverageExerciseShares
            
            PriceOutstanding
                - December 31, 2002
            
            
            4,587,780
            
            $
            5.52Granted
            
            
            3,210,249
            
            
            2.49Forfeited/canceled
            
            
            (408,048
            )
            
            0.30Outstanding
                - December 31, 2003
            
            
            7,389,981
            
            
            5.63Granted
            
            
            4,496,142
            
            
            6.00Forfeited/canceled
            
            
            (4,526,396
            )
            
            5.98Outstanding
                - December 31, 2004
            
            
            7,359,727
            
            
            5.62Granted
            
            
            406,481
            
            
            1.87Exercised
            
            
            (743,868
            )
            
            4.77Forfeited/canceled
            
            
            (5,290,576
            )
            
            6.00Outstanding
                - December 31, 2005
            
            
            1,731,764
            
            $
            3.93





On
      May
      11, 2004 the Board of Directors voted to extend by one year the expiration
      date
      of 3,943,151 warrants issued during the period from April 1, 2002 to December
      15, 2003, with no change in the exercise price of $6.00. The above table
      includes the extension as an expiration and grant of such warrants.





The
      following table presents the composition of warrants outstanding and
      exercisable:





2005Shares
                OutstandingRange
                of Exercise Prices
            
            Number
            
            Price*
            
            Life*$1.75
                - $3.24
            
            
            1,083,009
            
            $
            1.87
            
            
            3.12$3.48
                - $4.35
            
            
            6,000
            
            
            .01
            
            
            0.01$4.92
                - $6.00
            
            
            642,755
            
            
            2.05
            
            
            0.13Total
                - December 31
            
            
            1,731,764
            
            $
            3.93
            
            
            3.26





*Price
      and Life reflect the weighted average exercise price and weighted average
      remaining contractual life, respectively.





F-23


**TETON
        ENERGY CORPORATION**
 
 **Notes
        to Consolidated Financial Statements**




**Note****8
      - Stock Based Compensation**





At
      the
      annual meeting on March 19, 2003, the Company’s shareholders approved an
      employee stock option plan and authorized 25,000,000 shares of Common Stock
      for
      issuance thereunder. At the same annual meeting at which the 2003 Plan was
      adopted, the Company’s shareholders also approved a 1:12 reverse split. Although
      the Board of Directors believed that a reasonable interpretation of both actions
      indicated that since the 2003 Plan was adopted at the same shareholders meeting
      as the reverse split and further since there were no shares technically
      outstanding at the time of the reverse split’s approval, that no adjustment need
      be made to the plan, it nevertheless elected to take a conservative approach
      and
      to remove any ambiguity by asking the stockholders, at the Company’s 2005 annual
      meeting, to approve a total pool of 3,000,000 options available for grant under
      the 2003 Plan. Such approval was granted by the stockholders.





The
      2003
      Plan provided for the granting of both incentive and non-qualified options.
      During the second quarter of 2003, the Company issued 30,000 non-qualified
      options to outside advisory board members which has been recorded as
      compensation expense during the three-months ended June 30, 2003 valued at
      $94,701, using the Black-Scholes option-pricing model with the following
      assumptions: volatility of 100%, a risk-free rate of 4%, zero dividend payments,
      and a life of ten years. On April 9, 2003 the Company issued 1,448,037 incentive
      options to employees, officers and directors valued at $4,571,026 using the
      Black-Scholes option-pricing model under the same assumptions described above.
      On August 3, 2003, 100,000 options valued at $308,414 were issued to a director
      under the 2003 Plan.





On
      March
      30, 2004 1,415,000 options valued at $3,512,305 using the same assumptions
      as
      above were issued to employees, officers and directors. The Board issued the
      options in 2004 with the understanding that they would seek clarification from
      shareholders as to the ultimate number of options that can be issued.
      Accordingly, 994,000 of the options representing approximately $2,500,000 of
      the
      fair value of the total options granted could be voided if the shareholders
      did
      not approve an increase in the number of authorized shares available for
      issuance under the 2003 Plan. Such approval was granted by the
      stockholders.





During
      the second quarter of 2005, the Company issued 45,000 stock options to various
      employees of the Company under the 2003 Plan. These options are exercisable
      at
      $3.11 per share and vest over a three-year period, assuming the employees remain
      in the Company’s employ. These stock options are valued at $79,019 using the
      Black-Scholes option-pricing model with the following assumptions: volatility
      of
      109.46%, a risk-free rate of 3.71%, zero dividend payments and a life of ten
      years. Beginning on January 1, 2006, when the Company adopts Statement of
      Financial Accounting Standards No. 123R, "Share-Based Payment" which is a
      revision of Statement of Financial Accounting Standards No. 123, "Accounting
      for
      Stock-Based Compensation", the fair value of such shares will be recorded as
      an
      expense over the requisite service period for the employees.





On
      October 14, 2005, the Company filed a registration statement on Form S-8
      registering the shares underlying options issued pursuant to the 2003
      Plan.





F-24





**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**




**Note** **8
      - Stock Based Compensation (continued)**





At
      the
      Company’s 2005 Annual Meeting the stockholders approved a Long Term Incentive
      Plan (the “LTIP”). The LTIP is a performance-based compensation plan whereby up
      to 10% of the outstanding shares at the beginning of each plan year, except
      for
      the first year wherein 20% of the outstanding shares are available (not to
      exceed, in any three year period, 35% of the outstanding shares of the Company)
      can be awarded to certain employees, directors and consultants. In most cases,
      awards will be linked to the performance of the Company as measured by
      performance metrics that, at the time of the grants, are deemed necessary by
      the
      Compensation Committee of the Board of Directors for the creation of shareholder
      value.





On
      July
      26, 2005 the Compensation Committee finalized the award of 800,000 performance
      share units to the Company’s Executive Officers and Directors which could be
      awarded during 2005, 2006 and 2007 if the Company meets certain performance
      targets set in 2005. The performance share units are conditioned on the
      participants remaining employed by the Company, will vest over one, two and
      three year periods and will be awarded on a sliding scale from 50% to 200%,
      depending on the performance levels achieved by the Company. No LTIP shares
      were
      earned for 2005 as the objectives established by the Compensation Committee
      were
      not met.





On
      December 8, 2005, 195,000
      shares of restricted stock were approved for issuance to be awarded to the
      Company’s Chief Executive Officer and two members of the Board, which vest in
      equal tranches over three years, beginning January 1, 2006. These shares were
      valued using the closing price of the Company’s stock on December 8, 2005 of
      $6.06 for a total value of $1,181,700. The shares will be recorded in future
      periods as services are provided over the service period.





At
      the
      annual meeting on July 16, 2004 the Company’s shareholders approved a
      stock-based compensation plan for non-employees (the “2004 Plan”). The maximum
      number of shares of Common Stock with respect to which awards could be granted
      is 1,000,000 shares. On April 5, 2005 the Board authorized the issuance of
      140,000 restricted shares to the Company’s Chief Financial Officer, 112,500
      restricted shares to the Company’s Legal Counsel and 35,000 restricted shares to
      a consultant providing land services on the Company’s acquisitions. The shares
      were not formally issued to the consultants until the third quarter; however
      the
      Company recorded such shares at their fair value on April 5, 2005 of $905,625.
      During the second quarter of 2005, the Company capitalized $110,250 of such
      amount and recorded the balance of $795,375 as general and administrative
      expenses.





Both
      the
      2003 Plan and the 2004 Plan were terminated upon shareholder approval of the
      LTIP at the Company’s 2005 annual meeting; however, grants made under these
      plans remain outstanding until exercised or terminated pursuant to each plan’s
      terms.





As
      of
      December 31, 2005, 1,368,111 options with an exercise price of $3.48, 100,000
      options with an exercise price of $3.71, 1,362,223 options with an exercise
      price of $3.60 and 45,000 options with an exercise price of $3.11 were
      outstanding. The weighted average fair value and contractual life of these
      issues were $2.48, $3.26 and $3.71 and 10.00, 8.59 and .61 years,
      respectively.





F-25


**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**




**Note****8
      - Stock Based Compensation (continued)**





The
      following table presents the activity for stock options outstanding and
      exercisable:





Shares
                OutstandingRange
                of Exercise Prices
            
            Number
            
            Price*
            
            Life*Outstanding
                - December 31, 2003
            
            
            1,578,037
            
            $
            3.49
            
            
            8.30Issued
            
            
            1,415,000
            
            
            3.60
            
            
            9.25Outstanding
                - December 31, 2004
            
            
            2,993,037
            
            
            3.54
            
            
            8.70Issued
            
            
            45,000
            
            
            3.11
            
            
            9.36Cancelled/expired
            
            
            (162,703
            )
            
            (3.52
            )
            
            (0.97
            )Outstanding
                - December 31, 2005
            
            
            2,875,334
            
            
            3.54
            
            
            4.16





*Price
      and Life reflect the weighted average exercise price and weighted average
      remaining contractual life, respectively.




**Note****9
      - Income and Other Taxes**





The provision
      for income taxes from continuing operations consists of the following
      components:





2005
            
            2004
            
            2003Current:Federal
            
            
            --
            
            
            --
            
            
            --State
            
            
            --
            
            
            --
            
            
            --Total
                current
            
            
            --
            
            
            --
            
            
            --Deferred:Federal
            
            
            --
            
            
            --
            
            
            --State
            
            
            --
            
            
            --
            
            
            --Total
                Deferred
            
            
            --
            
            
            --
            
            
            --


Total
      income tax expense from continuing operations differed from the amounts computed
      by applying the federal statutory income tax rate of 35% to earnings (loss)
      before income taxes as a result of the following items for the years ended
      December 31:


2005
            
            2004
            
            2003Federal
                statutory income tax benefitfrom
                continuing operations
            
            $
            (1,322,107
            )
            $
            (1,817,648
            )
            $
            (1,412,657
            )State
                income tax benefit,net
                of federal income taxbenefit
                from continuing operations
            
            
            (112,282
            )
            
            (154,367
            )
            
            (116,088
            )Other
            
            
            4,546
            
            
            16,703
            
            
            58,292Change
                in valuation allowance
            
            
            1,429,843
            
            
            1,955,312
            
            
            1,470,453Income
                tax expense
            
            
            --
            
            
            --
            
            
            --






F-26


**TETON** **ENERGY
      CORPORATION**





**Notes
      to Consolidated Financial Statements**







**Note
      9 - Income and Other Taxes (continued)**





The
      tax
      effects of temporary differences that give rise to significant components of
      the
      Company’s deferred tax assets and liabilities at December 31, 2005 and 2004 are
      as follows:





2005
            
            2004Current
                Deferred Tax Assets (Liabilities)Other
                receivables
            
            $
            (7,441
            )
            $
            (7,441
            )Prepaid
                expenses
            
            
            (45,157
            )
            
            (30,908
            )A/P
                and accrued liabilities
            
            
            550,205
            
            
            156,463Charitable
                contributions
            
            
            --
            
            
            --Valuation
                allowance
            
            
            (497,607
            )
            
            (118,114
            )Net
                current deferred tax asset (liability)
            
            
            --
            
            
            --Non-Current
                Deferred Tax Assets (Liabilities)Depreciation
            
            
            (3,053
            )
            
            (3,623
            )Oil
                and gas properties
            
            
            (801,210
            )
            
            --Net
                Operating Loss
            
            
            9,110,270
            
            
            4,478,522Valuation
                allowance
            
            
            (8,306,007
            )
            
            (4,474,899
            )Net
                non-current deferred tax asset (liability)
            
            
            --
            
            
            --Net
                Deferred Tax Asset (Liability)
            
            $
            --
            
            $
            --





At
      December 31, 200 5,
      the
      Company had net operating loss carryforwards, for federal income tax purposes,
      of approximately $24 million. These net operating loss carryforwards, if not
      utilized to reduce taxable income in future periods, will expire in various
      amounts beginning in 2018 through 2025. Approximately $19 million of such net
      operating loss is subject to U.S. Internal Revenue Code Section 382 limitations.
      Utilization of this portion of the net operating loss is limited to
      approximately $900,000 per annum.





The
      Company has established a valuation allowance for deferred taxes that reduces
      its net deferred tax assets as management currently believes that these losses
      will not be utilized in the near term. The allowance recorded was $8.8 million
      and $4.6 million for 2005 and 2004 respectively. The Company increased the
      valuation allowance in 2005 by approximately $4.2 million due to the generation
      of net operating loss carryforwards.




**Note
      10 - Commitments**





On
      October 5, 2005, in connection with the resignation of a former Officer and
      Director of the Company, the existing consulting agreement between the Company
      and the Officer was replaced with a severance agreement. The severance agreement
      provides that such former Officer and Director will receive a severance benefit
      equal to one-year’s salary, paid monthly. The severance payments may be
      terminated by the Company under certain circumstances prior to the total
      severance being paid. This severance benefit, totaling $216,000, was accrued
      at
      September 30, 2005, as the Company and the former Officer and Director had
      agreed upon and were committed to all of the basic terms of such severance
      agreement as of such date. At December 31, 2005 $153,804 remained payable in
      accordance with the terms of the settlement agreement.





F-27


**TETON** **ENERGY
      CORPORATION**





**Notes
      to Consolidated Financial Statements**





**Note** **10 –
      Commitments (continued)**





Mr.
      Arleth, President and Chief Executive Officer, signed an employment agreement
      on
      May 1, 2003. The agreement is for a three-year term, with an initial salary
      of
      $10,000 per month that was increased to $15,000 per month beginning in January
      2004 and
      $20,833 beginning January 2006. Under the terms of the agreement, Mr. Arleth
      is
      entitled to 24 months severance pay in the event of a change of position or
      control of the Company.





The
      Company has entered into a three year lease for office space which expires
      in
      July 2008. Future contractual commitments under such lease are $56,967 for
      2006,
      $56,967 for 2007 and $33,231 for 2008.





During
      2005, the Company established a Simple IRA plan, allowing for the deferral
      of
      employee income. The plan provides for the Company to match employee
      contributions up to 3% of gross wages. For the year ended December 31, 2005
      Company contributed $3,467 to such plan.





**Note
      11 – Subsequent Events**





Subsequent
      to December 31, 2005 the members of Piceance LLC applied to and received the
      consent of the fee owner of the land on which Piceance LLC’s oil and gas rights
      and leases are located for Piceance LLC to transfer the underlying interests
      directly to each of the members. As a result, as of February 28, 2006, Teton’s
      25% interest in the oil and gas rights and leases were transferred directly
      to
      Teton Piceance LLC, our wholly owned subsidiary.





Subsequent
      to December 31, 2005 the Company closed on the Agreement with Noble and received
      $2.7 million in cash.




F-28


**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**




**Note****12 - Unaudited
      Supplemental Oil and Gas Disclosures**





The
      following is a summary of costs incurred in oil and gas producing
      activities:





Included
      below is the Company's investment and activity in oil and gas producing
      activities including the Piceance and DJ. For 2004 prior to the sale of Goloil, the Company
      includes a proportionate share of Goloil's oil and gas properties, revenues,
      and
      costs.





For
                the Years EndedDecember
                31,2005
            
            2004
            
            2003Property
                acquisition costs
            
            $
            10,778,408
            
            $
            -
            
            $
            -Facilities
                in progress
            
            
            120,554
            
            
            -
            
            
            1,700,696Wells
                in progress
            
            
            2,105,884
            
            
            -
            
            
            -Development
                costs
            
            
            1,575,084
            
            
            2,988,882
            
            
            5,207,931Total
            
            $
            14,579,930
            
            $
            2,988,882
            
            $
            6,908,627




The
      following reflects the Company's capitalized costs associated with oil and
      gas
      producing activities:





December
                31,2005
            
            2004
            
            2003Property
                acquisition costs:Proved
            
            $
            142,129
            
            $
            -
            
            $
            595,558Unproved
            
            
            10,636,279
            
            
            -
            
            
            -Facilities
                in progress
            
            
            120,554
            
            
            -
            
            
            -Wells
                in progress
            
            
            2,105,884
            
            
            -
            
            
            1,700,696Development
                costs
            
            
            1,575,084
            
            
            -
            
            
            10,808,81314,579,930
            
            
            -
            
            
            13,105,067Accumulated
                depreciation, depletion, amortization and valuation
                allowances
            
            
            (160,653
            )
            
            -
            
            
            (2,064,585
            )Net
                capitalized costs
            
            $
            14,419,277
            
            $
            -
            
            $
            11,040,482







F-29





**TETON** **ENERGY
      CORPORATION**





**Notes
      to Consolidated Financial Statements**







**Note
      12- Unaudited Supplemental Oil and Gas Disclosures
      (continued)**





Results
      of Operations from Oil and Gas Producing Activities





Results
      of operations from oil and gas producing activities (excluding general and
      administrative expense, and interest expense) are presented as
      follows:


For
                the Years EndedDecember
                31,2005
            
            2004
            
            2003Oil
                and gas revenues
            
            $
            707,420
            
            $
            6,552,138
            
            $
            11,437,802Oil
                and gas production expenses
            
            
            (50,932
            )
            
            (1,331,273
            )
            
            (2,020,447
            )Transportation
                and marketing expenses
            
            
            --
            
            
            --
            
            
            (807,266
            )Export
                duties
            
            
            --
            
            
            --
            
            
            (1,492,999
            )Taxes
                other than income taxes
            
            
            (48,196
            )
            
            (4,286,025
            )
            
            (5,864,920
            )Depletion,
                depreciation and amortization
            
            
            (160,653
            )
            
            (747,481
            )
            
            (1,534,914
            )Results
                of operations from oil and gas producing activities
            
            $
            447,639
            
            $
            187,359
            
            $
            (282,744
            )





Reserves
      (Unaudited)





Proved
      oil and gas reserves are the estimated quantities of crude oil, natural gas,
      and
      natural gas liquids which geological and engineering data demonstrate with
      reasonable certainty to be recoverable in future years from known reservoirs
      under existing economic and operating conditions. Proved development oil and
      gas
      reserves are those reserves expected to be recovered through existing wells
      with
      existing equipment and operating methods. The proved reserve information as
      of
      December 31, 2005 included herein is based on estimates prepared by Netherland
      Sewell & Associates, Inc., independent petroleum engineers. Proved reserve
      information for 2004 and 2003 was based on estimates provided by Gustavson
      Associates, Inc., independent petroleum engineers. All proved reserves of
      natural gas for 2005 are located in the Piceance Basin in Colorado. All proved
      reserves prior to July 1, 2004 were located in Russia.








F-30




**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**





**Note****12
      - Unaudited Supplemental Oil and Gas Disclosures
      (continued)**





For
                the Years EndedDecember
                31,2005
            
            2004
            
            2003MMCF
            
            MBBLS
            
            MBBLSProved
                reserves, beginning of period
            
            
            -
            
            
            8,262
            
            
            13,264Production
            
            
            (90
            )
            
            (348
            )
            
            (632
            )Extensions
                and discoveries
            
            
            4,099
            
            
            -
            
            
            -Sale
                of reserves in place
            
            
            -
            
            
            (7,914
            )Revisions
                of previous estimates
            
            
            -
            
            
            -
            
            
            (4,370
            )Proved
                reserves, end of period
            
            
            4,009
            
            
            -
            
            
            8,262Proved
                developed reserves, beginning of period
            
            
            -
            
            
            3,816
            
            
            27,402Proved
                developed reserves, end of period
            
            
            853
            
            
            -
            
            
            22,896








Standardized
      Measure of Discounted Future Net Cash Flows (Unaudited)





SFAS
      No.
      69 prescribes guidelines for computing a standardized measure of future net
      cash
      flows and changes therein relating to estimated proved reserves. The Company
      has
      followed these guidelines, which are briefly discussed below.





Future
      cash inflows and future production and development costs are determined by
      applying year-end prices and costs to the estimated quantities of oil and gas
      to
      be produced. Estimated future income taxes are computed using current statutory
      income tax rates for those countries where production occurs. The resulting
      future net cash flows are reduced to present value amounts by applying a 10%
      annual discount factor.





The
      assumptions used to compute the standardized measure are those prescribed by
      the
      Financial Accounting Standards Board and, as such, do not necessarily reflect
      the Company's expectations for actual revenues to be derived from those reserves
      nor their present worth. The limitations inherent in the reserve quantity
      estimation process, as discussed previously, are equally applicable to the
      standardized measure computations since these estimates are the basis for the
      valuation process.




F-31


**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**




**Note****12
      - Unaudited Supplemental Oil and Gas Disclosures
      (continued)**





The
      following summarizes the standardized measure and sets forth the Company's
      future net cash flows relating to proved oil and gas reserves based on the
      standardized measure prescribed in Statement of Financial Accounting Standards
      No. 69.





For
                the Years Ended
              December
                31,
              (in
                thousands of dollars)2005
            
            2004
            
            2003Future
                cash inflows
            
            $
            30,514
            
            $
            --
            
            $
            114,992Future
                production costs
            
            
            (4,643
            )
            
            --
            
            
            (80,812
            )Future
                development costs
            
            
            (5,900
            )
            
            --
            
            
            (14,595
            )Future
                income tax expense
            
            
            --
            
            
            --
            
            
            (7,360
            )Future
                net cash flows (undiscounted)
            
            
            19,971
            
            
            --
            
            
            12,225Annual
                discount of 10% for estimated timing of cash flows
            
            
            (11,255
            )
            
            --
            
            
            (6,232
            )Standardized
                measure of future net discounted cash flows
            
            $
            8,716
            
            $
            --
            
            $
            5,993





Changes
      in Standardized Measure Base Case (Unaudited)





The
      following are the principal sources of change in the standardized measure of
      discounted future net cash flows:


For
                the Years Ended
              December
                31,
              (in
                thousands of dollars)2005
            
            2004
            
            2003Standardized
                measure, beginning of period,
            
            $
            --
            
            $
            5,993
            
            $
            25,424Net
                changes in prices and production costs
            
            
            --
            
            
            --
            
            
            (11,038
            )Sales
                of oil and gas produced during period
            
            
            (608
            )
            
            (935
            )
            
            (445
            )Future
                development costs
            
            
            --
            
            
            --
            
            
            (3,098
            )Revisions
                of previous quantity estimates
            
            
            --
            
            
            --
            
            
            (11,806
            )Extensions
                and discoveries
            
            
            9,323
            
            
            --
            
            
            --Accretion
                of discount
            
            
            --
            
            
            300
            
            
            2,542Sale
                of reserves in place
            
            
            --
            
            
            (5,358
            )
            
            --Changes
                in income taxes, net
            
            
            --
            
            
            --
            
            
            4,414Standardized
                measure, end of period
            
            $
            8,715
            
            $
            --
            
            $
            5,993






F-32


**TETON
      ENERGY CORPORATION**





**Notes
      to Consolidated Financial Statements**





**Note
      1****3
      - Selected Quarterly Information (Unaudited)**





The
      following represents selected quarterly financial information for the years
      ended December 31, 2004 and 2005. Certain amounts have been reclassified to
      conform to the presentation in this Form 10-K.





For
                the Quarter Ended2005
            
            March
                31,
            
            June
                30,
            
            Sept
                30,(1)
            
            Dec
                31,(2)Loss
                from continuing operations
            
            $
            (655,507
            )
            $
            (1,644,693
            )
            $
            (802,285
            )
            $
            (674,964
            )Discontinued
                operations, netof
                tax
            
            
            --
            
            
            --
            
            
            --
            
            
            (255,000
            )Net
                Income (Loss)
            
            
            (655,507
            )
            
            (1,644,693
            )
            
            (802,285
            )
            
            (929,964
            )Basic
                and diluted loss per common share for continuing
                operations
            
            $
            (0.07
            )
            $
            (0.17
            )
            $
            (0.08
            )
            $
            (0.06
            )Basic
                and diluted income (loss) per common share for discontinued
                operations
            
            $
            0.00
            
            $
            0.00
            
            $
            0.00
            
            $
            (0.02
            )Basic
                and diluted income (loss) per common share
            
            $
            (0.07
            )
            $
            (0.17
            )
            $
            (0.08
            )
            $
            (0.08
            )2004Loss
                from continuing operations
            
            $
            (2,086,915
            )
            $
            (1,712,408
            )
            $
            (488,126
            )
            $
            (905,832
            )Discontinued
                operations, netof
                tax
            
            
            (435,198
            )
            
            (267,981
            )
            
            13,086,761
            
            
            --Net
                Income (Loss)
            
            
            (2,522,113
            )
            
            (1,980,389
            )
            
            12,598,635
            
            
            (905,832
            )Basic
                and diluted loss per common share for continuing
                operations
            
            $
            (0.30
            )
            $
            (0.19
            )
            $
            (0.07
            )
            $
            (0.09
            )Basic
                and diluted income (loss) per common share for discontinued 
                operations
            
            $
            (0.05
            )
            $
            (0.03
            )
            $
            1.45
            
            $
            0.00Basic
                and diluted income (loss) per common share
            
            $
            (0.35
            )
            $
            (0.22
            )
            $
            1.38
            
            $
            (0.10
            )








(1)
            The
                gain from the sale of Goloil stock included in results from discontinued
                operations for the quarter ended September 30, 2004 has been adjusted
                by
                approximately $718,000 due to an error in recording the foreign currency
                translation account at the time of the sale, partially offset by
                an over
                accrual of current income taxes
                due.


(2)
            The
                loss from discontinued operations for the quarter ended December
                31, 2005
                is due to the repayment of $255,000 to the U.S. Trade Development
                Agency
                pursuant to the terms of a Grant Agreement dated September 20, 1999
                (See
                Note 3).





F-33


**TETON** **ENERGY
      CORPORATION**





**Item
      9.**  **CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.**





None.





**ITEM
      9A. CONTROLS AND PROCEDURES**




Disclosure
      Controls and Procedures




Our
      management, a s
      required by Rule 13a-15(b) and Rule 15d-15(e) of the Securities Exchange Act
      of
      1934, the Company’s management, including the Chief Executive Officer and Chief
      Financial Officer, is responsible for establishing and maintaining
      effective disclosure controls and procedures, as
      defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act
      of
      1934. As of December 31, 2005, an evaluation was performed under the
      supervision and with the
      participation of our  management,
      including the Chief
      Executive Officer and Chief Financial Officer, evaluated  the
      effectiveness of our design
      and operation of the Company’s disclosure controls and procedures pursuant
      to Rule 13a-15 under
      the Securities Exchange Act of 1934 as of
      the year ending December 31, 2005. In designing and evaluating the disclosure controls and procedures, management
      recognized that any controls and procedures, no matter how well designed and
      operated, can provide only reasonable assurance of achieving the desired control
      objectives. . Based on
      that evaluation, our Chief
      Executive Officer and Chief Financial Officer concluded that ,
      as of
      the end of such period, our disclosure controls and procedures are
      effective to provide reasonable assurance that information we are required
      to
      disclose in reports that we file or submit under the Exchange Act as
      of
      December 31, 2005 were effective in ensuring information required to be
      disclosed in this Annual Report on Form 10-K was recorded, processed, summarized and
      reported on a timely basis. ,
      and
      reported within the time periods specified in the SEC’s rules and forms, and
      that such information was accumulated and communicated to our management,
      including our Chief Executive Officer and Chief Financial Officer, as
      appropriate, to allow timely decisions regarding required disclosure.




Changes
      in Internal Control over Financial Reporting




During
      the first quarter of 2005, the Company instituted new controls and procedures
      designed to assure that there was a proper degree of review of complex equity
      transactions entries prior to their being incorporated into the Company’s
      accounting system and reported to the Company’s auditors as part of its
      pre-quarterly filing review. These changes were in response to an evaluation
      by
      management in 2004 that our disclosure controls and procedures were not
      effective during the year ended December 31, 2004, because the Company lacked
      the in-house expertise to account for complex equity transactions. Other than
      this change, there were no other change in the Company’s internal control over
      financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under
      the Securities Exchange Act of 1934 )
      that
      occurred during the quarter ended December 31, 2005 that has materially
      affected, or is reasonably likely to materially affect, the Company’s internal
      control over financial reporting.





**Item
      9B. OTHER INFORMATION**





None.




61


**TETON
      ENERGY CORPORATION**





**PART
      III**





**Item
      10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**





**DIRECTORS
      AND EXECUTIVE OFFICERS**





Directors,
      executive officers, and significant employees of Teton, their respective ages
      and positions with Teton are as follows:





Name
            
            Age
            
            PositionJames
                J. Woodcock
            
            67
            
            Chairman
                & DirectorKarl
                F. Arleth
            
            57
            
            President
                and CEO, DirectorJohn
                T. Connor, Jr.
            
            64
            
            DirectorThomas
                F. Conroy
            
            67
            
            DirectorWilliam
                K. White
            
            63
            
            DirectorPatrick
                A. Quinn
            
            52
            
            Chief
                Financial Officer








JAMES
      J.
      WOODCOCK has been a director since 2002 and Chairman of the Company’s
      Compensation Committee, since 2003 and Chairman of the Company since February
      2005. Since 1981, Mr. Woodcock has been the owner and CEO of Hy-Bon Engineering
      Company, based in Midland, Texas. Hy-Bon is an engineering firm and manufacturer
      of vapor recovery, gas boosters, and casing pressure reduction systems for
      the
      oil industry. From 1997 to 2002, Mr. Woodcock was the chairman of Transrepublic
      Resources, a private oil and gas exploration firm located in Midland Texas.
      From
      1996 until 2003, Mr. Woodcock was a board member and Chairman of the Board
      of
      Renovar Energy, a private waste to energy firm located in Midland Texas.





KARL
      F.
      ARLETH has been our President and Chief Executive Officer since May 2003 and
      a
      Director since 2002. From 2002 to 2003, Mr. Arleth was the Chief Operating
      Officer of Sefton Resources, Inc., an oil and gas exploration and production
      company. Since 2002, Mr. Arleth has served as a Board member of Sefton
      Resources, Inc. Between 1999 and 2001, he served as Chairman and CEO of Eurogas,
      Inc. in London. Ending in 1999, Mr. Arleth spent 21 years with Amoco and
      BP-Amoco.




62


**TETON
      ENERGY CORPORATION**





JOHN
      T.
      CONNOR, Jr. became a director in 2003 and chairs the Board's audit committee.
      He
      is the Founder and Portfolio Manager of the Third Millennium Russia Fund, a
      US
      based mutual fund specializing in the equities of Russian public companies.
      A
      former attorney at Cravath, Swaine & Moore in New York City, he has been a
      partner in leading law firms in New York, Washington and New Jersey. Mr. Connor
      is a member of the Council on Foreign Relations.





THOMAS
      F.
      CONROY has been a director since 2002. Mr. Conroy is a Certified Public
      Accountant with an MBA from the University of Chicago. Since August 2004, Mr.
      Conroy has been the Chairman of Mann-Conroy-Eisenberg & Assoc. LLC, a life
      insurance and reinsurance consulting firm. Since 2001, Mr. Conroy has been
      a
      managing principal of Strategic Reinsurance Consultants International LLC,
      a
      life reinsurance consulting and brokerage firm. Ending in 2001, Mr. Conroy,
      spent 27 years with ING and its predecessor organizations, serving in various
      financial positions and leading two of its strategic business units as
      President. As President of ING Reinsurance, he established their international
      presence, setting up facilities in The Netherlands, Bermuda, Ireland and Japan.
      He also served as an Officer and Board Member of Security Life of Denver
      Insurance Company and its subsidiaries. Mr. Conroy briefly served as our interim
      CFO and secretary from April 2002 until April 2003.





WILLIAM
      K. WHITE became a director in 2005. Mr. White is the founder and owner of Amado
      Energy L.P., an investment vehicle formed to focus on oil and gas mineral
      properties in the U.S.. Between 1996 and 2002, Mr. White was the Chief Financial
      Officer of Pure Resources, Inc., a NYSE-listed independent exploration and
      production concern prior to its sale to Unocal in October, 2002.





PATRICK
      A. QUINN, CPA, CVA. Mr. Quinn joined Teton in February 2004 to serve as the
      Company’s Chief Financial Officer on a contract basis. For the past 15 years,
      Mr. Quinn has been the CEO of Quinn & Associates, P.C., a firm he founded
      that provides accounting, tax, and auditing services primarily to the oil and
      gas industry.





63


**TETON
      ENERGY CORPORATION**





All
      directors serve as directors for a term of one year or until his successor
      is
      elected and qualified. All officers hold office until the first meeting of
      the
      board of directors after the annual meeting of stockholders next following
      his
      election or until his successor is elected and qualified. A director or officer
      may also resign at any time.





**COMMITTEES
      OF THE BOARD OF DIRECTORS**





The
      Board
      of Directors has a Compensation Committee, an Audit Committee and a Governance
      and Nominating Committee. The Audit Committee currently consists of three
      directors, John Connor, the Chairman, who is the Audit Committee financial
      expert, Mr. Conroy and Mr. White. The Compensation Committee consists of three
      directors, Mr. Conroy, Mr. White and Mr. Woodcock. The Nominating Committee
      is
      made up of Mr. Woodcock and Mr. Conroy.





Mr.
      Woodcock, Mr. Connor, Mr. Conroy and Mr. White are the board members determined
      to be independent under American Stock Exchange listing standards.





The
      purpose of the Compensation Committee is to review the Company's compensation
      of
      its executives, to make determinations relative thereto and to submit
      recommendations to the Board of Directors with respect thereto in order to
      ensure that such officers and directors receive adequate and fair compensation.
      During 2005, the Compensation Committee held two meetings by teleconference
      and
      held an executive session during a regularly scheduled board meeting to discuss
      compensation.





The
      Audit
      Committee is responsible for the general oversight of audit, legal compliance
      and potential conflict of interest matters, including (a) recommending the
      engagement and termination of the independent public accountants to audit the
      financial statements of the Company, (b) overseeing the scope of the external
      audit services, (c) reviewing adjustments recommended by the independent public
      accountant and addressing disagreements between the independent public
      accountants and management, (d) reviewing the adequacy of internal controls
      and
      management's handling of identified material inadequacies and reportable
      conditions in the internal controls over financial reporting and compliance
      with
      laws and regulations, and (e) supervising the internal audit function, which
      may
      include approving the selection, compensation and termination of internal
      auditors.





For
      the
      fiscal year ended 2005, the Audit Committee has also discussed with management
      and its independent auditors issues related to the overall scope and objectives
      of the audits conducted, the internal controls used by the Company, and the
      selection of the Company's independent auditor. Additional meetings were held
      with the independent auditor, with financial management present, to discuss
      the
      specific results of audit investigations and examinations and the auditor's
      judgments regarding any and all of the above issues.





The
      Audit
      Committee met four times by teleconference during 2005.





As
      provided in the Governance and Nominating Committee’s charter and our Company’s
      corporate governance principles, the Governance and Nominating Committee is
      responsible for identifying individuals qualified to become Directors. The
      Governance and Nominating Committee seeks to identify director candidates based
      on input provided by a number of sources, including (a) the Governance and
      Nominating Committee members, (b) our other Directors, (c) our stockholders,
      (d)
      our Chief Executive Officer or Chairman, and (e) third parties such as
      professional search firms. In evaluating potential candidates for director,
      the
      Governance and Nominating Committee considers the entirety of each candidate’s
      credentials.





**Code
      of Ethics**





The
      Company has adopted its Code of Ethics and Business Conduct that applies to
      all
      of the officers, directors and employees of the Company. The Code is posted
      on
      our website ( www.teton-energy.com ).
      We
      will disclose on our website any waivers of, or amendments to, our
      Code.





**Compliance
      with Section 16(a) of the Exchange Act**





Section
      16( a)
      of the
      1934 Act requires that the Company’s Directors and certain of its officers file
      reports of ownership and changes of ownership of the Company common stock
      with the SEC and AMEX. Based
      solely on copies of such reports provided to the Company, the Company believes
      that all Directors and officers filed on a timely basis all such reports
      required of them with respect to stock ownership and changes in ownership during 2005
      except that Messrs. Conroy, Connor, and Woodcock were late in reporting the
      grant of stock in partial compensation for services as directors, and Mr. White
      was late in reporting his initial holdings upon becoming a director of the
      Company.





64


**TETON
      ENERGY CORPORATION**





**Item
      11. EXECUTIVE COMPENSATION.**





The
      following table sets forth information concerning the compensation received
      by Mr.
      Karl
      Arleth, Mr. Howard Cooper and Mr. Patrick Quinn:





**Summary
      Compensation Table**





Annual
                Compensation
            Long
                Term CompensationAwards
            PayoutsName
                & Principal Position
            Year
            Salary
              ($)
            Bonus
              ($)
            Other
              Annual
              Compen-
              sation
                ($)
            Restricted
              Stock
              awards
            Securities
              Underlying
              Options
              SARs
              (#)
            LTIP
              Payouts
              ($)
            All
                Other
              CompensationKarl
                F. Arleth CEO
            2005
              2004
              2003
            205,000
              180,000
              85,000
            265,000(1)
              80,000(2)
              0
            17,250
              16,800
              0
            0
              0
              0
            0
              300,000
              410,338
            0
              0
              0
            0
              0
              0H.
                Howard Cooper, Chairman (until February 2005) CEO (untilMay
                2003)
            2005
              2004
              2003
            200,000(3)
              200,000
              160,000
            0
              160,000(2)
              0
            11,181
              8,200
              0
            0
              0
              0
            0
              400,000
              603,289
            0
              0
              0
            0
              0
              0Patrick
                A. Quinn
              CFO
            2005
              2004
            0
              0
            0
              0
            192,910(4)
              111,647(4)
            441,000(5)
              0
            0
              0
            0
              0
            0
              0





(1)  $60,000
      of Mr. Arleth’s bonus was paid in respect of performance during 2004 and
      $205,000 was in respect of performance during 2005.


(2)  Bonus
      paid for 2003 performance.


(3)  Mr.
      Cooper resigned as Chairman in February 2005 and later resigned as a director
      in
      October 2005. Amounts paid to Mr. Cooper in 2005 included his service as
      executive chairman in January and February 2005 and in respect of negotiated
      severance payments during the balance of 2005.


(4)  Mr.
      Quinn
      has rendered services to the Company as its Chief Financial Officer on a
      contract basis.  Amounts shown above were paid to Mr. Quinn’s firm, Quinn
& Associates, P.C . in
      respect of Mr. Quinn’s services and for services of other employees of Quinn
& Associates, P.C.


(5)  Mr.
      Quinn
      was awarded 140,000 restricted shares on April 5, 2005. The value of shares
      held
      by Mr. Quinn at December 31, 2005 was $590,000.




65




**TETON
      ENERGY CORPORATION**





**Stock
      Options**





**Options/SARs
      Grants During Last Fiscal Year**





There
      were no options granted to the Company’s named executive officers during the
      year ended December 31, 2005.





**Aggregated
      Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value**





Number
                ofShares
            
            
            
            Securities
            
            Value
                ofAcquired
            
            
            
            Underlying
            
            UnexercisedOn
            
            Value
            
            Unexercised
            
            In-the-moneyName
            
            Exercise
            
            Realized
            
            Options
            
            OptionsKarl
                F. Arleth
            
            
            --
            
            
            --
            
            
            710,338
            
            $
            1,683,018Howard
                Cooper
            
            
            --
            
            
            --
            
            
            1,003,289
            
            $
            2,379,959





**Employee
      Pension, Profit Sharing or Other Retirement Plans**





During
      2005, the Company established a Simple IRA, allowing for the deferral of
      employee income. The plan provides for the Company to match employee
      contributions up to 3% of gross wages. For the year ended December 31, 2005
      Company contributed $3,467 to such plan.








**Compensation
      of Directors**





The
      Company pays its outside directors an annual retainer of $24,000, payable
      quarterly. In addition, for the first and second quarters of 2005 the directors
      received stock valued at $2,500 for each meeting board meeting attended, and
      stock valued at $1,000 for each teleconference. With the termination of the
      2003
      Employee Stock Option Plan and the 2004 Non-Employee Stock Compensation Plan,
      directors were no longer compensated in stock for meeting attendance or
      teleconferences, effective as of July 1, 2005.





Effective
      January 1, 2006, outside directors will be paid an annual retainer of $32,000,
      payable quarterly. In addition, members of the board or directors will be
      eligible to participate in the Company’s 2005 Long Term Incentive Plan.





During
      2005, the directors received the following compensation based on retainers
      and
      attendance at board meetings: Mr. Connor, Mr. Conroy and Mr. Woodcock each
      received a retainer of $24,000 and Mr. White received a retainer of $6,000.
      Mr.
      Connor and Mr. Conroy each received $21,000 in stock for attendance at board
      meetings and participation in teleconferences and Mr. Woodcock received $22,300.
      In addition, during 2005, Mr. Woodcock,
      as
      Chairman, was awarded 120,000 shares of restricted stock, which vest in equal
      tranches each year over a three-year period beginning January 1, 2006.
      Additionally, since Mr. White was not a member of the Board when the LTIP grants
      were awarded in July 2005, he was awarded 25,000 shares which vest in equal
      tranches over a three-year period.


66


**TETON
      ENERGY CORPORATION**





**Employment
      Contracts**





Mr.
      Arleth, President and Chief Executive Officer, signed an employment agreement
      on
      May 1, 2003. The agreement is for a three-year term, with an initial salary
      of
      $10,000 per month .
      Mr.
      Arleth’s salary has been increased each year since the initial agreement, and,
      effective January 1, 2006, his salary under his employment agreement will be
      $20,833 per month. Under the terms of the agreement, Mr. Arleth is entitled
      to
      24 months severance pay in the event of a change of position or control of
      the
      Company.




67


**TETON
      ENERGY CORPORATION**





**I****tem
                12.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.**




The
      following table sets forth, as of December
      31, 2005, the number of and percent of our common stock beneficially owned
      by
      persons or groups known by us to own beneficially 5% or more of our common
      stock:





Name
                and Address of Beneficial Owner
            
            Amount
                and Nature of Beneficial Ownership
            
            Percent
                of ClassH.
                Howard Cooper
            
            1,388,910
                (1)
            
            10.93%2135
                Burgess RoadSteamboat
                Springs, Colorado 80487Karl
                F. Arleth
            
            891,745
                (2)
            
            7.34%410
                17thStreet, Suite 1850Denver,
                Colorado 80202James
                J. Woodcock
            
            618,566
                (3)
            
            5.23%2404
                Commerce DriveMidland,
                TX 79702Parties
                affiliated with PGR Partners, LLC
            
            650,000
                (4)
            
            5.74%730
                17thSreet, Suite 410Denver,
                Colorado 80202Sound
                Energy Partners
            
            643,400
                (5)
            
            5.68%354
                Pequot AvenueSouthport,
                Connecticut 06890ATEC/Apollo
            
            619,922
                (6)
            
            5.44%1577
                Ogden Street, Suite 300Denver,
                CO 80218





(1)
      Includes (i) 10,621 shares of common stock, (ii) 375,000 shares underlying
      warrants, with an exercise price of $3.24, (iii) 603,289 shares underlying
      options exercisable at $3.48 per share and (iv) 400,000 shares underlying
      options exercisable at $3.60 per share.





(2)
      Includes (i) 75,850 shares of common stock, (ii) 105,557 shares underlying
      warrants, with exercise prices ranging from $3.24 per share to $4.92 per share,
      (iii) 410,338 shares underlying options exercisable at $3.48 per share, and
      (iv)
      300,000 shares underlying options exercisable at $3.60 per share.




(3)
      Includes (i) 115,828 shares of common stock, (ii) 92,590 shares underlying
      warrants, with exercise prices ranging from $3.24 to $4.92 per share, (iii)
      210,148 shares underlying options exercisable at $3.48 per share, and (iv)
      200,000 shares underlying options exercisable at $3.60 per share.




68


**TETON
      ENERGY CORPORATION**




(4)
      Includes (i) 650,000 shares of common stock owned directly. 450,000 shares
      (as
      well as 200,000 warrants, which warrants were subsequently exercised) were
      issued directly to five entities controlled by individuals who are affiliated
      with PGR Partners, LLC and involved in the sale of the 25% membership interest
      in Piceance Gas Resources, LLC, which membership interest constituted our
      interest in the Piceance Basin until the fee owner of the land on which Piceance
      LLC’s oil and gas rights and leases are located consented to transfer the
      interest directly to each of the members.





(5)
      According to a Schedule 13G filed with the Securities and Exchange Commission
      by
      Sound Energy Partners, Inc., dated February 9, 2006 and effective as of December
      31, 2005, Sound Energy Partners, Inc., a registered investment advisor, has
      shared power to vote or to direct the vote with respect to 643,400 shares of
      the
      Company’s common stock.





(6)
      Includes (i) 436,485 shares of common stock, and (ii) 183,437 shares underlying
      warrants, with an exercise price of $1.75. The shares and warrants were issued
      to nine individuals who are affiliated with ATEC/Apollo as part of the
      consideration for the purchase of the DJ Basin acreage.








The
      following table sets forth, as of December 31, 2005, the number of and percent
      of our common stock beneficially owned by (a) all directors and nominees, naming
      them, (b) the named executive officers, and (c) our directors and executive
      officers as a group, without naming them:





Name
                and Address of Beneficial Owner
            
            Amount
                and Nature of Beneficial Ownership
            
            Percent
                of ClassKarl
                F. Arleth
            
            891,745
                (1)
            
            7.34%410
                17thStreet, Suite 1850Denver,
                Colorado 80202James
                J. Woodcock
            
            618,566
                (2)
            
            5.23%2404
                Commerce DriveMidland,
                TX 79702John
                T. Connor, Jr.
            
            373,718
                (3)
            
            3.25%410
                17thStreet, Suite 1850Denver,
                Colorado 80202Thomas
                F. Conroy
            
            161,031
                (4)
            
            1.41%3825
                S. Colorado Blvd.Denver,
                CO 80110Patrick
                A. Quinn
            
            100,000
                (5)
            
            0.88%700
                17thStreet, Suite 1750Denver,
                Colorado 80202William
                K. White
            
            15,000
                (6)
            
            0.13%410
                17thStreet, Suite 1850Denver,
                Colorado 80202All
                executive officers andDirectors
                as a group (6 persons)
            
            2,160,060
            
            18.24%






69


TETON
      ENERGY
      CORPORATION


(1)
      Includes (i) 75,850
      shares of common stock, (ii) 105,557 shares underlying warrants, with exercise
      prices ranging from $3.24 per share to $4.92 per share, (iii) 410,338 shares
      underlying options exercisable at $3.48 per share, and (iv) 300,000 shares
      underlying options exercisable at $3.60 per share.





(2)
      Includes (i) 115,828 shares of common stock, (ii) 92,590 shares underlying
      warrants, with exercise prices ranging from $3.24 to $4.92 per share, (iii)
      210,148 shares underlying options exercisable at $3.48 per share, and (iv)
      200,000 shares underlying options exercisable at $3.60 per share.




( 3)
      Includes (i) 183,554 shares of common stock owned indirectly, (ii) 15,164 shares
      of common stock owned directly, (iii) 100,000 shares of common stock underlying
      options exercisable at $3.71 per share and (iv) 75,000 shares of common stock
      underlying options exercisable at $3.60 per share.





( 4)
      Includes (i) 31,261 shares of common stock, (ii) 26,112 shares underlying
      warrants, with exercise prices ranging from $3.24 to $6.00, (iii) 28,658 shares
      underlying options exercisable at $3.48 per share and (iv) 75,000 shares
      underlying options exercisable at $3.60 per share.





(5)
      Includes 100,000 restricted shares of common stock which are held subject to
      a
      restricted stock agreement.





(6)
      Includes 15,000 shares of common stock.





**Item
      13.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS.**





Transactions
      Involving Mr. Arleth





Mr.
      Arleth, President and Chief Executive Officer, signed an employment agreement
      on
      May 1, 2003. The agreement is for a three-year term, with an initial salary
      of
      $10,000 per month. Mr. Arleth’s salary has been increased each year since the
      initial agreement, and, effective January 1, 2006, his salary under his
      employment agreement will be $20,833 per month. Under the terms of the
      agreement, Mr. Arleth is entitled to 24 months severance pay in the event of
      a
      change of position or control of the Company.





**ITEM
      1** **4.
      PRINCIPAL ACCOUNTANT FEES AND SERVICES.**





**Audit
      and Non-Audit Fees**




Aggregate
      fees for professional services rendered for the Company by Ehrhardt Keefe
      Steiner & Hottman PC as of or for the two fiscal years ended December 31,
      2005 and 2004 are set forth below:




**Fiscal
                Year**
              **2005**
            
            **Fiscal
                Year**
              **2004**Audit
                Fees
            
            $
            101,111
            
            $
            74,053Audit-Related
                Fees
            
            16,034
            
            40,508Tax
                Fees
            
            9,775
            
            8,550Total
            
            $
            126,920
            
            $
            123,111






70


**TETON
      ENERGY CORPORATION**








***Audit
      Fees*** Aggregate
      fees for professional services rendered by Ehrhardt Keefe Steiner & Hottman
      PC in connection with its audit of our consolidated financial statements for
      the
      fiscal years 2005 and 2004 and the quarterly reviews of our financial statements
      included in Forms 10-Q.




***Audit-Related
      Fees*** These
      were primarily related to S-3, S-8, SB-2 and SB-2/A filings for the registration
      of our stock, and review of our 2004 proxy statement.




***Tax
      Fees*** These
      were related to tax compliance and related tax services.




Ehrhardt
      Keefe Steiner & Hottman PC rendered no professional services to us in
      connection with the design and implementation of financial information systems
      in fiscal year 2005 and 2004.





**Policy
      on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
      of
      Independent Auditors**




The
      Audit
      Committee pre-approves all audit and non-audit services provided by the
      independent auditors prior to the engagement of the independent auditors with
      respect to such services.  The Chairman of the Audit Committee has been
      delegated the authority by the Committee to pre-approve interim services by
      the
      independent auditors other than the annual exam.  The Chairman must report
      all such pre-approvals to the entire Audit Committee at the next committee
      meeting.




71





**TETON
      ENERGY CORPORATION**





**ITEM
      15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.**





**Exhibits** **.**




Exhibit
                No.
            
            Description3.1.1
            
            Certificate
                of Incorporation of EQ Resources Ltd incorporated by reference to
                Exhibit
                2.1.1 of Teton's Form 10-SB, filed July 3, 2001.3.1.2
            
            Certificate
                of Domestication of EQ Resources Ltd incorporated by reference to
                Exhibit
                2.1.2 of Teton's Form 10-SB, filed July 3, 2001.3.1.3
            
            Articles
                of Merger of EQ Resources Ltd. and American-Tyumen Exploration Company
                incorporated by reference to Exhibit 2.1.3 of Teton's Form 10-SB,
                filed
                July 3, 2001.3.1.4
            
            Certificate
                of Amendment of Teton Petroleum Company incorporated by reference
                to
                Exhibit 2.1.4 of Teton's Form 10-SB, filed July 3,
                2001.3.1.5
            
            Certificate
                of Amendment of Teton Petroleum Company incorporated by reference
                to
                Exhibit 2.1.5 of Teton's Form 10-SB, filed July 3,
                2001.3.1.6
            
            Certificate
                of Designation for Series A Convertible Preferred Stock, incorporated
                by
                reference to Exhibit 3.1.6 of Teton's Form SB-2, filed January 27,
                2004.3.1.7
            
            Certificate
                Designations, Preferences and Rights of the Terms of the Series C
                Preferred Stock, incorporated by reference to Exhibit 3.1 of Teton’s 8-K
                filed on June 8, 2005.3.1.8
            
            Certificate
                of Amendment to Certificate of Incorporation, dated June 28, 2005,
                incorporated by reference to Exhibit 10.1 of Teton’s Form 10-Q filed on
                August 15, 2005.3.2
            
            Bylaws,
                as amended, of Teton Petroleum Company incorporated by reference
                to
                Exhibit 3.2 of Teton’s Form 10-QSB, filed August 20,
                2002.4.1
            
            Rights
                Agreement between Teton and Computershare Investors Services, LLC,
                dated
                June 3, 2005, incorporated by reference to Exhibit 4.1 of Teton’s Form 8-K
                filed on June 8, 2005.10.1
            
            Consulting
                Agreement dated March 1, 2005, between Teton Petroleum Company and
                H.
                Howard Cooper, incorporated by reference to Exhibit 10.1 of Teton’s Form
                10-K filed March 31, 2005.10.2
            
            Employment
                Agreement, dated May 1, 2002, between Teton Petroleum Company and
                H.
                Howard Cooper, incorporated by reference to Exhibit 10.1.1 of Teton’s Form
                10-K filed March 31, 2005.10.3
            
            Employment
                Agreement, dated May 1, 2003, between Teton Petroleum Company and
                Karl F.
                Arleth, incorporated by reference to Exhibit 10.3 of Teton’s Form 10-K
                filed March 31, 2005.






72




TETON
      ENERGY CORPORATION




10.4
            2003
                Employee Stock Option Plan, incorporated by reference to Exhibit
                10.3 of
                Teton’s Form 10-K filed March 31, 2005.10.5
            2004
                Non-employee Stock Compensation Plan incorporated by reference to
                Appendix
                B to our Proxy Statement filed on June 14, 2004.10.6
            Binding
                Letter of Intent dated December 17, incorporated by reference to
                Exhibit
                10.6 of Teton’s Form 10-K filed March 31, 2005.10.7
            First
                Amendment to Purchase and Sale Agreement Niobrara Shallow Gas Project,
                dated January 2005, incorporated by reference to Exhibit 10.1 of
                Teton’s
                Form 10-Q filed May 16, 2005.10.8
            Purchase
                and Sale Agreement Niobrara Shallow Gas Project, dated April 13,
                2005,
                incorporated by reference to Exhibit 10.2 of Teton’s Form 10-Q filed May
                16, 2005.10.9
            Membership
                Interest Purchase Agreement between PGR Partners, LLC and Teton Petroleum
                Company, dated February 15, 2005, incorporated by reference to Exhibit
                10.3 of Teton’s Form 10-Q filed May 16, 2005.10.10
            Confirmation
                of Grant of Stock Option, dated as of May 23, 2005, incorporated
                by
                reference to Exhibit 10.1 of Teton’s Form 10-Q filed November 14,
                2005.10.11
            Confirmation
                of Grant of Stock Option, dated as of May 23, 2005, incorporated
                by
                reference to Exhibit 10.2 of Teton’s Form 10-Q filed November 14,
                2005.10.12
            Confirmation
                of Grant of Stock Option, dated as of April 9, 2003, incorporated
                by
                reference to Exhibit 10.3 of Teton’s Form 10-Q filed November 14,
                2005.10.13
            Confirmation
                of Grant of Stock Option, dated March 31, 2004, incorporated by reference
                to Exhibit 10.4 of Teton’s Form 10-Q filed November 14,
                2005.10.14
            Form
                of 2005 Long-Term Incentive Plan 2005 Performance Share Unit Award
                Agreement, Employees and Directors, incorporated by reference to
                Exhibit
                10.5 of Teton’s Form 10-Q filed November 14, 2005.10.15
            Form
                of 2005 Long-Term Incentive Plan 2005 Performance Share Unit Award
                Agreement, Patrick A. Quinn, incorporated by reference to Exhibit
                10.6 of
                Teton’s Form 10-Q filed November 14, 2005.10.16
            Form
                of Stock Option Agreement Between Teton Energy Corporation and Howard
                Cooper, incorporated by reference to Exhibit 10.7 of Teton’s Form 10-Q
                filed November 14, 2005.10.17
            Letter
                Agreement dated as of October 6, 2005, between H. Howard Cooper and
                Teton
                Energy Corporation, incorporated by reference to Exhibit 10.8 of
                Teton’s
                Form 10-Q filed November 14, 2005.10.18
            Acreage
                Earning Agreement between Teton and Noble Energy, Inc., dated December
                31,
                2005, filed herewith.10.19
            First
                Amendment to Acreage Earning Agreement between Teton and Noble Energy,
                Inc., dated December 31, 2005, filed
                herewith.






73




TETON
      ENERGY CORPORATION




14.1
            Code
                of Ethics and Business Conduct, incorporated by reference to Exhibit
                14.1
                of Teton’s 10-K filed on March 31, 200521.1
            List
                of Subsidiaries, incorporated by reference Exhibit 21.1 of Teton’s Form
                10-K filed on March 31, 2005.23.1
            Consent
                of independent registered accounting
                firm.




31.1
            Certification
                by Chief Executive Officer pursuant to Sarbanes-Oxley Section 302,
                filed.31.2
            Certification
                by Chief Financial Officer pursuant to Sarbanes-Oxley Section 302,
                filed
                herewith.32.1
            Certification
                by Chief Executive Officer pursuant to 18 U.S. C. Section 1350, filed
                herewith.32.2
            Certification
                by Chief Financial Officer pursuant to 18 U.S. C. Section 1350, filed
                herewith.99.
                1
            Audit
                Committee Charter incorporated by reference to Exhibit 99.4 of our
                Form
                10-KSB/A filed on April 21, 2004.











74





**TETON
      ENERGY CORPORATION**





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




**TETON
              ENERGY CORPORATION**By:
            /s/ Karl
              F.
              ArlethKarl.
                F. Arleth, Chief Executive Officer
              Dated:
                March
                9, 2006




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.





Signature
            
            Title
            
            Date/s/
                James J. Woodcock
            
            Chairman
                and Director
            
            March
                9, 2006James
                J. Woodcock/s/
                Karl F. Arleth
            
            President
                and CEO
            
            March
                  9, 2006Karl
                F. Arleth
            
            (principal
                executive officer)/s/
                Thomas F. Conroy
            
            Director
            
            March
                  9, 2006Thomas
                F. Conroy/s/
                John Connor
            
            Director
            
            March
                  9, 2006John
                Connor/s/
                William K. White
            
            Director
            
            March
                  9, 2006William
                K. White/s/
                Patrick A. Quinn
            
            Chief
                Financial Officer
            
            March
                  9, 2006Patrick
                A. Quinn
            
            (principal
                financial officer)








75