UNITED
  STATES 
  SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM
  10-KSB

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
  SECURITIES EXCHANGE ACT OF 1934

For
  the fiscal year ended December 31, 2004

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 No. 0-27897

DUNE
  ENERGY, INC.(Exact name of small business issuer as specified in its charter)

|Delaware                                                                   |  | 95-4737507                                       
|-------------------------------------------------------------------------- |  | -------------------------------------------------
|(State or other jurisdiction
      of
      incorporation or organization) |  | (I.R.S. Employer
      
      Identification No.)
|                                                                           |  |                                                  
|3050 Post Oak Blvd.,
      Suite 695
      Houston, Texas                  |  | 77056                                            
|(Address of principal
      executive offices)                             |  | (Zip Code)                                       

Issuers
  telephone number, including area code:(713) 888-0895

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

NONE

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

Common Stock,
$0.001 par value per share

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Check
  whether the issuer (1) 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 period that the registrant was required to file such reports),
  and (2) has been subject to such filing requirements for the past 90 days. Yes
  þ No o

Check if there
is no  disclosure  of  delinquent  filers in  response to Item 405 of  Regulation S-B not
contained in this form, and no disclosure  will be contained,  to  the best of registrants
knowledge,  in definitive proxy or information  statements  incorporated  by reference in
Part III of this Form 10-KSB or any  amendment to this  Form 10-KSB.  þ

The Issuers
total consolidated revenues for the year ended December 31, 2004, were  $1,022,297.

The  aggregate
market  value of the  Common  Stock  held by  non-affiliates  of the  registrant
(treating all executive  officers and directors of the  registrant,  for  this  purpose,
as if they may be affiliates of the  registrant)  was  approximately  $18,955,807 as of
March 15, 2005, based upon a closing price of $2.60 on that date.

46,392,727
shares of the registrants Common Stock were outstanding as of March 15,  2005.

Transitional
Small Business Disclosure Format (check one): Yes o  No þ

1

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STATEMENT ON
FORWARD LOOKING STATEMENTS

The
statements included or incorporated by reference in this Annual Report,  other than
statements of historical fact, are forward-looking statements within the  meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E  of the Securities
Exchange Act of 1934, as amended.  In some cases, you can  identify forward-looking
statements by the words "anticipate," "estimate,"
"expect," "objective," "projection," "forecast,"
"goal," and similar expressions.  Such forward-looking statements include,
without limitation, the statements herein  and therein regarding the timing of future
events regarding the operations of the  Company and its subsidiaries. Although the
Company believes that the expectations  reflected in these forward-looking statements are
reasonable, it can give no  assurance that such expectations will prove to have been
correct. The Company's  actual results could differ materially from those anticipated in
these forward-looking statements as a result of many factors including without
limitation the following risk factors:

|- |  | the
cyclical nature of the natural gas and oil industries
|- |  | ---------------------------------------------------------

|- |  | our
ability to obtain additional financing
|- |  | ------------------------------------------

|- |  | our
ability to successfully and profitably find, produce and market oil  and natural  gas
|- |  | -----------------------------------------------------------------------------------------

|- |  | uncertainties
associated with the United States and worldwide economies
|- |  | -----------------------------------------------------------------------

|- |  | substantial
competition from larger companies
|- |  | ---------------------------------------------

|- |  | the
loss of key personnel
|- |  | -------------------------

|- |  | operating
interruptions (including leaks, explosions and lack of rig  availability)
|- |  | -----------------------------------------------------------------------------------

as well as such
other risk factors set forth in Item 6 below.

2

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|Item 1. |  | Description
of Business.
|------- |  | ------------------------

Since
May 2003, Dune Energy, Inc. (Dune, the Company, or we)
has  been an independent energy company engaged in the business of the exploration,
development and acquisition of natural gas and crude oil properties.  Presently, we  have
interests in three properties in Texas: (i) leases covering approximately  7,950 acres on
the Welder Ranch located in Victoria County, (ii) a working interest  in two leases
covering 2,308 acres and the option to participate in additional  leases covering an
additional 16,695 acres in the Pearsall Field, located in Frio  County and (iii) a small
working interest in the Los Mogotes Field, located in  Zapata County.  Each of these
properties is discussed below in Item 2.

The
Company was incorporated in the State of Delaware on November 20,  1998 under the name of
IP Factory, Inc.  In May 2001, Hitthebeach.com, Inc., a  private company was merged into
the Company.  On May 7, 2003, Merchant Builders,  Inc., a private company, merged into
the Company and the Company changed its name  to Dune Energy, Inc.  We presently have
three full-time employees and our  headquarters are located at 3050 Post Oak Blvd., Suite
695, Houston, Texas 77056.

We
  file various reports with the Securities and Exchange Commission (SEC). These
  reports include our annual report on Form 10-KSB, quarterly reports on Form
  10-QSB, current reports on Form 8-K and amendments to those reports filed or
  furnished pursuant to Section 13(a) of the Securities Act of 1934. All such
  filings may be read and copied at the SECs Public Reference Room at 450
  Fifth Street, N.W., Washington, D.C. 20549. The telephone number for the Public
  Reference room is 1-800-SEC-0330. Copies of our filings may also be viewed by
  visiting the SECs website at http://www.sec.gov.

|Item 2. |  | Description
of Property.
|------- |  | ------------------------

Set
forth below is a description of each of the properties in which we  hold an interest:

The
Welder Ranch: By virtue of an Oil & Gas Lease Option Agreement dated August 21 2003,
as subsequently amended on February 5, 2004, April 8, 2004 and January 20, 2005 (as
amended, the First Welder Lease Agreement), the Company, through our
subsidiary, Vaquero Partners, LLC (Vaquero Partners), leased 1,650 acres of
land held by the Welder family in Victoria County, Texas. Effective August 19, 2004,
the Company, through Vaquero Partners, exercised our option and leased an additional
6,304 acres held by the Welder family (collectively, the Welder Acreage).
We leased the additional acreage for a fee of $100 per acre and such acreage is governed
by an Oil & Gas Lease dated effective August 19, 2004 (the Second Welder Lease
Agreement and together with the First Welder Lease Agreement, the Welder
Leases). Per the terms of the Welder Leases, Vaquero Partners will receive 70% of
net revenues generated on our Welder Acreage. Vaquero Partners is a joint undertaking
between the Company, which holds an 85% interest, and Vaquero Oil and Gas, Inc.
("VOG"), which holds a 15% interest. Copies of the First Welder Lease
Agreement and the Second Welder Lease Agreement were filed as Exhibit 10.2 to our 10-KSB
for the year ended December 31, 2002 and as Exhibit 99.1 to our 8-K filed on September
8, 2004, respectively, and are incorporated by reference herein. The Amended and
Restated Operating Agreement of Vaquero was filed as Exhibit 99.5 to our 8-K filed on or
about June 3, 2004, and is incorporated by reference herein.

3

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Set
in the center of the Wilcox/Yegua fairway, the geology of our  Welder Acreage is highly
prospective. A high density of drilling surrounds the  Welder Acreage on lands not
controlled by the Welder family. By contrast, drilling  on the Welder's land has been
sparse due to adverse leasing terms previously  demanded by the Welder family, which
required the industry participant to accept a  lower than customary net revenue interest
in the property.  Such terms, taken  together with depressed natural gas prices, led to
early abandonment of producing  wells on the Welders property.  Also of significant
importance is the availability  to us of a high quality 3-D seismic survey shot by Seitel
Data, Ltd. and  underwritten by Coastal Corporation (now El Paso Corp.).  The survey was
completed  in late 1999 and utilizes high quality 40-fold data, versus the more typical
24-fold data. The survey revealed the presence of multiple new and potentially
significant untested structures and traps in the Wilcox formation.  To date, the  Company
has licensed the rights to use 20 square miles of this 3-D survey and  during 2004
reprocessed this 3-D survey to further enhance its efficacy.

Our
principal focus on our Welder Acreage is directed towards two  significant formations:

1.
The Wilcox Formation  One of the most prolific formations along the Texas Gulf Coast,
and the primary objective for the industry's current exploration activity. The Wilcox is
productive at depths ranging from 8,300 feet to below 17,000 feet in the region.
Producing intervals include four upper Wilcox sands that are normally pressured. The
middle and lower sands, beginning at approximately 9,000 feet are geopressured. These
geopressured zones are our primary target on the Welder Acreage. A successful upper
Wilcox well will typically cost between $800,000 and $1,000,000 to complete at the 9,000
foot depth, whereas a deeper geopressured well (such as our Vaquero #1) may cost between
$4,000,000 and $5,000,000 through completion.

2.
The Yegua Formation  Typically occurs at depths between 5,000 and 6,000 feet and
is also productive from stratigraphic traps which can be found with 3-D seismic data.
Our Rob Welder #1 well is producing from this formation and during the year ended
December 31, 2004, the Rob Welder #1 generated $282,490 net to our interest.

Under
the terms of each of the Welder Leases, subject to certain  exceptions, such lease will
expire unless we drill and complete at least one well  capable of producing oil or gas in
paying quantities every six months. Provided  that we drill and complete a qualifying
well within said time frame, we earn an  additional six month extension each time we
complete a well capable of producing  hydrocarbons in paying quantities.  With respect to
the First Welder Lease  Agreement, we initially earned a six month extension through
November 21, 2004 when  we completed our Rob Welder #1 well.  Although we did not
complete a subsequent  well by November 21, 2004, the First Welder Lease Agreement
provides that the lease  remains in force so long as we are engaged in drilling or
reworking operations on a  well and do not cease such efforts for more than ninety days.
As previously  disclosed, we have continuously reworked (sidetracked) our
Hamilton Fee #1 well  in an attempt to obtain production.  Based on our active drilling
efforts on the  Welder Acreage, the Welder family has agreed to amend the First Welder
Lease  Agreement to extend the expiration of the current Extended Primary Term to
September 21, 2005.  With respect to the Second Welder Lease Agreement, we are
optimistic that we will earn an additional six months under the lease from February  19,
2005, by completing our Vaquero #1 well (discussed in Item 6 below).  As  previously
disclosed, our 85% owned subsidiary, Vaquero Partners, holds a 64%  working interest in
the Vaquero #1.

4

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The
Pearsall Project: In December 2004, we entered into a Participation Agreement initially
relating to the drilling of dual horizontal lateral reentry wells on two leases covering
2,308 acres in the Pearsall Field, located in the Austin Chalk trend in Frio County,
Texas. Pursuant to this Participation Agreement, we retained a 27% working interest in
this project and have the right to participate (on similar terms) in the drilling of
future reentry wells on five additional leases covering up to 16,695 acres. We believe
that up to an aggregate of 24 locations may be drilled on all the leases. Net revenue
interest on the leases averages 76.5%. Additionally, we have identified an Area of
Mutual Interest (AMI) with the other participants in this project whereby if
any participant acquires rights to acreage located within the AMI, it will offer the
other participants the right to participate in such project, at their working interest
level.

Recently,
a competitive offset operator has drilled 15 horizontal wells  into the Lower Austin
Chalk (LAC) with great success in the Pearsall Field.  These wells have been
horizontally drilled into the LAC with daily production  ranging between 300 and 800
boe/d.

We
intend to reenter wells that produced from the upper Austin Chalk  and drill two
horizontal laterals.  The laterals will be drilled in the LAC to the  southeast and
northwest of the borehole on strike with the prevailing fractures in  the Chalk.  The
cost to drill and complete such a well is estimated to be  $1,400,000.  San Antonio based
Alamo Operating Company, will serve as the Operator  of this project.

Los
Mogotes: On June 3, 2004, we completed the purchase of our non-operated working
interest in the Los Mogotes Field in Zapata County, Texas. As previously reported, we
acquired 34.98% of Penroc Oil Corporations (approximately 2%) working interest in
the Los Mogotes field located in Zapata County, Texas, for the purchase price of
$874,500. The effective date of the closing was May 28, 2004. Copies of the Closing
Agreement and the Assignment, Conveyance and Bill of Sale were filed as Exhibits 99.1
and 99.2 to our 8-K filed with the Commission on or about June 3, 2004, and are
incorporated by reference herein.

5

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The
Los Mogotes Field is one of the preeminent onshore U.S. development  projects held by its
operator, Pogo Producing Company (NYSE: PPP), and is one of  the most significant fields
under development in the highly prolific South Texas  Wilcox trend.  The field produces
from the Upper and Lower Asche at 7,000-8,500  feet, the Charco at 9,000-11,000 feet and
the Lobo formations at 12,000-14,000  feet. Between two and four productive zones have
been encountered in the bulk of  the wells drilled to date.

In
its 10-K for the year ended December 31, 2004, Pogo reported that it  drilled 37 wells on
the property during 2004, of which better than 90% were  completed as successful gas
producers.  Pogo also publicly stated that 62 locations  have been identified for
drilling during 2005, and that 6 of such wells have been  successfully drilled so far
this year.  Los Mogotes production has increased  steadily since its acquisition by Pogo
and now averages over 80 million cubic feet  of gas per day.  Considered prolific
producers, wells such as those cited herein  can achieve payout in less than four months.
The ability to refracture existing  zones or move to produce zones left behind pipe
increases the visability of this  field.  For the year ended December 31, 2004, we
received gross revenues of  $612,307 from our interest in Los Mogotes.

|Item 3. |  | Legal
Proceedings.
|------- |  | ------------------

Neither
the Company nor our properties are the subject of any pending  legal proceedings.

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

No
matters were submitted to a vote of the Companys security holders  during the
fourth quarter of the year ended December 31, 2004.

6

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PART II

|Item 5. |  | Market
for Common Equity, Related Stockholder Matters and  Recent Sales of Unregistered
Securities.
|------- |  | ---------------------------------------------------------------------------------------------------

Since
May 12, 2004,  our common stock has traded on the Over the Counter  Bulletin Board system
under the symbol "DENG.

The
following  table sets forth the range of high and low bid prices of  our common  stock as
reported by the  National  Association  of  Securities  Dealers  composite feed or other
qualified  inter-dealer  quotation  medium,  as compiled by  Pink Sheets LLC for the
periods  indicated.  These quotations  reflect  inter-dealer  prices,  without  retail
mark-up,  mark-down or  commission  and may not  represent  actual transactions or trades.

COMMON STOCK

|YEAR
      ENDED DECEMBER 31, 2004                     |  |  | HIGH
      BID |      | LOW
      BID |  
|------------------------------------------------------ |  |  | -------------- | ---- | ------------- | -
|                                                       |  |  |                |     
|APRIL
      1                                          |  |  |                |      |               |  
|THRU                                                   |  |  | $              | 1.39 |               | $
|MAY 21                                                 |  | 
|                                                       |  | 
|MAY 24                                                 |  | 
|THRU                                                   |  |  | $              | 3.60 |               | $
|JUNE
      30                                          |  | 
|(Gives
      effect to1 for 2 reverse split on May 21) |  | 
|                                                       |  | 
|JULY
      1                                           |  | 
|THRU                                                   |  |  | $              | 3.28 |               | $
|SEPTEMBER
      30                                     |  | 
|                                                       |  | 
|OCTOBER
      1                                        |  | 
|THRU                                                   |  |  | $              | 1.01 |               | $
|DECEMBER
      31                                      |  | 

As
of March 15, 2005,  we had 400  shareholders  of record of our common  stock.

To
date, we have not paid any  dividends on either our  preferred  stock  or our common
stock,  and we do not expect to do so in the foreseeable  future.  We  intend to apply
our  earnings,  if any,  in  expanding  our  operations  and related  activities.  The
payment of cash  dividends in the future will be at the discretion  of the Board of
Directors  and will  depend upon such  factors as earnings  levels,  capital
requirements,  our financial condition and other factors deemed relevant by  the Board of
Directors.  In addition,  our ability to pay  dividends may be limited  under future loan
agreements which restrict or prohibit the payment of dividends.

7

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In
March 2004, we issued a convertible promissory note to a single  individual in reliance
upon the exemption to registration provided under Section  4(2) of the Securities Act of
1933, as amended.  The note was in the aggregate  principal amount of $45,000, and
convertible into shares of common stock at $0.45  per share.  Additionally the note
provided that at conversion, the holder would  receive additional shares of common stock
equal to 20% of the face amount of his  note converted at the rate of $0.45 per share.
During the first quarter of 2005,  such holder converted his note into 120,000 shares of
our common stock.

In
April 2004, we issued an aggregate of 222,222 shares of our Series A  Convertible
Preferred Stock to two individuals in reliance upon the exemption to  registration
provided under Section 4(2) of the Securities Act of 1933, as  amended.  The total
consideration for the issuance of such shares was $200,000.  Each share of Preferred
Stock is convertible into two shares of common stock.  During 2004, one holder of Series
A Preferred converted his shares into 222,222  shares of our common stock leaving
111,111 shares of Series A Preferred Stock  remain issued and outstanding.

|Item 6. |  | Managements
Plan of Operation.
|------- |  | -------------------------------

During
2004 we achieved a number of significant milestones including  (i) receipt of a $12
million equity investment from Itera Holdings, BV (Itera),  (ii) expansion of
our holdings on the Welder property by acquiring an additional  6,304 contiguous acres,
(iii) successful completion of our first well (the Rob  Welder #1), (iv) entering into
the Pearsall Project and (v) acquiring/reprocessing  additional 3-D seismic data.

As
  set forth below, over the next twelve months, we plan to continue to grow organically
  through an aggressive drilling program on our existing properties, to make one
  or more significant acquisitions and to enter into additional joint-venture
  participation agreements covering both exploration and development programs.
  By virtue of a $5 million loan we received from Itera on March 30, 2005 (see
  Item 12 below), together with our current cash position and cash flow from operations,
  we believe that we have sufficient capital to satisfy our existing cash requirements
  over the next twelve months.

Potential
Acquisition

As
stated in our 8-K filed on March 3, 2005, we have entered into a  Letter of Intent (LOI)
to acquire producing and non-producing natural gas  properties (the Barnett Shale
Properties) from multiple related non-public  entities in a privately negotiated
transaction.  Subject to the parties executing  and delivering definitive agreements, it
is contemplated that the closing of such  transaction will occur during the second
quarter of 2005 and that the purchase  price for the Barnett Shale Properties could
approximate or exceed $50 million.  The properties to be purchased are located in Denton
and Wise counties, in the  heart of the prolific Barnett Shale play in the North Texas
Fort Worth Basin.  DeGolyer & MacNaughton has evaluated the proved reserves and we
have retained  Sanders Morris Harris, Inc. as our financial advisor/investment banker for
this  transaction.  We intend to finance the acquisition through a combination of cash,
debt and equity.  We also intend to utilize derivatives in the forms of swaps or
costless collars covering a portion of projected production from proved developed
reserves for the next 2 to 3 years.

8

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Per
the terms of the LOI, regardless of whether (i) we enter into  definitive agreements with
the sellers or (ii) close the purchase of the Barnett  Shale Properties, we are required
to advance to the sellers, up to $2,500,000  between March 2, 2005 and the contemplated
closing date of the transaction.  Such  monies advanced by us will be utilized by the
sellers for certain completion and  drilling activities to be performed on the subject
properties prior to the closing  date.  Upon the closing of the transaction, we will
receive a credit against the  purchase price for all advances made by us to the sellers
prior to the closing  date.  In the event that the contemplated transaction does not
occur, then we will  receive an undivided leasehold interest in each well to which we
have contributed  monies as an advance, equal to 80% of our advance allocated to such
well, divided  by the total costs and expenses incurred by the sellers with respect to
each such  well.

Growth Through
the Drillbit

Although
our 3-D seismic indicates the presence of a number of shallow  zones on our Welder
Acreage, we intend to concentrate on deeper, high-impact  targets.  As previously
disclosed in our 8-K filed on March 14, 2005, our Vaquero  #1 encountered significant
stacked pay zones totaling more than 100 feet of gross  pay at various depth intervals
between 9,000 and 14,000 feet in the Middle Wilcox  formation.  Subject to results of
additional testing, we believe that the Vaquero  #1 will be completed in April 2005 and,
pending rig availability, we believe that  during 2005, we will drill up to 3 offset
and/or twin locations to the Vaquero #1.  In addition, during the second quarter of 2005,
we expect to spud a second Middle  Wilcox well (the Vaquero #2).

On
  March 21, 2005, we announced the spudding of our first dual horizontal lateral
  reentry into a well on our Pearsall Property. The lateral extensions will be
  drilled approximately 9,500 combined feet, to the southeast and northwest of
  the original borehole, on strike with prevailing fractures in the lower Austin
  Chalk. Our working interest share of the estimated drilling costs of this well
  is $480,000, plus an additional $133,000 for lease, geological and geophysical
  costs. Depending on the results of production testing and subject to rig availability,
  we intend to drill at least 2 additional development wells in the Pearsall Field
  by year end.

9

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Risk Factors

NATURAL GAS
AND OIL PRICES ARE HIGHLY VOLATILE, AND LOWER PRICES WILL NEGATIVELY  AFFECT OUR
FINANCIAL RESULTS.

Our
revenue, profitability, cash flow, future growth and ability to  borrow funds or obtain
additional capital, as well as the carrying value of our  properties, are substantially
dependent on prevailing prices of natural gas and  oil.  Historically, the markets for
natural gas and oil have been volatile, and  those markets are likely to continue to be
volatile in the future.  It is  impossible to predict future natural gas and oil price
movements with certainty.  Prices for natural gas and oil are subject to wide
fluctuations in response to  relatively minor changes in the supply of and demand for
natural gas and oil,  market uncertainty and a variety of additional factors beyond our
control.  These  factors include:

- The
    level of consumer product demand;
- Overall
    economic conditions;
- Weather
    conditions;
- Domestic
    and foreign governmental relations;
- The
    price and availability of alternative fuels;
- Political
    conditions;
- The
    level and price of foreign imports of oil and liquefied natural gas; and
- The
    ability of the members of the Organization of Petroleum Exporting Countries
    to agree upon and maintain oil price controls.

Declines
in natural gas and oil prices may materially adversely affect  our financial condition,
liquidity and ability to finance planned capital  expenditures and results of operations.

DRILLING FOR
NATURAL GAS AND OIL IS A SPECULATIVE ACTIVITY AND INVOLVES NUMEROUS  RISKS AND
SUBSTANTIAL AND UNCERTAIN COSTS THAT COULD ADVERSELY AFFECT US.

Our
success will be largely dependent upon the success of our drilling  program.  Drilling
for natural gas and oil involves numerous risks, including the  risk that no commercially
productive natural gas or oil reservoirs will be  discovered.  The cost of drilling,
completing and operating wells is substantial  and uncertain, and drilling operations may
be curtailed, delayed or canceled as a  result of a variety of factors beyond our
control, including:

- Unexpected
    or adverse drilling conditions;
- Elevated
    pressure or irregularities in geologic formations;
- Equipment
    failures or accidents;
- Adverse
    weather conditions;
- Compliance
    with governmental requirements; and
- Shortages
    or delays in the availability of drilling rigs, crews and equipment.

10

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Even
if drilled, our completed wells may not produce reserves of  natural gas or oil that are
economically viable or that meet our earlier estimates  of economically recoverable
reserves.  Our overall drilling success rate or our  drilling success rate for activity
within a particular project area may decline.  Unsuccessful drilling activities could
result in a significant decline in our  production and revenues and materially harm our
operations and financial condition  by reducing our available cash and resources.
Because of the risks and  uncertainties of our business, our future performance in
exploration and drilling  may not be comparable to our historical performance described
in this Form 10-KSB.

WE DEPEND ON
SUCCESSFUL EXPLORATION, DEVELOPMENT AND ACQUISITIONS TO MAINTAIN  RESERVES AND REVENUE IN
THE FUTURE.

In
general, the volume of production from natural gas and oil  properties declines as
reserves are depleted, with the rate of decline depending on  reservoir characteristics.
Except to the extent we conduct successful exploration  and development activities or
acquire properties containing proved reserves, or  both, our proved reserves will decline
as reserves are produced.  Our future  natural gas and oil production is, therefore,
highly dependent on our level of  success in finding or acquiring additional reserves.
The business of exploring  for, developing or acquiring reserves is capital intensive.
Recovery of our  reserves, particularly undeveloped reserves, will require significant
additional  capital expenditures and successful drilling operations.  To the extent cash
flow  from operations is reduced and external sources of capital become limited or
unavailable, our ability to make the necessary capital investment to maintain or  expand
our asset base of natural gas and oil reserves would be impaired.  In  addition, we are
dependent on finding partners for our exploratory activity.  To  the extent that others
in the industry do not have the financial resources or  choose not to participate in our
exploration activities, we will be adversely  affected.

OUR FUTURE
ACQUISITIONS MAY YIELD REVENUES OR PRODUCTION THAT VARIES SIGNIFICANTLY  FROM OUR
PROJECTIONS.

In
acquiring producing properties, we assess the recoverable reserves,  future natural gas
and oil prices, operating costs, potential liabilities and other  factors relating to the
properties.  Our assessments are necessarily inexact and  their accuracy is inherently
uncertain.  Our review of a subject property in  connection with our acquisition
assessment will not reveal all existing or  potential problems or permit us to become
sufficiently familiar with the property  to assess fully its deficiencies and
capabilities.  We may not inspect every well,  and we may not be able to observe
structural and environmental problems even when  we do inspect a well.  If problems are
identified, the seller may be unwilling or  unable to provide effective contractual
protection against all or part of those  problems.  Any acquisition of property interests
may not be economically  successful, and unsuccessful acquisitions may have a material
adverse effect on our  financial condition and future results of operations.

11

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WE MAY
EXPERIENCE DIFFICULTY IN ACHIEVING AND MANAGING FUTURE GROWTH.

Future
growth may place strains on our resources and cause us to rely  more on project partners
and independent contractors, possibly negatively affecting  our financial condition and
results of operations.  Our ability to grow will depend  on a number of factors,
including:

- Our
    ability to obtain leases or options on properties for which we have 3-D seismic
    data;
- Our
    ability to acquire additional 3-D seismic data;
- Our
    ability to identify and acquire new exploratory prospects;
- Our
    ability to develop existing prospects;
- Our
    ability to continue to retain and attract skilled personnel;
- Our
    ability to maintain or enter into new relationships with project partners
    and independent contractors;
- The
    results of our drilling program;
- Hydrocarbon
    prices; and
- Our
    access to capital.

We
may not be successful in upgrading our technical, operations and  administrative
resources or in increasing our ability to internally provide certain  of the services
currently provided by outside sources, and we may not be able to  maintain or enter into
new relationships with project partners and independent  contractors.  Our inability to
achieve or manage growth may adversely affect our  financial condition and results of
operations.

OUR BUSINESS
MAY SUFFER IF WE LOSE KEY PERSONNEL.

We
depend to a large extent on the services of certain key management  personnel, including
our executive officers and other key employees, the loss of  any of whom could have a
material adverse effect on our operations.  We have  entered into employment agreements
with each of Alan Gaines, our Chairman and CEO,  Amiel David, our President and COO and
Richard Cohen, our CFO.  Unless extended,  these Agreements will expire on May 31, 2005.
We do not maintain key-man life  insurance with respect to any of our employees.  Our
success will be dependent on  our ability to continue to employ and retain skilled
technical personnel.

WE FACE
STRONG COMPETITION FROM OTHER NATURAL GAS AND OIL COMPANIES.

We
encounter competition from other natural gas and oil companies in  all areas of our
operations, including the acquisition of exploratory prospects and  proven properties.
Our competitors include major integrated natural gas and oil  companies and numerous
independent natural gas and oil companies, individuals and  drilling and income programs.
Many of our competitors are large, well-established  companies that have been engaged in
the natural gas and oil business much longer  than we have and possess substantially
larger operating staffs and greater capital  resources than we do.  These companies may
be able to pay more for exploratory  projects and productive natural gas and oil
properties and may be able to 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 be able  to expend greater resources on the existing and changing
technologies that we  believe are and will be increasingly important to attaining success
in the  industry.  We may not be able to conduct our operations, evaluate and select
suitable properties and consummate transactions successfully in this highly  competitive
environment.

12

---



WE MAY NOT BE
ABLE TO KEEP PACE WITH TECHNOLOGICAL DEVELOPMENTS IN OUR INDUSTRY.

The
natural gas and oil industry is characterized by rapid and  significant technological
advancements and introductions of new products and  services using new technologies.  As
others use or develop new technologies, we may  be placed at a competitive disadvantage,
and competitive pressures may force us to  implement those new technologies at
substantial costs.  In addition, other natural  gas and oil companies may have greater
financial, technical and personnel resources  that allow them to enjoy technological
advantages and may in the future allow them  to implement new technologies before we can.
We may not be able to respond to  these competitive pressures and implement new
technologies on a timely basis or at  an acceptable cost.  If one or more of the
technologies we use now or in the future  were to become obsolete or if we are unable to
use the most advanced commercially  available technology, our business, financial
condition and results of operations  could be materially adversely affected.

WE ARE
SUBJECT TO VARIOUS GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL RISKS.

Natural
gas and oil operations are subject to various federal, state  and local government
regulations that may change from time to time.  Matters  subject to regulation include
discharge permits for drilling operations, plug and  abandonment bonds, reports
concerning operations, the spacing of wells, unitization  and pooling of properties and
taxation.  From time to time, regulatory agencies  have imposed price controls and
limitations on production by restricting the rate  of flow of natural gas and oil wells
below actual production capacity in order to  conserve supplies of natural gas and oil.
Other federal, state and local laws and  regulations relating primarily to the protection
of human health and the  environment apply to the development, production, handling,
storage, transportation  and disposal of natural gas and oil, by-products thereof and
other substances and  materials produced or used in connection with natural gas and oil
operations.  In  addition, we may be liable for environmental damages caused by previous
owners of  property we purchase or lease.  As a result, we may incur substantial
liabilities  to third parties or governmental entities and may be required to incur
substantial  remediation costs.  We also are subject to changing and extensive tax laws,
the  effects of which cannot be predicted.  Compliance with existing, new or modified
laws and regulations could have a material adverse effect on our business,  financial
condition and results of operations.

13

---



WE ARE
SUBJECT TO VARIOUS OPERATING AND OTHER CASUALTY RISKS THAT COULD RESULT IN  LIABILITY
EXPOSURE OR THE LOSS OF PRODUCTION AND REVENUES.

The
natural gas and oil business involves operating hazards such as:

- Well
    blowouts;
- Mechanical
    failures;
- Explosions;
- Uncontrollable
    flows of oil, natural gas or well fluids;
- Fires;
- Geologic
    formations with abnormal pressures;
- Pipeline
    ruptures or spills;
- Releases
    of toxic gases; and
- Other
    environment hazards and risks.

Any
of these hazards and risks can result in the loss of hydrocarbons,  environmental
pollution, personal injury claims and other damage to our properties  and the property of
others.

WE MAY NOT
HAVE ENOUGH INSURANCE TO COVER ALL OF THE RISKS WE FACE.

In
accordance with customary industry practices, we maintain insurance  coverage against
some, but not all, potential losses in order to protect against  the risks we face.  We
do not carry business interruption insurance.  We may elect  not to carry insurance if
our management believes that the cost of available  insurance is excessive relative to
the risks presented.  In addition, we cannot  insure fully against pollution and
environmental risks.  The occurrence of an event  not fully covered by insurance could
have a material adverse effect on our  financial condition and results of operations.

THE
MARKETABILITY OF OUR NATURAL GAS PRODUCTION DEPENDS ON FACILITIES THAT WE  TYPICALLY DO
NOT OWN OR CONTROL, WHICH COULD RESULT IN A CURTAILMENT OF PRODUCTION  AND REVENUES.

The
marketability of our production depends in part upon the  availability, proximity and
capacity of natural gas gathering systems, pipelines  and processing facilities.  We
generally deliver natural gas through gas gathering  systems and gas pipelines that we do
not own under interruptible or short-term  transportation agreements.  Under the
interruptible transportation agreements, the  transportation of our gas may be
interrupted due to capacity constraints on the  applicable system, for maintenance or
repair of the system, or for other reasons as  dictated by the particular agreements.
Our ability to produce and market natural  gas on a commercial basis could be harmed by
any significant change in the cost or  availability of such markets, systems or pipelines.

14

---



WE CANNOT
CONTROL THE ACTIVITIES ON PROPERTIES WE DO NOT OPERATE AND ARE UNABLE TO  ENSURE THEIR
PROPER OPERATION AND PROFITABILITY.

We
do not operate all of the properties in which we have an interest.  As a result, we have
limited ability to exercise influence over, and control the  risks associated with,
operations of these properties.  The failure of an operator  of our wells to adequately
perform operations, an operators breach of the  applicable agreements or an operators
failure to act in ways that are in our best  interests could reduce our production and
revenues.  The success and timing of our  drilling and development activities on
properties operated by others depends upon a  number of factors outside of our control,
including the operators:

- Timing
    and amount of capital expenditures;
- Expertise
    and financial resources;
- Inclusion
    of other participants in drilling wells; and
- Use
    of technology.

WE WILL NEED
TO HEDGE THE PRICE RISKS ASSOCIATED WITH OUR PRODUCTION. OUR HEDGE  TRANSACTIONS MAY
RESULT IN OUR MAKING CASH PAYMENTS OR PREVENT US FROM BENEFITING  TO THE FULLEST EXTENT
POSSIBLE FROM INCREASES IN PRICES FOR NATURAL GAS AND OIL.

Because
natural gas and oil prices are unstable, as we grow, we will  need to enter into
price-risk-management transactions such as swaps, collars,  futures and options to reduce
our exposure to price declines associated with a  portion of our natural gas and oil
production and thereby to achieve a more  predictable cash flow.  The use of these
arrangements will limit our ability to  benefit from increases in the prices of natural
gas and oil.  Our hedging  arrangements may apply to only a portion of our production,
thereby providing only  partial protection against declines in natural gas and oil
prices.  These  arrangements could expose us to the risk of financial loss in certain
circumstances, including instances in which production is less than expected, our
customers fail to purchase contracted quantities of natural gas and oil or a  sudden,
unexpected event materially impacts natural gas or oil prices.

WE HAVE
SUBSTANTIAL CAPITAL REQUIREMENTS THAT, IF NOT MET, MAY HINDER OPERATIONS.

We
have experienced and expect to continue to experience substantial  capital needs as a
result of our active exploration, development and acquisition  programs.  We expect that
additional external financing will be required in the  future to fund our growth.  We may
not be able to obtain additional financing, and  financing under existing or new credit
facilities may not be available in the  future.  Without additional capital resources, we
may be forced to limit or defer  our planned natural gas and oil exploration and
development program and thereby  adversely affect the recoverability and ultimate value
of our natural gas and oil  properties, in turn negatively affecting our business,
financial condition and  results of operations.

15

---



|Item 7. |  | Financial
Statements.
|------- |  | ---------------------

Index to
Financial Statements

|                                                                                                                                |  | Page           
|------------------------------------------------------------------------------------------------------------------------------- |  | ---------------
|                                                                                                                                |  |                
|Independent
      Auditors Reports                                                                                             |  | F-1            
|                                                                                                                                |  |                
|Consolidated
      Balance Sheet at December 31, 2004                                                                           |  | F-2            
|                                                                                                                                |  |                
|Consolidated
      Statements of Operations for the years ended December 31, 2004 and 2003                                      |  | F-3            
|                                                                                                                                |  |                
|Consolidated
      Statements of Changes in Stockholders Equity (Deficit) for the years
      ended December 31, 2004 and 2003 |  | F-4            
|                                                                                                                                |  |                
|Consolidated
      Statements of Cash Flows for the years ended December 31, 2004 and 2003                                      |  | F-5            
|                                                                                                                                |  |                
|Notes
      to Consolidated Financial Statements                                                                                |  | F-6
      to 12

See summary
of significant accounting policies and notes to financial statements.

16

---



REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of
Directors     Dune Energy, Inc.     Houston, Texas

We have audited
the accompanying consolidated balance sheet of Dune Energy Inc. as  of December 31, 2004,
and the related statements of operations, stockholders equity (deficit), and cash
flows for the two years then ended.  These financial  statements are the responsibility
of Dunes management.  Our responsibility is to  express an opinion on these
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 audits to obtain
reasonable assurance about whether the financial  statements are free of material
misstatement.  An audit includes examining, on a  test basis, evidence supporting the
amounts and disclosures in the financial  statements.  An audit also includes assessing
the accounting principles used and  significant estimates made by management, as well as
evaluating the overall  financial statement presentation.  We believe that our audits
provide a reasonable  basis for our opinion.

In our opinion,
the financial statements referred to above present fairly, in all  material respects, the
financial position of Dune Energy Inc., as of December 31,  2004, and the results of its
operations and its cash flows for the periods  described in conformity with accounting
principles generally accepted in the United  States of America.

MALONE & BAILEY,
PC  www.malone-bailey.com  Houston, Texas

March 23, 2005

See summary
of significant accounting policies and notes to financial statements.

F-1

---



DUNE ENERGY,
INC.  CONSOLIDATED BALANCE SHEET  December 31, 2004

|ASSETS                                                           |  |  |   |            |  
|---------------------------------------------------------------- |  |  | - | ---------- | -
|                                                                 |  | 
|Current
      assets                                             |  | 
|Cash                                                             |  |  | $ | 3,746,999  |  
|Accounts
      receivable                                        |  |  |   | 536,329    |  
|                                                                 |  |  |   |           
|Total
      current assets                                       |  |  |   | 4,283,328  |  
|Oil and
      gas properties, using full cost accounting         |  |  |   | 6,943,431  |  
|Less
      accumulated depreciation, depletion, and amortization |  |  |   | (63,801    | )
|                                                                 |  |  |   |           
|Net oil
      and gas properties                                 |  |  |   | 6,879,630  |  
|                                                                 |  |  |   |           
|TOTAL
      ASSETS                                               |  |  | $ | 11,162,958 |  
|                                                                 |  |  |   |           
|                                                                 |  | 
|LIABILITIES
      AND STOCKHOLDERS  EQUITY                      |  | 
|                                                                 |  | 
|Current
      liabilities                                        |  | 
|Convertible
      notes                                          |  |  | $ | 445,000    |  
|Accounts
      payable                                           |  |  |   | 277,941    |  
|Minority
      interest in subsidiary                            |  |  |   | 17,201     |  
|                                                                 |  |  |   |           
|TOTAL
      LIABILITIES                                          |  |  |   | 740,142    |  
|                                                                 |  |  |   |           
|                                                                 |  | 
|STOCKHOLDERS
       EQUITY                                      |  | 
|Preferred
      stock, $0.001 par value, 1,000,000 shares        |  | 
|authorized,
      111,111 issued and outstanding                 |  |  |   | 111        |  
|Common
      stock, $0.001 par value, 100,000,000 shares         |  | 
|authorized,
      45,597,178 shares issued and outstanding       |  |  |   | 45,597     |  
|Additional
      paid in capital                                 |  |  |   | 14,051,374 |  
|Retained
      deficit                                           |  |  |   | (3,674,266 | )
|                                                                 |  |  |   |           
|Total
      stockholders  equity                                |  |  |   | 10,422,816 |  
|                                                                 |  |  |   |           
|TOTAL
      LIABILITIES AND STOCKHOLDERS  EQUITY                |  |  | $ | 11,162,958 |  
|                                                                 |  |  |   |           

See summary
of significant accounting policies and notes to financial statements.

F-2

---



DUNE ENERGY,
INC.  CONSOLIDATED STATEMENTS OF OPERATIONS  Years Ended December 31, 2004 and 2003

|                                                 |  |  | 2004 |            | 2003 |  
|------------------------------------------------ |  |  | ---- | ---------- | ---- | -
|                                                 |  |  |      |            |      |  
|Revenues                                         |  |  | $    | 1,022,297  |      | $
|                                                 |  |  |      |            |      |  
|Operating
      expenses:                        |  | 
|                                                
|General
      and administrative expense         |  |  |      | 1,935,539  |      |  
|Production
      taxes                           |  |  |      | 65,196     |      |  
|Depletion
      of oil and gas properties        |  |  |      | 63,801     |      |  
|Lease
      operating expenses                   |  |  |      | 37,478     |      |  
|Impairment
      of Merchant Builders            |  |  |      |           |      |  
|                                                 |  |  |      |            |      |  
|Operating
      loss                             |  |  |      | (1,079,717 | )    |  
|                                                 |  |  |      |            |      |  
|                                                 |  | 
|Other
      income (expense):                    |  | 
|Other
      income                               |  |  |      | 78,194     |      |  
|Interest
      income                            |  |  |      | 45,395     |      |  
|Minority
      interest                          |  |  |      | (38,193    | )    |  
|Interest
      expense                           |  |  |      | (120,640   | )    |  
|                                                 |  |  |      |            |      |  
|Other
      income (expense)                     |  |  |      | (35,244    | )    |  
|                                                 |  |  |      |            |      |  
|Net
      loss                                   |  |  | $    | (1,114,961 | )    | $
|                                                 |  |  |      |            |      |  
|                                                
|Basic
      and diluted loss per common share    |  |  | $    | (0.04      | )    | $
|                                                 |  |  |      |            |      |  
|Weighted
      average common shares outstanding |  |  |      | 30,443,387 |      |  

See
  summary of significant accounting policies and notes to financial statements.

F-3

---



DUNE
ENERGY, INC.  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS  EQUITY (DEFICIT)
Years Ended December 31, 2003 and 2004

|                        |  |  | Preferred
      A |          | Common |  | Paid
      In
      Capital |  | Retained
      Deficit |            |   | 
|----------------------- |  |  | ----------------- | -------- | ------ |  | --------------------------- |  | ---------------------- | ---------- | - | 
|                        |  |  | Shares            |          | Amount |  | Shares                      |  | Amount                 |            |   | 
|                        |  |  |                   |          |        |  |                             |  |                        |            |   | 
|Balance
      at        |  |  |                   |          |        |  |                             |  |                        |            |   | 
|December
      31, 2002 |  |  |                   |          |        |  |                             |  |                        | 3,111,514  |   | 
|Stock
      issued for: |  | 
|Note
      payable      |  | 
|shareholder             |  |  |                   |          |        |  |                             |  |                        | 1,243,275  |   | 
|Merchant
      builders |  |  |                   |          |        |  |                             |  |                        | 862,500    |   | 
|Stock
      contributed |  |  |                   |          |        |  |                             |  |                        | (500,000   | ) | 
|Services                |  |  |                   |          |        |  |                             |  |                        | 2,376,841  |   | 
|Penroc                  |  |  |                   |          |        |  |                             |  |                        | 25,000     |   | 
|Net loss                |  |  |                   |          |        |  |                             |  |                        |            |   | 
|                        |  |  |                   |         
|                        |  | 
|Balance
      at        |  | 
|December
      31, 2003 |  |  |                   |         |        |  |                             |  |                        | 7,119,129  |   | 
|Stock
      issued for: |  | 
|Services                |  |  |                   |          |        |  |                             |  |                        | 522,917    |   | 
|Cash                    |  |  |                   | 222,222  |        |  |                             |  |                        | 35,464,432 |   | 
|Commissions             |  |  |                   |          |        |  |                             |  |                        | 476,323    |   | 
|Conversion
      of     |  | 
|preferred
      to      |  | 
|common                  |  |  |                   | (111,111 | )      |  |                             |  |                        | 222,222    |   | 
|Debt                    |  |  |                   |          |        |  |                             |  |                        | 1,792,155  |   | 
|Net loss                |  |  |                   |          |        |  |                             |  |                        |            |   | 
|                        |  |  |                   |         
|                        |  | 
|Balance
      at        |  | 
|December
      31, 2004 |  |  |                   | 111,111  |        |  |                             |  |                        | 45,597,178 |   | 
|                        |  |  |                   |         

See
  summary of significant accounting policies and notes to financial statements.

F-4

---



DUNE
ENERGY, INC.  CONSOLIDATED STATEMENTS OF CASH FLOWS  Years Ended December 31, 2004 and
2003

|                                                          |  |  | 2004 |            | 2003 |  
|--------------------------------------------------------- |  |  | ---- | ---------- | ---- | -
|                                                          |  |  |      |            |      |  
|CASH
      FLOWS FROM OPERATING ACTIVITIES                |  |  |      |            |      |  
|Net
      Loss                                            |  |  | $    | (1,114,961 | )    | $
|Adjustments
      to reconcile net loss to net cash used  |  | 
|in
      operating activities:                            |  | 
|Stock
      for services and interest                     |  |  |      | 219,958    |      |  
|Depletion
      of oil and gas properties                 |  |  |      | 63,801     |      |  
|Minority
      Interest                                   |  |  |      | 17,201     |      |  
|Amortization
      of debt discount                       |  |  |      |           |      |  
|Impairment
      of Merchant Builders                     |  |  |      |           |      |  
|Changes
      in:                                         |  | 
|Other
      current assets                                |  |  |      | 42,690     |      |  
|Accounts
      payable and accrued interest               |  |  |      | (9,196     | )    |  
|Trade
      accounts receivable                           |  |  |      | (444,392   | )    |  
|                                                          |  |  |      |            |      |  
|                                                          |  |  |      |            |      |  
|NET
      CASH USED IN OPERATING ACTIVITIES               |  |  |      | (1,224,899 | )    |  
|                                                          |  |  |      |            |      |  
|                                                          |  | 
|CASH
      FLOWS FROM INVESTING ACTIVITIES                |  | 
|Investment
      in proved and unproved properties        |  |  |      | (5,800,842 | )    |  
|Deposits                                                  |  |  |      |           |      |  
|                                                          |  |  |      |            |      |  
|                                                          |  |  |      |            |      |  
|NET
      CASH USED IN INVESTING ACTIVITIES               |  |  |      | (5,800,842 | )    |  
|                                                          |  |  |      |            |      |  
|                                                          |  | 
|CASH
      FLOWS FROM FINANCING ACTIVITIES                |  | 
|Proceeds
      from sale of common stock                  |  |  |      | 10,800,000 |      |  
|Proceeds
      from sale of preferred stock               |  |  |      | 200,000    |      |  
|Proceeds
      from sale of convertible debentures        |  |  |      | 45,000     |      |  
|Payments
      on notes payable                           |  |  |      | (500,000   | )    |  
|Proceeds
      from long-term debt                        |  |  |      |           |      |  
|Debt
      issuance costs                                 |  |  |      |           |      |  
|                                                          |  |  |      |            |      |  
|NET
      CASH PROVIDED BY FINANCING ACTIVITIES           |  |  |      | 10,545,000 |      |  
|                                                          |  |  |      |            |      |  
|                                                         
|NET CHANGE
      IN CASH                                  |  |  |      | 3,519,259  |      |  
|CASH
      BALANCES                                       |  | 
|- Beginning
      of period                               |  |  |      | 227,740    |      |  
|                                                          |  |  |      |            |      |  
|-
      End of period                                     |  |  | $    | 3,746,999  |      | $
|                                                          |  |  |      |            |      |  
|                                                          |  | 
|SUPPLEMENTAL
      DISCLOSURES                            |  | 
|Interest
      paid                                       |  |  | $    | 99,351     |      | $
|Income
      taxes paid                                   |  |  |      |           |      |  
|                                                          |  | 
|NON-CASH
      DISCLOSURES                                |  | 
|Stock
      issued for debt                               |  |  | $    | 724,000    |      |  
|Increase
      in oil and gas property for note payable   |  |  |      | 140,000    |      |  
|Conversion
      of preferred stock to common stock       |  |  |      | 100,000    |      |  
|Reduction
      in oil and gas property for adjustment in |  | 
|purchase
      price                                      |  |  |      | 91,937     |      |  
|Stock
      issued for debt to related party              |  |  |      | 42,500     |      |  

See
  summary of significant accounting policies and notes to financial statements.

F-5

---



DUNE ENERGY,
INC.  NOTES TO OONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES

Nature of
operations and organization

Dune Energy,
Inc., a Delaware corporation (Dune or the Company), is an
independent energy company that was formed in 1998.  Since May 2003, Dune has been
engaged in the exploration, development, exploitation and production of oil and  natural
gas.  The Company sells its oil and gas products primarily to domestic  pipelines and
refineries.  Its operations are presently focused in the State of  Texas.  The Company,
through its 85% owned subsidiary, Vaquero Partners LLC  (Vaquero) acquired
interests in certain oil and natural gas leases located in  Victoria County, Texas.  The
Company also directly holds interests in two other  properties discussed in this 10-KSB.

Consolidation

The
accompanying consolidated financial statement includes all accounts of Dune and  Vaquero.
All significant inter-company balances and transactions have been  eliminated in
consolidation.  Minority interest consists of the 15% interest in  Vaquero not owned by
Dune.

Oil and gas
properties

Dune follows
the full cost accounting method to account for the costs incurred in  the acquisition,
exploration, development and production of oil and gas reserves.  Under this method, all
costs, including internal costs directly related to  acquisition, exploration and
development activities are capitalizable as oil and  gas property costs.

Amortization of
unproved property costs begins when the properties become proved or  their values become
impaired.  Dune assesses the realizability of unproved  properties on at least an annual
basis or when there has been an indication that an  impairment in value may have
occurred.  Impairment of unproved properties is  assessed based on management  s
intention with regard to future exploration and  development of individually significant
properties and the ability of Dune to  obtain funds to finance such exploration and
development.  If the results of an  assessment indicate that the properties are impaired,
the amount of the impairment  is added to the capitalized costs to be amortized.

The fair value
of an asset retirement obligation is recognized in the period in  which it is incurred if
a reasonable estimate of fair value can be made. The  present value of the estimated
asset retirement costs is capitalized as part of the  carrying amount of the long-lived
asset. For the Company, asset retirement  obligations primarily relate to the abandonment
of oil and gas producing  facilities.

The amounts
recognized are based upon numerous estimates and assumptions, including  future
retirement costs, future recoverable quantities of oil and gas, future  inflation rates
and the credit-adjusted risk-free interest rate.

Under
  full cost accounting rules for each cost center, capitalized costs of proved
  properties, less accumulated amortization and related deferred income taxes,
  shall not exceed an amount (the cost ceiling) equal to the sum of
  (a) the present value of future net cash flows from estimated production of
  proved oil and gas reserves, based on current economic and operating condition,
  discounted at 10 percent, plus (b) the cost of properties not being amortized,
  plus (c) the lower of cost or estimated fair value of any unproved properties
  included in the costs being amortized, less (d) any income tax effects related
  to differences between the book and tax basis of the properties involved. If
  capitalized costs exceed this limit, the excess is charged as an impairment
  expense. Costs of oil and gas properties will be amortized using the units of
  production method.

F-6

---



Cash and cash
equivalents

Cash and cash
equivalents include cash in banks and certificates of deposit which  mature in within
three months of the date of purchase.

Use of estimates

The preparation
of these 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 and disclosure of
contingent assets and liabilities at the date of the  financial statements and the
reported amount of revenues and expenses during the  reporting period.  Actual results
could differ from those estimates.

Income taxes

The Company
recognizes deferred tax assets and liabilities based on differences  between the
financial reporting and tax bases of assets and liabilities using the  enacted tax rates
and laws that are expected to be in effect when the differences  are expected to be
recovered.  The Company provides a valuation allowance for  deferred tax assets for which
it does not consider realization of such assets to be  more likely than not.

Loss per share

Basic and
diluted net loss per share calculations are presented in accordance with  Financial
Accounting Standards Statement 128, and are calculated on the basis of  the weighted
average number of common shares outstanding during the year.  They  include the dilutive
effect of common stock equivalents in years with net income.  Basic and diluted loss per
share is the same due to the absence of common stock  equivalents.

New Accounting
Standards

In December 2004,
the FASB issued SFAS No. 123R, Accounting for Stock-Based  Compensation SFAS
No. 123R establishes standards for the accounting for  transactions in which an
entity exchanges its equity instruments for goods or  services. This Statement focuses
primarily on accounting for transactions in which  an entity obtains employee services in
share-based payment transactions. SFAS  No. 123R requires that the fair value of
such equity instruments be recognized as  expense in the historical financial statements
as services are performed. Prior to  SFAS No. 123R, only certain pro forma
disclosures of fair value were required. SFAS  No. 123R shall be effective for small
business issuers as of the beginning of the  first interim or annual reporting period
that begins after December 15, 2005. The  adoption of this new accounting
pronouncement is not currently expected to have a  material impact on the financial
statements of the Company during the calendar year  2006.

NOTE 2  WORKING
INTEREST PURCHASE

On June
  3, 2004, Dune closed its purchase of 34.98% of Penroc Oil Corporation 
  s approximately 2% working interest in the Los Mogotes Field located in Zapata
  County, Texas. The effective date of the closing was May 28, 2004. Total consideration
  consisted of 25,000 shares of Dune common stock (issued in 2003) and cash of
  $874,500 paid as follows: an initial payment of $174,800 was made in June 2003
  and $699,700 was paid on June 3, 2004.

F-7

---



NOTE 3  CONVERTIBLE
DEBENTURES

From May
through August 2003, Dune issued convertible debentures with an aggregate  face value of
$382,500 to various individuals. The debentures are convertible into  shares of Dune
common stock at the option of the holder for $.45 per share. If the  debentures are
converted by the maker or the holder, the holder will also receive  additional shares
equal to 10% of the face value divided by $.45. The debentures  accrue interest at 10%
per annum and are due in various months through February  2005.

In December
2003, Dune issued convertible debentures with an aggregate face value  of $380,000 to
eight individuals.  The debentures are convertible into shares of  Dune common stock at
the option of the holder for $.45 per share.  If the  debentures are converted by the
maker or the holder, the holder will also receive  additional shares equal to 20% of the
face value divided by $.45.  The debentures  accrue interest at 10% per annum and are due
in various months through June 2005.

Dune incurred
$70,993 in legal fees associated with the convertible debentures  which were recorded as
deferred financing costs at December 31, 2003.  These costs  are being amortized over the
term of the notes. Dune recorded $28,303 in non-cash  interest expense for the year ended
December 31, 2003 related to the amortization  of the deferred financing costs.

In August
  and September 2003, Dune issued convertible debentures with an aggregate face
  value of $404,000 to four individuals. The debentures are convertible into shares
  of Dune common stock at the option of the holder for an average of $.45 per
  share. The debentures are personally guaranteed by Dunes Chairman, accrue
  interest at 10% per annum and are due in August and September 2004. The debt
  holders received 85,048 shares of common stock valued at $1,701 which was recorded
  as interest expense in the accompanying statement of operations.

In March 2004,
Dune issued a convertible debenture with a face value of $45,000.  The debenture is
convertible into Dune common stock at $.45 per share at the option  of the holder.

During the year
ended December 31, 2004, Nineteen note holders converted $766,500  of convertible notes
payable into 1,792,150 shares of commons stock.  As of  December 31, 2004, the Company
had $445,000 in convertible notes outstanding. As  discussed in note 10, $300,000 of this
debt was converted into 795,556 shares of  common stock in January and February 2005.

NOTE 4  PREFERRED
STOCK

In April 2004,
Dune issued a total of 222,222 shares of Series A Convertible  Preferred Stock to two
individuals for an aggregate of $200,000.  Each share of  Preferred Stock is convertible
into two shares of common stock at the option of the  holder.

During the year
ended December 31, 2004, 111,111 shares of Series A Convertible  Preferred Stock were
converted into 222,222 shares of common stock.

NOTE 5  COMMON
STOCK

On May
  10, 2004, Dune declared a 1 for 2 reverse stock split of Dunes issued
  and outstanding shares of common stock, which was effective as of the close
  of business on May 21, 2004. All references to numbers of shares have been adjusted
  to account for the reverse stock split.

F-8

---



On May
  5, 2003, Dune issued 1,243,275 shares of stock to its Chairman in exchange for
  a note payable totaling $700,521.

On May 7, 2003,
Dune issued 862,500 shares for all of the outstanding common stock  of Merchant Builders,
Inc. (Merchant), a privately held corporation with no assets  and $16,500 in liabilities.
The transaction resulted in an intangible asset of  $18,225 which was subsequently
impaired.

In 2003, Dune
issued 2,268,077 shares of common stock to consultants, officers and  directors for
services rendered in 2003. The stock was valued based on the  estimated fair value of the
common stock on the date issue, or $.01 per share.

In 2003, Dune
issued 23,715 shares of common stock to a note holder and 85,048  shares of common stock
to debenture holders and recorded interest expense totaling  $2,175 related to the stock
issuance. These amounts are included in stock issued  for services and interest in the
accompanying statement of stockholders equity.

In 2003, Dune
issued 25,000 shares of common stock valued at $500 to Penroc in  connection with the
purchase of its interest in the Los Mogotes property.

On May 19,
2004, Dune sold 35,464,432 shares to Itera Holdings BV for the aggregate  purchase price
of $12,000,000.  Also on May 19, 2004, Dune issued 476,323 shares  and paid $1,200,000 in
cash to the Altitude Group LLC for services in assisting  with this transaction.

During the year
ended December 31, 2004, Dune issued an aggregate of 522,917 shares  valued at $219,958
to several individuals for services rendered.  Also during the  same twelve month period,
note holders converted $766,500 of convertible notes  payable into 1,792,150 shares of
common stock.

NOTE 6  PEARSALL
PROJECT

On December 13,
2004, Dune Energy announced that it entered into a Joint Venture  Participation Agreement
covering 2,309 acres plus various agreements covering  approximately 16,695 additional
acres, in the Pearsall Field, located in Frio  County, Texas.  The Agreement calls for
the Company, at its option on a well by  well basis, to drill up to 24 locations on the
various leases underlying this  transaction.  During 2004, Dune paid $409,050 for its
working interest (27%) cost  of drilling the initial well and $133,782 for leasehold and
geophysical and  geological costs.

NOTE 7  COMMITMENTS
AND CONTINGENCIES

Effective
  as of the closing of the stock sale to Itera Holdings BV on May 19, 2004, Dune
  amended its Operating Agreement with Vaquero Oil & Gas Inc. with respect
  to certain matters relating to Vaquero Partners LLC. VOG fixed its Membership
  Interest in Vaquero at 15% with Dune holding the other 85%. Dune also amended
  its drilling agreement with VOG to provide that VOG will be paid (i) $25,000
  a month for its services through November 2004, and (ii) $12,500 a month for
  its services through May 2005.

Also
  effective on May 19, 2004, Dune signed new Employment Agreements with Alan Gaines
  (CEO), Amiel David (President/COO) and Richard Cohen (CFO). Each of the Agreements
  is for an initial term of one year, expiring on May 31, 2005. The Agreements
  provide for base salaries as follows: Mr. Gaines - $350,000, Dr. David - $200,000
  and Mr. Cohen - $120,000. In addition, for the year ending December 31, 2004,
  Mr. Gaines is eligible for a performance bonus equal to 2% of Dune  s
  EBITDA up to $10,000,000 and 1% of EBITDA above $10,000,000. Mr. Gaines 
  Agreement also provides that in the event Dune issues additional shares of common
  stock to a third party in the future, Dune shall likewise cause to be issued
  to Mr. Gaines, such number of additional shares of common stock as are necessary
  for him to maintain a 5% equity interest in Dune.

F-9

---



During October
2004, Dune entered into a three year lease for office space in  Houston, Texas.  The
monthly rent starts at $3,683 per month for the first 12  months, $3,783 for the next
twelve months, and $3,882 for the final twelve months.

NOTE 8  INCOME
TAXES

The tax effect
of temporary differences that give rise to significant portions of  the deferred tax
assets and deferred tax liabilities at December 31, 2004 are as  follows:

|                                |  |  | 2004 |          | 2003 |  
|------------------------------- |  |  | ---- | -------- | ---- | -
|Federal
      income taxes:     |  |  |      |          |      |  
|Current                         |  |  | $    |         |      | $
|Deferred                        |  |  |      | 440,301  |      |  
|Less:
      Valuation allowance |  |  |      | (440,301 | )    |  
|                                |  |  |      |         
|Total                           |  |  | $    |         |      | $
|                                |  |  |      |         

The Company has
prior net operating loss carryforwards of approximately $1,295,003  and $400,000 for the
years ended December 31, 2004 and 2003 respectively. Available  carryforwards expire 15
to 20 years from when incurred.

NOTE 9  STOCK
OPTIONS

During 2004,
Dune  s Board of Directors granted the following stock options, all of  which are
immediately exercisable:

The following
table summarizes stock option activity:

|                                          |  |  | Options |         | Weighted
      Average
      Price |  
|----------------------------------------- |  |  | ------- | ------- | ---------------------------------- | -
|                                          |  |  |         |         |                                    |  
|Outstanding
      as of January 1, 2003   |  |  |         |        |                                    | $
|Granted
      during 2003                 |  |  |         | 350,000 |                                    |  
|Cancelled
      or Expired                |  |  |         |        |                                    |  
|Exercised                                 |  |  |         |        |                                    |  
|                                          |  |  |         |         |                                    |  
|Outstanding
      as of December 31, 2003 |  |  |         | 350,000 |                                    | $
|Granted
      during 2004                 |  |  |         | 50,000  |                                    |  
|Cancelled
      or Expired                |  |  |         |        |                                    |  
|Exercised                                 |  |  |         |        |                                    |  
|                                          |  |  |         |         |                                    |  
|Outstanding
      as of December 31, 2004 |  |  |         | 400,000 |                                    | $
|                                          |  |  |         |         |                                    |  

Options
outstanding and exercisable at December 31, 2004:

|                     |  |  |  | -
      - Outstanding - -     |  |                      | 
|-------------------- |  |  |  | ----------------------------- |  | -------------------- | 
|Exercise
      Price |  |  |  | Number
      
      of Shares |  | Remaining
      life | 
|                     |  |  |  |                               |  |                      | 
|$0.45                |  |  |  | 100,000                       |  | 3.9
      years      | 
|0.54                 |  |  |  | 250,000                       |  | 3.8 years            | 
|0.85                 |  |  |  | 50,000                        |  | 5.0 years            | 
|                     |  |  |  |                               |  |                      | 
|                     |  |  |  | 400,000                       |  |                      | 
|                     |  |  |  |                               |  |                      | 

F-10

---



NOTE 10  SUBSEQUENT
EVENTS

On February 15,
2005 the Board granted 250,000 options to the President, Amiel  David at an option price
of $1.25 per share.  The options are immediately  exercisable and expire in 5 years.

During January
and February 2005, $300,000 of debt was converted into 795,556  shares of common stock by
the noteholders.

NOTE 11  SUPPLEMENTAL
OIL AND GAS INFORMATION (UNAUDITED)

Capitalized
Costs

Capitalized
Costs incurred in property acquisition, exploration, and development  activities as of
December 31, 2004 are as follows:

|Total
      Capitalized              |  |  |  | 6,943,431 | 
|------------------------------------ |  |  |  | --------- | 
|Less:
      Accumulated depletion of |  |  |  | 63,801    | 
|                                     |  |  |  |          
|Net Capitalized                      |  |  |  | 6,879,630 | 
|                                     |  |  |  |          

Oil and Reserve
Data

An independent
petroleum engineer estimated proved developed and undeveloped  reserves for Dune  s
properties.  Reserve definitions and pricing requirements  prescribed by the Securities
and Exchange Commission were used.  The determination  of oil and gas reserve quantities
involves numerous estimates which are highly  complex and interpretive.  The estimates
are subject to continuing re-evaluation  and reserve quantities may change as additional
information becomes available.  Estimated value of proved reserves were computed by
applying prices in effect at  December 31, 2004.  The average price used was $43.45 per
barrel of oil at $6.01  per Mcf of gas.

|                                                |  |  | Oil
      (MBbls) |       | 2004
      Gas
      (MMcf) |  | Oil
      (Mbls) |   | 2003
      Gas
      (MMcf) |    
|----------------------------------------------- |  |  | ----------------- | ----- | --------------------------- |  | ---------------- | - | --------------------------- | ---
|                                                |  |  |                   |       |                             | 
|Proved
      developed and undeveloped reserves |  |  |                   |       |                             |  |                  |   |                             |    
|Beginning
      of year                         |  |  |                   | 142   |                             |  | 12,415           |   |                             |   
|Purchases                                       |  |  |                   | 1     |                             |  | 791              |   |                             | 142
|Improved
      recovery                         |  |  |                   |      |                             |  |                 |   |                             |   
|Revisions
      of previous estimates           |  |  |                   | 1,166 |                             |  | (7,625           | ) |                             |   
|Production                                      |  |  |                   |      |                             |  | (47              | ) |                             |   
|                                                |  |  |                   |      
|End
      of year                               |  |  |                   | 1,309 |                             |  | 5,534            |   |                             | 142
|                                                |  | 
|Proved
      developed reserves                 |  | 
|Beginning
      of year                         |  |  |                   |      |                             |  |                 |   |                             |   
|End
      of year                               |  |  |                   | 3     |                             |  | 965              |   |                             |   

F-11

---



|Standardized
      Measure of Discounted Future                 |  |  |   |         |  
|--------------------------------------------------------------- |  |  | - | ------- | -
|Net
      Cash Flows at December 31, 2004                       |  | 
|Future
      cash inflows                                       |  |  | $ | 87,033  |  
|Future
      production costs                                   |  |  |   | 6,079   |  
|Future
      development costs                                  |  |  |   | 12,190  |  
|Future
      income tax expenses                                |  |  |   | 7,165   |  
|                                                                |  |  |   |        
|Future
      gross cash flows                                   |  |  |   | 61,599  |  
|                                                                |  | 
|Less:
      10% annual discount for                             |  | 
|Estimated
      timing of cash flows                            |  |  |   | (24,409 | )
|                                                                |  |  |   |        
|Standardized
      measures of discounted future net cash flows |  | 
|Relating
      to proved oil and gas reserves                   |  |  | $ | 37,190  |  
|                                                                |  |  |   |        

The following
reconciles the change in the standardized measure of discounted future net cash flow
during 2004.

|Beginning
      of year                                      |  |  | $ | 30,508 |  
|------------------------------------------------------------ |  |  | - | ------ | -
|Sales
      of oil and gas produced, net or production costs |  |  |   | (90    | )
|Net
      changes in prices and production costs             |  |  |   | 7,495  |  
|Improved
      recovery, less related costs                  |  |  |   |       |  
|Net
      changes in estimated future development costs      |  |  |   | 9,100  |  
|Revisions
      of previous quantity estimates               |  |  |   | (9,823 | )
|Future
      income tax expense                              |  |  |   |       |  
|                                                             |  |  |   |       
|End
      of year                                            |  |  | $ | 37,190 |  
|                                                             |  |  |   |       

F-12

---



|Item 8. |  | Changes
in  and  Disagreements  with  Accountants  on  Accounting  and  Financial Disclosure.
|------- |  | ---------------------------------------------------------------------------------------------

None.

|Item 8A. |  | Controls
and Procedures.
|-------- |  | ------------------------

Within
the 90 days prior to the date of this Report, we carried out an  evaluation, under the
supervision and with the participation of our Management,  including our Chief Executive
Officer and Chief Financial Officer, of the  effectiveness of the design and operation of
our disclosure controls and procedures  pursuant to Exchange Act Rule 13a-14. Based upon
the evaluation, our Chief  Executive Officer and Chief Financial Officer concluded that
our disclosure  controls are effective in timely alerting them to material  information
relating to us, required to be included in our periodic SEC filings.  There have been no
significant changes in our internal controls or in other factors  which could
significantly affect internal controls subsequent to the date we  conducted our
evaluation.

17

---



PART III
OTHER INFORMATION

|Item 9. |  | Directors
and Executive Officers of the Registrant.
|------- |  | ---------------------------------------------------

The
  persons set forth below are the Directors and Executive Officers of the Company
  as of the date hereof:

|NAME                     |  | AGE |  | POSITION                                            
|------------------------ |  | --- |  | ----------------------------------------------------
|                         |  |     |  |                                                     
|Alan D. Gaines           |  | 49  |  | Chairman of the Board,
      Chief Executive Officer
|                         |  |     |  |                                                     
|Amiel
      David        |  | 65  |  | President,
      Chief Operating Officer            
|                         |  |     |  |                                                     
|Richard M. Cohen         |  | 54  |  | Chief Financial Officer,
      Director             
|                         |  |     |  |                                                     
|Steven
      Barrenechea |  | 46  |  | Secretary,
      Director                           
|                         |  |     |  |                                                     
|Valery G. Otchertsov     |  | 59  |  | Director                                            
|                         |  |     |  |                                                     
|Raissa
      S. Frenkel  |  | 44  |  | Director                                            
|                         |  |     |  |                                                     
|Steven M. Sisselman      |  | 46  |  | Director                                            
|                         |  |     |  |                                                     
|Marshall Lynn Bass       |  | 35  |  | Director                                            



Alan
D. Gaines has served as the Chairman, Chief Executive Officer and as a Director of the
Company since May 2001. For the past five years, Mr. Gaines has served as President and
CEO of Proton Capital LLC, a privately held merchant and investment banking firm. In
1983, Mr. Gaines founded Gaines, Berland Inc., a full service brokerage firm and
investment bank specializing in global energy markets, with particular emphasis given to
small to mid-capitalization exploration and production, pipeline, midstream, and
oilfield services companies. Mr. Gaines served as President of Gaines, Berland from
1983 to 1998. Mr. Gaines holds a BBA in Finance from Baruch College, and an MBA (With
Distinction) from the Zarb School, Hofstra University Graduate School of
Management.

Amiel
David has served as the President/Chief Operating Officer of the Company since February
2004 and has over 35 years of engineering and investment banking experience within the
energy sector. From 1993 - 2001, he was the Senior Vice President and Chief Engineer
for the First City Bank and later First Union Securities (Wachovia Bank) where he was
responsible for the technical viability of in excess of $3.5 billion of energy credits.
From 2001 through 2003, Dr. David was the Managing Director, Senior Vice President and
Chief Engineer of Duke Capital Partners. Dr. David holds a PhD in Petroleum Engineering
from Stanford University and an MBA from The University of Pittsburgh.

18

---



Richard
M. Cohen has served as the Chief Financial Officer and as a Director of the Company
since December 2003. Since 1996, Mr. Cohen has been the President of Richard M. Cohen
Consultants, a private financial services consulting company that assists both public
and private companies with their corporate governance and corporate finance needs. In
1999, Mr. Cohen was the President of National Auto Credit, a publicly traded sub-prime
auto finance company. From 1992-1995, Mr. Cohen was the President of General Media
Inc., a publicly reporting international diversified publishing and communications
company. Mr. Cohen is a Certified Public Accountant and worked at Arthur Andersen & Co.
from 1975 to 1977. He received a BS (With Honors) from The University of
Pennsylvania (Wharton) and an MBA from Stanford University.

Steven
Barrenechea has served as a Director of the Company since May 2001 and as a member of
the Companys audit committee since September 2004. Mr. Barrenechea is currently
CEO, President and Director of Coastal Restaurants LLC which owns and operates high-end
restaurant/bars. He is also COO of Coast to Coast Catering Company, an upscale catering
service. Mr. Barrenechea is a member of the Board of Directors of the Creative
Coalition, The Milford (Connecticut) Red Cross, and The Child Guidance Center of
Fairfield County. Mr. Barrenechea holds a BBA from New York University.

Valery
G. Otchertsov has served as a Director of the Company since May 2004. Since 1999, Mr.
Otchertsov has held the position of President of Itera Holding Ltd and since 2003, has
served as Chairman of the Management Board of Itera Oil and Gas Company Ltd. (Itera).
Iteras operating entities are engaged in the business of production,
transportation, marketing and sales of natural gas throughout the former Soviet Union.
From 1997 -1999, Mr. Otchertsov served as First Vice-President of Itera International
Group of Companies. From 1991 -1996, Mr. Otchertsov served as Minister of Economics and
Finance, Deputy Chairman of the Cabinet of Ministers of Turkmenistan. He graduated with
a Bachelors degree from the Izhevsk Mechanical Institute.

Raissa
S. Frenkel has served as a Director of the Company since May 2004. Dr. Frenkel has been
a member of the Board of Directors of the Itera Oil and Gas Company Ltd (Itera) since
2002. Iteras operating entities are engaged in the business of production,
transportation, marketing and sales of natural gas throughout the former Soviet Union.
Since 2003, Dr. Frenkel has been Executive Vice-President of Itera International Energy
Corp. an Itera subsidiary operating in the US gas, real estate and commodity business.
From 1994-2002 Dr. Frenkel was a Vice-President with Itera International Energy Corp.
She graduated from the Kazan Finance and Economics Institute in 1982 and received her
PhD from Kazan State University in 1989.

Steven
M. Sisselman has served as a Director of the Company since May 2004. From 1995 to the
present, Mr. Sisselman has been a Vice-President of Business Development with Itera
International Energy Corp., an Itera subsidiary operating in the US gas, real estate and
commodity business. From 1992-1994, Mr. Sisselman was Vice-President of Dalon Inc., a
petroleum trading company, responsible for trading crude oil and petroleum products from
the former Soviet Union. For the 12 years prior to 1992, Mr. Sisselman was employed by
Charter Oil Company, UBS AG, and Astra Oil working in various financial and trading
positions both in the US and London, England. He graduated from University of Florida in
1980 with a BS in Business Administration with a major in Finance

19

---



Marshall
Lynn Bass has served as a Director of the Company and a member of the Companys
audit committee since September 2004. From 1998 to December 2001 he served as an
associate and from 2002 to present he has served as a principal of, Weisser, Johnson
& Co., a Houston based energy investment bank. He graduated from Purdue University
in 1992 with a BS in economics and from Rice University with a MBA. Mr. Bass is a
qualified audit committee financial expert.

The
Companys Amended and Restated By-laws provide for a Board of  Directors to consist
of seven (7) persons or such other number of persons as may be  fixed by the Board from
time to time.

Code of Ethics

The
Company has adopted a written code of ethics that applies to the  Companys
principal executive officer, principal financial officer, principal  accounting officer
and any persons performing similar functions.  The Company will  provide a copy of its
code of ethics to any person without charge upon written  request addressed to Dune
Energy, Inc., 3050 Post Oak Blvd., Suite 695, Houston,  Texas 77056.

20

---



|Item 10. |  | Executive
Compensation.
|-------- |  | -----------------------

Set
  forth below is all compensation received by our executive officers during the
  past three years:

|Name
      and 
      Principal Position | Year            | Annual
      Compensation                
|---------------------------------------- | --------------- | -----------------------------------------
|Salary
      ($)                         | Bonus
      ($) | Other
      Annual Compensation
      ($)
|Alan
      Gaines,                       | 2004            | 262,920                                  
|Chairman
      & Chief                   | 2003            | 30,000
      (1)                         
|Executive
      Officer                  | 2002            | -0-                                      
|                                         |                 |                                          
|Amiel
      David,                       | 2004            | 143,956                                  
|President
      & Chief                  | 2003            | -0-                                      
|Operating
      Officer                  | 2002            | -0-                                      
|                                         |                 |                                          
|Richard
      Cohen,                     | 2004            | 110,000                                  
|Chief
      Financial                    | 2003            | 20,000
      (1)                         
|Officer                                  | 2002            | -0-                                      

|(1) |  | Represents
amounts earned in 2003 but paid in 2004.
|--- |  | ---------------------------------------------------

Compensation of
Directors

Our
independent Directors, Mr. Barrenechea and Mr. Bass, each receive  $2,500 per quarter for
serving on the Board and $500 per quarter for serving on the  audit committee.  Except as
set forth above, Directors are not compensated in cash  for their services but are
reimbursed for out of pocket expenses incurred in  furtherance of our business. In 2004,
we granted stock options to acquire up to  25,000 shares of common stock to each of Mr.
Barrenechea and Mr. Bass, in  recognition of their contributions to the Company.  Such
stock options were granted  on December 15, 2004 and may be exercised at any time prior
to December 14, 2009 at  an exercise price of $0.85 per share of common stock.

21

---



Employment
Agreements

Effective
  May 18, 2004, the Company entered into one year employment agreements with each
  of (i) Alan Gaines, the Companys Chairman and Chief Executive Officer,
  (ii) Dr. Amiel David, the Companys President and Chief Operating Officer
  and (iii) Richard Cohen, the Companys Chief Financial Officer. Unless
  extended by agreement of the parties, the agreements will expire on May 31,
  2005. Given our rapid growth, we believe that it is in our best interests that
  our Chief Financial Officer reside in Houston, Texas, where he can support operations
  on a day to day basis. Accordingly, Mr. Cohens Employment Agreement will
  not be extended beyond May 31, 2005 and we expect to hire an experienced CFO
  in the near future.

The
agreements provide for base salaries as follows:  Mr. Gaines  $350,000, Dr. David
$200,000 and Mr. Cohen $120,000.  Mr. Gaines agreement  provides that for 2005, he
will be entitled to receive a performance bonus equal to  two percent (2%) of the Companys
EBITDA up to $15 million and one percent (1%) of  EBITDA above $15 million.  Mr. Gaines agreement
also provides that in the event  Dune issues additional shares of common stock in the
future, the Company shall  cause to be issued to Mr. Gaines, such additional number of
shares of common stock  as are necessary to maintain at least a 5% equity ownership
interest in the  Company.  The agreements provide that in the event Mr. Gaines, Dr. David
or Mr.  Cohen are terminated without cause (as defined in the agreements),
they are to  receive a severance payment equal to twenty-four (24) months, twelve
(12) months and six (6) months base salary, respectively.  Each agreement
contains covenants  restricting each of the foregoing officers from participating in any
business which  is then engaged in the drilling, exploration or production of natural gas
or oil,  within the area contemplated by that certain Area of Mutual Interest Agreement
dated November 17, 2003 between the Company and VOG.

22

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|Item 11. |  | Security
Ownership of Certain Beneficial Owners and Management and  Related Stockholder Matters.
|-------- |  | ------------------------------------------------------------------------------------------------

Based
  on 46,392,727 shares of the Companys common stock outstanding as of March
  15, 2005, set forth below are the number of shares of common stock beneficially
  owned by (i) each person who was known by us to own beneficially more than five
  percent (5%) of our issued and outstanding common stock; (ii) each of the named
  Executive Officers; (iii) the individual Directors; and (iv) the Officers and
  Directors as a group.

|Title
      of Class | Name
      and Address 
      of Beneficial Owner 
      (1)                                                          | Amount
      of 
      Beneficial Ownership
      (2) | Percent
      of Class
|-------------------- | --------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | ----------------------
|Common               | Itera Holdings BV
      
      9995 Gate Parkway 
      Suite 400 
      Jacksonville, FL 32246                       | 35,464,397                                            | 76.4%                 
|Common               | Alan
      Gaines 
      Chairman & CEO                                                                               | 2,690,501
      (3)                                   | 5.8%                  
|Common               | Amiel David 
      President & COO                                                                                    | 406,250
      (4)(5)                                  | *                     
|Common               | Richard
      Cohen 
      CFO & Director 
      3 Park Avenue 
      New York, NY 10016                              | 328,385                                               | *                     
|Common               | Steven Barrenechea
      Director                                                                                     | 187,500
      (6)                                     | *                     
|Common               | Marshall Lynn Bass
      
      Director 
      1 Houston Center 
      1221 McKinney, # 3175
      Houston, TX 77010 | 25,000
      (6)                                      | *                     
|Common               | Raissa Frankel
      Director (7)                                                                                     | -0-                                                   |                      
|Common               | Valery Otchertsov
      Director (7)                                                                                  | -0-                                                   |                      
|Common               | Steven Sisselman
      Director (7)                                                                                   | -0-                                                   |                      
|Common               | All Officers and Directors
      as a Group (8 persons)                                                               | 3,637,636
      (3)(4)(5)(6)                          | 7.8%                  

| | *
Indicates ownership of less that 1%.
| | --------------------------------------

23

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| | (1)
Unless  otherwise  indicated,  the address of each of the persons listed  above  is the
address  of the  Company,  3050  Post  Oak  Blvd.,  Suite  695,  Houston, Texas 77056.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2)
A person is deemed to be the beneficial  owner of securities that can be  acquired by
such person  within 60 days from March 15, 2005.  Each  beneficial  owners
percentage  ownership is determined by assuming that options that are  held by such
person  (but  not  held  by any  other  person)  and  which  are  exercisable within 60
days from March 1, 2005 have been exercised.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3)
Excludes 300,000 shares held by Mr. Gaines children.
| | ---------------------------------------------------------

| | (4)
Includes  250,000  shares  underlying a stock option granted on February  15, 2005.
| | ---------------------------------------------------------------------------------------

| | (5)
Includes  125,000  shares  issued on February  15, 2004 and an  additional  31,250 issued
on May 5, 2004.
| | -------------------------------------------------------------------------------------------------------------

| | (6)
Includes  25,000  shares  underlying a stock option  granted on December  15, 2004.
| | ---------------------------------------------------------------------------------------

| | (7)
        The address for such person is 9995 Gate Parkway, Suite 400, Jacksonville,
        FL 32246
| | -------------------------------------------------------------------------------------------------------

|Item 12. |  | Certain
Relationships and Related Transactions.
|-------- |  | -----------------------------------------------

Vaquero
Partners and VOG entered into an agreement dated as of August  22, 2003, as subsequently
amended on November 17, 2003 and May 18, 2004.  Per this  agreement, VOG serves as the
operator and is required to perform all tasks  necessary to generate, market and sell
prospects to third parties on our Welder  Acreage. For its services, we paid VOG $225,000
during 2004 and we are obligated to  pay VOG $25,000 a month through May 2005.

On
November 15, 2004, we entered into a one year agreement with the  Wall Street Group, Inc.
(WSG), to assist us with investor relations.  Pursuant to  our agreement with
WSG, they received a monthly fee of $10,000 for the first three  months of their
engagement and will receive a monthly fee of $7,500 for each month  of service
thereafter.  Additionally, on November 15, 2004, we granted WSG options  to acquire up to
133,333 shares of our common stock at an exercise price of $0.75  per share.  Such
options expire in five years and vest 11,111 per month for so long  as our agreement with
WSG remains in effect.  Our agreement with WSG may be  terminated by either party upon
ninety (90) days written notice.

On
  March 30, 2005, Itera Holdings, BV (Itera), advanced us the sum
  of $5 million pursuant to the terms of a promissory note (the Note),
  a copy of which is annexed hereto as Exhibit 4.3. Subject to mandatory prepayment
  upon the occurrence of certain events, the Note bears interest at the Prime
  Rate plus 4% per annum through March 30, 2008. Interest is payable quarterly
  commencing June 30, 2005. We have agreed to fully repay the Note within 5 business
  days after (i) the consummation and financing of our proposed acquisition of
  the Barnett Shale Properties or (ii) securing a loan in excess of $10 million
  from a financial institution. If we do not close the acquisition of the Barnett
  Shale Properties on or before June 30, 2005, then we shall be required to make
  mandatory principal prepayments to Itera no later than sixty (60) days following
  the last calendar quarter commencing June 30, 2005, in an amount equal to 70%
  of our net operating profit from our interests in the Barnett Shale Properties.

24

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|Item 13. |  | Exhibits,
List and Reports on Form 8-K.
|-------- |  | ---------------------------------------

|(a) |  | Exhibits
|--- |  | --------

| | Exhibit
      Number |  | Description
| | -------------------- |  | -----------
| |                     

| | 3.1 |  | Amended
and Restated Certificate of Incorporation (1)
| | --- |  | -----------------------------------------------------

| | 3.1.1 |  | Certificate
of Designation for Series A  Convertible Preferred Stock (2)
| | ----- |  | ------------------------------------------------------------------------

| | 3.2 |  | Amended
and Restated By-Laws (3)
| | --- |  | --------------------------------

| | 4.1 |  | Form
of  Secured  Convertible  Promissory  Note (1)
| | --- |  | ---------------------------------------------------

| | 4.2 |  | Form
of  Stock  Option (1)
| | --- |  | --------------------------

| | 4.3 |  | Promissory
      Note dated as of March 30, 2005 from the Registrant to Itera Holdings BV
| | --- |  | -----------------------------------------------------------------------------------------

| | 10.1 |  | Plan
and  Agreement  of Merger  dated as of  May 5, 2003  between the  Registrant  and
Merchant  Builders,  Inc. (1)
| | ---- |  | --------------------------------------------------------------------------------------------------------------------

| | 10.1.1 |  | Stock
Purchase  Agreement  (with  exhibits)  dated May  10, 2004  between the  Company and
Itera  Holdings BV  (4)
| | ------ |  | ------------------------------------------------------------------------------------------------------------------

| | 10.2 |  | Oil
and Gas Lease and Option Agreement dated as of August 22, 2003  between the  Registrant
and the  Lessors  named  therein  with  respect to  the Welder  property (1)
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2.1 |  | Amendment
to First  Welder  Lease  Agreement  dated  February 5,  2004 (5)
| | ------ |  | --------------------------------------------------------------------------

| | 10.2.2 |  | Second
Amendment  to First  Welder  Lease  Agreement  dated April  8, 2004 (6)
| | ------ |  | ------------------------------------------------------------------------------

| | 10.2.3 |  | Oil
and Gas  lease dated  as of  August 19,  2004  between the  Registrant  and the  Lessors
named  therein  with  respect to  Welder  property (7)
| | ------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 |  | Agreement
dated as of October 30, 2003 between the Registrant and  Penroc Oil  Corporation  with
respect to  Los Mogotes  (1)
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------

| | 10.3.1 |  | Closing
Agreement with Penroc (8)
| | ------ |  | ---------------------------------

| | 10.3.2 |  | Assignment,
Conveyance and Bill of Sale  with respect to Los Mogotes (8)
| | ------ |  | ------------------------------------------------------------------------

| | 10.4 |  | Agreement
dated as of September 26, 2003 between the Registrant and  Seitel  Data, Ltd.  with
respect to  3-D seismic  data (1)
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------

25

---



| | 10.4.1 |  | Amendment
to Seitel  Agreement  dated  December  28, 2003 (5)
| | ------ |  | -------------------------------------------------------------

| | 10.5 |  | Amended
and  Restated Operating  Agreement of Vaquero Partners dated May  18, 2004 (8)
| | ---- |  | --------------------------------------------------------------------------------------

| | 10.6 |  | Agreement
dated as of  August 22, 2003 by  and among Vaquero Partners LLC, Vaquero  Oil & Gas,
Inc., and the Registrant (1)
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------

| | 10.6.1 |  | Amendment
dated  November  17, 2003 to  Agreement  between  Vaquero  Partners  LLC,  Vaquero Oil
& Gas,  Inc., and  the  Registrant  (5)
| | ------ |  | ----------------------------------------------------------------------------------------------------------------------------------------

| | 10.6.2 |  | Amendment
dated May  18, 2004 to  Agreement  between  Vaquero  Partners  LLC,  Vaquero Oil  & Gas,
Inc., and  the  Registrant  (8)
| | ------ |  | ----------------------------------------------------------------------------------------------------------------------------------

| | 10.7 |  | Area
of  Mutual  Interest  Agreement  dated  November  17, 2003  between the  Registrant  and
Vaquero  Oil & Gas,  Inc. (5)
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------

| | 10.8 |  | Employment
Agreement  dated as of  May 18,  2004  between the  Registrant  and Alan  Gaines (4)
| | ---- |  | -----------------------------------------------------------------------------------------------

| | 10.9 |  | Employment
Agreement  dated as of  May 18,  2004  between the  Registrant  and Richard  Cohen (4)
| | ---- |  | -------------------------------------------------------------------------------------------------

| | 10.10 |  | Employment
Agreement  dated as of  May 18 2004  between the  Registrant  and Amiel  David (4)
| | ----- |  | ---------------------------------------------------------------------------------------------

| | 31.1 |  | Certification
of Chief  Executive  Officer  pursuant to  Section 302  of the  Sarbanes-Oxley  Act of
2002
| | ---- |  | ---------------------------------------------------------------------------------------------------------

| | 31.2 |  | Certification
of Chief  Financial  Officer  pursuant to  Section 302  of the  Sarbanes-Oxley  Act of
2002
| | ---- |  | ---------------------------------------------------------------------------------------------------------

| | 32.1 |  | Certification
pursuant to  18 U.S.C.  1350,  adopted  pursuant to  Section 906  of the  Sarbanes-Oxley
Act of  2002, by  Chief  Executive  Officer
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

| | 32.2 |  | Certification
pursuant to  18 U.S.C.  1350,  adopted  pursuant to  Section 906  of the  Sarbanes-Oxley
Act of  2002, by  Chief  Financial  Officer
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

| | 99.1 |  | Reserve
Report of  Independent  Engineer
| | ---- |  | ----------------------------------------

26

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(1)
Previously filed as an exhibit to the Registrants 10-KSB for the  year ended
December 31, 2002, and incorporated by reference herein.

(2)
Previously filed as an exhibit to the Registrants 10-QSB for the  quarter ended
June 30, 2004, and incorporated by reference herein.

(3)
Previously filed as an exhibit to the Registrants Report on Form  8-K, filed on May
19, 2004, and incorporated by reference herein.

(4)
Previously filed as an exhibit to the Registrants Report on Form  8-K, filed on May
12, 2004, and incorporated by reference herein.

(5)
Previously filed as an exhibit to the Registrants 10-KSB for the  year ended
December 31, 2003, and incorporated by reference herein.

(6)
Previously filed as an exhibit to the Registrants Report on Form  8-K, filed on
April 20, 2004, and incorporated by reference herein.

(7)
Previously filed as an exhibit to the Registrants Report on Form  8-K, filed on
September 8, 2004, and incorporated by reference herein.

(8)
Previously filed as an exhibit to the Registrants Report on Form  8-K, filed on
June 3, 2004, and incorporated by reference herein.

|(b) |  | Reports
on Form 8-K
|--- |  | -------------------

During
the fourth quarter, we filed Reports on Form 8-K (i) on October  5, 2004 (announcing the
appointment of Mr. Bass as a Director and the formation of  our Audit Committee) and (ii)
on December 14, 2004 (announcing our participation in  the Pearsall Project).

27

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|Item 14. |  | Principal
Accountant Fees and Services.
|-------- |  | ---------------------------------------

Malone
& Bailey, P.C, Certified Public Accountants, are the Company's  independent auditors
that examined the financial statements of the Company for the  years ended December 31,
2004 and December 31, 2003. Malone & Bailey, P.C has  performed the services and has
been paid the fees for those years set forth below.

Audit Fees

Malone
& Bailey, P.C was paid aggregate fees of approximately $15,000  for the year ended
December 31, 2003 and approximately $31,000 for the year ended  December 31, 2004, for
professional services rendered for the audit of the  Company's annual financial
statements and for the reviews of the financial  statements included in Company's
quarterly reports on Form 10-QSB during these  fiscal years.

Audit-Related
Fees

Malone
& Bailey, P.C was not paid any additional fees by the Company  for the years ended
December 31, 2003 and December 31, 2004 for assurance and  related services reasonably
related to the performance of the audit or review of  the Company's financial statements.

Tax Fees

Malone
& Bailey, P.C was paid aggregate fees of $2,590 for the year  ended December 31, 2004
for professional services rendered for tax compliance, tax  advice and tax planning.

Other Fees

Malone
& Bailey, P.C was paid no other fees for professional services  during the years
ended December 31, 2003 and December 31, 2004.

28

---



SIGNATURES

In
  accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
  this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|                     | DUNE ENERGY,
      INC.
|-------------------- | -----------------------
|                     |                        
|                     |                        
|Date: March 29, 2004 | By:                    
|                     |                        
|                     | Name:                  
|                     | Title:                 
|                     |                        
|                     |                        
|Date: March 29, 2004 | By:                    
|                     |                        
|                     | Name:                  
|                     | Title:                 

In
  accordance with the Exchange Act, this report has been signed below by the following
  persons on behalf of the registrant and in the capacities and on the dates indicated.

|                     |                              
|-------------------- | -----------------------------
|                     |                              
|Date: March 29, 2004 | /s/ Alan Gaines              
|                     |                              
|                     | Alan
      Gaines            
|                     | Chief
      Executive Officer
|                     |                              
|                     |                              
|Date: March 29, 2004 | /s/ Richard Cohen            
|                     |                              
|                     | Richard
      Cohen          
|                     | Chief
      Financial Officer
|                     |                              
|                     |                              
|Date: March 29, 2004 | /s/ Steven Barrenechea       
|                     |                              
|                     | Steven
      Barrenechea     
|                     | Secretary,
      Director    
|                     |                              
|                     |                              
|Date: March 29, 2004 | /s/ Raissa Frenkel           
|                     |                              
|                     | Raissa
      Frenkel         
|                     | Director                     
|                     |                              
|                     |                              
|Date: March 29, 2004 | /s/ Valery G. Otchertsov     
|                     |                              
|                     | Valery
      G. Otchertsov   
|                     | Director                     

29

---



|                     |                             
|-------------------- | ----------------------------
|Date: March 29, 2004 | /s/ Steven Sisselman        
|                     |                             
|                     | Steven
      Sisselman      
|                     | Director                    
|                     |                             
|                     |                             
|Date: March 29, 2004 | /s/ Marshall Lynn
      Bass
|                     |                             
|                     | Marshall
      Lynn Bass    
|                     | Director                    

30

---



Exhibit
  Index

| | Exhibit
      Number |  | Description
| | -------------------- |  | -----------
| |                     

| | 3.1 |  | Amended and
      Restated Certificate of Incorporation (1)
| | --- |  | -----------------------------------------------------------

| | 3.1.1 |  | Certificate
      of Designation for Series A Convertible Preferred Stock (2)
| | ----- |  | -----------------------------------------------------------------------------

| | 3.2 |  | Amended and
      Restated By-Laws (3)
| | --- |  | --------------------------------------

| | 4.1 |  | Form of Secured
      Convertible Promissory Note (1)
| | --- |  | -----------------------------------------------------

| | 4.2 |  | Form of Stock
      Option (1)
| | --- |  | ------------------------------

| | 4.3 |  | Promissory
      Note dated as of March 30, 2005 from the Registrant to Itera Holdings BV
| | --- |  | -----------------------------------------------------------------------------------------

| | 10.1 |  | Plan and Agreement
      of Merger dated as of May 5, 2003 between the Registrant and Merchant Builders,
      Inc. (1)
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------

| | 10.1.1 |  | Stock Purchase
      Agreement (with exhibits) dated May 10, 2004 between the Company and Itera
      Holdings BV (4)
| | ------ |  | ---------------------------------------------------------------------------------------------------------------------

| | 10.2 |  | Oil and Gas
      Lease and Option Agreement dated as of August 22, 2003 between the Registrant
      and the Lessors named therein with respect to the Welder property (1)
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.2.1 |  | Amendment to
      First Welder Lease Agreement dated February 5, 2004 (5)
| | ------ |  | --------------------------------------------------------------------------

| | 10.2.2 |  | Second Amendment
      to First Welder Lease Agreement dated April 8, 2004 (6)
| | ------ |  | ------------------------------------------------------------------------------

| | 10.2.3 |  | Oil and Gas
      lease dated as of August 19, 2004 between the Registrant and the Lessors
      named therein with respect to Welder property (7)
| | ------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 |  | Agreement dated
      as of October 30, 2003 between the Registrant and Penroc Oil Corporation
      with respect to Los Mogotes (1)
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------

| | 10.3.1 |  | Closing Agreement
      with Penroc (8)
| | ------ |  | ---------------------------------------

| | 10.3.2 |  | Assignment,
      Conveyance and Bill of Sale with respect to Los Mogotes (8)
| | ------ |  | -----------------------------------------------------------------------------

| | 10.4 |  | Agreement dated
      as of September 26, 2003 between the Registrant and Seitel Data, Ltd. with
      respect to 3-D seismic data (1)
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------

31

---



| | 10.4.1 |  | Amendment to
      Seitel Agreement dated December 28, 2003 (5)
| | ------ |  | ---------------------------------------------------------------

| | 10.5 |  | Amended and
      Restated Operating Agreement of Vaquero Partners dated May 18, 2004 (8)
| | ---- |  | -----------------------------------------------------------------------------------------

| | 10.6 |  | Agreement dated
      as of August 22, 2003 by and among Vaquero Partners LLC, Vaquero Oil &
      Gas, Inc., and the Registrant (1)
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------

| | 10.6.1 |  | Amendment dated
      November 17, 2003 to Agreement between Vaquero Partners LLC, Vaquero Oil
      & Gas, Inc., and the Registrant (5)
| | ------ |  | ----------------------------------------------------------------------------------------------------------------------------------------

| | 10.6.2 |  | Amendment dated
      May 18, 2004 to Agreement between Vaquero Partners LLC, Vaquero Oil &
      Gas, Inc., and the Registrant (8)
| | ------ |  | -----------------------------------------------------------------------------------------------------------------------------------

| | 10.7 |  | Area of Mutual
      Interest Agreement dated November 17, 2003 between the Registrant and Vaquero
      Oil & Gas, Inc. (5)
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------

| | 10.8 |  | Employment
      Agreement dated as of May 18, 2004 between the Registrant and Alan Gaines
      (4)
| | ---- |  | ----------------------------------------------------------------------------------------------------

| | 10.9 |  | Employment
      Agreement dated as of May 18, 2004 between the Registrant and Richard Cohen
      (4)
| | ---- |  | ------------------------------------------------------------------------------------------------------

| | 10.10 |  | Employment
      Agreement dated as of May 18 2004 between the Registrant and Amiel David
      (4)
| | ----- |  | ---------------------------------------------------------------------------------------------------

| | 31.1 |  | Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002
| | ---- |  | --------------------------------------------------------------------------------------------------------------

| | 31.2 |  | Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002
| | ---- |  | --------------------------------------------------------------------------------------------------------------

| | 32.1 |  | Certification
      pursuant to 18 U.S.C. 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002, by Chief Executive Officer
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | 32.2 |  | Certification
      pursuant to 18 U.S.C. 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002, by Chief Financial Officer
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | 99.1 |  | Reserve Report
      of Independent Engineer
| | ---- |  | --------------------------------------------

32

---