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

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FORM
  10-KSB

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

For the
  fiscal year ended December 31, 2003

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.)
|                                                                            |  |                                                 
|1330
      Post Oak Blvd., Suite 1600
      Houston, Texas                  |  | 77056                                           
|(Address
      of principal executive offices)                              |  | (Zip
      Code)                                

Issuers
  telephone number, including area code: (713) 963-4635

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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
  ý 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. o

The Issuers
  total consolidated revenues for the year ended December 31, 2003, were $0.

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 $ 0.

14,763,257
  shares of the registrant's Common Stock were outstanding as of March 15, 2004.

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

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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 gas
|- |  | -----------------------------------------------------------------------

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

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

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

| |  | our ability to maintain low overhead costs
|- |  | ------------------------------------------

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

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

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Item 1.
  Description of Business.

Since
  May 2003, Dune Energy, Inc. (the Company) has been an independent
  energy company engaged in the business of leasing, acquiring and subsequently
  developing, natural gas and crude oil producing properties. By capitalizing
  on the significant experience and contacts of the Companys Chairman in
  the energy sector, the Company will seek to develop its existing assets (described
  below) and to acquire additional properties with proved producing reserves plus
  incremental development opportunities.

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. The Company currently has three employees.

The
  Company files various reports with the Securities and Exchange Commission (SEC).
  These reports include the 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 the Companys filings may also
  be viewed by visiting the SECs website at http://www.sec.gov.

Item 2.
  Description of Property.

The
  Welder Ranch: On August 21 2003, the Company, through its subsidiary, Vaquero
  Partners, LLC (Vaquero Partners), entered into an Oil &Gas Lease
  Option Agreement (the Welder Lease Agreement), pursuant to which
  the Company leased approximately 1,400 acres and purchased the option to lease
  an additional 6,800 acres of land held by the Welder family in Victoria County,
  Texas (collectively, the Welder Acreage). Upon the execution of
  the Welder Lease Agreement, the Company delivered the sum of $302,528 to the
  Welder family. The option runs for one year and may be exercised at a lease
  price of $100 per acre. A copy of the Welder Lease Agreement was filed as Exhibit
  10.2 to the Companys 10-KSB for the year ended December 31, 2002 and is
  incorporated by reference herein.

Under
  the terms of an Amendment to the Welder Lease Agreement, dated as of February
  5, 2004 (the Welder Lease Amendment), the Primary Term
  will expire and the Company will be required to pay $200,000 in damages, unless
  the Company commences and thereafter diligently prosecutes with good and adequate
  machinery, operations for the drilling of a well in search of oil and gas, to
  a depth of at least 5,000 feet by May 21, 2004. To date, the Company has not
  drilled a qualifying well under the Welder Lease Agreement and is in danger
  of losing its rights to the leased acreage unless it commences said operations
  prior to May 21, 2004. The Company is in advanced discussions with various potential
  drilling partners in an effort to secure drilling commitments to fulfill its
  obligations under the Welder Lease Agreement. A copy of the Welder Lease Amendment
  is filed as Exhibit 10.2.1 hereto and is incorporated by reference herein.

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Set
  in the center of the Wilcox, Frio and Miocene fairways, the geology of the 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 Acreage. Per the terms of the Welder Lease Agreement, the
  Company will receive 70% of net revenues generated on the Welder Acreage.

Also
  of significant importance to the Company is the availability of a high quality
  3D seismic survey by Seitel Data, Ltd., underwritten by Coastal Corporation.
  The survey was completed in late 1999 and is a high quality 40-fold data versus
  the more typical 24-fold data. The survey revealed the presence of multiple
  new untested structures and traps in the Wilcox formation that may aggregate
  in excess of 60 BCF of exploration potential. To date, the Company has licensed
  the rights to use 8 square miles of this 3D survey and plans to complete the
  purchase of the license to an additional 12 square miles during the first six
  months of 2004. A copy of the Agreement between the Company and Seitel Data,
  Ltd was filed as Exhibit 10.4 to the Companys 10-KSB for the year ended
  December 31, 2002, and is incorporated by reference herein. An Amendment to
  the Seitel Agreement is filed as Exhibit 10.4.1 hereto and is incorporated by
  reference herein.

The
  Welder Acreage is prospective in zones as shallow as 900 feet to as deep as
  17,000 feet in four proven productive formations. The most significant formations
  are:

1. The
  Wilcox Formation  Is one of the most prolific formations along the
  Texas Gulf Coast and a primary objective for the industrys current exploration
  activities. 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
  10,000 feet are often geopressured. These geopressured zones are the focus of
  most of the present day drilling in the three counties surrounding the Welder
  Acreage. Reserves are typically in the range of 2-10 BCF per completion, but
  may exceed 20 BCF per well. A successful upper Wilcox well will typically cost
  between $600,000 and $800,000 at the 9,000 foot depth. The deeper geopressured
  wells may cost over $2 million per well.

2. The
  Frio Formation  Is approximately 2,500 feet thick in the areas surrounding
  the Welder Acreage and is gas productive from numerous sands, the most favorable
  of which is a channel sand at +/- 3,000 feet and identifiable with the 3D seismic.
  A successful Frio well will generally yield between 500 MMCF and 1.5 BCF, representing
  an approximate net present value between $750,000 and $2,250,000, at current
  prices. The average drilling and completion cost for a Frio well is less than
  $250,000. A preliminary review of the 3D seismic survey has indicated the presence
  of up to 20 Frio prospects on the Welder Acreage.

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3. The
  Miocene Formation  Extends from 900 feet to approximately 2,000 feet,
  and is mostly a gas producer from a multitude of reservoirs throughout the areas
  surrounding the Welder Acreage.

4. The
  Yegua Formation  Typically occurs beneath the Frio Formation at a
  depth of approximately 5,000 feet and is also gas productive from stratigraphic
  traps which can be found with the 3D seismic data.

As
  stated above, the Company entered into the Welder Lease Agreement through its
  subsidiary, Vaquero Partners. Vaquero Partners is a joint undertaking between
  the Company and Vaquero Oil and Gas, Inc. (VOG), which initially
  holds a 15% interest in Vaquero Partners. The Company and VOG have also entered
  into an Area of Mutual Interest Agreement (the AMI), pursuant to
  which VOG has granted to Vaquero Partners the right to participate with VOG
  in the event VOG is offered the opportunity to lease up to an additional 350,000
  acres of lands held by the Welder family in the United States. A copy of the
  AMI is filed as Exhibit 10.7 hereto, and is incorporated by reference herein.

Vaquero
  Partners was formed specifically for the purpose of holding and developing the
  Welder Acreage and any other leases subsequently offered by the Welders. Initially,
  the Company will hold a 85% membership interest and VOG will hold a 15% membership
  interest in Vaquero Partners. The Company will employ a monthly cash sweep to
  capture revenues generated from the joint ventures activities. Once the
  Company has recouped 200% of its total invested cost in Welder, the Companys
  membership interest will go to 75% and VOGs to 25%. Once the Company has
  received cash equal to 300% of its invested amount in Welder, the Companys
  membership interest will go to 60% and VOGs to 40%. A copy of the Operating
  Agreement for Vaquero Partners was filed as Exhibit 10.5 to the Companys
  10-KSB for the year ended December 31, 2002, and is incorporated by reference
  herein.

Vaquero
  Partners and VOG entered into an agreement dated as of August 22, 2003, and
  amended on November 17, 2003, pursuant to which Vaquero Partners will pay $25,000
  a month to VOG for the first six months of the term and $12,500 for the next
  six months, to perform all tasks necessary to generate, market and sell prospects
  to third parties on the Welder Acreage. A copy of the Agreement between Vaquero
  Partners and VOG was filed as Exhibit 10.6 to the Companys 10-KSB for
  the year ended December 31, 2002, and is incorporated by reference herein. A
  copy of the Amendment to the Agreement between Vaquero Partners and VOG is filed
  as Exhibit 10.6.1 hereto, and is incorporated by reference herein.

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Los
  Mogotes

On
  June 3, 2003, the Company delivered $174,800 to Penroc Oil, Inc. (Penroc)
  as a deposit on the option granted by Penroc to the Company, to purchase 34.98%
  of Penrocs 2% working interest in the Los Mogotes field located in Zapata
  County, Texas, for the purchase price of $874,500 and 50,000 shares of the Companys
  common stock. The deposit is refundable in the event the Company does not complete
  the purchase of its interest in Los Mogotes by June 30, 2004. A copy of the
  Agreement between the Company and Penroc was filed as Exhibit 10.3 to the Companys
  10-KSB for the year ended December 31, 2002, and is incorporated by reference
  herein.

The
  Los Mogotes field is one of the leading onshore U.S. development projects held
  by its operator, Pogo Producing Company (NYSE: PPP), and was Pogos featured
  onshore development project presented at the February, 2003 CS First Boston
  industry conference. Pogo purchased its 65% operating working interest in March
  2001 when it acquired the privately held North Central Oil Corporation. Los
  Mogotes 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.

Since
  acquiring its interest in the property, Pogo has drilled over 40 exploration
  and development wells on the property, of which better than 90% have been completed
  as successful gas producers. Pogo drilled and completed 26 wells in the field
  during 2002, and 27 wells during 2003. Los Mogotes production has increased
  steadily since its acquisition by Pogo and now averages over 50 million cubic
  feet of gas per day (an increase of over 100% within the last 12 months). For
  2004, Pogo has budgeted an additional 34 wells. Pogo currently has three contract
  rigs operating in South Texas and Pogo expects such rigs to spend the majority
  of their time working in the Los Mogotes Field. 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 viability of this field.

Item 3.
  Legal Proceedings.

Neither
  the Company nor its 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, 2003.

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# PART II

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

There
  is currently no market for the Companys common stock. To date, the Company
  has not paid dividends on its shares of common stock and has no present intention
  to do so.

Between
  April and August 2003, the Company conducted a private offering pursuant to
  Rule 506 of Regulation D, pursuant to which the Company sold Secured Convertible
  Promissory Notes (the Secured Notes) in the aggregate principal
  face amount of $382,500. The Secured Notes have a maturity of 18 months and
  bear interest at the rate of 10% per annum. The Secured Notes are convertible
  into shares of the Companys common stock, at any time prior to maturity,
  at a conversion price of $0.45 per share of common stock. Upon conversion, the
  holder of a Secured Note will also receive additional shares of common stock
  equal to 10% of the face amount of such holders note divided by $0.45.
  Initially, all Secured Notes are convertible into an aggregate of 935,000 shares
  of the Companys common stock. Repayment of the Secured Notes is secured
  by a first lien on the Companys assets and by the pledge of certain shares
  of common stock held by one former and three current Directors of the Company.
  A form of the Secured Note is filed as Exhibit 4.1 hereto, and is incorporated
  by reference herein.

During
  August and September 2003, the Company raised an additional $504,000 by issuing
  five promissory notes (the Guaranteed Notes). Four of the Guaranteed
  Notes are convertible at an average conversion price of $0.45 per share. Such
  sales were made pursuant to Rule 506 of Regulation D and in reliance on Section
  4(2) of the Act. The Guaranteed Notes have a 1-year maturity and their repayment
  was personally guaranteed by the Companys Chairman, Alan Gaines. Initially,
  the Guaranteed Note holders received 217,527 shares of common stock. In the
  event the four convertible Guaranteed Notes are converted, the Company would
  be required to issue an aggregate of 906,044 shares of its common stock.

During
  the fourth quarter of 2003, the Company conducted a private offering pursuant
  to Rule 506 of Regulation D, pursuant to which the Company sold convertible
  promissory notes (the Additional Notes) in the aggregate principal
  face amount of $380,000. The Additional Notes have a maturity of 18 months and
  bear interest at the rate of 10% per annum. The Additional Notes are convertible
  into shares of the Companys common stock, at any time prior to maturity,
  at a conversion price of $0.45 per share of common stock. Upon conversion, the
  holder of an Additional Note will also receive additional shares of common stock
  equal to 20% of the face amount of such holders note divided by $0.45.
  Initially, all such Additional Notes are convertible into an aggregate of 1,013,333
  shares of the Companys common stock.

During the fourth quarter of 2003, the Company granted a consultant an option
  to purchase up to 250,000 shares of the Company's common stock, at an exercise
  price of $0.54 per share. The option may be exercised at any time commencing
  May 1, 2004 and expires October 31, 2008.

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Item 6.
  Managements Plan of Operation.

As
  previously stated above, the Company plans to acquire and develop interests
  in natural gas and oil properties. To date, the Company has not generated any
  revenues from operations and its ability to do so in the future is highly dependent
  on the Companys ability to raise additional capital.

During
  the next twelve months, the Company anticipates minimum expenses of $2,500,000
  to $3,000,000 including $610,000 to complete the purchase of Los Mogotes by
  June 30, 2004; $680,000 (should the Company elect to exercise its option) to
  lease an additional 6,800 acres on the Welder Ranch; $350,000 to complete a
  5,000 foot well ($800,000 in the event the Company elects to drill a Wilcox
  well) to maintain its rights to the 1,400 acres leased from the Welder family
  (unless a third party acquires an interest in the Welder property and undertakes
  to drill such well); $260,000 to be paid to Seitel Data Ltd. to complete the
  purchase of the license for the 3D seismic data and for its working capital
  needs. In addition to the foregoing, unless the Secured Notes and the Guaranteed
  Notes are converted into common stock, the Company will be obligated to pay
  the holders thereof, $382,500 and $504,000, respectively during 2004.

Under
  the terms of its Agreement with Penroc, the Company is required to deliver the
  remainder of the purchase price to Penroc no later than June 30, 2004. Provided
  that the balance of the purchase price (including interest at the rate of 9%per
  annum) is timely paid, the effective date of the transfer will be April 1, 2003
  with respect to revenue and lease operating expenses and February 1, 2003 with
  respect to capital expenditures. Based on Dunes proportionate share of
  revenues generated at Los Mogotes, less its proportionate share of lease operating
  expenses and capital expenditures, it is estimated that the purchase price due
  at closing will be approximately $610,00. Based on information furnished by
  Penroc to the Company, the Company projects that its annualized cash flow on
  its interest from producing wells in Los Mogotes will be approximately $600,000
  for 2004. The Company is presently in negotiations with various lenders to complete
  the financing necessary to enable the Company to complete the purchase of its
  interest in Los Mogotes. There can be no assurances that the Company will be
  able to complete such financing and that it will be able to complete the purchase
  of its interest in Los Mogotes by June 30, 2004.

The
  Company has received a report from an independent engineer commissioned by the
  Company, stating that in his opinion, the Welder Acreage contains proved reserves
  of 12.4 billion cubic feet of natural gas and 142,205 barrels of oil/natural
  gas liquids, which he classified as proved undeveloped. Using natural gas wellhead
  prices as at December 31, 2003 unescalated for the life of the properties, Future
  Net Revenue was estimated at $39,855,204. When discounted at 10% (in accordance
  with SEC generally accepted accounting principles), this stream of Future Net
  Revenue was estimated at $30,508,514. Given that the Company does not have the
  immediate financial wherewithal to exploit such reserves, they have not been
  included in our Balance Sheet. This report is filed as Exhibit 99.2 hereto,
  and is incorporated by reference herein. In addition, based on Managements
  discussions with VOGs geologist/geophycist, other outside engineering
  consultants and industry contacts, Management of the Company believes that the
  Welder Acreage may contain in excess of 60 billion cubic feet of possible and
  potential reserves on an un-risked basis to the Company. Estimation of reserves
  is done under conditions of uncertainty, and actual future production rates
  and volume may be more or less than estimated.

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By
  virtue of the proved undeveloped reserves believed to be present on the Welder
  Acreage and assuming a successful drilling by the Company or an industry partner
  of at least one of those proved undeveloped prospects, Management believes that
  the Company will be able to secure a line of credit from a financial institution
  in an amount sufficient for the Company to drill additional wells on the Welder
  Acreage and provide the Company with additional available credit. Doing so would
  be beneficial to the Company by providing it with immediate revenue and cash
  flow from then producing natural gas wells. In addition, such facility could
  potentially be increased in size based on the Companys success in adding
  interests in additional producing wells or through the drilling expenditures
  made by others on its properties consequent to the Companys prospect marketing
  efforts.

In
  addition to the foregoing, the Company intends to meet its financial needs by
  seeking to raise additional capital and by selling prospects developed on the
  Welder Acreage to third parties. The Company anticipates that it will be able
  to generate revenues on the Welder Acreage from three sources:

|1 |  | Prospect
      Overhead fees  These will include an allocation of seismic and
      lease costs and prospect overhead fees. The Company believes it may be able
      to attach fees of in excess of $150,000 to each of the high-impact Wilcox
      prospects, and $50,000 to each Frio/Miocene prospect, potentially recouping
      well in excess of its initial funding costs.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. |  | Production
      revenue from low-risk exploitation projects  The Companys
      independently commissioned engineering report has identified six low risk
      offset drilling opportunities on the Welder Acreage, which are classified
      as proved undeveloped and which the Company may elect to drill for its own
      account.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Revenue
      from carried working interests on high-impact exploration wells 
      The Companys intent is to farm-out higher risk exploration wells to
      industry partners for a recoupment of invested costs plus a carried working
      interest.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

After
  acquiring the Welder Acreage and the Seitel 3D data set, the Company through
  its Agreement with VOG began generating natural gas prospects for potential
  sale to other companies in the oil and gas industry. This process is ongoing
  and is an integral part of Dunes Plan of Operations. The Company began
  the marketing of its first Wilcox prospect during the fourth quarter of 2003
  with the objective of securing a drilling commitment for a 9,000 foot Wilcox
  well. As stated above, pursuant to the Welder Lease Amendment, the Company is
  required to commence and diligently pursue the drilling of a well on the Welder
  Acreage to a depth of at least 5,000 feet by May 21, 2004. The Company is actively
  pursuing drilling partners and additional financing. Of course, there can be
  no assurances that the Company will be successful in raising aditional capital,
  securing lines of credit or in selling any of its prospects to third parties,
  or that any such transactions, if consummated, will be on terms favorable to
  the Company.

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Risk
  Factors

Additional
  Financing and Capital Requirements.In its audit report for the year ended
  December 31, 2003, the Companys independent auditors stated that the Companys
  accumulated deficit and working capital deficit raises substantial doubt about
  the Companys ability to continue as a going concern. The Company needs
  to raise additional capital to achieve its business objectives. As discussed
  elsewhere in this Report, the Company intends to acquire the capital it needs
  by raising additional funds through the issuance of debt and/or equity securities
  and by selling to third parties prospects and/or other rights in its interests
  in the Welder Acreage and Los Mogotes. In addition, the Company may require
  that a buyer of a prospect in the Welder Acreage drill the well necessary for
  the Company to maintain its leasehold interests in the Welder Acreage. There
  can be no assurances that the Company will be able to raise additional capital
  or that the terms on which such capital is raised will be acceptable. Further,
  there can be no assurances that the Company will be successful in its efforts
  to sell any interests in its prospects or that the terms of any such transactions
  will be acceptable. To the extent that the Company relies upon third parties
  to drill the wells required to maintain its interest in the Welder Acreage,
  its ability to achieve its business objectives will be dependent on the efforts
  of others.

Limited
  Operating History.To date, the Company has had no revenues and anticipates
  significant expenses relating to the development of its infrastructure and business.
  The Companys prospects must be considered in light of the risks, expenses,
  delays, problems and difficulties frequently encountered in the establishment
  of a new business in the energy area, given the volatile nature of the energy
  markets that we are currently experiencing. There can be no assurance that the
  Company will achieve its objective and program, or that it will be able to succeed
  in achieving its objective and program.

Management
  by Principals. The Company will be managed exclusively by its Board of Directors
  and appointed officers. Accordingly, the success of the Company will depend
  upon the ability of the principals and other individuals employed by the Company
  to execute on its business plan. The Company will have considerable latitude
  in its choice of acquisitions of energy properties or rights and the structuring
  of the acquisition of energy properties or rights. The Company is highly dependent
  upon the expertise of its key employees and its principals in providing advisory
  service (s) with respect to energy properties or rights. If the services of
  the principals were lost, the Company could be materially adversely affected.

Energy
  Markets.The Company intends to invest in energy properties or rights,
  or to acquire assets, or rights to assets, or rights to lease or use assets,
  all of which are private, illiquid assets. These investments may be difficult
  to value and to sell or otherwise liquidate and the risk of investing in such
  assets is generally much greater than the risk of investing in listed or publicly
  traded companies.

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Requirement
  to Drill Well on Welder Property. As stated above, the Company is required
  to commence and diligently pursue the drilling of a well capable of producing
  oil or gas in paying quantities to a depth of at least 5,000 feet, by May 21,
  2004. The estimated cost of drilling such a well is approximately $350,000 ($800,000
  in the event the Company elects to drill a Wilcox well). While Management believes
  the Company will be able to satisfy this condition of the lease, there can be
  no assurances that the Company will be able to do so.

Competition
  and Market Conditions.The Company experiences competition from other oil
  and gas companies in all phases of its operations, as well as competition from
  other energy-related industries. The Companys profitability and cash flow
  are highly dependent upon the prices of oil and natural gas, which historically
  have been seasonal, cyclical and volatile. In general, prices of oil and gas
  are dependent upon numerous factors beyond the control of the Company, including
  various weather, economic, political and regulatory conditions. In addition
  the decisions of the Organization of Petroleum Exporting Countries relating
  to export quotas also affect the price of crude oil. A future drop in oil or
  gas prices could have a material adverse effect on the Companys cash flow
  and profitability. Sustained periods of low prices could cause the Company to
  shut in existing production and also have material adverse effect its operations
  and financial condition.

No Public
  Market For Our Stock. The Company currently has no class of publicly-traded
  securities and there can be no assurance that an active trading market will
  ever develop or be sustained.

11

---





Item 7.
  Financial Statements.

INDEPENDENT
  AUDITORS REPORT

Board of Directors
  and Stockholders
     Dune Energy, Inc. (formerly IP Factory, Inc.)
     Houston, Texas

We have audited
  the accompanying consolidated balance sheet of Dune Energy, Inc. (formerly,
  IP Factory, Inc.) as of December 31, 2003, and the related consolidated statements
  of expenses, stockholders deficit, and cash flows for each of the two
  years then ended. These consolidated 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 auditing standards generally accepted in the United
  States of America. 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 consolidated financial statements referred to above present fairly, in all
  material respects, the financial position of Dune Energy, Inc. (formerly IP
  Factory, Inc.) as of December 31, 2003 and 2002 and the results of its operations
  and its cash flows for each of the two years then ended in conformity with accounting
  principles generally accepted in the United States of America.

The accompanying
  consolidated financial statements have been prepared assuming that Dune will
  continue as a going concern. As discussed in note 2 to the consolidated financial
  statements, Dune has a significant accumulated deficit and significant working
  capital deficiency at December 31, 2003 which raises substantial doubt about
  Dunes ability to continue as a going concern. Managements plans
  in regard to these matters are also described in note 2. The financial statements
  do not include any adjustments relating to the recoverability and classification
  of recorded asset amounts or to the amounts and classification of liabilities
  that might be necessary should Dune be unable to continue as a going concern.

Malone &
  Bailey, PLLCwww.malone-bailey.comHouston, Texas

March 15,
  2004

F-1

---





DUNE ENERGY,
  INC. 
  (FORMERLY IP FACTORY, INC.)
  CONSOLIDATED BALANCE SHEETDecember 31, 2003

|ASSETS                                                                    |  |  |   |            |  
|------------------------------------------------------------------------- |  |  | - | ---------- | -
|Current
      Assets:                                                     |  |  |   |            |  
|Cash                                                                      |  |  | $ | 227,740    |  
|Deposit,
      Los Mogotes                                                |  |  |   | 179,600    |  
|                                                                          |  | 
|Total
      current assets                                                |  |  |   | 407,340    |  
|                                                                          |  |  |   |            |  
|Unproved
      oil & gas properties, using full cost method of accounting |  |  |   | 914,926    |  
|                                                                          |  |  |   |            |  
|Deferred
      financing costs                                            |  |  |   | 42,690     |  
|                                                                          |  | 
|                                                                          |  |  |   |            |  
|Total
      assets                                                        |  |  | $ | 1,364,956  |  
|                                                                          |  | 
|                                                                          | 
|LIABILITIES
      AND STOCKHOLDERS DEFICIT                               |  | 
|Current
      liabilities:                                                |  | 
|Accounts
      payable and accrued expenses                               |  |  | $ | 287,136    |  
|Notes
      payable                                                       |  |  |   | 360,000    |  
|Convertible
      debentures                                              |  |  |   | 404,000    |  
|Current
      portion, long-term convertible debentures                   |  |  |   | 312,500    |  
|                                                                          |  | 
|Total
      current liabilities                                           |  |  |   | 1,363,636  |  
|                                                                          |  |  |   |            |  
|Long-term
      convertible debentures                                    |  |  |   | 450,000    |  
|                                                                          |  | 
|COMMITMENTS                                                               |  | 
|                                                                          |  | 
|Stockholders
      deficit:                                              |  | 
|Preferred
      stock, $.001 par value, 1,000,000 authorized none issued  |  |  |   | --         |  
|Common
      stock, $.001 par value, 25,000,000 shares                    |  |  |   |            |  
|authorized,
      14,238,257 shares issued and outstanding                |  |  |   | 14,238     |  
|Additional
      paid in capital                                          |  |  |   | 2,096,387  |  
|Accumulated
      deficit                                                 |  |  |   | (2,559,305 | )
|                                                                          |  | 
|Total
      stockholders deficit                                         |  |  |   | (448,680   | )
|                                                                          |  | 
|                                                                          |  |  |   |            |  
|Total
      liabilities and stockholders deficit                         |  |  | $ | 1,364,956  |  
|                                                                          |  | 

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

F-2

---





DUNE ENERGY,
  INC. 
  (FORMERLY IP FACTORY, INC.)
  CONSOLIDATED STATEMENTS OF EXPENSESYears ended December
  31, 2003 and 2002

|                                           |  |  | 2003 |            | 2002 |  
|------------------------------------------ |  |  | ---- | ---------- | ---- | -
|                                           |  |  |      |           
|General
      and administrative           |  |  |      | 328,371    |      |  
|Impairment
      of Merchant Builders      |  |  |      | 18,225     |      |  
|Interest
      expense                     |  |  |      | 83,906     |      |  
|                                           |  |  |      |           
|                                           |  |  |      |            |      |  
|Net loss                                   |  |  | $    | (430,502   | )    | $
|                                           |  |  |      |           
|                                           |  | 
|Basic
      and diluted net loss per share |  |  | $    | (0.04      | )    | $
|                                           |  |  |      |           
|                                           |  | 
|Weighted
      average shares outstanding  |  |  |      | 10,339,838 |      |  
|                                           |  |  |      |           

See accompanying
  summary of accounting policiesand notes to financial
  statements.

F-3

---





DUNE ENERGY,
  INC. 
  (FORMERLY IP FACTORY, INC.) 
  CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICITYears Ended December
  31, 2003 and 2002

|                                  | Common
      Stock |  | Additional
      Paid-in 
      Capital |            | Accumulated
      Deficit |   | Total  |  
|--------------------------------- | ------------------ |  | --------------------------------------- | ---------- | ------------------------- | - | ------ | -
|                                  | Shares             |  | Amount                                  |            |                           |   |       
|                                  |                    |  |                                         |            |                           |   |        |  
|Balances,
      December 31, 2001 |                    |  |                                         | 6,223,027  |                           | $ | 6,223  |  
|                                  |                    |  |                                         |            |                           |   |        |  
|Net
      loss                    |                    |  |                                         | --         |                           |   | --     |  
|                                  |                    |  |                                         |            |                           |   |        |  
|                                  |                    |  |                                         |            |                           |   |        |  
|Balances,
      December 31, 2002 |                    |  |                                         | 6,223,027  |                           |   | 6,223  |  
|Stock
      issued for:           |                    | 
|Note
      payable stockholder    |                    |  |                                         | 2,486,549  |                           |   | 2,486  |  
|Merchant
      Builders           |                    |  |                                         | 1,725,000  |                           |   | 1,725  |  
|Services
      and interest       |                    |  |                                         | 4,753,681  |                           |   | 4,754  |  
|Penroc                            |                    |  |                                         | 50,000     |                           |   | 50     |  
|Stock
      contributed           |                    |  |                                         | (1,000,000 | )                         |   | (1,000 | )
|Net
      loss                    |                    |  |                                         | --         |                           |   | --     |  
|                                  |                    |  |                                         |            |                           |   |        |  
|                                  |                    |  |                                         |            |                           |   |        |  
|Balances,
      December 31, 2003 |                    |  |                                         | 14,238,257 |                           | $ | 14,238 |  
|                                  |                    |  |                                         |            |                           |   |        |  

See accompanying
  summary of accounting policiesand notes to financial
  statements.

F-4

---





DUNE ENERGY,
  INC. 
  (FORMERLY IP FACTORY, INC.) 
  CONSOLIDATED STATEMENTS OF CASH FLOWSYears ended December
  2003 and 2002

|                                                                              | 2003 |  | 2002 |          
|----------------------------------------------------------------------------- | ---- |  | ---- | ---------
|                                                                              |      |  |      |          
|CASH
      FLOWS FROM OPERATING ACTIVITIES                                    |      |  |      |          
|Net loss                                                                      |      |  | $    | (430,502 
|Adjustments
      to reconcile net loss to cash used in operating activities: |      | 
|Amortization
      of debt discount                                           |      |  |      | 28,303   
|Stock
      for services and interest                                         |      |  |      | 62,368   
|Impairment
      of Merchant Builders                                         |      |  |      | 18,225   
|Changes
      in:                                                             |      |  |      | --       
|Accounts
      payable and accrued expenses                                   |      |  |      | 188,365  
|                                                                              |      |  |      |          
|Net cash
      used in operating activities                                   |      |  |      | (133,241 
|                                                                              |      |  |      |          
|                                                                              |      | 
|CASH
      FLOWS FROM INVESTING ACTIVITIES                                    |      | 
|Investment
      in unproved properties                                       |      |  |      | (614,926 
|Deposit
      Los Mogotes                                                     |      |  |      | (179,600 
|                                                                              |      |  |      |          
|Net cash
      used in investing activities                                   |      |  |      | (794,526 
|                                                                              |      |  |      |          
|                                                                              |      | 
|CASH
      FLOWS FROM FINANCING ACTIVTIES                                     |      | 
|Proceeds
      from sale of debentures and notes payable                      |      |  |      | 504,000  
|Payment
      on note payable  seismic data                                  |      |  |      | (40,000  
|Proceeds
      from long-term debt                                            |      |  |      | 762,500  
|Debt
      issuance costs                                                     |      |  |      | (70,993  
|                                                                              |      |  |      |          
|Net cash
      provided by financing activities                               |      |  |      | 1,155,507
|                                                                              |      |  |      |          
|                                                                              |      |  |      |          
|NET INCREASE
      IN CASH                                                    |      |  |      | 227,740  
|Cash,
      beg. of period                                                    |      |  |      | --       
|                                                                              |      |  |      |          
|Cash,
      end of period                                                     |      |  | $    | 227,740  
|                                                                              |      |  |      |          
|                                                                              |      | 
|SUPPLEMENTAL
      INFORMATION:                                               |      | 
|Income
      taxes paid                                                       |      |  | $    | --       
|                                                                              |      |  |      |          
|Interest
      paid                                                           |      |  | $    | 42,857   
|                                                                              |      |  |      |          
|                                                                              |      | 
|NON CASH
      INVESTING AND FINANCING:                                       |      | 
|Purchase
      of seismic data with note payable                              |      |  | $    | 300,000  
|                                                                              |      |  |      |          
|Issuance
      of stock for note payable to stockholder                       |      |  | $    | 700,521  
|                                                                              |      |  |      |          

See accompanying
  summary of accounting policiesand notes to financial
  statements.

F-5

---





DUNE ENERGY,
  INC. 
  (FORMERLY IP FACTORY, INC.) 
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY
  OF ACCOUNTING POLICIES

Nature of
  Business

In May 2003,
  IP Factory, Inc. (IP) changed its name to Dune Energy, Inc. (Dune).
  On August 7, 2003, Dune formed Vaquero Partners, LLC (VP) to acquire
  and develop oil and gas leases in South Texas. Dune owns 85% of VP with the
  other 15% owned by Vaquero Oil & Gas, Inc. (VOG), a privately
  held corporation. Dunes interest in the profits of the LLC are as follows:
  85% until Dune receives distributions equal to two times the sum of its capital
  contributions, 75% until Dune receives distributions equal to three times the
  sum of its capital contributions and 60% thereafter. Losses are allocated first
  among the Members in proportion to and to the extent of the positive balances
  in their capital accounts and then 100% to Dune.

Consolidation

The accompanying
  consolidated financial statements include the accounts of Dune and VP. All significant
  intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash
  Equivalents

Cash and cash
  equivalents include cash and all highly liquid financial instruments with original
  maturities of three months or less.

Unproved 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.

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 conditions, 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 an 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.
  As of December 31, 2003, Dune had not begun production and therefore has not
  recorded any depreciation, depletion and amortization in the accompanying consolidated
  financial statements.

F-6

---





On August
  21, 2003, VP leased 1,400 acres and purchased an option to lease an additional
  6,800 acres of land in South Texas for $302,528. On February 5, 2004, the lease
  was amended to extend the Primary Term by three months to May 21,
  2004. Dune earns the ability to extend the Primary Term for additional
  six month terms so long as Dune commences and diligently pursues the drilling
  of a well in search of oil and gas to a depth of at least 5,000 feet within
  the Primary Term or any extended term. If Dune does not drill a
  qualifying well during the Primary Term, Dune will be required to
  pay the owner of the land $200,000.

Income Taxes

Income taxes
  are computed using the asset and liability method. Under the asset and liability
  method, deferred income tax assets and liabilities are determined based on the
  differences between the financial reporting and tax bases of assets and liabilities
  and are measured using the currently enacted tax rates and laws. A valuation
  allowance is provided for the amount of deferred tax assets that, based on available
  evidence, are not expected to be realized.

Basic Loss
  Per Share

Dune is required
  to provide basic and dilutive earnings (loss) per common share information.

The basic
  net loss per common share is computed by dividing the net loss applicable to
  common stockholders by the weighted average number of common shares outstanding.

Diluted net
  loss per common share is computed by dividing the net loss applicable to common
  stockholders, adjusted on an as if converted basis, by the weighted
  average number of common shares outstanding plus potential dilutive securities.
  For 2003 and 2002, potential dilutive securities had an anti-dilutive effect
  and were not included in the calculation of diluted net loss per common share.

Accounting
  Estimates

The preparation
  of financial statements in conformity with accounting principles generally accepted
  in the United States of America requires management to make estimates and assumptions
  that affect the reported amounts of assets and liabilities at the date of the
  balance sheet. Actual results could differ from those estimates. Significant
  estimates with regard to these consolidated financial statements include the
  estimate of proved oil and gas reserve quantities and the related present value
  of estimated future net cash flows therefrom.

Stock-Based
  Compensation

Dune has elected
  to account for its stock based-employee compensation under the intrinsic value
  method established by Accounting Principles Board Opinion No. 25. "Accounting
  for stock issued to Employees. Under APB No. 25, no compensation expense is
  recognized if the exercise price of the Dunes employee stock options equals
  the market price of the underlying stock on the date of grant

F-7

---





The following
  table illustrates the effect on net income and earnings per share if Dune had
  applied the fair value recognition provisions of FASB Statement No. 123, Accounting
  for Stock-Based Compensation, to stock-based employee compensation.

|                                      | Years EndedDecember 31, | 
|------------------------------------- | ----------------------- | 
|                                      | 2003                    | 
|                                      |                         | 
|Net loss,
      as reported           |                         | 
|Pro forma
      stock compensation    |                         | 
|expense                               |                         | 
|                                      |                         | 
|Pro
      forma net loss              |                         | 
|                                      |                         | 
|                                      |                         | 
|Pro
      forma net loss per share:   |                         | 
|Basic
      and diluted - as reported |                         | 
|                                      |                         | 
|                                      |                         | 
|Basic
      and diluted  pro forma   |                         | 
|                                      |                         | 

The fair value
  of each option granted is estimated on the date of grant using the Black-Scholes
  option-pricing model with the following assumptions: dividend yield $0, expected
  volatility of .001%, risk-free interest rate of 2.0%, and expected lives of
  5 years.

Recent Accounting
  Pronouncements

A reporting
  issue has arisen regarding the application of certain provisions of SFAS No.
  141, Business Combinations and SFAS No. 142 Goodwill and Other
  Intangible Assets, to oil and gas companies. The issue is whether or not
  SFAS 141 and 142 requires oil and gas companies to classify the costs of mineral
  rights held under lease or contracts as intangible assets in the balance sheet,
  apart from capitalized oil and gas property costs. Historically oil and gas
  companies have included such costs as part of oil and gas properties. If it
  is ultimately determined that SFAS 141 or 142 requires such reclassifications,
  Dune estimates amounts to be reclassified from Unproved Oil and Gas Properties
  to Intangible Assets would be approximately $302,000. These potential balance
  sheet reclassifications would have no result on operations or cashflows.

NOTE 2 - GOING
  CONCERN

The financial
  statements have been prepared assuming that Dune will continue as a going concern.
  Dune has an accumulated deficit totaling $2,559,305 and working capital deficit
  of $956,296 at December 31, 2003 which raises substantial doubt about Dunes
  ability to continue as a going concern. The financial statements do not include
  any adjustments relating to the recoverability and classification of recorded
  asset amounts or to the amounts and classification of liabilities that might
  be necessary should Dune be unable to continue as a going concern.

Managements
  plans to support Dunes operations include borrowing additional funds,
  raising additional capital as well as securing drilling partners and prospect
  fees. Dunes inability to obtain funding or obtain such funding on favorable
  terms could have a material adverse effect on its financial position, results
  of operations, and its ability to continue operations.

F-8

---





NOTE 3 - DEPOSIT
  LOS MOGOTES

On June 3,
  2003, Dune paid Penroc Oil Corporation a deposit of $174,800 and issued 50,000
  shares of common stock valued at $500 for the option to purchase 34.98% of Penrocs
  2% working interest in the Los Mogotes field located in Zapata County, Texas.
  Dune also incurred $4,800 of geological costs that are included in the prepaid
  asset in the accompanying financial statements. The remaining balance of the
  purchase price ($699,700 as of June 3, 2003) is due no later than June 30, 2004.
  The effective date of the agreement is February 1, 2003 with respect to capital
  expenditures and April 1, 2003 with respect to revenue and lease operating expenses.
  Dunes proportionate share of revenues generated at Los Mogotes, less its
  proportionate share of lease operating expenses and capital expenditures will
  be allocated to Dune as of those dates and applied to adjust the purchase price
  due at closing. The deposit is refundable if the option is not exercised in
  June 2004.

NOTE 4 - INCOME
  TAXES

Dune has incurred
  net losses since inception and, therefore, has no tax liability. The net deferred
  tax asset generated by the loss carry-forward has been fully reserved. The valuation
  allowance increased approximately $136,000 in 2003. The cumulative net operating
  loss carry-forward is approximately $400,000 at December 31, 2003, and will
  expire in 2023.

Deferred income
  taxes consist of the following at December 31, 2003:

|Long-term:                |  |    |   |          |  
|------------------------- |  | -- | - | -------- | -
|Deferred
      tax assets |  |    | $ | 136,000  |  
|Valuation
      allowance |  |    |   | (136,000 | )
|                          |  |   
|                          |  | -- |  
|                          |  |   

NOTE 5 - NOTES
  PAYABLE

On August
  17, 2003 Dune received $100,000 from an individual for an unsecured note payable
  bearing interest at 10%. The note is personally guaranteed by Dunes Chairman.
  The balance outstanding at December 31, 2003 is $100,000 and is included in
  notes payable in the accompanying consolidated balance sheet. The note holder
  received 47,430 shares of common stock valued at $474 which was recorded as
  interest expense in the accompanying statement of operations.

On September
  23, 2003, VP purchased a non-exclusive license to 20 square miles of 3-D seismic
  data for $300,000. $40,000 was paid on September 23, 2003 with $10,000 due on
  or before April 5, 2004, $10,000 due on or before May 5, 2004 and $240,000 due
  on or before June 30, 2004. The balance due as December 31, 2003, $260,000,
  is included in notes payable in the accompanying consolidated balance sheet
  and bears interest at 18% on balances paid in arrears.

F-9

---





NOTE 6 - CONVERTIBLE
  DEBENTURES

Long-term
  debentures:

From May through
  August 2003, Dune sold 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 sold 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.

Short-term Debentures:

In August
  and September 2003, Dune sold 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 170,097 shares of common stock valued at $1,701 which was recorded
  as interest expense in the accompanying statement of operations.

NOTE 7 - COMMON
  STOCK

On May 5,
  2003, Dune issued 2,486,549 shares of stock to the Dunes Chairman for
  a note payable totaling $700,521.

On May 7,
  2003, Dune issued 1,725,000 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 4,536,154 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 47,430 shares of common stock to a note holder (see note 5) and 170,097
  shares of common stock to debenture holders (see Note 6) 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.

F-10

---





In 2003, Dune
  issued 50,000 shares of common stock valued at $500 to Penroc in connection
  with the purchase of its interest in the Los Mogotes property (see Note 3).

NOTE 8 - COMMITMENTS

In 2003, VP
  signed an agreement with VOG for VOG to act as its operator of record with respect
  to the leased property (see Note 1) and to generate, market and sell prospects
  to third parties. Dune paid VOG $150,000 in cash as a one-time advance on prospect
  development fees and $25,000 per month for the first six months and has agreed
  to pay $12,500 per month through August 2004.

NOTE 9 - STOCK
  OPTIONS

In November
  2003, Dunes board of directors granted an option to acquire 250,000 shares
  of common stock at $0.54 per share to a consultant that are exercisable commencing
  on May 1, 2004. In December 2003, the board of directors granted an option to
  acquire 100,000 shares of common stock at $.45 per share to a director that
  is immediately exercisable. The options expire on October 31, 2008 and December
  3, 2008, respectively. The weighted average exercise price for options issued
  during 2003 was $.47 per share.

The
  following table summarizes stock option activity:

|Outstanding,
      January 1, 2003                          |  |  |   | --      | 
|----------------------------------------------------------- |  |  | - | ------- | 
|Granted                                                     |  |  |   | 350,000 | 
|Canceled
      or expired                                   |  |  |   | --      | 
|Exercised                                                   |  |  |   | --      | 
|                                                            |  |  |   |        
|Outstanding,
      December 31, 2003                        |  |  |   | 350,000 | 
|                                                            |  |  |   |        
|Exercisable
      at December 31, 2003                      |  |  |   | 100,000 | 
|                                                            |  |  |   |        
|Weighted-average
      grant-date fair value of             |  | 
|options,
      granted during the year                      |  |  | $ | .00     | 
|                                                            |  |  |   |        
|Weighted-average
      remaining, years of contractual life |  |  |   | 5       | 
|                                                            |  |  |   |        

NOTE 10 -
  SUPPLEMENTARY OIL AND GAS INFORMATION

Capitalized
  Costs

Capitalized
  costs incurred in property acquisition, exploration, and development activities
  as of December 31, 2003 are as follows:

|3-D Seismic                                 |  |  | $ | 300,000
|------------------------------------------- |  |  | - | -------
|Prospect
      development fees paid to VOG |  |  |   | 299,398
|Purchase
      of lease                     |  |  |   | 302,528
|Geological
      consulting                 |  |  |   | 13,000 
|                                            | 
|                                            |  |  | $ | 914,926
|                                            | 

F-11

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Oil and
  Gas Reserve Data (Unaudited)

An independent
  petroleum engineer estimated proved reserves for Dunes properties which
  are classified as proved undeveloped 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 values of proved reserves were computed by applying prices
  in effect at December 31, 2003. The average price used was $26.68 per barrel
  for oil and $6.51 per Mcf for gas at December 31, 2003. Estimated future costs
  were calculated assuming continuation of costs and economic conditions at the
  reporting date.

Total estimated
  proved undeveloped reserves and the changes therein are set forth below for
  2003:

|                                     |  |  | Oil(bbls) |         | Gas(MMcf) | 
|------------------------------------ |  |  | --------- | ------- | --------- | 
|                                     |  |  |           |        
|Balance,
      January 1, 2003       |  |  |           | --      |           | 
|Purchases
      of reserves in place |  |  |           | 142,205 |           | 
|                                     |  |  |           |        
|Balance,
      December 31, 2003     |  |  |           | 142,205 |           | 
|                                     |  |  |           |        

There were
  no proved developed reserves at December 31, 2003.

The standardized
  measure of discounted future net cash flows from reserves is set forth below
  for 2003:

|Future
      cash inflows              |  |  | $ | 48,278,452  |  
|-------------------------------------- |  |  | - | ----------- | -
|Future
      production costs          |  |  |   | (5,409,248  | )
|Future
      development costs         |  |  |   | (3,014,000  | )
|Future
      income tax expense        |  |  |   | (10,374,000 | )
|                                       |  | 
|Future
      net cash flows            |  |  |   | 29,481,204  |  
|10% discount
      factor              |  |  |   | (9,346,690  | )
|                                       |  | 
|Standardized
      measure of          |  | 
|discounted
      future net cash flows |  |  | $ | 20,134,514  |  
|                                       |  | 

The schedule
  for principal sources and changes in the standardized measure of discounted
  future cash flows from reserves is omitted because this is Dunes first
  year of oil & gas operations.

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.

12

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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 March 15, 2004:

|NAME               | AGE | POSITION                                                  
|------------------ | --- | ----------------------------------------------------------
|                   |     |                                                           
|Alan Gaines        | 48  | Chairman of the Board,
      Chief Executive
      Officer
|                   |     |                                                           
|Amiel David        | 64  | President, Chief Operating
      Officer                  
|                   |     |                                                           
|Richard Cohen      | 53  | Chief Financial Officer,
      Director                   
|                   |     |                                                           
|Steven Barrenechea | 45  | Secretary, Director                                       
|                   |     |                                                           
|Chris Lautenslager | 46  | Director                                                  

Alan
  Gainesis the Chief Executive Officer of the Company and has served 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, and as a principal of AM Partners LLC, a privately
  held firm offering consulting services to the energy sector. 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 School of Management.

Amiel
  Davidhas 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.

13

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Richard
  M. Cohenhas 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. Mr.
  Barrenechea is currently CEO, President and Director of Coastal Restaurants
  LLC and Breakwater Partners LLC, both of which own and operate 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.

Chris
  Lautenslagerhas served as a Director of Dune since December 2003. From
  1998-2001, he was a Vice President of Credit Suisse First Boston. Since that
  time he has been consulting to a number of financial institutions including
  the New York Mercantile Exchange and Fxall, Inc. Mr. Lautenslager received his
  MBA from the Kellogg School at Northwestern University and his BS from the University
  of Colorado.

The
  Companys By-laws provide for a Board of Directors to consist of not less
  than two (2) persons nor more than five (5) persons, such number of persons
  to be fixed by the Board from time to time. Effective February 10, 2004, Mark
  Harrington resigned as the President and as a Director of the Company, for personal
  reasons. As a result of his resignation, there is a vacancy on the Board of
  Directors, which may be filled either by the Board or by the stockholders of
  the Company at the next annual meeting of stockholders.

Section
  16(a) Beneficial Ownership Reporting Compliance

Messrs.
  Gaines, Cohen, David, Barrenechea and Lautenslager failed to file on a timely
  basis, their Initial Statements of Beneficial Ownership on Form 3, pursuant
  to Section 16(a) of the Securities Exchange Act. Such individuals have advised
  the Company that they intend to file such Reports as soon as practicable after
  the date hereof.

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., 1330 Post Oak Blvd., Houston, Texas 77056.

14

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Item 10.
  Executive Compensation.

Except
  as set forth below, no officer or director of the Company received any compensation
  from the Company during the past three years.

Compensation
  of Directors

Non-employee
  Directors of the Company are generally not compensated in cash for their services
  but are reimbursed for out of pocket expenses incurred in furtherance of the
  Companys business. In 2003, the Company (i) issued 325,000 shares of common
  stock to Mr. Barrenechea and (ii) issued 100,000 shares of common stock and
  granted an option to purchase up to 100,000 shares of common stock to Mr. Lautenslager,
  in recognition of services rendered by them to the Company. Mr. Lautenslagers
  option may be exercised at any time prior to October 31, 2008 at an exercise
  price of $0.45 per share of common stock.

Employment
  Agreements

On
  December 1, 2003, the Company entered into a one year employment agreement with
  Alan Gaines, the Companys Chairman and Chief Executive Officer. The Agreement
  provides for an annual salary of $90,000, with such increases as the Board may
  determine. Upon the execution of his agreement, Mr. Gaines received 250,000
  shares of the Companys common stock in consideration of his covenant not
  to compete. The agreement provides that in the event Mr. Gaines is terminated
  without cause (as defined in the agreement), he is to receive a
  severance payment equal to six months base salary. In the event of a change
  of control (as defined in the agreement), Mr. Gaines may elect at any
  time within the six months following such change of control, to terminate his
  employment on sixty days notice to the Company. If Mr. Gaines shall so elect
  to terminate his employment, the Company shall be obligated to pay Mr. Gaines
  a payment equal to two times his annual base salary. Separate from his employment
  agreement, the Company issued 1,000,000 shares of its common stock to Mr. Gaines
  during 2003 for services rendered to the Company.

On
  December 1, 2003, the Company entered into a one year employment agreement with
  Richard Cohen, the Companys Chief Financial Officer. The Agreement provides
  for an annual salary of $90,000, with such increases as the Board may determine.
  The agreement provides that in the event Mr. Cohen is terminated without cause
  (as defined in the agreement), he is to receive a severance payment equal to
  six months base salary. In the event of a change of control
  (as defined in the agreement), Mr. Cohen may elect at any time within the six
  months following such change of control, to terminate his employment on sixty
  days notice to the Company. If Mr. Cohen shall so elect to terminate his employment,
  the Company shall be obligated to pay Mr. Cohen a payment equal to his annual
  base salary. Separate from his employment agreement, the Company issued 450,000
  shares of its common stock to Mr. Cohen during 2003 for services rendered to
  the Company.

15

---





On
  February 15, 2004, the Company entered into a one year employment agreement
  with Amiel David, the Companys President and Chief Operating Officer.
  The Agreement provides for an annual salary of $120,000, with such increases
  as the Board may determine. Upon the execution of his agreement, Dr. David received
  250,000 shares of the Companys common stock in consideration of his covenant
  not to compete. The agreement provides that in the event Dr. David is terminated
  without cause (as defined in the agreement), he is to receive a
  severance payment equal to six months base salary. In the event of a change
  of control (as defined in the agreement), Dr. David may elect at any time
  within the three months following such change of control, to terminate his employment
  on forty five days notice to the Company. If Dr. David shall so elect to terminate
  his employment, the Company shall be obligated to (i) pay Dr. David an amount
  equal to three months base salary and (ii) issue him 125,000 shares of
  common stock.

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

The
  following sets forth as of March 15, 2004, the number of shares of our $.001
  par value 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         | Alan Gaines                                                    | 5,431,000
      (3) (4)                   | 36.8%           
|Common         | Amiel David                                                    | 250,000                                   | 1.7%            
|Common         | Richard Cohen                                                  | 615,566
      (5) (6)                     | 3.4%            
|Common         | Steven Barrenechea                                             | 325,000
      (7)                         | 2.2%            
|Common         | Chris Lautenslager                                             | 472,222
      (8) (9)                     | 2.8%            
|Common         | Mark Harrington (10)                                           | 1,575,000
      (11) (12) (13)            | 10.7%           
|Common         | All Officers and Directors
      as 
      a Group (5 persons) | 7,093,788                                 | 46.9%           

| | (1)
        Unless otherwise indicated, the address of each of the persons listed
        above is the address of the Company, 1330 Post Oak Blvd., Suite 1600,
        Houston, Texas 77056.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

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| | (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, 2004. 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 15, 2004 have been exercised.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3)
        Excludes 600,000 shares held by Mr. Gaines' children.
| | -----------------------------------------------------------------

| | (4)
        5,371,505 of such shares listed have been pledged as collateral to the
        holders of the Secured Notes.
| | ------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                         
| | (5) Includes 101,314
      shares that may be issued upon conversion of convertible notes.                              

| | (6)
        250,000 of such shares listed have been pledged as collateral to the holders
        of the Secured Notes.
| | ----------------------------------------------------------------------------------------------------------------------
| |                                                                                                                       
| | (7) All shares listed
      have been pledged as collateral to the holders of the Secured Notes.                      

| | (8)
        Includes 100,000 shares underlying an option granted to Mr. Lautemslager.     
| | ------------------------------------------------------------------------------------------
| |                                                                                           
| | (9) Includes 322,222
      shares that may be issued upon conversion of convertible notes.

| | (10)
        Mr. Harrington resigned as the President and as a Director of the Company
        on February 10, 2004, for personal reasons.
| | ------------------------------------------------------------------------------------------------------------------------------------------

| | (11)
        Includes 835,000 shares owned by Harrington & Co. International L.L.C.,
        an entity in which Mr. Harrington is the sole member.
| | --------------------------------------------------------------------------------------------------------------------------------------------------

| | (12)
        1,000,000 shares listed have been pledged as collateral to the holders
        of the Secured Notes.
| | -----------------------------------------------------------------------------------------------------------------
| |                                                                                                                  
| | (13) Includes 290,000
      shares controlled by Cameron Harrington, the wife of Mark Harrington.                

17

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Item 12.
  Certain Relationships and Related Transactions.

During
  2003, the Company issued 1,575,000 shares to Mark Harrington, a former Director
  and President of the Company, for services rendered.

The
  Company did not file any Reports on Form 8-K during the fourth quarter of 2003.

|Exhibit
      Number |  | Description                                        
|-------------------- |  | ---------------------------------------------------
|                    
|                     |  |                                                    
|3.1                  |  | * Amended and Restated Certificate of Incorporation

|3.2 |  | * By-Laws
|--- |  | ---------

|4.1  |  | * Form of Secured Convertible Promissory Note                                                                                                                            
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.2  |  | Form of Stock Option                                                                                                                                                     
|10.1 |  | * Plan and Agreement
      of Merger dated as of May 5, 2003 between the Registrant and Merchant Builders,
      Inc.                                                    
|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

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

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

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

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

|10.5 |  | * Operating Agreement of Vaquero Partners LLC
|---- |  | ---------------------------------------------

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

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

18

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

|10.8 |  | Employment Agreement dated as of December 1, 2003 between the Registrant
        and Alan Gaines
|---- |  | ------------------------------------------------------------------------------------------------

|10.9 |  | Employment Agreement dated as of December 1, 2003 between the Registrant
        and Richard Cohen
|---- |  | --------------------------------------------------------------------------------------------------

|10.10 |  | Employment Agreement dated as of February 15, 2004 between the Registrant
        and Amiel David
|----- |  | -------------------------------------------------------------------------------------------------

|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 |  | * Report of Independent Engineer with Respect to Welder Acreage
|---- |  | ---------------------------------------------------------------

|99.2 |  | Updated Report of Independent Engineer with respect to Welder Acreage
|---- |  | ---------------------------------------------------------------------

*
  Incorporated by reference to the Registrants 10-KSB for the year ended
  December 31, 2002.

Item 14.
  Principal Accountant Fees and Services.

Malone
  & Bailey, PLLC, Certified Public Accountants, are the Companys independent
  auditors that examined the financial statements of the Company for the years
  ended December 31, 2003 and December 31, 2002. Malone & Bailey, PLLC has
  performed the services and has been paid the fees for these years as set forth
  below.

Audit Fees

Malone &
  Bailey, PLLC was paid aggregate fees of approximately $13,000 for the year ended
  December 31, 2002 and approximately $15,000 for the year ended December 31,
  2003, 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.

19

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Audit-Related
  Fees

Malone &
  Bailey, PLLC was not paid any additional fees by the Company for the years ended
  December 31, 2002 and December 31, 2003 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, PLLC was not paid any additional fees for the years ended December 31,
  2002 and December 31, 2003 for professional services rendered for tax compliance,
  tax advice and tax planning.

Other Fees

Malone &
  Bailey, PLLC was paid no other fees for professional services during the years
  ended December 31, 2002 and December 31, 2003.

20

---





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:                    
|                     |  |                        
|                     |  |                        
|                     |  |                        
|                     |  |                        
|Date: March 29, 2004 |  | By:                    
|                     |  |                        
|                     |  |                        
|                     |  |                        

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                            
|                     |  | Chairman,
      Chief Executive Officer
|                     |  |                                         |                       
|Date: March 29, 2004 |  |                                         | /s/ Richard Cohen     
|                     |  |                                        
|                     |  | Richard
      Cohen                    
|                     |  | Chief
      Financial Officer, Director
|                     |  |                                         |                       
|Date: March 29, 2004 |  |                                         | /s/ Steven Barrenechea
|                     |  |                                        
|                     |  | Steven
      Barrenechea               
|                     |  | Secretary,
      Director              
|                     |  |                                         |                       
|Date: March 29, 2004 |  |                                         | /s/ Chris Lautenslager
|                     |  |                                        
|                     |  | Chris
      Lautenslager               
|                     |  | Director                               

21

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