**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-QSB**




**For
      Annual and Transition Reports pursuant to Section 13 or 15(d) of
      the**


**Securities
      Exchange Act of 1934 (Mark One)**


**x**
              **Quarterly
                  Report pursuant to Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934**
  **For
        the three months ended**
 **March
        31, 2008**
  ** ̈**
              **Transition
                  Report pursuant to Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934**


**Commission
      File Number 1-11248**




**SUNRISE
      ENERGY RESOURSES, INC.**


(Name
      of
      Registrant as specified in its charter)




**Delaware**
            **84-0938688**(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            Identification
                Number)950
                Third Avenue, Suite 501New
                York, New York
            10022(Address
                of principal executive office)
            (Zip
                Code)




**Registrant’s
      telephone number, including area code: (917) 463-4210**




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





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





Check
      weather the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act  ̈




Note –
      Checking the box above will not relieve any registrant required to file reports
      pursuant to Section 13 or 15(d) of the Exchange Act from their obligations
      under
      those Sections.




Check
      whether the Registrant (1) has filed all reports required to be filed by Section
      13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
      months (or for such shorter 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 x No  ̈




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




Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule 12b-2 of the Act).  Yes  ̈ ; No x




State
      issuer’s revenues for its most recent fiscal year: $2,767,432




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates as of May 13 2008 within past 60 days: $13,174,097.




As
      of May
      13, 2008, the Registrant had 23,119,687 shares of common stock $.001 par value
      issued and outstanding.




Transitional
      Small Business Disclosure Format (Check one): Yes  ̈ ; No x








**SUNRISE
        ENERGY RESOURCES, INC.**
  **FORM
        10-QSB**
 **TABLE
        OF CONTENTS**
  Page**PART
                  I. FINANCIAL INFORMATION**
              
              3Financial
                  Statements (unaudited)
              
              3Item
                  1.
              
              3Consolidated
                  Balance Sheets – March 31, 2008 and December 31, 2007
              
              3Consolidated
                  Statements of Operations and Comprehensive Loss - for the three
                  months
                  ended March 31, 2008 and 2007
              
              4Consolidated
                  Statements of Changes in Stockholder’s Equity (Capital Deficit) – March
                  31, 2008 and December 31, 2007
              
              5Consolidated
                  Statements of Cash Flows - for the three months ended March 31,
                  2008 and
                  2007
              
              6Notes
                  to Unaudited Consolidated Financial Statements
              
              8Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              27Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              
              32Item
                  4.
              Controls
                  and Procedures
              
              33**PART
                  II.**
              **OTHER
                  INFORMATION**
              
              34Item
                  1.
              Legal
                  Proceedings
              
              34Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              
              34Item
                  3.
              Defaults
                  upon Senior Securities
              
              34Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              
              34Item
                  5.
              Other
                  Information
              
              34Item
                  6.
              Exhibits
                  and Reports on Form 8-K
              
              34**SIGNATURES**
              
              35
  2
  **PART
        I.**
  **SUNRISE
        ENERGY RESOURCES INC.**
 **CONSOLIDATED
        BALANCE SHEETS**
 **(Expressed
        in US Dollars)**
 
 
 **March 31,**
                **2008**
              
              **December 31,**
                **2007****(UNAUDITED)**ASSETSCURRENT
                  ASSETSCash
                  and cash equivalents
              
              
              379,675
              
              $
              11,915Accounts
                  receivable – related party
              
              
              165,492
              
              
              165,492Other
                  accounts receivable and prepayments
              
              
              1,022,106
              
              
              991,538Inventories
              
              
              24,860
              
              
              38,550Taxes
                  receivable
              
              
              1,798,656
              
              
              1,735,119Other
                  current assets
              
              
              
              
              
              -Total
                  current assets
              
              
              3,390,789
              
              
              2,942,614NONCURRENT
                  ASSETSProperty,
                  plant and equipment, net
              
              
              9,909,381
              
              
              9,590,275Lease/concession
                  acquisition costof
                  Pari
              
              
              94,249
              
              
              107,714Long-term
                  financial investments
              
              
              3,353
              
              
              77,534Deferred
                  tax asset
              
              
              77,050
              
              
              75,777**TOTAL
                  ASSETS**
              
              **$**
              **13,474,822**
              
              **$**
              **12,793,914**LIABILITIES
                  AND STOCKHOLDERS' EQUITYCURRENT
                  LIABILITIESAccounts
                  payable
              
              
              182,767
              
              $
              180,584Accounts
                  payable – related party
              
              
              1,948,832
              
              
              1,898,070Taxes
                  payable
              
              
              576,719
              
              
              430,831Short
                  term bank loansShort
                  term notes payable
              
              
              279,986
              
              
              815,533Other
                  accounts payable and accruals
              
              
              782,338
              
              
              765,695Other
                  accounts payable – related party
              
              
              275,091
              
              
              275,091Prepayments
                  for oil and gas
              
              
              735,165
              
              
              412,228Interest
                  payable
              
              
              268,756
              
              
              219,710Interest
                  payable – related party
              
              
              108,090
              
              
              99,095Profit
                  interest payable
              
              
              17,998
              
              
              17,998Total
                  current liabilities
              
              
              5,175,742
              
              
              5,114,835Long
                  term notes payable
              
              
              5,422,309
              
              
              5,363,872Long-term
                  payable to related party
              
              
              1,205,900
              
              
              1,205,900Commitments
                  and Contingencies (Note 24)STOCKHOLDERS’
                  EQUITYCommon
                  Stock, $.001 par value, 75,000,000 authorized, 23,119,687 and 21,704,682
                  issued and outstanding as of March 31, 2008 and December 31, 2007
              
              
              23,120
              
              
              21,705Additional
                  Paid in Capital
              
              
              6,056,943
              
              
              4,643,353Retained
                  earnings (Accumulated deficit)
              
              
              (4,377,000
              )
              
              (3,523,559
              )Accumulated
                  other comprehensive (loss) - foreign currency
              
              
              (32,192
              )
              
              (32,192
              )Total
                  stockholders' equity (deficit)
              
              
              1,670,871
              
              
              1,109,307**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              **$**
              **13,474,822**
              
              **$**
              **12,793,914**
  The
        accompanying notes are an integral part of the consolidated financial
        statements.
  3
 
 **SUNRISE
        ENERGY RESOURCES INC.**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS**
 **(Expressed
        in US Dollars except share amounts)**
 **UNAUDITED**
  
 
 **For the three months ended****March
                  31,****2008**
              
              **2007**REVENUESProduced
                  oil & gas
              
              $
              960,157
              
              $
              584,116Purchased
                  oil & gas
              
              
              123,762
              
              
              -Total
              
              
              1,083,919
              
              
              584,116COST
                  OF SALES
              
              
              (184,785
              )
              
              -899,134
              
              
              584,116Operating
                  expenses
              
              
              (707,185
              )
              
              (317,115
              )Depreciation
                  expense
              
              
              (498,228
              )
              
              (46,048
              )Other
                  operating income (expenses)
              
              
              (67,846
              )
              
              20,150Sales,
                  general and administrative expenses
              
              
              (345,104
              )
              
              (278,341
              )OPERATING
                  INCOME (LOSS)
              
              
              (719,229
              )
              
              (37,239
              )OTHER
                  INCOME (EXPENSE)Interest
                  incomeInterest
                  expense
              
              
              (132,283
              )
              
              (122,317
              )Foreign
                  exchange (loss)
              
              
              (1,083
              )
              
              (14,007
              )Other
                  expense
              
              
              (2,047
              )
              
              (11,561
              )LOSS
                  BEFORE TAX
              
              
              (854,642
              )
              
              (185,124
              )INCOME
                  TAX
              
              
              1,201
              
              
              (33,563
              )NET
                  LOSS
              
              $
              (853,441
              )
              $
              (218,687
              )BASIC
                  AND DILUTED LOSS PER SHARE
              
              $
              (0.04
              )
              $
              (0.01
              )BASIC
                  AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
              
              
              22,412,185
              
              
              17,175,169
 
 The
        accompanying notes are an integral part of the consolidated financial
        statements.
  4
  **SUNRISE
        ENERGY RESOURCES INC.**
 **CONSOLIDATED
        STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**
 **(CAPITAL
        DEFICIT)**
 **(Expressed
        in US Dollars except share amounts)**
 **UNAUDITED**
  
 **Total****Retained**
                
                **Accumulated**
                
                **Stockholder's****Common**
                
                **Additional**
                
                **Earnings**
                
                **Other**
                
                **Equity****Stock**
                
                **Paid-in**
                
                **(Accumulated**
                
                **Comprehensive**
                
                **(Capital****Shares**
                
                **Amount**
                
                **Capital**
                
                **Deficit)**
                
                **(Loss)**
                
                **Deficit)****BALANCE,
                    DECEMBER 31, 2006**
                
                
                **17,161,014**
                
                **$**
                **17,161**
                
                **$**
                **80,824**
                
                **$**
                **(1,520,742**
                **)**
                **$**
                **(32,192**
                **)**
                **$**
                **(1,454,949**
                **)**Private
                    placement of shares
                
                
                4,493,668
                
                
                4,494
                
                
                4,435,079
                
                
                
                
                
                
                
                
                4,439,573Shares
                    issued for services
                
                
                50,000
                
                
                50
                
                
                127,450
                
                
                
                
                
                
                
                
                127,500Net
                    income (loss) for the year
                
                
                
                
                
                
                
                
                
                
                
                (2,002,817
                )
                
                
                
                
                (2,002,817
                )**BALANCE,
                    DECEMBER 31, 2007**
                
                
                **21,704,682**
                
                **$**
                **21,705**
                
                **$**
                **4,643,353**
                
                **$**
                **(3,523,559**
                **)**
                **$**
                **(
                    32,192**
                **)**
                **$**
                **1,109,307**Private
                    placement of shares
                
                
                1,415,005
                
                
                1,415
                
                
                1,413,590
                
                
                
                
                
                
                
                
                1,415,005Shares
                    issued for servicesNet
                    income (loss) for three months
                
                
                
                
                
                
                
                
                
                
                
                (853,441
                )
                
                
                
                
                (853,441
                )**BALANCE,
                    MARCH 31, 2008**
                
                
                **23,119,687**
                
                **$**
                **23,120**
                
                **$**
                **6,056,943**
                
                **$**
                **(4,377,000**
                **)**
                **$**
                **(
                    32,192**
                **)**
                **$**
                **1,670,871**
  The
        accompanying notes are an integral part of the consolidated financial
        statements.
  5
 
 **SUNRISE
        ENERGY RESOURCES INC.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(Expressed
        in US Dollars)**
 **UNAUDITED**
  
 **For
                      the three months ended**
                    **March
                      31,****2008**
                  
                  **2007****CASH
                      (USED IN) PROVIDED BY OPERATING ACTIVITIES:**Net
                      loss
                  
                  $
                  (853,441
                  )
                  $
                  (218,687
                  )Adjustments
                      to reconcile net loss to net cash in operating activities:Depreciation
                      expense
                  
                  
                  498,228
                  
                  
                  46,048Provision
                      for doubtful accounts
                  
                  
                  
                  
                  
                  (20,198
                  )Deferred
                      tax (gain)
                  
                  
                  (1,273
                  )
                  
                  3,213Net
                      imputed interest expense (income)
                  
                  
                  
                  
                  
                  8,190Other
                      non-monetary expenses
                  
                  
                  74,181
                  
                  
                  155Changes
                      in assets and liabilities:Decrease
                      (increase) in accounts receivable
                  
                  
                  -
                  
                  
                  (127,134
                  )(Increase)
                      in other accounts receivable and prepayments
                  
                  
                  (30,568
                  )
                  
                  103,588(Increase)
                      in inventories
                  
                  
                  13,689
                  
                  
                  179,321(Increase)
                      decrease in taxes receivable
                  
                  
                  (63,537
                  )
                  
                  (105,868
                  )(Decrease)
                      increase in accounts payable
                  
                  
                  52,946
                  
                  
                  (317,047
                  )Increase
                      in taxes payable
                  
                  
                  145,888
                  
                  
                  34,092Increase
                      in other accounts payable and accruals
                  
                  
                  16,642
                  
                  
                  (284,358
                  )(Decrease)
                      increase in prepayments for oil and gas
                  
                  
                  322,937
                  
                  
                  (304,315
                  )Increase
                      in dividend payable
                  
                  
                  (0
                  )
                  
                  (40,949
                  )Increase
                      in interest payable
                  
                  
                  116,480
                  
                  
                  105,048NET
                      CASH FLOW FROM OPERATING ACTIVITIES
                  
                  
                  292,170
                  
                  
                  (938,602
                  )**CASH
                      PROVIDED BY FINANCING ACTIVITIES:**Senior
                      short term loan/notes received
                  
                  
                  (535,547
                  )
                  
                  2,285,425Long
                      term loans received
                  
                  
                  
                  
                  
                  -Proceeds
                      from share issuance
                  
                  
                  1,415,005
                  
                  
                  17,879Promissory
                      notes issued
                  
                  
                  
                  
                  
                  836,200Short
                      term loans repaidNET
                      CASHFLOW FROM FINANCING ACTIVITIES
                  
                  
                  879,458
                  
                  
                  3,139,504**CASH
                      USED IN INVESTING ACTIVITIES**Purchase
                      of property, plant and equipment
                  
                  
                  (803,870
                  )
                  
                  (916,635
                  )Long
                      term investments purchased
                  
                  
                  
                  
                  
                  (74,022
                  )NET
                      CASH FLOW FROM INVESTING ACTIVITIES
                  
                  
                  (803,870
                  )
                  
                  (990,657
                  )**EFFECT
                      OF EXCHANGE RATE CHANGES**
                  
                  
                  
                  
                  
                  **-****INCREASE
                      (DECREASE) IN CASH**
                  
                  
                  367,760
                  
                  
                  1,209,948**CASH,
                      at the beginning of the period**
                  
                  
                  11,915
                  
                  
                  203,146**CASH,
                      at the end of the period**
                  
                  $
                  379,675
                  
                  $
                  1,413,094
 
 The
        accompanying notes are an integral part of the consolidated financial
        statements.
  6
  **SUNRISE
        ENERGY RESOURCES INC.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **SUPPLEMENTAL
        INFORMATION**
 **(Expressed
        in US Dollars)**
 **UNAUDITED**
 
 **Three Months Ended****March 31,****2008**
              
              **2007**Cash
                  paid for:Income
                  taxes
              
              $
              -
              
              
              67,654Non-cash
                  investing and financing transactions:Issuance
                  of common stock to Dutchess Private Equity Fund for placement agency
                  services
              
              $
              -
              
              $
              127,500
 
 The
        accompanying notes are an integral part of the consolidated financial
        statements.
  7
  **NOTES
        TO THE CONSOLIDATED STATEMENTS (UNAUDITED)**
  **1.**
              **NATURE
                  OF BUSINESS**
  All
        operating activities of Sunrise Energy Resources Inc. are conducted through
        its
        wholly owned Ukrainian subsidiaries, TOV Energy-Servicing Company Esko Pivnich
        (“Esko Pivnich” or “EP”) and Pari (“Pari”) both formed as Ukrainian Closed Joint
        Stock Companies (CJSC). Esko Pivnich and Pari are engaged in oil and gas
        exploration and development in the country of Ukraine.  During
        the first three months of 2008 the Company’s revenues were derived exclusively
        from Esko Pivnich’s activities on Karaikozovsk lease in Eastern Ukraine where
        the Company was producing from 3 wells internally labeled #2, #3 and #21.
        Well
        #21 of Karaikozovsk property was put into production on September 1, 2007
        and
        was not operational during first quarter of 2007.
  Until
        July 31, 2007, Esko Pivnich’s involvement in wells #2 and #3 of Karaikozovsk
        lease was governed by joint activity agreements (JAA). On that date the
        effective JAA #35/970-SD was superseded by a Lease Agreement # 4/1220-OR
        dated
        August 1, 2007. In accordance with the lease agreement, the Company’s wholly
        owned subsidiary Esko Pivnich shall pay Okhtirkaneftegas an equivalent of
        $18,945 per month at the prevailing exchange rate for the usage of all
        facilities at Karaikozovsk property that are owned by Okhtirkaneftegas including
        Wells #2 and #3. The above flat fee does not depend upon the amount of
        hydrocarbons actually produced from the above wells.
  Since
        2000, Esko Pivnich has been a party to the following joint activity and lease
        agreements with regard to Karaikozovsk property.
 
 **JAA/**
                **Lease Agreement**
              
              **Counterparty**
              
              **Status**
              
              **EP Capital**
                **Contribution*,**
                **%**
              
              **EP Profit**
                **Share*,**
                **%**
              ****JAA
                  # 01-SD dated April 26, 2000
              
              Poltavaneftegazgeologiya
              
              Superceded
                  by PSA # 35/970-SD.
              
              100
              %
              60
              %JAA
                  # 35/970-SD dated August 19, 2004
              
              Okhtyrkaneftogaz
              
              Terminated
                  on July 31, 2007 and superceded by Lease Agreement effective on
                  August 1,
                  2007.
              
              80
              %
              80
              %Lease
                  Agreement # 4/1220-OR dated August 1, 2007
              
              Okhtyrkaneftogaz
              
              
              
              100
              %
              100
              %
 
 *
        Esko
        Pivnich’s capital constribution and profit share were applicable only to Wells
        #2 and #3 of Karaikozovsk lease. Well #21 of Karaikozovsk lease has been
        100%
        financed by Esko Pivnich. Accordingly, 100% of profits or losses from Well
        #21
        accrue to Esko Pivnich. The Company is not a party to any joint activity
        or
        other agreements with respect to remaining properties. In the event, the
        Company’s subsidiaries do not enter into joint activity agreements, the
        Company’s subsidiaries shall be responsible for 100% of the capital expenditures
        on such properties and, accordingly, 100% of the profits or losses from wells
        drilled on these properties shall accrue to the Company.
  8
  In
        addition to selling oil and gas produced from its Karaikozovsk lease, during
        the
        periods presented, the Company purchased oil and gas from third parties.
        The
        purchased hydrocarbons were subsequently resold to third parties in order
        to
        enable Esko Pivnich to fulfill its monthly delivery obligations.
  Sunrise
        Energy Resources Inc. currently has its headquarters at the following address:
        950 Third Avenue, Suite 501, New York, New York 10022.
  Esko
        Pivnich and Pari conduct their operations from a Kiev office located at the
        following address: 10a Rileeva St., Kiev, Ukraine.
  As
        of
        March 31, 2008 the company employed 50 people.
 
 **2.**
              **PRESENTATION
                  OF CONSOLIDATED FINANCIAL
                  STATEMENTS**
  ***Basis
        of Presentation***  ***–*** The
        accompanying unaudited condensed consolidated financial statements have been
        prepared in accordance with U.S. generally accepted accounting principles
        (“GAAP”) for interim financial information and with the instructions to Form
        10-QSB. Accordingly, they do not include all of the information and footnotes
        required by GAAP for complete financial statements. In the opinion of
        management, all adjustments (consisting of normal recurring adjustments)
        considered necessary for a fair presentation have been included. Operating
        results for the three months period ended March 31, 2008 are not indicative
        of
        the results that may be expected for the year ending December 31,
        2008.
  As
        contemplated by the Securities and Exchange Commission (SEC) under Rules
        of
        Regulation S-B, the accompanying financial statements and related footnotes
        have
        been condensed and do not contain certain information that will be included
        in
        the Company’s annual financial statements and footnotes thereto. For further
        information, refer to the Company’s audited consolidated financial statements
        and related footnotes thereto included in the Company’s annual report on Form
        10-KSB for the year ended December 31, 2007.
  ***Going
        concern -*** The
        Company’s consolidated financial statements have been presented on the basis
        that it is a going concern, which contemplates the realization of assets
        and
        satisfaction of liabilities in the normal course of business. As shown in
        the
        consolidated financial statements, the Company incurred a net loss of $853,441
        during the three months ended March 31, 2008, and, as of March 31, 2008 the
        Company's current liabilities exceeded its current assets by $1,784,953.
        Additionally, in order to fully develop the area covered by its licenses,
        the
        Company would require substantial amounts in additional funding.
  In
        view
        of the matters described in the preceding paragraph, recoverability of a
        substantial portion of the recorded asset amounts shown in the accompanying
        balance sheet is dependent upon continued operations of the Company, which
        in
        turn is dependent upon the Company’s ability to meet its financing requirements
        on a continuing basis. The Company’s ability to meet such financing requirements
        will be subject primarily to the Company’s capability to raise additional funds
        by way of additional equity and other investments into the Company, to maintain
        present financing, and to succeed in its future operations. The consolidated
        financial statements do not include any adjustments relating to the
        recoverability and classification of recorded asset amounts or amounts and
        classification of liabilities that might be necessary should the Company
        be
        unable to continue in operations or meet its obligations on a timely
        basis.
  Management
        has taken the following steps to revise its operating and financial
        requirements, which it believes are sufficient to provide the Company with
        the
        ability to continue in operations.
  ·  The
        Company plans to continue raising additional equity capital and considers
        such
        contributions as significant source of funding for the development of its
        Licenses.
  ·  Based
        on
        its expected production capabilities from the expenditures that will be made
        as
        a result of equity and debt financing, the Company believes that it can generate
        adequate cash flows to support its operations.
  ·  Nevertheless,
        additional funding requirements may be necessary before the Company is able
        to
        rely solely on the production from the licensed properties for the Company’s
        cash flow requirements.
  9
  ***Use
        of Estimates and Assumptions***  ***–*** The
        preparation of consolidated financial statements in conformity with US GAAP
        requires management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities, revenues and expenses and the disclosure
        of
        contingent assets and liabilities. Due to the inherent uncertainty in making
        those estimates, actual results reported in future periods could differ from
        such estimates.
 
 ***Functional
        and Reporting Currency –*** The
        reporting currency of the accompanying consolidated financial statements
        is the
        US dollars. Ukrainian entities use Ukrainian Hrivna (UAH) as their functional
        currency since most of their revenues and operating expenses are denominated
        in
        Ukrainian Hrivnas. The Ukrainian Hrivna is not a fully convertible currency
        outside of Ukraine. The translation of Hrivna denominated assets and liabilities
        into US dollars for the purpose of these consolidated financial statements
        does
        not indicate that the Company could or will in the future realize or settle
        in
        US dollars the translated values of these assets and
        liabilities.
 
 The
        prevailing exchange rates as at March 31, 2008 and December 31, 2007 were
        approximately 1 U.S. dollar to 5.0500 Ukrainian Hrivnas. For the periods
        ended March, 2008 and 2007, the average exchange rate for 1U.S. dollar was
        $5.0500 Ukrainian Hrivnas, respectively.
 
 **3.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING
                  POLICIES**
 
 ***Basis
        of Consolidation –*** The
        consolidated financial statements incorporate the financial statements of
        Sunrise Energy Resources Inc. and other enterprises, where the Company, directly
        or indirectly exercises control. Control is achieved where the Company has
        the
        power to govern the financial and operating policies of an investee enterprise
        so as to obtain benefits from its activities.
 
 All
        significant intercompany transactions, balances and unrealized gains (losses)
        on
        transactions are eliminated on consolidation.
 
 ***Revenue
        Recognition*** **** ***–*** **** For
        revenue from product sales, the Company recognizes revenue in accordance
        with
        SEC Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial
        Statements” (“SAB 104”). SAB 104 requires that four basic criteria must be met
        before revenue can be recognized: (1) persuasive evidence of an arrangement
        exists; (2) delivery has occurred; (3) the selling price is fixed and
        determinable; and (4) collectibility is reasonably assured.
 
 Criterion
        (1) is met as every delivery is covered by a separate contract and the title
        passes to the customer only upon customer’s acceptance at point of destination,
        which is in compliance with criterion (2). Determination of criteria (3)
        and (4)
        are based on management's judgments regarding the fixed nature of the selling
        prices of the products delivered and the collectibility of those amounts.
        Provisions for discounts and rebates to customers, estimated returns and
        allowances, and other adjustments are provided for in the same period the
        related sales are recorded. The Company defers any revenue for which the
        product
        has not been delivered and accepted by its customers. In accordance with
        the
        Company’s standard contract terms, once delivered and accepted the product
        cannot be returned and no claims can be presented to the Company. The Company
        recognizes revenue on gross basis.
 
 The
        Company has revenues from the sale of petroleum products produced from the
        properties for which the Company has production activities (Note 4) and from
        products purchased from third parties. At present, the Company has been unable
        to estimate the quantity of its proved reserves. We plan to estimate our
        proved
        reserves for Karaikozovsk block once we complete and test Well #21 of
        Karaikozovsk block in 2008.
  ***Property,
        Plant and Equipment*** – As
        of the
        date of the financial statements with the exception of Well #21 of Karaikozovsk
        property, most assets capitalized are directly related to in-process drilling
        costs, above ground storage, distribution and production facilities. The
        Company
        has adopted the policy of accounting for oil and gas properties using the
        successful efforts method of accounting whereby property acquisitions,
        successful exploratory wells, all development costs, and support equipment
        and
        facilities are capitalized. Unsuccessful exploratory wells are expensed when
        a
        well is determined non-productive. Other exploratory expenditures, including
        geological and geophysical costs are expensed as incurred. Depreciation,
        depletion and amortization of capitalized costs is calculated based on useful
        economic life of the resulting assets. Capitalized Lease/Concession acquisition
        costs are depreciated over the life of the related drilling rights.
  10
  Production
        and related overhead costs are expensed as incurred. Depreciation of assets
        not
        directly associated with oil production and certain workover costs on properties
        has been calculated on a straight-line basis over the economic lives of such
        assets, estimated to be in the following ranges:
  Property
                  and Equipment
              
              2
                  yearsWell
                  #21drilling costs, casing and tubing
              
              Over
                  the remaining life of the exploration license (5 quarters as at
                  3/31/2008)Other
                  Oil&Gas Equipment
              
              10-12
                  yearsStorage
                  tanks
              
              10
                  yearsAbove
                  ground pipelines and flowlines
              
              20
                  yearsOffice
                  Equipment
              
              5
                  yearsComputer
                  Equipment
              
              3
                  years
  The
        gain
        or loss arising on the disposal or retirement of an asset is determined as
        the
        difference between the sales proceeds and the carrying amount of the asset
        and
        is recognized in the income statement.
  Well
        #21
        of Karaikozovsk property was placed into production on September 1, 2007
        from
        the gas producing horizon Visean-15. Since the commencement of production,
        a
        total of approximately 330,575 MMCF of natural gas and 7,907 BBLS of condensate
        were produced from the well. The well has been producing on a 5mm choke.
        All
        produced gas is being sold to the Company’s customers through the regional
        pipeline connection secured by the Company. While the well was being logged,
        2
        other commercially viable producing horizons were discovered in addition
        to the
        currently producing Visean-15 producing horizon. The Company’s geologists
        estimate the useful economic life of the well as 3-5 years. Since the well
        is
        currently undergoing testing, the Company’s geologists have not yet been able to
        obtain a more accurate estimate of the reserves of Well #21 which are required
        in order to apply the units of production method. Once the extensive testing
        of
        the well is completed and the Company’s geologists are able to accurately
        estimate the remaining producible reserves the Company will start applying
        the
        units of production method. Until that time, the Company determined the most
        appropriate procedure to deplete the drilling costs, as well as the costs
        of
        casing and tubing over the remaining life of the exploration license for
        Karaikozovsk property which expires in July 2, 2009. Consequently, the above
        well costs are being expensed over approximately 1.25 years as at March 31,
        2008. Once the reserve data has been obtained, we will adjust this calculation
        to comply with actual production and reserves.
  In
        accordance with SFAS 144, we test our long-lived assets for impairment by
        comparing the carrying value of the assets with the undiscounted expected
        cashflows from the investments. In the event, the aggregate undiscounted
        expected cashflows from the investments are below the carrying value of the
        above investments, the unamortized costs of such fixed assets will be reduced
        to
        their fair value. Simultaneously, we will recognize the impairment loss as
        the
        amount by which the fair value of the investments exceeds their carrying
        value.
  We
        assess
        unproved properties on an annual basis to determine whether they have been
        impaired. If we drill a dry hole on a property and elect to abstain from
        further
        drilling on this property, the above property will be deemed impaired and
        we
        will recognize the impairment loss. Costs related to infrastructure are
        evaluated by the management based on continuing valuation and future benefit
        to
        the Company. If such assets are determined to have lost value, we will recognize
        impairment at the time.
  ***Leasing***  ***–*** Leases
        are classified as finance leases whenever the terms of the lease transfer
        substantially all the risk and rewards of ownership to the lessee. All other
        leases are classified as operating leases.
 
 There
        were no assets held under financial leases. Operating leases are expensed
        in the
        period in which they are incurred.
 
 11
  ***Inventories***  ***–*** Inventories are stated at the lower of cost or net realizable value. Cost
        comprises direct cost of extracted oil and gas, its transportation and handling
        physically in the pipelines or storages prior to the delivery for sale.
 
 Cost
        is
        calculated using weighted average method. Net realizable value represents
        the
        estimated selling price less all estimated costs to completion and costs
        to be
        incurred in marketing, selling and distribution.
 
 ***Accounts
        Receivable –*** Accounts
        receivable are stated at their net realizable value after deducting provisions
        for uncollectible amounts.
 
 ***Cash
        and Cash Equivalents –*** Cash
        include petty cash and cash held on current bank accounts. Cash equivalents
        include short-term investments with an original maturity of three months
        or less
        that are readily convertible to known amount of cash which are subject to
        insignificant risk of changes in value. Cash and cash equivalents as of March
        31, 2008 and December 31, 2007 consisted mainly of the UAH and USD denominated
        current accounts.
  ***Loans
        and Other Borrowings***  ***–*** All
        loans and borrowings are recorded at the proceeds received, net of direct
        issue
        costs.
  ***Borrowing
        Costs***  ***–*** Borrowing costs are recognized as an expense in the period in which they
        are
        incurred.
 
 ***Trade
        and Other Payables***  ***–*** Liabilities for trade and other amounts payable are stated at their nominal
        value.
 
 ***Value
        added tax on purchases and sales –*** Value
        added taxes (VAT) related to sales is payable to the Ukrainian tax authorities
        upon collection of receivables from customers. VAT on purchases is offset
        against VAT collected from sales. The tax authorities permit the settlement
        of
        VAT on a net basis. VAT related to sales and purchases which have not been
        settled at the balance sheet date, (VAT deferred) is recognized in the balance
        sheet on a gross basis and disclosed separately as a current asset and
        liability. Where provision has been made against debtors deemed to be
        uncollectible bad debt expense is recorded for the gross amount of the debtor,
        including VAT. The related VAT deferred liability is maintained until the
        debtor
        is settled or until the debtor is written off for statutory accounting
        purposes.
 
 ***Income
        Taxes***  ***–*** Income
        tax has been computed based on the results for the year as adjusted for items
        that are non-assessable or non-tax deductible.
 
 The
        Company has adopted Financial Accounting Standards No. 109 (“SFAS 109”), under
        which the deferred tax is accounted for using the balance sheet liability
        method
        in respect of temporary differences arising from differences between the
        carrying amount of assets and liabilities in the consolidated financial
        statements and the corresponding tax basis used in the computation of taxable
        profit. Deferred tax liabilities are generally recognized for all taxable
        temporary differences and deferred tax assets are recognized to the extent
        that
        it is probable that taxable profits will be available against which deductible
        temporary differences can be utilized. Deferred tax assets and liabilities
        are
        offset when they relate to income taxes levied by the same taxation authority
        and the Company intends to settle its tax assets and liabilities on a net
        basis.
 
 Deferred
        tax is calculated at rates that are expected to apply to the period when
        the
        asset is realized or the liability is settled. It is charged or credited
        to the
        income statement, except when it relates to items credited or charged directly
        to equity, in which case the deferred tax is also dealt with in
        equity.
 
 ***Fair
        Value of Financial Instruments*** –
SFAS
        No. 107, “Disclosures About Fair Value of Financial Instruments,” requires
        disclosure of the fair value of certain financial instruments. Unless
        otherwise noted, it is management’s opinion that the Company is not exposed to
        significant interest, currency or credit risks arising from these financial
        instruments. The fair value of financial instruments approximate their carrying
        values due to the immediate or short term maturity of these financial
        instruments.
 
 12




***Earnings
        (Loss) per Share –*** Earnings
        (loss) per share are computed in accordance with SFAS No. 128, "Earnings
        Per
        Share". Basic earnings (loss) per share are calculated by dividing the net
        income (loss) available to common stockholders by the weighted average number
        of
        shares outstanding during the year. Diluted earnings per share reflect the
        potential dilution of securities that could share in earnings of an entity.
        In a
        loss year, dilutive common equivalent shares are excluded from the loss per
        share calculation as the effect would be anti-dilutive.
  ***Comprehensive
        Income (Loss) -*** Statement
        of SFAS 130, “Reporting Comprehensive Income,” establishes standards for
        reporting and displaying of comprehensive income, its components and accumulated
        balances. Comprehensive income (loss) is defined to include all changes in
        equity except those resulting from investments by owners and distributions
        to
        owners. Among other disclosures, SFAS 130 requires that all items that are
        required to be recognized under current accounting standards as components
        of
        comprehensive income (loss) be reported in a financial statement that is
        displayed with the same prominence as other financial statements. Foreign
        exchange translation gains and losses of the Company are reflected in
        Comprehensive gains and losses.
  ***Retirement
        Benefit Costs***  ***–*** The
        operating divisions of the Company situated in Ukraine contribute to the
        state
        pension, medical and social insurance and employment funds on behalf of all
        its
        current employees. Any related expenses are recognized in the income statement
        as incurred.
 
 ***Segment
        Reporting***  ***–*** The
        Company’s business operations are located in Ukraine and relate primarily to
        exploration and development of crude oil and natural gas properties. Therefore,
        business activities are subject to the same risks and returns and addressed
        in
        the consolidated financial statements of the Company as one reportable
        segment.
  **4.**
              **JOINT
                  ACTIVITY AND LEASE
                  AGREEMENTS**
  ***JAA
        # 01-SD dated April 26, 2000***
  In
        August
        2000 Esko Pivnich together with the state owned geological enterprise
        Poltavaneftegasgeologiya executed a joint activity agreement (“JAA”) to start
        exploration and development of Karaikozovsk field located in Krasnokutsk
        area of
        Kharkov region. Under the terms of JAA Poltavaneftegasgeologiya acted as
        the
        holder of the main geological and exploration licenses to develop Karaikozovsk
        field and Esko Pivnich acted as an investor into the JAA. Esko Pivnich’s total
        contribution into PSA #01-SD amounted to $596,188.
  In
        November 2000 a subsidiary of JSC Ukrneft, Okhtirkaneftegas, was admitted
        into
        the JAA. Okhtirkaneftegas owned two wells on Karaikozovsk block, the operational
        usage of which was contributed into the JAA. Also, Okhtirkaneftegas made
        a
        commitment to render to JAA certain exploration and capital repair services
        at
        market rates.
  In
        May
        2003, due to the expiration of geological and exploration licenses held by
        Poltavaneftegasgeologiya, all exploration and development activities on
        Karaikozovsk’s field were temporarily suspended.
  ***JAA
        # 35/970-SD dated August 19, 2004***
  In
        2004
        Esko Pivnich filed an application with the Ukrainian State Committee for
        Mineral
        Resources to continue the exploration and development of Karaikozovsk field
        and
        in July 2004 the Esko Pivnich obtained the exploration license for Karikozovsk
        lease for the period of 5 years.  In
        accordance with the terms of JAA #35/970 Esko Pivnich was liable to finance
        80%
        of the capital expenditures while Oktyrkanaftogaz was liable to finance 20%
        of
        the capital expenditures required to maintain and operate Wells #2 and #3.
        Esko
        Pivnich and Okhtyrkanaftogaz participated in the resulting profits (losses)
        from
        Wells #2 and #3 in the same proportions. JAA #35/970 only concerned Wells
        #2 and
        #3 of Karaikozovsk property which were originally owned by Okhtyrkaneftegas
        and
        did not apply to Well #21 or any other facilities such as the gathering,
        separation and storage facility and a pipeline both financed solely by Esko
        Pivnich. JAA #35/970 was terminated on July 31, 2007 and was superseded by
        well
        lease agreement # 4/1220-OR.
  13
  ***Lease
        Agreement # 4/1220-OR dated August 1, 2007***
  In
        accordance with the agreement, the Company’s wholly owned subsidiary Esko
        Pivnich shall pay Okhtirkaneftegas an equivalent of $18,945 per month at
        the
        prevailing exchange rate for the usage of all facilities located on Karaikozovsk
        block including Wells #2 and #3 that are owned by Okhtirkaneftegas.
  **5.**
              **ACCOUNTS
                  RECEIVABLE, related party**
  Accounts
        receivable as of March 31, 2008 and December 31, 2007 consisted of $165,492
        and
        $165,492, respectively. The amounts due from CJSC Infox at December 31, 2007
        resulted from several crude oil shipments which took place during 2003 and
        2004.
  **6.**
              **OTHER
                  ACCOUNTS RECEIVABLE AND
                  PREPAYMENTS**
  Other
        accounts receivable and prepayments as of March 31, 2008 and December
        31 **,** 2007
        consisted of the following:
  **3/31/2008**
              
              **12/31/2007**Ukrzaccordonneftegasabudinvest
              
              $
              178,218
              
              $
              178,218Vixen
                  JLM
              
              
              128,699
              
              
              128,699Zond
              
              
              
              
              
              144,554SDCH
              
              
              139,066
              
              
              139,066Ukrnadraservice
              
              
              112,000
              
              
              110,950Poltavaneftegasgeologia
              
              
              
              
              
              79,678Ukrfinresource2004
              
              
              83,890
              
              
              62,919Svako
              
              
              58,067
              
              
              44,146Other
              
              
              322,166
              
              
              103,308**Other
                  accounts receivable and prepayments, net of provision for doubtful
                  accounts of $46,931**
              
              **$**
              **1,022,106**
              
              **$**
              **991,538**
  $178,218
        due from Ukrzaccordonneftegasbudinvest and $112,000 due from Ukrnadraservice
        was
        related to the prepayment for construction work on Well #1 of Peremyshlyansk
        property. The advance paid to Vixen JLM relates to a prepayment for well
        casings
        while the amount due from SDCH related to excess production tubing sold to
        the
        above company.
  **7.**
              **INVENTORIES**
  Inventories
        as of as of March 31, 2008 and December 31, 2007 consisted of the
        following:
  **3/31/2008**
              
              **12/31/2007**Crude
                  oil – at realizable value
              
              $
              24,860
              
              $
              38,550**Total**
              
              **$**
              **24,860**
              
              **$**
              **38,550**
  Inventories
        of crude oil as of March 31, 2008 and December 31, 2007 represented 40 and
        103
        bbls of crude oil produced. Inventories of condensate as of March 31, 2008
        and
        December 31, 2007 represented 254 and 635 bbls of condensate
        produced.
  14
  **8.**
              **TAXES
                  RECEIVABLE**
  Taxes
        receivable as of March 31, 2008 and December 31, 2007 consisted of the
        following:
  **3/31/2008**
              
              **12/31/2007**VAT
                  receivable
              
              $
              1,548,617
              
              $
              1,733,991Other
                  prepaid tax
              
              
              250,039
              
              
              1,128**Total**
              
              **$**
              **1,798,656**
              
              **$**
              **1,735,119**
  Taxes
        receivable balances are represented by VAT receivable and other advance tax
        payments. VAT receivable was discounted at 15% annual rate based on average
        six
        months turnover period.
  **9.**
              **PROPERTY,
                  PLANT AND EQUIPMENT**
  Property,
        plant and equipment as of March 31, 2008 and December 31, 2007 consisted
        of the
        following:
  **3/31/2008**
              
              **12/31/2007**Well
                  capital repair costs and capitalized work-over costs
              
              $
              821,987
              
              $
              415,414Owned
                  producing wells (drilling costs and below ground
                  infrastructure)
              
              
              3,046,330
              
              
              3,045,691Separation
                  facilities and other above-ground infrastructure
              
              
              3,213,776
              
              
              3,406,434Construction
                  in progress
              
              
              4,657,773
              
              
              4,327,825Office
                  equipment
              
              
              48,269
              
              
              47,95611,788,135
              
              
              11,243,320Accumulated
                  Depreciation and Depletion
              
              
              (1,878,754
              )
              
              (1,653,045
              )**Net
                  Book Value**
              
              **$**
              **9,909,381**
              
              **$**
              **9,590,275**
  15
  **10.**
              **LONG-TERM
                  FINANCIAL INVESTMENT**
  As
        at
        March 31, 2008 and December 31, 2007, long-term investments included the
        following:
  **3/31/2008**
              
              **12/31/2007**Ukrnafta
                  shares
              
              $
              1,980
              
              $
              1,980Investment
                  into JAA with Galateya Ltd. on Chukvinsk lease
              
              
              1,373
              
              
              75,554**Total**
              
              **$**
              **3,353**
              
              **$**
              **77,534**
  The
        investment into a Joint Activity Agreement on Chukvinsk block with Galateya
        Ltd.
        was made by Pari, a wholly owned subsidiary of the Company in the form of
        pipes
        for future wells to be drilled on the property. Since the investment was
        made
        and no activity has taken place in the Joint Activity Agreement the pipes
        were
        expensed during first quarter of 2008. Other long-term investments represented
        10 common shares of JSC “Ukrnafta” accounted for at cost, which approximates
        their fair market value.
  **11.**
              **INCOME
                  TAX**
  The
        Company’s provision for income tax for the periods ended March 31, 2008 and
        December 31, 2007 was as follows:
  **3/31/2008**
              
              **12/31/2007**Current
                  tax
              
              $
              72
              
              $
              42,812Deferred
                  tax loss (gain)
              
              
              (1,273
              )
              
              (3,360
              )**Total
                  income tax expense (benefit)**
              
              **$**
              **(1,201**
              **)**
              **$**
              **39,452**
  Deferred
        taxes reflect the net tax effects of temporary differences between the carrying
        amounts of assets and liabilities for financial reporting purposes and the
        amounts used for tax purposes.
  The
        change for the periods ended March 31, 2008 and December 31, 2007 in the
        Company’s deferred tax position is as follows:
  **3/31/2008**
              
              **12/31/2007**Net
                  asset at the beginning of the period
              
              $
              75,777
              
              $
              72,417Charged
                  to income for the period
              
              
              1,273
              
              
              3,360**Net
                  asset at the end of the period**
              
              **$**
              **77,050**
              
              **$**
              **75,777**
  16
  The
        tax
        effect on any substantial temporary differences, which give rise to the deferred
        tax assets as at March
        31,
        2008 and December 31, 2007 is presented below:
  **3/31/2008**
              
              **12/31/2007****Temporary
                  differences that give rise to deferred tax assets**Provision
                  for doubtful receivables
              
              $
              46,931
              
              $
              46,931Valuation
                  of VAT receivable
              
              
              112,339
              
              
              125,770Low
                  value items written off
              
              
              493
              
              
              663Difference
                  in depreciable value of property, plant and equipment due to expensing
                  in
                  prior period allowed by Ukrainian law
              
              
              148,438
              
              
              129,379**Total**
              
              **$**
              **308,201**
              
              **$**
              **302,743**
  The
        deferred tax assets as at March 31, 2008 and December 31, 2007, calculated
        at
        effective Ukrainian income tax rate of 25%, consists of the
        following:
  **3/31/2008**
              
              **12/31/2007****Deferred
                  tax assets**Provision
                  for doubtful receivables
              
              $
              11,643
              
              $
              11,733Valuation
                  of VAT receivable
              
              
              28,175
              
              
              31,533Low
                  value items written off
              
              
              123
              
              
              166Difference
                  in depreciable value of property, plant and equipment due to expensing
                  in
                  prior period under Ukrainian low
              
              
              37,109
              
              
              32,345**Total**
              
              **$**
              **77,050**
              
              **$**
              **75,777**
  The
        taxation charge for the respective period is different from that which would
        be
        obtained by applying the Ukrainian statutory income tax rate to the net loss
        before income tax. Below is a reconciliation of theoretical income tax at
        25% to
        the actual benefit recorded in the Company’s income statement:
  **3/31/2008**
              
              **12/31/2007**(Loss)
                  before income tax and minority interest
              
              $
              (854,643
              )
              $
              (2,002,817
              )Theoretical
                  income tax benefit at statutory rate of 25%
              
              
              (213,661
              )
              
              500,704Adjustments
                  due to:Tax
                  effect of (expenses) that are not deductible in determining taxable
                  profit
              
              
              212,460
              
              
              (540,156
              )**Income
                  tax (benefit)**
              
              **$**
              **(1,201**
              **)**
              **$**
              **(39,452**
              **)**
  As
        of
        March 31, 2008 and December 31, 2007 the Company had no loss carry forward
        for
        Ukrainian statutory income tax purposes. For United States income tax purposes,
        as of March 31, 2008 the Company has a net operating loss carry forward of
        $2,194,992 which expires in 2028. As a result, the company has a deferred
        tax
        asset of $746,297 which is fully reserved because of the uncertainty of
        realization.
  17
  **12.**
              **ACCOUNTS
                  PAYABLE**
  Accounts
        payable as of March 31, 2008 and December 31, 2007 consisted of the
        following:
  **3/31/2008**
              
              **12/31/2007****Accounts
                  payable**Okhtyrkaneftegas
              
              $
              182,767
              
              $
              180,584182,767
              
              
              180,584CJSC
                  Infox, related party
              
              
              1,948,832
              
              
              1,898,070**Total**
              
              **$**
              **2,131,599**
              
              **$**
              **2,078,654**
  Third
        parties accounts payable balances as of March 31, 2008 were comprised of
        payable
        to Okhtirkaneftegas for services in the amount of $182,767
        respectively.
  The
        amount of $1,948,832 payable to the related party, CJSC Infox, as of March
        31,
        2008, is related to well drilling and repair services, provided to EP by
        third
        party service companies and paid by CJSC Infox on behalf of the
        Company.
  **13.**
              **TAXES
                  PAYABLE**
  Taxes
        payable as of March 31, 2008 and December 31, 2007 consisted of the
        following:
  **3/31/2008**
              
              **12/31/2007**VAT
              
              
              376,359
              
              
              376,690Exploration
                  tax
              
              
              163,183
              
              
              22,469Profit
                  tax
              
              
              292Resource
                  Tax
              
              
              27,062
              
              
              21,966Social
                  insurance
              
              
              6,523
              
              
              6,147Personal
                  income tax
              
              
              2,212
              
              
              2,375Other
                  taxes
              
              
              1,088
              
              
              1,184**Total**
              
              **$**
              **576,719**
              
              **$**
              **430,831**
  All
        of
        the above amounts were current.
  **14.**
              **SHORT
                  TERM NOTES PAYABLE**
  **Dutchess
        Note**
  On
        March
        26, 2007, the Company issued to Dutchess Private Equities Fund, Ltd.
        ("Dutchess") a senior promissory note in the face amount of $2,553,125 for
        gross
        proceeds of $2,375,000 (the "Dutchess Note"). The Note bore interest at 7%
        per
        annum and matured on December 26, 2007 ("Dutchess Note Maturity Date"). Pursuant
        to the Dutchess Note, the Company was required to make payments to Dutchess
        of
        $20,000 on each monthly anniversary from the date of issuance through July
        26,
        2007. Thereafter, the Company was required to pay Dutchess $515,170.57 on
        each
        monthly anniversary until paid in full.
  18
  In
        connection with the issuance of the Dutchess Note, the Company executed and
        delivered to Dutchess a Security Agreement ("Security Agreement"), and its
        subsidiaries, Esko Pivnich and Pari, executed and delivered a Secured Continuing
        Unconditional Guaranty ("Guaranty") and Negative Pledge ("Pledge"). Dutchess
        Note is senior to all other debt obligations of the Company. The Company
        has
        also agreed to provide to Dutchess an additional collateral for the Dutchess
        Note in the form of forty (40) Put Notices which was held in
        escrow;
  Due
        to
        the temporary cash shortage, the Company belatedly made November 2007 and
        December 2007 payments. The November 2007 payment together with accrued interest
        was subsequently paid to Dutchess in early December 2007 while the December
        2007
        payment was paid in late January 2008. On February 21, 2008 (the “Release
        Date”), the Company and Dutchess executed Agreement and General Release and
        Waiver (the “Release Agreement”) pursuant to which Dutchess acknowledged that
        the Dutchess Note had been repaid in full, became null and void and was thereby
        cancelled. Furthermore, according to the Release Agreement, the Company was
        deemed to have fulfilled any and all provisions of the following agreements
        which also terminated: Promissory Note, Security Agreement, Secured Continuing
        Unconditional Guarantee, and Negative Pledge. Also, the collateral Put Notices
        none of which had been triggered were specifically voided. Dutchess also
        released and discharged the Company, the Company’s subsidiaries, the Company’s
        employees, officers, directors, shareholders, principals, partners, members,
        attorneys, legal representatives, successors and assigns from all liabilities,
        undertakings, actions, causes of action, suits, debts, dues, sums of money,
        accounts, bonds, bills, covenants, contracts, controversies, agreements,
        promises, variances, trespasses, damages, liquidated damages, judgments,
        executions, claims and demands whatsoever, in law, admiralty or equity, against
        the Company.
  **MI
        SWACO Note**
  On
        July
        5, 2007 Pari, the Company’s wholly owned subsidiary issued interest free notes
        to MI SWACO Ukraine as payment for services having face value of $237,678.
        The
        notes are due on July 10, 2008.
  **Other
        promissory notes**
  Short
        term promissory notes outstanding as of March 31, 2008 and December 31, 2007,
        issued in November 2002 at no interest, were payable by
        November 5, 2005. These notes in the amounts of $14,257 and $5,340,
        are payable to Astark and Sipay, respectively. As of December 31, 2007 the
        holders of the notes had not called for the repayment of the respective amounts.
        Any valuation adjustment due to the lack of interest has not been calculated,
        however, such amounts, if any, are not considered to have a material effect
        on
        these financial statements.
  **15.**
              **OTHER
                  ACCOUNTS PAYABLE AND
                  ACCRUALS**
  Other
        accounts payable and accruals as of March 31, 2008 and December 31, 2007
        consisted of the following:
  **3/31/2008**
              
              **12/31/2007**ZakhidUkrGeology
              
              $
              36,481
              
              $
              101,126Montazhtransgas
              
              
              125,052
              
              
              203,982Ukrgeophisica
              
              
              62,917
              
              
              62,917Fort
                  Trade PP
              
              
              46,337
              
              
              46,337Other
              
              
              511,551
              
              
              351,333**Total**
              
              
              **782,338**
              
              
              **765,695****Related
                  parties**Advances
                  from shareholders
              
              
              275,091
              
              
              275,091**275,091**
              
              
              **275,091****Total**
              
              **$**
              **1,057,429**
              
              **$**
              **1,040,786**
  19
  The
        amount of $125,052 due to Montazhtransgas is related to the construction
        of
        gathering, separation and storage facility built at the Company’s Karaikozovsk
        property. The amount of $36,481 due to Zakhidukrgeologiya was related to
        drilling services of the exploration Well #1 of Peremyshlyansk property.
        Other
        accounts payable and accruals as of December 31, 2007 mostly consisted of
        geological and exploration works, as well as payroll, short term advances
        to
        employees and other prepayments for repair and construction services. The
        amount
        of $275,091 represents advances from shareholders with no specific terms
        paid to
        the Company during 2005 and 2006.
  Other
        accounts payable and accruals as of March 31, 2008 mostly consisted of
        non-recurring geological research, geological and exploration works, as well
        as
        payroll, short term advances to employees and other prepayments for repair
        and
        constructions services.
  **16.**
              **PREPAYMENTS
                  FOR OIL AND GAS**
  Prepayments
        for oil and gas as of March 31, 2008 and December 31, 2007 represented cash
        advances received from the Company’s customer in respect of future oil
        deliveries. The above advances consisted of:
  **3/31/2008**
              
              **12/31/2007**Ukrnedraresourse
              
              $
              724,410
              
              $
              229,417Angronafta
              
              
              
              
              
              19,802Luksor
              
              
              
              
              
              148,515Other
                  prepayments
              
              
              10,755
              
              
              14,494**Prepayments
                  for oil and gas**
              
              **$**
              **735,165**
              
              **$**
              **412,228**
 
 **17.**
              **INTEREST
                  PAYABLE**
  Interest
        payable as of March 31, 2008 and December, 31 2007, consisted of the
        following:
  **3/31/2008**
              
              **12/31/2007**Millington
                  Solutions Limited – Convertible notes
              
              $
              268,756
              
              $
              219,710**Related
                  parties**Long
                  term loan – Zaccam Trading, related Party
              
              
              85,614
              
              
              76,619Interest
                  accrued on advances received from former shareholders
              
              
              22,476
              
              
              22,476Subtotal
                  related parties
              
              
              108,090
              
              
              99,095**Total**
              
              **$**
              **376,846**
              
              **$**
              **318,805**
  Long
        term
        loan from Zaccam Trading, a related party, at 3% per annum (Note 19) was
        obtained in 2005.
  **18.**
                **PROFIT
                    INTEREST PAYABLE**
  As
        of
        March 31, 2008 and December 31, 2007, profit interest of $17,998 was payable
        to
        Poltavaneftegasgeologiya and represents an amount that was accrued and partially
        paid by the Company in respect to profits earned during 2002, and is calculated
        in accordance with PSA # 01-SD dated April 26, 2000.
  20
  **19.**
              **LONG
                  TERM PAYABLE**
  Long
        term
        payables as of March 31, 2008 and December 31, 2007 consisted of the
        following:
 **Coupon**
                
                **Conv.**
                  **Price**
                
                **Issue date/**
                  **Effective**
                
                **Due**
                  **not earlier****Lender/Note**
                
                **Rate**
                
                **$/share**
                
                **Date**
                
                **than**
                
                **12/31/2008**Fort
                    Trade
                
                
                
                
                
                
                
                
                Nov-
                    2004
                
                
                Nov-
                    2009
                
                $
                465,347465,347**Millington
                    Solutions Ltd.**CD-1001
                
                
                10
                %
                $
                2.20
                
                
                03/30/2006
                
                
                03/30/2009
                
                
                1,008,920CD-1009
                
                
                10
                %
                $
                2.20
                
                
                06/06/2006
                
                
                06/06/2009
                
                
                2,189,220CD-1011
                
                
                6
                %
                $
                1.40
                
                
                07/25/2006
                
                
                07/25/2009
                
                
                854,254CD-1013
                
                
                7
                %
                $
                3.00
                
                
                02/01/2007
                
                
                02/01/2010
                
                
                904,5694,956,963Fort
                    Trade and Millington Solutions Ltd.
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                5,422,309**Related
                    parties**Zaccam
                    Trading, Ltd.
                
                
                
                
                
                
                
                
                03/5/2005
                
                
                03/5/2015
                
                
                1,205,9001,205,900**Total**
                
                
                
                
                
                
                
                
                
                
                
                
                
                **$**
                **6,628,209**
  **Fort
        Trade**
  As
        of
        March 31, 2008 and December 31, 2007, the amount of $465,347 represented
        interest free note payable for geological and research services rendered
        by Fort
        Trade during 2004.
  **Millington
        Solutions**
  Effective
        March 30 and June 6, 2006, Sunrise Energy Resources, Inc. executed a Convertible
        Note Subscription Agreement with Millington Solutions Limited to complete
        a $1.0
        million and $2.0 million, respectively, private placement financing in the
        form
        of 10% convertible notes. Each tranche will mature in 3 years of the receipt
        of
        funds. The coupon is accrued at the rate of 10% per annum on the unconverted
        amount and is payable annually on each 12 month anniversary of each tranche
        until conversion or maturity. The Notes can be converted into Common shares
        of
        the Company at a conversion price of $2.20 at the holder's option at any
        time
        before the maturity date of each tranche. For Notes converted between interest
        due dates, the interest would accrue pro-rata and would be paid in the form
        of
        additional shares of the Company's Common stock. The number of such additional
        shares shall be calculated at the same conversion price.
  On
        July
        25, 2006 the Company executed a Convertible Note Subscription Agreement with
        Millington Solutions Limited for the total amount of $1.0 million with 6% coupon
        and the conversion price of $1.40 per share. All other terms were identical
        to
        the Convertible Note Subscription Agreements that were signed on March 30
        and
        June 6, 2006. On February 1, 2007, the Company executed Convertible Note
        Subscription Agreement with Millington Solutions Limited for the total amount
        of
        $1.0 million with 7% coupon and the conversion price of $3.00 per share.
        All
        other terms were identical to the Convertible Note Subscription Agreements
        that
        were signed on March 30 and June 6, 2 006.
        On
        March 15, 2007 the Company and Millington Solutions Ltd. agreed that interest
        accrued under the Convertible Debenture Note agreements CD-1001, CD-1009,
        CD-1011 and CD-1013 (“the Notes”) may be at the Company’s election paid when due
        in accordance with the Convertible Debenture Note terms; or fully or partially
        capitalized. In the event, the Company elects to capitalize the accrued
        interests under the Notes, the accrued interest shall be added to the
        outstanding principal. Following such election, the interest in subsequent
        periods shall accrue on the increased principal balance at the rate provided
        by
        each Convertible Debenture Note agreement. The increased outstanding principal
        may be converted into the Company’s shares of common stock in accordance with
        the terms of each Convertible Debenture Note. On March 20, 2007, the Company
        elected to capitalize the interest payments on CD-1001 and CD-1009 due on
        the
        first annual anniversary of each tranche. On July 10, 2007, the Company elected
        to capitalize the interest payments on CD-1011 due on the first annual
        anniversary of each tranche. In addition, on January 31, 2008 the Company
        elected to capitalize the interest payments on CD-1013 due on the first annual
        anniversary of each tranche.
  21
  Millington
        Solutions was duly notified of the Borrower’s election and the Lender’s
        acknowledgement of the above election is kept on the Company’s
        file.
  **Zaccam
        Trading Ltd. (a related party)**
  Long
        term
        payable to Zaccam Trading, Ltd., a related party, represents uncollateralized
        credit line facility with the limit of $5,000,000 bearing 3% per annum accruing
        on outstanding principal and payable annually.
  **20.**
              **MILLINGTON
                  CONVERTIBLE DEBENTURE
                  VALUATION**
  The
        management believes that apart from the embedded conversion option the
        convertible debentures (“the Convertible Notes”) issued by the Company to
        Millington Solutions Ltd. the Company does not have any other embedded
        derivatives. As can be seen from the following table, at the time of issuance,
        all embedded conversion features were far out of the money:
 **Coupon**
                
                **Conv.**
                  **Price**
                
                **Maximum**
                
                **Average**
                
                **Negative**
                  **Intrinsic**
                
                **First**
                  **Tranche**
                
                **Last**
                  **Tranche****Convertible Note**
                
                **Rate**
                
                **$/share**
                
                **Price***
                
                **Price***
                
                **Value****
                
                **Date**
                
                **Date**CD-1001
                
                
                10
                %
                $
                2.20
                
                $
                0.85
                
                $
                0.85
                
                
                (61
                )%
                
                4/5/2006
                
                
                5/30/2006CD-1009
                
                
                10
                %
                $
                2.20
                
                $
                1.00
                
                $
                0.73
                
                
                (55
                )%
                
                6/18/2006
                
                
                10/1/2006CD-1011
                
                
                6
                %
                $
                1.40
                
                $
                1.00
                
                $
                0.83
                
                
                (29
                )%
                
                9/21/2006
                
                
                1/26/2007CD-1013
                
                
                7
                %
                $
                3.00
                
                $
                2.50
                
                $
                2.65
                
                
                (17
                )%
                
                2/12/2007
                
                
                6/22/2007
  *
        Highest
        and average closing prices on the date of receipt of funds under each tranche
        during the period between the first and the last tranche of each
        Note.
 **
        Negative intrinsic value is calculated as discount from the conversion
        price.
  The
        Company believes that upon issuance the Convertible Debenture was issued
        at fair
        value for the following reasons:
  ·
              the
                  conversion feature was far out of the money and was designed as
                  compensation to the investor for a relatively low coupon
                  rate;
 ·
              there
                  were no warrants attached to the Millington Convertible
                  Notes;
 ·
              in
                  the event of conversion, the Company had sufficient authorized
                  shares to
                  cover the conversions;
 ·
              All
                  tranches of CD-1001, CD-1009, CD-1011and CD-1013 were originally
                  issued
                  with the conversion feature being out of the money. Despite having
                  been in
                  the money during July-August of 2007, none of the tranches of CD-1001,
                  CD-1009 and CD-1011 have been converted as of the date of this
                  filing
                  primarily due to the limited liquidity of the stock.
  Due
        to
        the above reasons, the Company believes that the conversion feature does
        not
        require separate accounting from the host contract as a derivative instrument
        pursuant to the provisions of SFAS No. 133, “Accounting for Derivative
        Instruments and Hedging Activities” (“SFAS 133”). Alternatively, if the Company
        elected to comply with SFAS
        No. 155 ,
        “Accounting for Certain Hybrid Financial Instruments — an amendment of FASB
        Statements No. 133 and 140, the Company would need to measure the
        debentures in their entirety at fair value with changes in fair value recorded
        as either a gain or a loss in the consolidated statement of operations under
        the
        caption “Change in fair value of convertible debt instrument”.
  22
  Fair
        value of the Convertible Notes comprising the value of the straight bond
        plus
        the value of embedded call option may be determined by Black-Scholes option
        pricing model. The use of the above formula requires certain assumptions
        that
        are subject to significant management judgment.
  The
        volatility of the common stock is estimated using a combination of historical
        and implied volatility, as discussed in SEC Staff Accounting Bulletin
        No. 107. By using this combination, the Company is taking into
        consideration the historical realized volatility, as well as factoring in
        estimates of future volatility that the Company believes will differ from
        historical volatility as a result of the market performance of the common
        stock,
        the volume of activity of the underlying shares, the availability of actively
        traded common stock options, and overall market conditions.
  The
        risk-free interest rate used in the Black-Scholes option pricing model is
        determined by looking at historical U.S. Treasury zero-coupon bond issues
        with
        terms equal to the expected terms of the equity awards. In addition, an expected
        dividend yield of zero is used in the option valuation model, because the
        Company does not expect to pay any cash dividends in the foreseeable
        future.
  For
        the
        period from March 1, 2007 to March 31, 2008 during the periods of relative
        liquidity the observed daily volatility of stock prices was 1.67%. In addition,
        the annualized risk-free rate of 5% was assumed. Using the above base
        assumptions, and assuming that the convertibles would be outstanding for
        3 years
        before they are converted i.e. no early conversion, the fair value at the
        time
        of issuance of the conversion feature of the convertible debentures that
        were
        outstanding on March 31, 2008 would be $199,582. The fair value of the same
        convertible debentures on March 31, 2008 given the closing price of $1.15
        on
        that date would amount to $93,509. To comply with SFAS No. 155, the Company
        would need to record a profit of $106,073 from change in fair value of
        convertible debt instrument and a reduction the carrying value of the
        convertible debentures in the liabilities’ section of the Company’s balance
        sheet by the same amount. The Company believes that recording imaginary and
        estimated gains or losses would cause the financial statements to be
        misleading.
  **21.**
              **SHAREHOLDERS’
                  EQUITY**
  During
        the first 3 months of 2008, the Company raised $1,415,005 from private
        placements of 1,415,005 shares Company’s unregistered stock to non-US investors
        in reliance on Regulation S as promulgated under the Securities Act of
        1933.
  No
        dividends were declared or paid by the Company during the periods ended March
        31, 2008 and December 31, 2007.
  **22.**
              **LOSS
                  PER COMMON SHARE**
  Basic
        net
        loss per common share has been computed based on the weighted-average number
        of
        shares of common stock outstanding during the applicable period. In accordance
        with SFAS No. 128 *“Earnings
        per share”* ,
        diluted
        net income per common share is computed based on the weighted-average number
        of
        shares of common stock and common stock equivalents outstanding during the
        applicable period, as if all potentially dilutive securites were converted
        into
        common stock. However, according to paragraph 16 of SFAS No. 128, no potential
        common shares shall be included in the computation of any diluted per share
        amount when a loss from continuing operations exists.
  23
  **Three Months Ended****March 31,****2008**
              
              **2007**(Unaudited)
                (in US dollars, except
                per share amounts)Net
                  loss attributable to common stockholders
              
              $
              (853,441
              )
              $
              (218,687
              )Weighted
                  average common shares outstanding, basic
              
              
              22,412,185
              
              
              17,175,569Loss
                  per common share, basic
              
              $
              (0.04
              )
              $
              (0.01
              )Weighted
                  average common shares outstanding, diluted
              
              
              22,412,185
              
              
              17,175,569Loss
                  per common share, diluted
              
              $
              (0.04
              )
              $
              (0.01
              )
  **23.**
              **RELATED
                  PARTIES**
  Related
        parties include shareholders and entities under common ownership. Transactions
        with related parties are performed on terms that are comparable to those
        available to unrelated parties. For details of related party balances
        outstanding as of March 31, 2008 and December 31, 2007 see Notes 5, 12, and
        17.
  Our
        related parties include CJSC Infox and Zaccam Trading, Ltd. During the period
        ended March 31, 2008 we received $50,762 from CJSC Infox to finance wells
        repair
        services. A total of $1,948,832 was due to the related party, CJSC Infox
        on
        March 31, 2008.
  As
        of
        March 31, 2008, the outstanding amount of $165,492 receivable from CJSC Infox,
        related party, was related to several crude oil shipments which took place
        in
        2004 and 2003.
  **24.**
              **COMMITMENTS
                  AND CONTINGENCIES**
  ***Licenses’
        commitments***
  During
        2005 the Company received geological and exploration license agreements to
        develop Karaikozovsk’s, Rogan and Rakitnyansk fields. The following amounts of
        investments are to be incurred under the terms of those agreements during
        the
        periods indicated in the table below:
  **Amount**
              
              **Amount**
              
              **Remaining****Period**
              
              **To be invested**
              
              **invested**
              
              **Investment**Rogan
                  field
              
              
              2005-2009
              
              $
              2,922,772
              
              $
              147,926
              
              $
              2,774,846Rakitnyansk
                  field
              
              
              2005-2009
              
              
              3,938,614
              
              
              575,107
              
              
              3,363,507Karaikozovsk
                  field
              
              
              2005-2009
              
              
              4,241,584
              
              
              8,231,325
              
              
              -**Total**
              
              
              
              
              **$**
              **11,102,970**
              
              **$**
              **8,954,358**
              
              **$**
              **6,138,353**
  ***Pari
        -*** During
        2004 Pari received geological and exploration license agreements to develop
        the
        Peremishlyansk, Chukvinsk, Scheremetivsk, Niklovitsk and Pilipivsk fields.
        The
        following amounts of investments are to be incurred under the terms of those
        agreements:
  **Amount**
              
              **Amount**
              
              **Remaining****Period**
              
              **To be invested**
              
              **Invested**
              
              **Investment**Peremishlyansk
                  field
              
              
              2004-2009
              
              $
              2,336,634
              
              $
              3,963,162
              
              $
              -Chukvinsk
                  field
              
              
              2004-2009
              
              
              1,544,554
              
              
              5,776
              
              
              1,538,778Scheremetivsk
                  field
              
              
              2004-2009
              
              
              712,872
              
              
              -
              
              
              712,872Niklovitsk
                  field
              
              
              2004-2009
              
              
              594,059
              
              
              17,780
              
              
              576,279Pilipivsk
                  field
              
              
              2004-2009
              
              
              475,248
              
              
              -
              
              
              475,248**Total**
              
              
              
              
              **$**
              **5,663,367**
              
              **$**
              **3,986,718**
              
              **$**
              **3,303,177**
  24
  ***Environmental
        remediation –*** Under
        Ukrainian law, the Company is obligated to meet certain environmental
        remediation obligations related to its oil and gas production activities.
        This
        amount cannot be estimated at this time but is considered not to be a material
        amount.
  ***Lease
        commitments –*** The
        Company leases office space on a yearly basis and the rent is disclosed in
        other
        notes. The Company’s future lease commitments as of March 31, 2008 are as
        follows:
  **2008**Office
                  rent
              
              $
              55,950**$**
              **55,950**
  ***Litigation***  ***–*** The
        Company has been and continues to be the subject of legal proceedings and
        adjudications from time to time. Management believes that the resolution
        of all
        business matters which will have a material impact on the Company’s financial
        position or operating results have been recorded.
  ***Ukrainian
        Tax and Regulatory Environment***  ***–*** The
        government of Ukraine continues to reform the business and commercial
        infrastructure in its transition to a market economy. As a result laws and
        regulations affecting businesses continue to change rapidly. These changes
        are
        characterized by poor drafting, different interpretations and arbitrary
        application by the authorities. In particular taxes are subject to review
        and
        investigation by a number of authorities enabled by law to impose fines and
        penalties. While the Company believes it has provided adequately for all
        tax
        liabilities based on its understanding of the tax legislation, the above
        facts
        may create tax risks for the Company.
  **25.**
              **RISK
                  MANAGEMENT POLICIES**
  Management
        of risk is an essential element of the Company’s operations. The main risks
        inherent to the Company’s operations are those related to credit risk exposures,
        market movements in foreign exchange rates and in interest rates. A description
        of the Company’s risk management policies in relation to those risks is provided
        below.
  ***Credit
        risk*** **** ***–*** **** The
        Company is exposed to credit risk which is the risk that one party to a
        financial instrument will fail to discharge an obligation and cause the other
        party to incur a financial loss.
  The
        Company structures the levels of credit risk it undertakes by placing limits
        on
        the amount assigned or transacted in relation to a particular customer, or
        groups of customers. Limits on the level of credit risk by customer are approved
        quarterly by the Credit Committee.
  25




Our
      sales
      to customers in excess of 5% were as follows:




3/31/2008
            
            12/31/2007Agrotemp
                (oil produced)
            
            $
            -
            
            $
            217,947Vlad
                Nafta (oil produced)
            
            
            59,872
            
            
            45,116Ukrtatnafta
                (oil produced)
            
            
            
            
            
            189,769Ukrnedraresource
                (gas produced)
            
            
            796,411
            
            
            237,862Ukrfinresource
                2004 (gas produced)
            
            
            17,476
            
            
            379,377Vlad
                nafta (condensate produced)
            
            
            86,398
            
            
            190,585Angronafta
                (condensate produced)
            
            
            
            
            
            83,081Luksor
                (gas resold)
            
            
            123,762Naftoimpex
                (oil produced)
            
            
            
            
            
            385,542Agronafta
                (oil produced)
            
            
            
            
            
            84,193Azov
                oil company (oil produced)
            
            
            
            
            
            135,215Ukrgasenergo
                (oil produced)
            
            
            
            
            
            263,366Ukrfinresourse
                2004 (gas resold)
            
            
            
            
            
            262,991Azov
                oil company (oil resold)
            
            
            
            
            
            126,799Other
            
            
            
            
            
            165,589Total
            
            $
            1,083,919
            
            $
            2,767,432




***Currency
      risk –*** Currency
      risk is defined as the risk that the value of a financial instrument will
      fluctuate due to changes in foreign exchange rates.




The
      Credit Committee sets limits on the level of exposure to a single currency
      (primarily Ukrainian Hrivna and US Dollar), by entities and in
      total.




***Interest
      rate risk –*** Interest
      rate risk arises from the possibility that changes in interest rates will affect
      the value of a financial instrument.




Currently,
      the Company’s approach to the interest risk limitation is borrowing at fixed
      rates and for short periods.




**26.**
            **CONCENTRATION
                OF BUSINESS RISK**




The
      Company’s operating activities are limited to Ukraine. Laws and regulations
      affecting businesses operating in Ukraine are subject to rapid changes and
      the
      Company’s assets and operations could be at risk due to negative changes in the
      political and business environments.




**27.**
            **SUBSEQUENT
                EVENTS**


None.
 26




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




**Discussion
      and Analysis of Financial Condition**




**Introduction**




The
      following discussion and analysis addresses changes in our financial condition
      and results of operations during the periods ended March 31, 2008 and
      2007.




Management’s
      key objectives for three months period of 2008 were:




·
            Finish
                drilling Well #1 of Peremyshlyansk property in Western Ukraine;


·
            Transfer
                Well #3 of Karaikozovsk property to produce from the gas horizon
                Visean
                14;




We
      believe that these key objectives were achieved during the three months period
      of 2008. Our 2008 strategy for the Karaikozovsk field includes re-entry of
      Well
      #14 in early third quarter of 2008. We also plan to continue testing Well #1
      of
      Rakitnyansk lease.




**Current
      Activities**




During
      the first quarter of 2008, our production was limited to Wells #2, #3 and #21
      of
      Karaikozovsk lease.  During the quarter we produced 833 BBLS of oil from
      Well #2 and 192,568 MCF of natural gas from Well #21 and Well #3. In addition,
      we produced 839 BBLS of condensate from Well #21 and Well #3 during the quarter.




**Results
      of Operations**




Oil
      and gas production and revenue




**Three Months Ended****March 31,****2008**
            
            **2007**(Unaudited)
              (in US dollars, except
              production amounts)RevenuesRevenue
                from sales of produced oil
            
            $
            59,872
            
            $
            584,116Revenue
                from sales of resold gas
            
            
            123,762Revenue
                from sales of produced condensate
            
            
            86,398Revenue
                from sales of produced gas
            
            
            813,887Revenue,
                net
            
            $
            1,083,919
            
            $
            584,116Oil
                sales, bblsProduced
                oil
            
            
            895
            
            
            7,980Resold
                gas895
            
            
            7,980Gas
                sales, mcfProduced
                gas
            
            
            192,394Resold
                gas
            
            
            35,000Condensate
                sales, bblsProduced
                condensate
            
            
            1,217Average
                daily productionOil,
                bopd
            
            
            10
            
            
            87Gas,
                mcfpd
            
            
            2,137
            
            
            -Condensate,
                bopd
            
            
            9Average
                selling prices****Oil,
                $/BBL
            
            $
            66.89
            
            $
            73.20Gas,
                $/MCF
            
            
            4.23
            
            
            -Condensate,
                $/BBL
            
            
            70.99




27




All
      sales
      agreements were short-term in nature, with the extension option by mutual
      agreement of the parties. Our crude oil is sold at wellhead while the natural
      gas is sold at the measuring mode of Bogodukhov-Stepove pipeline. We recognize
      revenue from the sale of oil when the purchaser takes delivery of the oil at
      the
      field. We recognize revenue from the sale of gas upon pumping the gas into
      Bogodukhov-Stepove pipeline. The company did not incur any material
      transportation expenses.




The
      crude
      oil balances as of March 31, 2008 and March 31, 2007 amounted to 40 and 2,878
      Bbls, respectively. The condensate balance for the period ended March 31, 2008
      was 254 Bbls.




Operating
      expense




The
      increase in operating expense from $317,115 during the first 3 months of 2007
      to
      $707,185 during the first 3 months of 2008 was due to higher production rates
      and higher well stimulation costs. The above increase was partially compensated
      by a higher absorption of fixed production overheads resulting from the
      commencement of gas production.




Exploration




An
      exploration expense, which includes geological and geophysical expense and
      the
      cost of unsuccessful exploratory wells, is recorded as an expense in the period
      incurred under the successful efforts method of accounting. During the periods
      ended March 31, 2008 and 2007 we incurred $81,925and $55,930, respectively
      in
      exploration expenses.




Depreciation,
      depletion and amortization




Depreciation,
      depletion and amortization (“DD&A”) of oil and gas properties is calculated
      under units of production method, following the successful efforts method of
      accounting, as described in Note 1 of the Notes to Consolidated Financial
      Statements.  As
      at the
      date of this report an independent reserve engineering study is being
      obtained.




Oil
      and
      gas production equipment and workover costs were the main contributor into
      the
      depreciation expense for the periods ended March 31, 2008 and 2007 in the total
      amounts of $498,228 and $46,048.




Sales,
      general and administrative expenses




Sales,
      general and administrative expenses for the period ended March 31, 2008
      increased to $345,104 from $278,341 in the period ended March 31, 2007 mainly
      due to the increase in payroll and related taxes to $145,888 (2007: $50,593),
      legal and audit services of $ 54,493 (2007: $38,180) and other professional
      services of $39,076 (2007: $22,070).




28




Interest
      expense




Interest
      expense for the periods ended March 31, 2008 and 2007, amounted to $132,283
      and
      $122,317, respectively. The increase was caused by an increase of $416,963
      of
      convertible debentures outstanding as at the end of the respective
      period.




**Liquidity
      and Capital Resources**




Since
      inception, we have financed our operations from private sources. We anticipate
      continuing losses in the near future while Esko Pivnich and Pari establish
      steady production of oil and gas in Ukraine. As at March 31, 2008, the Company
      had total current assets of $3,390,789 and total current liabilities of
      $5,175,742, respectively. As at March 31, 2008, the Company had cash balances
      of
      $379,675 and a working capital deficit of $1,784,953, respectively.




We
      are
      currently discussing various financing options with private investors, including
      with certain of the Company’s shareholders, however, no assurance can be given
      as to if, when and under what terms such new financing may be received by the
      Company. Failure to timely receive such financing may cause us to significantly
      curtail or altogether suspend our capital expenditure program. This may, in
      turn, have material adverse effect on our production activities.




Cash
      flow




Cash
      (used in)/provided by operating activities during the periods ended March 31,
      2008 and 2007 amounted to $292,170 and $(938,902), respectively. C ash
      inflow for the three months of 2008, as compared to the outflow during the
      respective period of 2007 despite a larger net loss of $(853,441) compared
      to
      $(218,687) in 2007, was primarily caused by the increase in accounts payable
      of
      52,946 vs. an decrease of $(317,047) in 2007, $322,937 growth in prepayments
      for
      oil and gas vs. a reduction of $(304,315) in 2007, growth in other accounts
      payable of $16,641 vs. a reduction of $(284,358) in 2007 and growth in taxes
      receivable of $(63,537) vs. a growth of $(105,868) in 2007.




During
      the three months ended March 31, 2008 cash provided by financing activities
      in
      the amount of $879,458 resulted from the proceeds from the private equity
      financing of $1,415,005 which was partially offset by the repayment of the
      Dutchess Note.




During
      the three months ended March 31, 2008, the Company incurred capital expenditures
      of $803,870 most of which represented drilling costs of Well #1 of
      Peremyshlyansk property while during the three months ended March 31, 2007,
      the
      capital expenditures amounted to $916,635.




Cash
      Requirements




The
      Company anticipates it will require approximately $10,000,000 in 2008 to
      implement its capital expenditure program for the properties covered by the
      licenses, construction of infrastructure for Karaikozovsk and Rakitnyansk
      blocks, as well as the continuation of drilling of Well#1 on Peremyshlyansk
      property. The Company believes it will be able to raise these funds through
      equity, debt and convertible debt financing; however, there is no assurance
      that
      such funds will be raised and no certainty as to when such funds may be raised
      or on what terms.




29




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




Currently,
      the Company is liable for Ukrainian income tax at a rate of 25% of the pre-tax
      earnings as defined by applicable tax regulations under the Ukrainian income
      tax
      legislation. The taxation system in Ukraine is evolving as the central
      government transforms itself from a command to a market-oriented economy. Based
      on current tax law and the United States — Ukraine income tax treaty, the income
      tax paid in Ukraine may be credited against the Company’s tax liability when
      determining the Company’s US income taxes payable, if any.




**Critical
      Accounting Policies and Recent Accounting Pronouncements**




We
      have
      identified the policies below as critical to our business operations and the
      understanding of our financial statements. The impact of these policies and
      associated risks are discussed throughout Management’s Discussion and Analysis
      where such policies affect our reported and expected financial results. A
      complete discussion of our accounting policies is included in Note 3 of the
      Notes to Consolidated Financial Statements.




**Going
      Concern**




The
      Company’s consolidated financial statements have been presented on the basis
      that it is a going concern, which contemplates the realization of assets and
      satisfaction of liabilities in the normal course of business. As shown in the
      consolidated financial statements, the Company incurred a net loss of $853,441
      during the period ended March 31, 2008, and, as of March 31, 2008, the Company’s
      current liabilities exceeded its current assets by $1,784,953. Additionally,
      to
      fully develop the area covered by the Licenses, the Company needs substantial
      additional funding.




In
      view
      of the matters described in the preceding paragraph, recoverability of a
      substantial portion of the assets shown in the accompanying balance sheet is
      dependent upon continued operations of the Company, which in turn is dependent
      upon the Company’s ability to meet its financing requirements on a continuing
      basis. For the Company to meet its financing requirements, it would have to
      raise additional funds, primarily by way of equity contributions, and to succeed
      in its future operations. The consolidated financial statements do not include
      any adjustments relating to the recoverability and classification of recorded
      asset amounts or amounts and classification of liabilities that might be
      necessary should the Company be unable to continue its operations.




Management
      has taken the following steps to revise its operating and financial
      requirements, which it believes are sufficient to provide the Company with
      the
      ability to continue in its operations as a going concern:




o
            
            The
                Company plans to continue to raise additional capital in the equity,
                debt
                and convertible debt markets as significant source of funding its
                development of the properties covered by the Licenses.





o
            
            Based
                on its expected production capabilities from the expenditures that
                will be
                made as a result of equity and debt financing, the Company believes
                that
                it could generate adequate cash flow.o
            
            Additional
                funding requirements may also be necessary before the Company is
                able to
                rely solely on the cash flow resulting from the production achieved
                on its
                licensed properties.





Accordingly,
      our independent auditors included an explanatory paragraph in their report
      on
      the December 31, 2007consolidated financial statements expressing concerns
      about
      our ability to continue as a going concern. Our financial statements contain
      additional note disclosures describing the circumstances that lead to this
      disclosure by our independent auditors.




Functional
      and Reporting Currency




The
      reporting currency of the accompanying consolidated financial statements is
      the
      US dollars. Ukrainian entities use Ukrainian Hrivna (UAH) as their functional
      currency since most of their revenues and operating expenses are denominated
      in
      Ukrainian Hrivnas. The Ukrainian Hrivna is not a fully convertible currency
      outside of Ukraine. The translation of Hrivna denominated assets and liabilities
      into US dollars for the purpose of these consolidated financial statements
      does
      not indicate that the Company could or will in the future realize or settle
      in
      US dollars the translated values of these assets and liabilities.




30




The
      prevailing exchange rates as at March 31, 2008 and December 31, 2007 were
      approximately 1 U.S. dollar to $5.0500 Ukrainian Hrivnas. For the periods
      ended March 31, 2008 and 2007, the average exchange rate for 1 U.S. dollar
      was
      $5.0500 Ukrainian Hrivnas, respectively.




Principles
      of Consolidation




The
      consolidated financial statements incorporate the financial statements of
      Sunrise Energy Resources Inc. and other enterprises, where the Company, directly
      or indirectly exercises control. Control is achieved where the Company has
      the
      power to govern the financial and operating policies of an invested enterprise
      so as to obtain benefits from its activities.




All
      significant intercompany transactions, balances and unrealized gains (losses)
      on
      transactions are eliminated on consolidation.




Use
      of
      Estimates




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




Oil
      and Gas Reserve Information




As
      of
      March 31, 2008, we have not been able to estimate the quantity of proved
      reserves within the meaning of Rule 4-10(a) of Regulation S-X. The Company
      has
      hired independent geologists to review the reserves.




**S** uccessful
      Efforts Method of Accounting




Once
      we
      finalize the reserve estimate that is currently underway, we will follow the
      successful efforts method of accounting for our investments in oil and gas
      properties, as more fully described in Note 3 of the Notes to Consolidated
      Financial Statements..This accounting method has a pervasive effect on our
      reported financial position and results of operations.




Revenue
      Recognition




For
      revenue from product sales, the Company recognizes revenue in accordance with
      SEC Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial
      Statements” (“SAB 104”). SAB 104 requires that four basic criteria must be met
      before revenue can be recognized: (1) persuasive evidence of an arrangement
      exists; (2) delivery has occurred; (3) the selling price is fixed and
      determinable; and (4) collectibility is reasonably assured.




Criterion
      (1) is met as every delivery is covered by a separate contract and the title
      passes to the customer only upon customer’s acceptance at point of destination,
      which is in compliance with criterion (2). Determination of criteria (3) and
      (4)
      are based on management’s judgments regarding the fixed nature of the selling
      prices of the products delivered and the collectibility of those amounts.
      Provisions for discounts and rebates to customers, and other adjustments are
      provided for in the same period the related sales are recorded. The Company
      defers any revenue for which the product has not been delivered and accepted
      by
      its customers. In accordance with the Company’s standard contract terms, once
      delivered and accepted the product cannot be returned and no claims can be
      presented to the Company. The Company recognizes revenue on gross
      basis.




31




**ITEM
      3. Quantitative and Qualitative Disclosures about Market
      Risk**




**Oil
      and Gas prices**




The
      demand for, and price of, oil and gas is highly dependent on a variety of
      factors, including international supply and demand, the level of consumer
      demand, weather conditions, the price and availability of alternative fuels,
      actions taken by governments and international cartels, and global economic
      and
      political developments. International oil prices have fluctuated widely in
      recent years and may continue to fluctuate significantly in the future. The
      Company believes it may benefit significantly due to the recent changes in
      the
      Ukrainian market for gas. In addition, and although not foreseen, the Ukrainian
      government may oblige domestic producers to sell oil or gas to the state or
      domestic purchasers at prices well below international levels for indeterminate
      periods of time.




**Currency
      Exchange Risk** ****




Domestic
      sales of oil and gas in Ukraine are made in local currency (Hryvna) and then
      converted to US$. The US$ - Hryvna exchange rate may move adversely to affect
      oil and gas prices. In addition, there can be no assurance that the Ukrainian
      authorities may not introduce price stabilization mechanisms which adversely
      affect oil and gas prices in US$ terms for EP. While many of Sunrise’s financial
      obligations are denominated in United States dollars, a number of foreign
      currency effects may arise from exchange rate movements. Sunrise does not engage
      in active speculative hedging to minimize exchange rate risk.




**Disclosure
      regarding Forward-Looking Statements**




This
      quarterly Report contains forward looking statements (as such term is defined
      in
      the Private Securities Litigation Reform Act of 1995). All statements, other
      than statements of historical fact, contained in this report are forward looking
      statements, including, without limitation, statements regarding the future
      financial position, business strategy, proposed acquisitions, budgets,
      litigation, projected costs and plans and objectives of or involving Sunrise
      or
      its subsidiaries. Sunrise Shareholders can identify many of these statements
      by
      looking for words such as “believe”, “expects”, “will”, “intends”, “projects”,
“anticipates”, “estimates”, “continues” or similar words or the negative
      thereof. There can be no assurance that the plans, intentions or expectations
      upon which these forward looking statements are based will occur. Forward
      looking statements are subject to risks, uncertainties and assumptions,
      including those discussed elsewhere in this report. Although Sunrise believes
      that the plans, intentions and expectations represented in such forward looking
      statements are reasonable, there can be no assurance that such plans, intentions
      and expectations will prove to be correct. Some of the risks which could affect
      future results and could cause results to differ materially from those expressed
      in the forward looking statements contained herein include: risks inherent
      in
      the future prices for oil and natural gas, political and regulatory risks,
      risks
      inherent in currency exchange rates, risks inherent in the prices for services
      and government fiscal regimes and the risk that actual results will vary from
      the results forecasted and such variations may be material.




The
      information contained in this report, including the information set forth under
      “Risk Factors”, identifies additional factors that could affect the operating
      results and performance of Sunrise. We urge you to carefully consider those
      factors.




The
      forward looking statements contained herein are expressly qualified in their
      entirety by this cautionary statement. The forward looking statements included
      in this Report are made as at the date of this Quarterly Report and Sunrise
      undertakes no obligation to publicly update such forward looking statements
      to
      reflect new information, subsequent events or otherwise.




As
      used
      in this annual report, the terms “we”, “us”, “our”, “Company” and “Sunrise”
means Sunrise Energy Resources, Inc. and its consolidated subsidiaries, unless
      otherwise indicated.




All
      dollar amounts refer to US dollars unless otherwise indicated.




32




The
      above
      discussion should be read in conjunction with our financial statements and
      the
      related notes that appear elsewhere in this quarterly report.




**ITEM
      4. CONTROLS AND PROCEDURES**




The
      Company’s Principal executive officers and principal financial officer, based on
      their evaluation of the Company’s disclosure controls and procedures (as defined
      in Rules 13a-15(e) of the Securities Exchange Act of 1934) as of March 31,
      2008
      have concluded that the Company’s disclosure controls and procedures are
      adequate and effective to ensure that material information relating to the
      Company’s and its consolidated subsidiaries is recorded, processed , summarized
      and reported within the time periods specified by the SEC’s rules and forms,
      particularly during the period in which this quarterly report has been
      prepared.




The
      Company’s principal executive officers and principal financial officer have
      concluded that there were no changes in the Company’s internal controls or in
      other factors that could significantly affect these controls as of the end
      of
      the period covered by this report based on such evaluation, and that there
      was
      no significant deficiencies or material weaknesses in the Company’s internal
      controls.




33




**PART
      II – OTHER INFORMATION**




**ITEM 1.
      LEGAL PROCEEDINGS**




There
      are
      no outstanding legal proceedings material to the Company to which the Company
      or
      any of its assets are subject, nor are there any such proceedings known to
      be
      contemplated. Management believes that the resolution of all business matters
      which would have a material impact on the Company’s financial position or
      operating results have been recorded.




**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**





During
      the first 3 months of 2008, the Company raised $1,415,005 from private
      placements of 1,415,005 shares Company’s unregistered stock to non-US investors
      in reliance on Regulation S as promulgated under the Securities Act of 1933.
      The
      proceeds from this offering were used for working capital and general corporate
      purposes.





**Item
      3. Defaults upon Senior Securities**





None





**Item
      4. Submission of Matters to a Vote of Security Holders**





None





**Item
      5. Other Information**





None




**Item
      6. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES AND REPORTS ON FORM
      8-K**




***Reports
      on Form 8-K***




A
      Current
      Report on Form 8-K filed by the Company on March 31, 2008.




The
      following Consolidated Financial Statements pertaining to Sunrise Energy
      Resources are filed as part of this quarterly report:




Consolidated
      Balance Sheets as of March 31, 2008  and
      December 31, 2007




Consolidated
      Statements of Changes in Stockholders’ Equity (Capital Deficit) for the three
      months ended March 31, 2008




Consolidated
      Statements of Operations and Comprehensive Loss for the three months ended
      March
      31, 2008 and 2007.




Notes
      to
      the Consolidated Financial Statements for the periods ended March 31,
      2008  and
      December 31, 2007


**Exhibit**
                **Number**
              
              **Description**
              
              **Incorporation
                  by Reference**31.1
              
              Rule
                  13a-14(a) Certification of Chief Executive Officer
              
              Filed
                  Herewith31.2
              
              Rule
                  13a-14(a) Certification of Chief Financial Officer
              
              Filed
                  Herewith32.1
              
              Section
                  1350 Certification of Chief Executive Officer
              
              Filed
                  Herewith32.2
              
              Section
                  1350 Certification of Chief Financial Officer
              
              Filed
                  Herewith




34




**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the Registrant caused
      this
      report to be signed on its behalf by the undersigned thereunto duly
      authorized.




Sunrise
                Energy Resources, Inc./s
                Konstantin
                TsirulnikovDate:
                May 13, 2008
            Konstantin
                TsirulnikovPresident
                and Chief Executive Officer


35