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


**Washington,
      D.C. 20549**





**FORM
      10-QSB/A**





**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 six month ended**


**June
      30, 2006**





** ̈**
            **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)





551
                Fifth Avenue, Suite 2020New
                York, New York
            10017(Address
                of principal executive office)
            (Zip
                Code)





**Registrant’s
      telephone number, including area code: (212) 973-0063**





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 o





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 o





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





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





State
      issuer’s revenues for its most recent fiscal year: $1,762,631





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates as of August 14, 2006 within past 60 days:
      $14,229,341.





As
      of
      August 14, 2006, the Registrant had 17,161,014 shares of common stock $.001
      par
      value issued and outstanding.





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




1




**SUNRISE
      ENERGY RESOURCES, INC.**




**FORM
      10-QSB**


**TABLEOF
      CONTENTS**





**PART
                I. FINANCIAL INFORMATION**
            PageFinancial
                Statements (unaudited)Item
                1.Consolidated
                Balance Sheets - June 30, 2006 and
                December 31, 2005Consolidated
                Statement of Operations and
                Comprehensive Loss - for the six months ended June 30, 2006 and
                2005Consolidated
                Statements of Changes in
                Stockholder’s Equity (Capital Deficit) - June 30, 2006 and December 31,
                2005Consolidated
                Statements of Cash Flows - for the six
                months ended June 30, 2006 and 2005Notes
                to Unaudited Consolidated Financial
                StatementsItem
                2.
            Management’s
                Discussion and Analysis of Financial
                Condition and Results of OperationsItem
                3.
            Quantitative
                and Qualitative Disclosures About Market
                RiskItem
                4.
            Controls
                and Procedures**PART
                II.    OTHER
                INFORMATION**Item
                1.
            Legal
                ProceedingsItem
                2.
            Unregistered
                Sales of Equity Securities and Use of
                ProceedsItem
                3.
            Defaults
                upon Senior SecuritiesItem
                4.
            Submission
                of Matters to a Vote of Security
                HoldersItem
                5.
            Other
                InformationItem
                6.
            Exhibits
                and Reports on Form 8-K**SIGNATURES**




2
 *Table
          of Contents*


**PART
      I.**


**SUNRISE
      ENERGY RESOURCES INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**(Expressed
      in US Dollars)**








**June
                30,**
              **2006**
            
            **December
                31,**
              **2005**ASSETS
            
            **(UNAUDITED)**CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            36,440
            
            $
            3,419Accounts
                receivable - related party
            
            
            255,299
            
            
            720,797Other
                accounts receivable and prepayments
            
            
            987,937
            
            
            760,797Other
                accounts receivable - related party
            
            
            -
            
            
            122,574Inventories
            
            
            542,530
            
            
            159,266Taxes
                receivable
            
            
            525,673
            
            
            185,736Total
                current assets
            
            
            2,347,879
            
            
            1,952,589NONCURRENT
                ASSETSProperty,
                plant and equipment, net
            
            
            2,126,366
            
            
            951,025Lease/concession
                acquisition cost
            
            
            188,499
            
            
            -Long-term
                financial investments
            
            
            1,980
            
            
            1,980Deferred
                tax asset
            
            
            79,210
            
            
            73,319**TOTAL
                ASSETS**
            
            **$**
            **4,743,934**
            
            **$**
            **2,978,913**LIABILITIES
                AND STOCKHOLDERS' EQUITYCURRENT
                LIABILITIESAccounts
                payable
            
            $
            225,143
            
            $
            218,104Accounts
                payable - related party
            
            
            187,719
            
            
            592,554Taxes
                payable
            
            
            1,002,325
            
            
            905,731Short
                term bank loans
            
            
            -
            
            
            514,851Short
                term notes payable
            
            
            19,598
            
            
            19,598Other
                accounts payable and accruals
            
            
            619,345
            
            
            414,577Other
                accounts payable - related party
            
            
            300,391
            
            
            244,191Prepayments
                for oil and gas
            
            
            312,262
            
            
            500,867Interest
                payable
            
            
            44,239
            
            
            17,711Profit
                interest payable
            
            
            17,997
            
            
            17,997Total
                current liabilities
            
            
            2,729,019
            
            
            3,446,181Long
                term notes payable
            
            
            1,882,347
            
            
            465,347Long-term
                payable to related party
            
            
            1,391,900
            
            
            279,900Commitments
                and Contingencies (Note 24)
            
            
            -
            
            
            -STOCKHOLDERS’
                EQUITYCommon
                Stock, $.001 par value, 75,000,000 authorized, 17,161,014 and 17,000,000
                issued and outstanding as of June 30, 2006 and December 31, 2005
            
            
            17,161
            
            
            17,000Additional
                Paid in Capital (Deficit)
            
            
            29,938
            
            
            (66,509
            )Retained
                earnings (Accumulated deficit)
            
            
            (1,274,239
            )
            
            (1,130,814
            )Accumulated
                other comprehensive (loss) - foreign currency
            
            
            (32,192
            )
            
            (32,192
            )Total
                stockholders' equity (deficit)
            
            
            (1,259,332
            )
            
            (1,212,515
            )**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            **$**
            **4,743,934**
            
            **$**
            **2,978,913**




The
        accompanying notes are an integral part of the consolidated financial
        statements.
  3
 *Table
            of Contents*





**SUNRISE
      ENERGY RESOURCES INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS AND
      COMPREHENSIVE LOSS**


**(Expressed
      in US Dollars except share amounts)**


**UNAUDITED**







**For
                the six months ended**
              **June
                  30,****2006**
            
            **2005**REVENUESProduced
                oil & gas
            
            $
            815,184
            
            $
            904,128Purchased
                oil & gas
            
            
            120,174
            
            
            -Total
            
            
            935,358
            
            
            904,128COST
                OF SALES
            
            
            (116,637
            )
            
            -818,721
            
            
            904,128Operating
                expenses
            
            
            (328,506
            )
            
            (553,300
            )Depreciation
                expense
            
            
            (149,963
            )
            
            (128,717
            )Bad
                debt recovery
            
            
            21,144
            
            
            -Other
                operating income (expenses), net
            
            
            4,958
            
            
            (24,065
            )Sales,
                general and administrative expenses
            
            
            (352,664
            )
            
            (397,725
            )OPERATING
                INCOME (LOSS)
            
            
            13,690
            
            
            (199,679
            )OTHER
                INCOME (EXPENSE)Interest
                income (expense), net
            
            
            (92,403
            )
            
            (63,051
            )Foreign
                exchange (loss)
            
            
            (6,977
            )
            
            (33,083
            )Other
                expense
            
            
            -
            
            
            (2,308
            )LOSS
                BEFORE TAX
            
            
            (85,690
            )
            
            (298,121
            )INCOME
                TAX (Note 12)
            
            
            (57,735
            )
            
            (8,868
            )NET
                LOSS
            
            $
            (143,425
            )
            $
            (306,989
            )BASIC
                (LOSS) EARNINGS  PER SHARE
            
            $
            (0.008
            )
            $
            (0.018
            )WEIGHTED
                AVERAGE COMMON SHARES OUTSTANDING
            
            
            17,143,369
            
            
            17,000,000




The
      accompanying notes are an integral part of the
      consolidated financial statements.




4
 *Table
          of Contents*


**SUNRISE
      ENERGY RESOURCES INC.**


**CONSOLIDATED
      STATEMENTS OF CHANGES IN
      STOCKHOLDERS’ EQUITY**


**(CAPITAL
      DEFICIT)**


**(Expressed
      in US Dollars except share amounts)**


**UNAUDITED**





**Common**
              **Stock**
            
            **Additional**
              **Paid-in**
            
            **Retained**
              **Earnings**
            
            **Accumulated**
              **Other**
            
            **Total**
              **Stockholder's****Capital**
            
            
            
            **Comprehensive**
            
            **Equity****Shares**
            
            **Amount**
            
            
            
            **(Accumulated**
              **Deficit)**
            
            **(Loss)**
            
            **(Capital**
              **Deficit)****BALANCE,
                DECEMBER 31, 2003**
            
            
            **137,700**
            
            **$**
            **1,377**
            
            
            **-**
            
            **$**
            **48,462**
            
            
            -
            
            **$**
            **49,839**Common
                Stock, $0.001 par value, 75,000,000 issued and outstanding
            
            
            17,000,000
            
            
            17,000
            
            
            -
            
            
            -
            
            
            -
            
            
            17,000To
                give effect on the acquisition of EP as of December 31,
                2004
            
            
            (137,700
            )
            
            (1,377
            )
            
            -
            
            
            -
            
            
            -
            
            
            (1,377
            )Pre-acquisition
                deficit of Sunrise Energy Resources, Inc.
            
            
            -
            
            
            -
            
            
            (66,509
            )
            
            -
            
            
            -
            
            
            (66,509
            )To
                reclassify to Retained Earnings
            
            
            -
            
            
            -
            
            
            66,509
            
            
            (66,509
            )
            
            -
            
            
            -Net
                (loss) for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (592,481
            )
            
            -
            
            
            (592,481
            )**BALANCE,
                DECEMBER 31, 2004**
            
            
            **17,000,000**
            
            
            **17,000**
            
            
            **-**
            
            
            **(610,528**
            **)**
            
            **-**
            
            
            **(
                593,528**
            **)**Net
                (loss for the year)
            
            
            **-**
            
            
            **-**
            
            
            -
            
            
            (586,795
            )
            
            -
            
            
            (586,795
            )Other
                Comprehensive loss for the year
            
            
            **-**
            
            
            **-**
            
            
            -
            
            
            -
            
            $
            (32,192
            )
            
            (32,192
            )**BALANCE,
                DECEMBER 31, 2005**
            
            
            **17,000,000**
            
            
            **17,000**
            
            
            **-**
            
            
            **(1,197,323**
            **)**
            
            **(32,192**
            **)**
            
            **(
                1,212,515**
            **)**Common
                Stock, $0.001 par value, 161,014 issued in connection with Pari
                acquisition
            
            
            161,014
            
            
            161
            
            
            96,447
            
            
            -
            
            
            -
            
            
            96,608Net
                loss for the six months
            
            
            -
            
            
            -
            
            
            -
            
            
            (143,425
            )
            
            -
            
            
            (143,425
            )**BALANCE,
                JUNE 30, 2006**
            
            
            **17,161,014**
            
            **$**
            **17,161**
            
            **$**
            **96,447**
            
            **$**
            **(1,340,748**
            **)**
            **$**
            **(32,192**
            **)**
            **$**
            **(1,259,332**
            **)**





The
      accompanying notes are an integral part of the
      consolidated financial statements.




5
 *Table
          of Contents*





**SUNRISE
      ENERGY RESOURCES INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Expressed
      in US Dollars)**


**UNAUDITED**








**For
                the six months ended**
              **June
                30,****2006**
            
            **2005****CASH
                (USED IN) PROVIDED BY OPERATING ACTIVITIES:**Net
                loss
            
            $
            (143,425
            )
            $
            (306,989
            )Adjustments
                to reconcile net loss to net cash in operating
                activities:Depreciation
                expense
            
            
            149,963
            
            
            128,717Supplier’s
                fines and penalties accruals
            
            
            -
            
            
            985Provision
                for doubtful accounts
            
            
            (21,145
            )
            
            23,340Deferred
                tax (gain)
            
            
            (16,460
            )
            
            (21,366
            )Net
                imputed interest expense (income)
            
            
            23,263
            
            
            (1,377
            )Changes
                in assets and liabilities:Decrease
                (increase) in accounts receivable
            
            
            486,840
            
            
            (35,765
            )(Increase)
                in other accounts receivable and prepayments
            
            
            (98,446
            )
            
            (188,483
            )(Increase)
                in inventories
            
            
            (383,259
            )
            
            (17,268
            )(Increase)
                decrease in taxes receivable
            
            
            (321,399
            )
            
            13,430(Decrease)
                increase in accounts payable
            
            
            (397,796
            )
            
            199,677Increase
                in taxes payable
            
            
            95,182
            
            
            69,160Increase
                in other accounts payable and accruals
            
            
            71,125
            
            
            94,714(Decrease)
                increase in prepayments for oil and gas
            
            
            (188,605
            )
            
            343,563Increase
                in interest payable
            
            
            26,528
            
            
            -NET
                CASH FLOW FROM OPERATING ACTIVITIES
            
            
            (717,634
            )
            
            302,338**CASH
                PROVIDED BY FINANCING ACTIVITIES:**Long
                term loans received
            
            
            1,112,000
            
            
            -Promissory
                notes issued
            
            
            1,417,000Short
                term loans repaid
            
            
            (514,851
            )
            
            -NET
                CASHFLOW FROM FINANCING ACTIVITIES
            
            
            2,014,149
            
            
            -**CASH
                USED IN INVESTING ACTIVITIES**Purchase
                of property, plant and equipment
            
            
            (1,268,043
            )
            
            (361,081
            )Cash
                inflow on the acquisition of Pari, Ltd.
            
            
            4,549NET
                CASH FLOW FROM INVESTING ACTIVITIES
            
            
            (1,263,494
            )
            
            (361,081
            )**EFFECT
                OF EXCHANGE RATE CHANGES**
            
            
            -
            
            
            47,895**INCREASE
                (DECREASE) IN CASH**
            
            
            33,021
            
            
            (10,848
            )**CASH,
                at the beginning of the period**
            
            
            3,419
            
            
            15,082**CASH,
                at the end of the period**
            
            $
            36,440
            
            $
            4,234**INCOME
                TAX PAID**
            
            $
            (23,387
            )
            
            -**INTEREST
                PAID IN CASH**
            
            $
            (74,195
            )
            $
            (66,269
            )




The
        accompanying notes are an integral part of the
        consolidated financial statements.
  6
 *Table
            of Contents*


**NOTES
        TO THE CONSOLIDATED STATEMENTS (UNAUDITED)**
  **1.**
              **NATURE
                  OF BUSINESS**
 
 All
        of
        the operating activities of Sunrise Energy Resources, Inc. are conducted
        through
        the Company’s wholly owned subsidiaries, TOV Energy-Servicing Company Esko
        Pivnich (“Esko Pivnich”), a Ukrainian Closed Joint Stock Company (CJSC)
        established on January 20, 2000, and Pari, Ltd., (“Pari”) a Ukrainian Limited
        Liability company, established on July 5, 2000. The primary business activities
        of Esko Pivnich and Pari are oil and gas exploration, production and
        distribution in the country of Ukraine.
 
 The
        current principal activities of Esko Pivnich and Pari are conducted in the
        form
        of production sharing agreements (PSA), which as of June 30, 2006 included
        the following:
 
 **Operating
                  Entity**
              
              **Principal
                  Activity**
              
              **Country
                  of**
                **incorporation**
              
              **Capital**
                **Contribution,**
                **%**
              
              **Profit**
                **Sharing,**
                **%*****Esko
                  Pivnich***
              
              Marketing
                  and distribution of crude oil and natural gas
              
              Ukraine
              
              -
              
              -PSA
                  # 01-SD dated April 26, 2000
              
              Extraction
                  of crude oil and natural gas
              
              Ukraine
              
              100%
              
              60%PSA
                  # 35/970-SD dated August 19, 2004
              
              Extraction
                  of crude oil and natural gas
              
              Ukraine
              
              80%
              
              80%***Pari***
              
              Marketing
                  and distribution of crude oil and natural gas
              
              Ukraine
              
              -
              
              -PSA
                  # 10-5/2000 dated July 20, 2000
              
              Extraction
                  of crude oil and natural gas
              
              Ukraine
              
              75%
              
              75%PSA
                  #02-CID dated October 20, 2004
              
              Extraction
                  of crude oil and natural gas
              
              Ukraine
              
              25%
              
              50%
 
 In
        addition, during the periods presented, the Company purchased and resold
        oil and
        gas and thus in effect acting as a trading company.
 
 Sunrise
        Energy Resources Inc. is currently registered at the following address: 551
        Fifth Avenue, Suite 2020, New York, New York 10017. Esko Pivnich and Pari
        are
        registered at the following address: 10a Rileeva St., Kiev, Ukraine. The
        Company
        conducts its operations from the same address.
 
 The
        number of employees of the Company at June 30, 2006 and December 31, 2005
        amounted to 22.
  7
 *Table
            of Contents*
  **2.**
              **PRESENTATION
                  OF CONSOLIDATED FINANCIAL
                  STATEMENTS**
 
 ***Basis
        of Presentation***  ***-*** These
        consolidated financial statements have been prepared by the Company in
        accordance with accounting principles generally accepted in the United States
        of
        America (“US GAAP”).
 
 ***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 $143,425
        during the six months ended June 30, 2006, and, as of June 30, 2006 the
        Company's current liabilities exceeded its current assets by $381,140.
        Additionally, to fully develop the area covered by the 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.
 
 Ÿ The
        Company plans to continue raising additional equity capital and considers
        such
        contributions as significant source of funding for the development of its
        Licenses.
 Ÿ  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.
 Ÿ 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.
 
 ***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 June 30, 2006 and December 31, 2005 were
        approximately 1 U.S. dollar to 5.0500 Ukrainian Hrivnas. For the periods
        ended June 30, 2006 and 2005, the average exchange rate for 1U.S. dollar
        was
        $5.0500 and $5.1994 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.
  8
 *Table
            of Contents*
  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.
 
 ***Property,
        Plant and Equipment*** - Oil
        and gas properties are accounted for 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 to
        be
        non-productive. Other exploratory expenditures, including geological and
        geophysical costs are expensed as incurred. Depreciation, depletion and
        amortization of capitalized costs of oil and gas properties is calculated
        using
        the unit-of-production method based upon proved reserves for the cost of
        property acquisitions and proved developed reserves for exploration and
        development costs. As of the date of these consolidated financial statements
        no
        such costs were incurred.
 
 Production
        and related overhead costs are expensed as incurred. Depreciation of assets
        not
        directly associated with oil production and certain workover costs on properties
        subject to time limited licenses has been calculated on a straight-line basis
        over the economic lives of such assets, estimated to be in the following
        ranges:
 
 Oil
                  and Gas Facilities Improvements and Workover Costs
              2
                  yearsOffice
                  Improvements
              4
                  -
                  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.
 
 ***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.
 
 ***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.
        Inventory also includes various supplies and spare parts.
  9
 *Table
            of Contents*
  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 June
        30,
        2006 and December 31, 2005 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.
 
 ***Convertible
        Notes and Other Debt Instruments involving Company’s Common Stock -*** Convertible
        notes payable by the Company are accounted for under Emerging Issues Task
        Force
        Release No. 00-27 which requires a beneficial conversion feature to be
        calculated. The value ascribed to the beneficial conversion feature is recorded
        as a debt discount. Upon conversion of the underlying debt into common stock,
        a
        pro-rata share of the unamortized debt discount is recorded as interest expense.
        Other debt settled with the Group’s common stock is marked to market at the date
        of settlement and respective gain or loss on its extinguishment is recognized.
        As of the date of this report no value was apportioned to beneficial conversion
        feature since the conversion price of the Notes is greater than the current
        market price for our common stock.
 
 ***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 -*** The
        Company’s financial instruments consist of cash, accounts receivable, accounts
        payable and accrued liabilities. 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.
  10
 *Table
            of Contents*
  ***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.
 
 Prior
        to
        September 30, 2005, foreign exchange translation losses were immaterial and
        were
        included in net income and loss.
 
 ***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
        marketing and distribution of crude oil and natural gas products. 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.
 
 ***New
        accounting pronouncements*** *-* In
        May
        2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections.
        SFAS No. 154 replaces Accounting Principles Board Opinion No. 20, Accounting
        changes, and SFAS No. 3, Reporting Accounting Changes in Internal Financial
        Statements, and changes the requirements for the accounting for and reporting
        of
        a change in accounting principle. SFAS No. 154 requires retrospective
        application of changes in accounting principle to the prior periods` financial
        statements, unless it is impracticable to determine either the period-specific
        effects or the cumulative effect of the change. SFAS No. 154 is effective
        for
        accounting changes and corrections of errors made in fiscal years beginning
        after December 15, 2005. The Company adopted SFAS No. 154 on January 1, 2006.
        Any impact on the Company’s consolidated results of operations and earnings per
        share will be dependent on the amount of any accounting changes or corrections
        of errors whenever recognized.
 
 **4.**
              **PRODUCTION
                  SHARING AGREEMENTS**
 
 ***PSA
        # 01-SD dated April 26, 2000 (Esko Pivnich)***
 
 In
        August
        2000 the Company together with the state owned geological enterprise
        Poltavaneftegasgeologiya executed a production sharing agreement (“PSA”) to
        start exploration and development of the Karaikozovsk field located in the
        Krasnokutsk area of the Kharkov region. Under the terms of PSA
        Poltavaneftegasgeologiya acted as the holder of the main geological and
        exploration licenses allowing for the development of the Karaikozovsk field
        and
        the Company was a major investor, having contributed into the establishment
        of
        PSA approximately $628,146.
 
 In
        November 2000 a subsidiary of JSC Ukrneft, Okhtirkaneftegas, joined the PSA.
        Okhtirkaneftegas owned two wells in Karaikozovsk area, the operational usage
        of
        which were contributed into the PSA. Also, Okhtirkaneftegas was to provide
        PSA
        with certain exploration and capital repair services to be paid at external
        market rates.
  11
 *Table
            of Contents*
  In
        May
        2003, due to the expiration of main geological and exploration licenses held
        by
        Poltavaneftegasgeologiya, all exploration and development activities on
        Karaikozovsk field were temporarily suspended.
 
 ***PSA
        # 35/970-SD dated August 19, 200 4 (Esko Pivnich)***
 
 The
        Company filed an application with the Ukrainian State Committee of Mineral
        Resources to continue the exploration and development of the Karaikozovsk
        field
        and in July 2004 the Company obtained the main geological and exploration
        license for a period of 5 years.
 
 In
        August
        2004 the Company together with Okhtirkaneftegas, contributed approximately
        $1,503 and $376 into the establishment of new PSA to continue exploration
        and
        development of Karaikozovsk field.
 
 ***PSA
        # 10-5/2000 dated July 20, 2000 (Pari)***
 
 In
        July
        2000 Pari together with the state owned geological enterprise
        Poltavaneftegasgeologiya executed a production sharing agreement (“PSA”) to
        start exploration and development of the Sakhalinsk and Skvortsivsk fields
        located in the Krasnokutsk area of the Kharkov region. Under the terms of
        said
        PSA Poltavaneftegasgeologiya acted as the holder of the main geological and
        exploration licenses allowing for the development of the Sakhalinsk and
        Skvortsivsk fields and the Company was a major investor, having contributed
        into
        the establishment of the PSA approximately $31,152 (See also Note
        24).
 
 Under
        the
        terms of the agreement Poltavaneftegasgeologiya was obliged to complete capital
        repairs on well#18 of the Sakhalin field. To the date of the expiration of
        the
        main geological and exploration license held by Poltavaneftegasgeologiya,
        a
        subsidiary of NAK Nadra Ukraini, a state owned company, no operating activities
        have been conducted. In accordance with the agreement, the Company moved
        to void
        its entire obligations under the PSA and obtain a refund of its initial
        investment in the amount of $31,152. As of the date of this report no resolution
        on this matter has been achieved. Accordingly, Pari’s investment was totally
        written off in 2003.
 
 ***PSA
        # 02-CID dated October 20, 2004 (Pari)***
 
 In
        October 2004 Pari entered into a production sharing agreement with TOV “Intek
        Geo” and JSC “Agronaftogastekhservice” to start exploration of the Pilipivsk
        field located in the Kosivskiy and Kolomiiskiy districts of the
        Ivanovo-Frankivsk region, Western Ukraine. In conformity with the terms of
        PSA
        02-CID Pari acts as a holder of the main geological and exploration licenses
        to
        develop Pilipivsk field while JSC “Agronaftogastekhservice” acts as an operator
        and TOV “Intek Geo” performs project management and oversight function. No
        capital contributions have been made as of the date of the report.
 
 **5.**
              **ACCOUNTS
                  RECEIVABLE, related party**
 
 Accounts
        receivable as of June 30, 2006 and December 31, 2005 consisted of $255,299
        and
        $720,797, respectively. These amounts were due from CJSC Infox, and resulted
        from several crude oil shipments which took place during 2003 and 2004. During
        the first half of 2006, Infox had partly repaid this balance. No provision
        for
        bad debts has been recorded for these accounts. Management of the Company
        believes this amount will be paid during 2006.
 
 **6.**
              **OTHER
                  ACCOUNTS RECEIVABLE AND
                  PREPAYMENTS**
 
 Other
        accounts receivable and prepayments as of June 30, 2006 and December
        31 **,** 2005
        consisted of the following:
  12
 *Table
            of Contents*
 
 **6/30/2006**
              
              **12/31/2005**Vixen
                  JLM
              
              $
              495,030
              
              $
              511,069Okhtirkaneftegas
              
              
              198,880
              
              
              198,880Naftoservice
              
              
              194,668
              
              
              -Other
              
              
              99,090
              
              
              50,848**Total**
              
              **$**
              **987,937**
              
              **$**
              **760,797**
 
 Other
        accounts receivable and prepayments as at June 30, 2006 and December 31,
        2005
        are stated net of provision accrued for doubtful accounts and were comprised
        mostly of advances paid to Vixen JLM, Okhtirkaneftegas and Naftoservice,
        in the
        total amounts of $495,030 (2005: $511,069), $198,880 (2005: $198,880) and
        $194,668 (2005: $None), respectively.
 
 The
        advance paid to Vixen JLM relates to well casings for construction workovers.
        The amount paid to Okhtirkaneftegas is currently pending litigation (Note
        24)
        though no provision was accrued on it based on the management estimates of
        the
        possibility to offset this amount through cancellation of PSA# 01-SD agreement
        with Okhtirkaneftegas during 2006. Amount of $194,668 due from Naftoservice
        relates to expenses prepaid in connection with construction workovers on
        Peremishlyansk property.
 
 **7.**
              **INVENTORIES**
 
 Inventories
        as of as of June 30, 2006 and December 31, 2005 consisted of the
        following:
 
 **6/30/2006**
              
              **12/31/2005**Crude
                  oil - at cost
              
              $
              50,395
              
              $
              130,159Other
                  consumables and spare parts
              
              
              492,135
              
              
              29,107**Total**
              
              **$**
              **542,530**
              
              **$**
              **159,266**
 
 Inventories
        as of June 30, 2006 and December 31, 2005 are represented by the balances
        of
        crude oil produced internally in the total amount of 1,382 and 533 bbls,
        for the
        respective period, and crude oil purchased in the amounts of None and 2,188
        bbls, for the same periods. The amounts of $492,530 and $29,107, for the
        respective periods, represent certain spare parts destined for technical
        maintenance and construction of oil & gas facilities.
 
 **8.**
              **TAXES
                  RECEIVABLE**
  Taxes
        receivable as of June 30, 2006 and December 31, 2005 consisted of the
        following:
 
 **6/30/2006**
              
              **12/31/2005**VAT
                  receivable
              
              $
              525,440
              
              $
              152,095Other
                  prepaid tax
              
              
              233
              
              
              33,641**Total**
              
              **$**
              **525,673**
              
              **$**
              **185,736**
 
 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.
  13
 *Table
            of Contents*
  **9.**
              **PROPERTY,
                  PLANT AND EQUIPMENT**
 
 Property,
        plant and equipment as of June 30, 2006 and December 31, 2005 consisted of
        the
        following:
 
 **6/30/2006**
              
              **12/31/2005**Oil
                  & gas facilities improvements and work over costs
              
              $
              1,746,302
              
              $
              1,761,265Office
                  equipment
              
              
              37,896
              
              
              14,072Construction
                  in progress
              
              
              1,466,668
              
              
              161,416Total
              
              
              3,250,866
              
              
              1,936,753Accumulated
                  Depreciation
              
              
              (1,124,500
              )
              
              (985,728
              )**Net
                  Book Value**
              
              **$**
              **2,126,366**
              
              **$**
              **951,025**
 
 **10.**
              **LEASE
                  /CONCESSION ACQUISITION
                  COST**
 
 As
        of
        June 30, 2006, the Lease/Concession acquisition cost of $188,499 is stated
        net
        of amortization accrued and represents the implied value of the exploration
        licenses for the Peremishlyansk, Niklovitsk, Chukvinsk, Sheremetivsk and
        Pilipivsk properties held by Pari, Ltd (Note 22).
 
 **11.**
              **LONG-TERM
                  FINANCIAL INVESTMENT**
 
 Long-term
        investment as of June 30, 2006 and December 31, 2005 represents 10 common
        shares
        of JSC “Ukrneft” at par value of 0.25 UAH accounted for at cost, which
        approximates their fair market value.
 
 **12.**
              **INCOME
                  TAX**
  The
        Company’s provision for income tax for the periods ended June 30, 2006 and
        December 31, 2005 is as follows:
 
 **6/30/2006**
              
              **12/31/2005**Current
                  tax
              
              $
              74,195
              
              $
              117,224Deferred
                  tax gain
              
              
              (16,460
              )
              
              (54,760
              )**Total
                  income tax expense (benefit)**
              
              **$**
              **57,735**
              
              **$**
              **62,464**
 
 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 June 30, 2006 and December 31, 2005 in the
        Company’s deferred tax position is as follows:
 
 **6/30/2006**
              
              **12/31/2005**Net
                  asset at the beginning of the period
              
              $
              73,319
              
              $
              17,218Charged
                  to income for the period
              
              
              5,891
              
              
              56,101**Net
                  asset at the end of the period**
              
              **$**
              **79,210**
              
              **$**
              **73,319**
 
 The
        tax
        effect on any substantial temporary differences, which give rise to the deferred
        tax assets as at June 30, 2006 and December 31, 2005 is presented
        below:
  14
 *Table
            of Contents*
 
 **6/30/2006**
              
              **12/31/2005****Temporary
                  differences that give rise to deferred tax assets**Provision
                  for doubtful receivables
              
              $
              84,948
              
              $
              106,092Valuation
                  of VAT receivable
              
              
              38,047
              
              
              13,442Low
                  value items written off
              
              
              1,432
              
              
              9,175Difference
                  in depreciable value of property, plant and equipment due to expensing
                  in
                  prior period allowed by Ukrainian low
              
              
              192,415
              
              
              164,565**Total**
              
              **$**
              **316,842**
              
              **$**
              **293,274**
  The
        deferred tax assets as at June 30, 2006 and December 31, 2005, calculated
        at
        effective Ukrainian income tax rate of 25%, consists of the
        following:
 
 **6/30/2006**
              
              **12/31/2005****Deferred
                  tax assets**Provision
                  for doubtful receivables
              
              $
              21,237
              
              $
              26,523Valuation
                  of VAT receivable
              
              
              9,512
              
              
              3,361Low
                  value items written off
              
              
              358
              
              
              2,294Difference
                  in depreciable value of property, plant and equipment due to expensing
                  in
                  prior period under Ukrainian low
              
              
              48,103
              
              
              41,141**Total**
              
              **$**
              **79,210**
              
              **$**
              **73,319**
 
 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:
 
 **6/30/2006**
              
              **12/31/2005**(Loss)
                  before income tax and minority interest
              
              $
              (93,184
              )
              $
              (315,834
              )Theoretical
                  income tax benefit at statutory rate of 25%
              
              
              (23,296
              )
              
              (78,959
              )Adjustments
                  due to:Tax
                  effect of (expenses) that are not deductible in determining taxable
                  profit
              
              
              81,031
              
              
              141,423**Income
                  tax (benefit)**
              
              **$**
              **57,735**
              
              **$**
              **62,464**
 
 As
        of
        June 30, 2006 and December 31, 2005 the Company had no loss carry forward
        for
        Ukrainian statutory income tax purposes. For United States income tax purposes,
        the Company has a net operating loss carry forward of over $1,000,000 which
        expires in periods from 2021 to 2024. As a result, the company has a deferred
        tax asset of approximately $340,000. This has been fully reserved because
        realization cannot be assured.
  15
 *Table
            of Contents*
  **13.**
              **ACCOUNTS
                  PAYABLE**
 
 Accounts
        payable as of June 30, 2006 and December 31, 2005 consisted of the
        following:
 
 **6/30/2006**
              
              **12/31/2005**Accounts
                  payable
              
              $
              225,143
              
              $
              218,104CJSC
                  Infox, related party
              
              
              187,719
              
              
              592,554**Total**
              
              **$**
              **412,862**
              
              **$**
              **810,658**
 
 Third
        party accounts payable balances as of June 30, 2006 and December 31, 2005
        were
        comprised mostly of payments due to Okhtirkaneftegas and Kachanovsky GPZ
        for
        services provided in the amounts of $195,760 (2005: $180,707) and $29,383
        (2005:
        $25,240), respectively.
 
 The
        amounts of $187,719 and $592,554, payable to CJSC Infox (a related party),
        as of
        June 30, 2006 and December 31, 2005, respectively, generally relate to well
        reconstruction and repair services, provided by third party service companies
        and paid by CJSC Infox on behalf of the Company.
 
 **14.**
              **TAXES
                  PAYABLE**
 
 Taxes
        payable as of June 30, 2006 and December 31, 2005 consisted of the
        following:
 
 **6/30/2006**
              
              **12/31/2005**Fines
                  and penalties
              
              $
              598,324
              
              $
              598,324VAT
              
              
              321,424
              
              
              233,149Profit
                  tax
              
              
              36,681
              
              
              29,526Exploration
                  tax
              
              
              30,581
              
              
              33,684Resource
                  Tax
              
              
              10,258
              
              
              6,699Social
                  insurance
              
              
              3,420
              
              
              4,237Other
                  taxes
              
              
              1,637
              
              
              112**Total**
              
              **$**
              **1,002,325**
              
              **$**
              **905,731**
 
 Taxes
        payable as of June 30, 2006 and December 31, 2005 represent fines and penalties
        accrued in connection with litigation proceedings described in Note 24. The
        Company has prevailed in litigation relating to this issue as well as in
        subsequent court proceedings relating to the dispute. However, the Ukrainian
        authorities continue to bring additional proceedings and have not reversed
        the
        charge. Consequently, the company has not reversed the liability and does
        not
        plan to do so until this issue is completely resolved.
 
 VAT
        payable relates mostly to sales made in 2005 and the first half of 2006.
        Based
        on current Ukrainian legislation, VAT payable may not be offset against VAT
        receivable.
  16
 *Table
            of Contents*
  **15.**
              **SHORT-TERM
                  BANK LOANS**
 
 Short-term
        bank loans as of June 30, 2006 and December 31, 2005 consisted of the
        following:
  **%,
                    currency**
                
                **6/30/2006**
                
                **12/31/2005**AB
                    Clearing House
                
                26%,
                  Ukrainian
                  Hrivnas
                
                
                -
                
                $
                514,851**Total
                    dated Sept. 17, 2004 due March 9, 2006**
                
                
                
                
                
                **-**
                
                **$**
                **514,851**
 
 The
        loan
        amount from AB Clearing House outstanding as at December 31, 2005 was secured
        by
        the Company’s title to well casings purchased under an agreement dated July 20,
        2004. Proceeds of the loan were used mainly for immediate working capital
        requirements.
 
 Interest
        expense for the period ended June 30, 2006 was incurred in relation to the
        credit line facility obtained from AB Clearing House. The total interest
        payment
        for the above period consisted of $23,387, which represented an interest
        rate of
        26% per annum.
 
 On
        March
        9, 2006, the Company had repaid in full the balance of short term loan and
        respective balance of interest payable in the amount of $11,369 that was
        accrued
        in 2005 and not repaid as of December 31, 2005 (Note 19).
 
 **16.**
              **SHORT
                  TERM NOTES PAYABLE**
 
 Short
        term promissory notes outstanding as of June 30, 2006 and December 31, 2005,
        issued in November 2002 at no interest, were payable not earlier than
        November 5, 2005. These notes in the amounts of $14,258 and $5,340,
        are payable to Astark and Sipay, respectively. As of June 30, 2006 the issuers
        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.
 
 **17.**
              **OTHER
                  ACCOUNTS PAYABLE AND
                  ACCRUALS**
 
 Other
        accounts payable and accruals as of June 30, 2006 and December 31, 2005
        consisted of the following:
 
 **6/30/2006**
              
              **12/31/2005**ZakhidUkrGeology
              
              $
              162,545
              
              
              -Chernigovneftegasgeology
              
              
              122,295
              
              $
              126,851Other
              
              
              334,505
              
              
              287,726**Sub
                  total**
              
              
              **619,345**
              
              
              **414,577**Advances
                  from former shareholders
              
              
              300,391
              
              
              244,191**Total**
              
              **$**
              **919,736**
              
              **$**
              **658,768**
 
 Other
        accounts payable and accruals as of June 30, 2006 and December 31, 2005
        consisted mostly of advances from former shareholders and other non-recurring
        research and development, geological and exploration works, as well as payroll,
        short-term advances to employees and other prepayments for repair and
        constructions services.
  17
 *Table
            of Contents*
  Amounts
        of $162,545 (2005: $None) and $122,295 (2005: $126,851) represents payables
        to
        ZakhidUkrGeology and Chernigovneftegasgeology for the recurring research
        and
        development, geological and exploration works.
 
 The
        amount of $300,391 (2005: $244,191) represents advances from shareholders
        with
        no specific terms, which was paid to the Company in the most part during
        2005
        (Note 19).
 
 **18.**
              **PREPAYMENTS
                  FOR OIL AND GAS**
 
 Prepayments
        for oil and gas as of June 30, 2006 and December 31, 2005 consisted of $312,262
        and $500,867, respectively and consisted of $192,680 (2005: $248,303), $49,805
        (2005: $49,805), $19,746 (2005: $21,188) and $131 (2005: $195,733) payable
        to
        Angronafta, Atlantis Techno, Agrotemp and Torpeda PP, respectively.
 
 **19.**
              **INTEREST
                  PAYABLE**
 
 Interest
        payable as of June 30, 2006 and December, 31 2005, consisted of the following:
 
 **6/30/2006**
              
              **12/31/2005**Long
                  term loan - Zaccam Trading, related Party
              
              $
              16,779
              
              $
              2,167Millington
                  Solutions Limited - Convertible notes
              
              
              16,540
              
              
              -Interest
                  accrued on advances received from former shareholders
              
              
              10,920
              
              
              4,175Short
                  term loan - AB Clearing House
              
              
              -
              
              
              11,369**Total**
              
              **$**
              **44,239**
              
              **$**
              **17,711**
 
 Long
        term
        loan from Zaccam Trading, related party, at 3% per annum (Note 21) was obtained
        in 2005. Interest accrued on amounts payable to former shareholders represents
        weighted average LIBOR rate for the periods ended June 30, 2006 and December
        31,
        2005 (Note 17).
 
 Interest
        payable in amount of $16,540 was accrued on several traches of long term
        10%
        convertible debt which were received during the second quarter of 2006
        (Note21).
 
 As
        of
        December 31, 2005, interest payable to AB Clearing House which relates to
        the
        credit line facility with a 26% per annum interest rate (Note 15).
 
 **20.**
              **PROFIT
                  INTEREST PAYABLE**
 
 As
        of
        June 30, 2006 and December 31, 2005, profit interest of $17,997 is 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 (Note 24).
  18
 *Table
            of Contents*
  **21.**
              **LONG
                  TERM PAYABLES**
 
 Long
        term
        payables as of June 30, 2006 and December 31, 2005 consisted of the
        following:
  **Issue
                  date/**
                **Effective
                  date**
              
              **Due**
                **not
                  earlier**
                **than**
              
              **6/30/2006**
              
              **12/31/2005**Zaccam
                  Trading, Ltd.
              
              March
                  5,2005
              
              March
                  5, 2015
              
              $
              1,391,900
              
              
              279,900Millington
                  Solutions Limited
              
              March
                  30, 2006
              
              March
                  30, 2009
              
              
              917,000
              
              
              -Millington
                  Solutions Limited
              
              June
                  6,2006
              
              June
                  6,2009
              
              
              500,000
              
              
              -Fort
                  Trade
              
              Nov-2004
              
              Nov-
                  2009
              
              
              465,347
              
              
              465,347**Total**
              
              
              
              
              
              **$**
              **3,274,247**
              
              **$**
              **745,247**
 
 Effective
        March 30 and June 6, 2006, Sunrise Energy Resources, Inc. executed a Convertible
        Note Subscription Agreements 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. As of June 30, 2006, the Company has received
        several amounts totaling $917,000, which were covered by the $1.0 million
        Subscription Agreement effective March 30, 2006, and an amount of $500,000,
        which was covered by the $2.0 million Subscription Agreement effective June
        6,
        2006. Each tranche will mature in 3 years of the receipt of funds. The interest
        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 (Note 19). 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 until 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
        would
        be calculated at the same conversion price.
  As
        of
        June 30, 2006 and December 31, 2005, the amount of $465,347 represents interest
        free note payable for geological and research services rendered by Fort Trade
        during 2004.
 
 Long
        term
        payable to Zaccam Trading, Ltd. (a related party) as of June 30, 2006 and
        December 31, 2005 represents an unsecured credit line facility with a limit
        of
        $5,000,000 bearing 3% per annum charged on actual amount of debt (Note
        19).
 
 **22.**
              **SHAREHOLDERS’
                  EQUITY**
 
 On
        or
        about January 20, 2006, the Company executed a share purchase agreement with
        the
        shareholders of Pari, Ltd. The board of directors of Sunrise Energy Resources,
        Inc. approved the transaction on February 9, 2006. The shareholders of Pari
        sold
        100% of their holdings to Sunrise Energy Resources, Inc. for a consideration
        for
        161,014 newly issued Common shares of the Company, which at the time had
        an
        approximate market value of $96,608.
 
 The
        current consolidated financial statements account for the transaction in
        accordance with SFAS 141 “Business Combinations” under the “acquisition”
treatment, whereby Sunrise Energy Resources, Inc. is considered to be the
        actual
        acquirer, and Pari, Ltd. is the acquired entity.
 
 Upon
        acquisition of Pari, the latter had only monetary assets and liabilities
        apart
        from its exploration licenses for Peremyshlyansk, Sheremetyevsk, Niklovitsk,
        Chukvinsk and Pilipivsk blocks. Following our analysis of the above monetary
        assets and liabilities we concluded that they were carried at fair values
        and no
        adjustments were required.
  19
 *Table
            of Contents*
  Based
        on
        the market value of the stock issued, the excess of the value of the stock
        over
        the book value of the assets has been allocated to the drilling/production
        concessions owned by Pari. No goodwill was recognized on the
        acquisition.
 
 Net
        assets of the acquired entity, Pari, Ltd. before the allocation of the balance
        to the drilling/production concessions as of December 31, 2005, were as
        follows:
  **12/31/2005**Cash
              
              $
              4,549Accounts
                  receivable and other current assets
              
              
              24,860Property,
                  Plant and Equipment, net
              
              
              43,797Accounts
                  Payable
              
              
              (166,580
              )Tax
                  liabilities
              
              
              (11,981
              )**100%
                  of Net Assets (Deficit)**
              
              **$**
              **(105,355**
              **)**
  No
        dividends were declared or paid by the Company during the periods ended June
        30,
        2006 and December 31, 2005.
 
 **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 June 30, 2006 and December 31, 2005 see Notes 4, 5, 13,
        17, 19
        and 21.
 
 Our
        related parties include CJSC Infox and Zaccam Trading, Ltd. Although Pari,
        Ltd.
        was acquired in the first quarter of 2006, it is presented as a “related party”
in Company’s consolidated financial statements as of December 31,
        2005.
 
 During
        the periods ended June 30, 2006 and December 31, 2005, we have received several
        tranches of long term loans from Zaccam Trading, Ltd. which resulted in total
        amounts of $1,391,900 and $ 279,900
        outstanding at the end of the respective periods .
        The
        proceeds received were used mainly for construction workovers on well #21
        (Notes
        19 and 21).
 
 As
        of
        June 30, 2006 and December 31, 2005, the total amounts of $255,299 and
        $ 720,797 were due
        from CJSC Infox, related party, and were comprised of several crude oil
        shipments which took place in 2004 and 2003. Similarly, the total amounts
        of
        $187,719 and $ 592,554,
        respectively, payable
        to CJSC Infox (a related party), were mostly on account of wells’ reconstruction
        and repair services, provided by third party service companies and paid by
        CJSC
        Infox on behalf of the Company’s subsidiaries EP and Pari.
  20
 *Table
            of Contents*
  **24.**
              **COMMITMENTS
                  AND CONTINGENCIES**
 
 ***Licenses’
        commitments***
 
 ***Esko
        Pivnich -*** During
        2004 EP received geological and exploration license agreements to develop
        the
        Karaikozovsk, 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:
 
 **Period**
              
              **Amount**Rogan
                  field
              
              
              2005-2009
              
              $
              2,922,772Rakitnyansk
                  field
              
              
              2005-2009
              
              
              3,938,614Karaikozovsk
                  field
              
              
              2005-2009
              
              
              4,241,584**Total**
              
              
              
              
              **$**
              **11,102,970**
  ***Pari
        -*** During
        2004 Pari received geological and exploration license agreements to develop
        the
        Peremishlyansk, Chukvinsk, Scheremetivsk, Niklovitsks and Pilipivsk fields.
        The
        following amounts of investments are to be incurred under the terms of those
        agreements:
 
 **Period**
              
              **Amount**Peremishlyansk
                  field
              
              
              2004-2009
              
              $
              2,336,634Chukvinsk
                  field
              
              
              2004-2009
              
              
              1,544,554Scheremetivsk
                  field
              
              
              2004-2009
              
              
              712,872Niklovitsks
                  field
              
              
              2004-2009
              
              
              594,059Pilipivsk
                  field
              
              
              2004-2009
              
              
              475,248**Total**
              
              
              
              
              **$**
              **5,663,367**
 
 ***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 June 30, 2006 are as
        follows:
 
 **2006**Office
                  rent - Esko Pivnich
              
              $
              30,000Office
                  rent - Pari
              
              
              10,400**$**
              **40,400**
  ***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.
 
 ***Esko
        Pivnich***
 
 *JSC
        Ukrneft, Okhtirkaneftegas*  *-* ****** In
        2003
        the Company filed a claim against JSC Ukrneft, Okhtirkaneftegas, with respect
        to
        the advance paid by the Company in 2002 in the amount of $198,880 to complete
        certain capital construction works under PSA # 01-SD dated April 26, 2000
        (Notes
        4 and 6). In April 2004 after a number of hearings by courts of different
        circuits, the Supreme Court of Ukraine ordered Okhtirkaneftegas to pay the
        outstanding balance to the Company without further delays. Despite this final
        ruling of the Supreme Court, as of August 14, 2006 the balance has not been
        paid. The Company plans to void PSA # 01-SD and to offset the amount due
        to it
        against amounts payable to JSC Ukrneft and its subsidiary Okhtirkaneftegas
        in
        2006.
  21
 *Table
            of Contents*
  *DP
        NAK Nedra Ukraini Poltavnaftogasgeologiya -* In
        2006
        The Company sued Poltavneftegasgeologiya for expected profits in the amount
        of
        $474,053 resulting from a refusal of Poltavneftegasgeologiya to execute its
        obligations under the terms of PSA # 01-SD. The Court of Poltavskiy region
        has
        ruled in the Company’s favor and obliged Poltavneftegasgeologiya to pay the
        Company amount of $356,994. Poltavneftegasgeoligia has filed a appeal with
        inter-regional court of Kiev city. As of August 14, 2006, no new hearings
        took
        place and according to management’s estimates there is a high possibility of
        wining the case. Pending final resolution of this matter, the Company has
        not
        recorded this as income.
 
 *Taxes
        -* During
        2004 the Company was audited by the State Tax Inspection of Podolsk region,
        Kiev, and was assessed additional VAT and Profit tax fines and penalties
        thereon
        in the aggregate amount of $598,324 related to FY2003 and FY2002. The amounts
        were accrued in the consolidated financial statements in full. Esko Pivnich
        appealed against the decision to the Civil Court of Kiev and the matter was
        ruled in favor of Esko Pivnich. However, the tax authorities have filed a
        counter-appeal with the Supreme Civil Court of Kiev. The Supreme Civil Court
        resolved that the matter be referred back to Civil Court of Kiev and appointed
        a
        committee to conduct an accounting investigation which was completed in February
        2006. The tax liability has not been removed or reversed pending the final
        resolution of the matter.
 
 ***Pari***
 
 *Poltavaneftegasgeologiya* - Under
        the terms of the PSA # 10-5/2000 dated July 20, 2000, Poltavaneftegasgeologiya
        (Note 4) acted as the holder of the main geological and exploration licenses
        to
        develop the Sakhalin and Skvortsovsk field and Pari was a major investor,
        having
        contributed into the establishment of PSA approximately $31,152. No operating
        activities have ever been conducted under this agreement and Pari moved to
        void
        all its obligations under PSA and obtain a refund of its initial investment
        in
        the amount of $31,152. As of the date of this report the matter has not been
        resolved. Therefore, Pari’s investment amount was written off in
        2003.
 
 *Cabinet
        of Ministers of Ukraine* - During
        the first half of 2006 the Cabinet of Ministers of Ukraine mandated a review
        of
        the procedures of issuance of approximately 500 production and exploration
        licenses granted by the Ministry of National Resources of Ukraine in 2004.
        The
        Company’s properties Rogan, Rakitnyansk and Karaikozovsk held by Esko Pivnich,
        and Peremishlyansk, Chukvinsk, Niklovitsk and Pilipovsk held by Pari were
        also
        subject to review as part of this process. The purpose of the review was
        to
        determine the effectiveness of the procedures involved in the issuance of
        the
        licenses. The
        preliminary findings of the review were referred to the Supreme Court of
        Ukraine
        which issued a preliminary conclusion that all of the Company’s licenses were
        properly issued and are to remain valid. At present, the review is being
        officially finalized and we expect to receive a final approval upon the
        conclusion of this review in 2006.
 
 ***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
        from time to time characterized by poor drafting, different interpretations
        and
        arbitrary application of laws and regulations 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.
  22
 *Table
            of Contents*
  **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.
 
 Our
        sales
        to customers in excess of 5% were as follows:
 
 **06/30/2006**
              
              **06/30/2005**Agrotemp
                  (oil produced)
              
              $
              396,312
              
              $
              98,530Nafta
                  Soyuz (oil produced)
              
              
              221,193
              
              
              -Torpeda
                  (oil resold)
              
              
              120,174
              
              
              -Torpeda
                  (oil produced)
              
              
              65,076
              
              
              -Spago
                  TOV (oil produced)
              
              
              51,396
              
              
              -Soyuz
                  NPK (oil produced)
              
              
              42,410
              
              
              -Okhtirkaneftegas
                  (gas produced)
              
              
              12,990
              
              
              -Ukrtatnafta
                  (oil produced)
              
              
              -
              
              
              274,286Angronafta
                  (oil produced)
              
              
              -
              
              
              210,036Varadero
                  (oil produced)
              
              
              -
              
              
              160,258Other
              
              
              25,807
              
              
              161,018**Total**
              
              **$**
              **935,358**
              
              **$**
              **904,128**
 
 ***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**
 
 Effective
        July 26, 2006, Sunrise Energy Resources, Inc. (the "Company") executed a
        Convertible Note Agreement to complete a $1,000,000 private placement financing
        in the form of 6% notes convertible into the Company's common stock at the
        conversion price of $1.40 per share. The placement proceeds are expected
        to be
        made available to the Company in several tranches until September 30, 2006.
  23
 *Table
            of Contents*
  **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 year ended December 31, 2005 and periods
        ended June 30, 2006 and 2005.
 
 Management’s
        key objectives for the first half of 2006 were:
 
 Ÿ
              Drill
                  approximately 50% of the projected depth of Well #21 of the Company’s
                  Karaikozovsk property;
 Ÿ
              Drill
                  approximately 10% of the projected depth of Well #1 of the Company’s
                  Peremyshlyansk property;
 Ÿ
              Complete
                  the acquisition of Pari Ltd.;
 Ÿ
              Commence
                  geological and research works on Rogan and Rakitnyansk properties;
 Ÿ
              Commence
                  the construction of access roads and other infrastructure on the
                  Company’s
                  Chukvinsk property.
 
 We
        believe that these key objectives were achieved during the first half of
        2006.
        Our 2006 strategy for the Karaikozovsk field includes the completion and
        launch
        of Well #21. We also intend to conduct limited reservoir stimulation on Well
        #2
        to increase the production. We will also focus on the exploration drilling
        on
        the Peremishlyansk field and construction of infrastructure on the Chukvinsk
        property.
 
 In
        addition, we will continue the exploration activities on the Rogan and
        Rakitnyansk properties aiming to establish the optimal reservoir development
        scenarios.
 
 **Current
        Activities**
 
 Although
        the Company completed scheduled workovers and repairs on Well #3 on or around
        June 21, 2005, during 2005 and six month of 2006, our production was primarily
        limited to Well #2 of the Karaikozovsk deposit. The reduced production from
        Well
        #3 was caused by a reservoir pressure maintenance difficulties as well as
        increased downtime and lower flow rates caused by an exceptionally cold weather
        in January of 2006.
 
 On
        or
        around May 31, 2005 Esko-Pivnich, the Company’s wholly-owned operating
        subsidiary, completed the construction of a new storage and separation facility
        with a total storage capacity of approximately 200 tons (1,460 bbls). The
        new
        facility commenced operations on July 15, 2005 and was designed to decrease
        the
        Company’s operating expenses, resulting from reduced fees that were previously
        paid to Okhtirkaneftegaz, the state-owned Oil&Gas Company for similar
        services. In addition, the launch of the new facility will enable the Company
        to
        reduce crude losses during extraction, separation and storage.
 
 On
        March
        20, 2006, Pari, Ltd., a wholly owned subsidiary of Sunrise Energy Resources,
        Inc., commenced the preparatory work to drill its first exploration well
        on the
        Peremishlyansk block which has possible gas reserves of approximately 420
        BCF.
        The drilling contract has been signed with GP "ZakhidUkrGeologiya", a Ukrainian
        drilling contractor. The well is designed to be approximately 3700m (12,139
        ft)
        deep. As of June 30, 2006, the Company has drilled approximately 390m (1281ft)
        of Well #1 of the Peremishlyansk property which represents approximately
        11% of
        its design depth.
 
 According
        to the Ukrainian Government Reserve Report, Pari, Ltd. has possible reserves
        of
        approximately 106.2 BCF of gas in the Niklovitsk field located in the Lviv
        region of Western Ukraine and 4.1 BCF in the Sheremetivsk field located in
        the
        Chernovtsi region of Western Ukraine. Pari, Ltd. holds exploration licenses
        that
        expire in July 2009 for the above properties and the following other undeveloped
        properties located in Western Ukraine: Peremishlyansk, Chukvinsk in Lviv
        region,
        and Pilipivsk in Ivano-Frankivsk region. In total, the possible reserves
        of
        Pari, Ltd. amount to approximately 24 MMBbls.
  24
 *Table
            of Contents*
  **Results
        of Operations**
 
 Oil
        and gas production and revenue
 
 The
        crude
        oil balances as of June 30, 2006 and December 31, 2005 amounted to 1,382
        and 533
        Bbls, respectively.
 
 During
        the six months ended June 30, 2006 and 2005, Esko Pivnich produced 15,904
        (2005:
        23,979) barrels (“Bbls”) of crude oil and 14,222 (2005: 39,060) thousands of
        cubic feet (“MCFs”) of natural gas, respectively.
 
 We
        recognize revenue from the sale of oil when the purchaser takes delivery
        of the
        oil at the field. During the six months period ended June 30, 2006 and 2005,
        Esko Pivnich sold its internally produced 15,088 (2005: 23,875) Bbls of crude
        oil at the average prices of $53.2 (2005: $36.4) per barrel translating into
        net
        revenues from sales of internally produced oil of $802,194 (2005: $868,647).
        Also for the six months ended June 30, 2006 and 2005 the Company sold 14,178
        (2005: 39,060) MCFs of internally produced gas at average prices of $0.92
        (2005:
        $0.90) per MCF translating into revenues of $12,990 (2005:
        $35,482).
 
 Additionally
        during the six month ended June 30, 2006 we sold 2,188 bbls of purchased
        crude
        oil at the average price of $54.87 per barrel translating into revenues of
        $120,174. Cost of sales amounted to $116,637.
  All
        sales
        agreements were short-term in nature, with the extension option by mutual
        agreement of the parties. Our crude oil and natural gas are sold at the pipeline
        measuring node and are subject or free of any transportation costs depending
        on
        the terms of specific customer agreements.
 
 Exploration
 
 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
        June
        30, 2006 and 2005 we incurred $88,708 and $175,753, respectively in exploration
        expenses. The Company expects significant exploration expense in 2005-2008
        due
        to the new operating licenses obtained in 2004-2005, and significant investment
        obligations attached to them, based on the concluded license agreement with
        the
        Ministry of Resources of Ukraine (see above).
 
 During
        the periods ended June 30, 2006 and 2005, the Exploration and Resource taxes,
        amounted to $157,692 and $222,606, respectively.
 
 Other
        operating income for the period ended June 30, 2006 was mostly due to change
        in
        provision for doubtful accounts of $21,144 which resulted from the repayment
        of
        amount receivable from Vector NDI for office rent services prepaid by the
        company during 2004.
 
 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 no such costs were
        incurred.
 
 Oil
        and
        gas production equipment and workover costs were the main contributor into
        the
        depreciation expense for the periods ended June 30, 2006 and 2005 in the
        total
        amounts of $149,963 and $128,717. The increase in the depreciation expense
        in
        the first half of 2006 as compared to the respective period of 2005 is primarily
        due to the launching of storage and separation facility as well as due to
        workover costs capitalized in the second half of 2005.
  25
 *Table
            of Contents*
  Sales,
        general and administrative expenses
 
 Sales,
        general and administrative expenses for the periods ended June 30, 2006
        decreased to $352,664 from $397,725 for the period ended June 30, 2005 mainly
        due to the decrease in insurance expenses of $303 (2005: $68,641), professional
        services expenses of $58,425 (2005: $71,003) and transportation expenses
        of
        $37,765 (2005: $41,931). Although there was a significant increase in payroll
        and payroll related taxes amounting to $136,054 (2005: $62,685) and legal
        and
        audit services of $64,812 (2005: $30,552).
 
 In
        March
        2005 the Company insured its business continuity risks. The above insurance
        premium was paid in respect to March - June 2005 period only.
 
 Interest
        income (expense)
 
 Interest
        expense (net) for the periods ended June 30, 2006 and 2005, amounted to $92,605
        and $63,051, respectively.
 
 Interest
        expense for the period ended June 30, 2005 related primarily to the credit
        line
        facility obtained from AB Clearing House at 26% per annum. During the six
        months
        ended June 30, 2006 the interest expense was primarily due to amounts received
        by the Company under a 10% convertible note in the second quarter, as well
        as to
        a long term loan obtained from Zaccam Trading (a related party) at 3% and
        interest accrued on amounts received from former shareholders at weighted
        average LIBOR rate for the respective period.
 
 Long
        term credit line facility
 
 On
        March
        5, 2005 the Company entered into an agreement with Zaccam Trading, Ltd. (a
        related party) to obtain a long term credit line with indebtedness limit
        of up
        to $5 million, bearing interest at 3% per annum and due on March 5, 2015.
        Interest is charged on the actual amount of debt for the period of using
        the
        funds. Proceeds were mainly used to finance construction workovers on Well#21
        of
        the Karaikozovsk property.
 
 Convertible
        Notes
 
 Effective
        March 30 and June 6, 2006, Sunrise Energy Resources, Inc. executed two separate
        Convertible Note Subscription Agreements with Millington Solutions Limited
        to
        complete a $1.0 million and $2.0 million private placement financing in the
        form
        of 10% convertible notes. As of June 30, 2006, the Company has received several
        tranches aggregating to $917,000, which are covered by the $1.0 million
        Subscription Agreement effective March 30, 2006 and a tranche of $500,000
        covered by the $2.0 million Subscription Agreement effective June 6, 2006.
        Each
        tranche will mature in 3 years of the receipt of funds. The interest will
        accrue
        at the rate of 10% per annum on the unconverted amount and will be payable
        annually on each 12 month anniversary of each tranche until conversion or
        maturity. The Notes can be converted to the Company's Common stock at a
        conversion price of $2.20 at the holder's option, at any time until the maturity
        date of each tranche. For Notes converted between interest due dates, the
        interest will be accrued pro-rata and paid in the form of additional shares
        of
        the Company's Common stock. The number of such additional shares will be
        calculated at the same conversion price. The Convertible Note Subscription
        Agreements are filed together with this form.
 
 **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 June 30, 2006, the Company
        had total current assets of $2,347,879and total current liabilities of
        $2,729,019, respectively. As at June 30, 2006, the Company had cash balances
        of
        $36,440 and a working capital deficit of $381,140,
        respectively.
  26
 *Table
            of Contents*
  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 June
        30,
        2006 and 2005 amounted to $(563,933) and $302,338, respectively. Significant
        cash outflow in the first half of 2006, as compared to the respective period
        of
        2005, was primarily caused by the increase in inventory balance of $383,264
        (2005: increase of $17,268), taxes receivable of $339,937 (2005: decrease
        of
        $13,430) as well as due to the reduction of accounts payable of $397,796
        (2005:
        decrease of $199,677) and prepayments for oil and gas of $188,605 (2005:
        increase of $343,563). The above items overweighed the cash inflows that
        were
        mostly due to decrease in accounts receivable of $486,840 (2005: increase
        of
        $35,765) and increase in other accounts payable of $237,705 (2005: increase
        of
        $94,714).
 
 During
        the six months ended June 30, 2006 cash provided by financing activities
        in an
        amount of $2,018,698 was due to financing obtained under the convertible
        notes
        received in the amount of $1,417,000 and long term loan received in an amount
        of
        1,112,000, and mainly was used to finance construction workovers, as well
        as to
        repay short term loan payable to AB Clearing House resulting in cash outflow
        of
        $514,851. In addition, such amounts were partly used to service the negative
        cash flow from operations. For the respective period of 2005 there were no
        operations affecting cash flows from financing activities.
 
 During
        the six months ended June 30, 2006 and 2005, the Company invested in workovers
        a
        total amount of $1,311,840 and $361,081, respectively, which was financed
        by the
        above mentioned convertible notes and the long term loan. Additional increase
        in
        capital expenditure in 2006 was also caused by the acquisition of Pari, Ltd.,
        the Company’s operating subsidiary which had a pre acquisition deficit of
        $109,904. Cash inflow recorded on the transaction amounted to $4,549 and
        effected cash flow from financing activities.
 
 Cash
        Requirements
 
 The
        Company anticipates it will require approximately $4,000,000 to implement
        its
        capital expenditure program for the properties covered by the licenses and
        for
        the drilling of Well #21 on the Karaikozovsk property and Well#1 on the
        Peremishlyansk 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.
 
 **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 1 of the
        Notes to Consolidated Financial Statements.
  27
 *Table
            of Contents*
  **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 $143,425
        during the period ended June 30, 2006, and, as of June 30, 2006, the Company’s
        current liabilities exceeded its current assets by $381,140. 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:
 
 Ÿ
              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.
 
 Ÿ
              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.
  Ÿ
              Additional
                  funding requirements may also be necessary before the Company is
                  able to
                  rely solely on the cash flow resulting from the production achived
                  on its
                  licensed properties. .
  Accordingly,
        our independent auditors included an explanatory paragraph in their report
        on
        the December 31, 2005 consolidated 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.
 
 The
        prevailing exchange rates as at June 30, 2006 and December 31, 2005 were
        approximately 1 U.S. dollar to $5.0500 and $5.0500 Ukrainian Hrivnas,
        respectively. For the periods ended June 30, 2006 and 2005, the average exchange
        rate for 1 U.S. dollar was $5.0500 and $5.1994 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.
  28
 *Table
            of Contents*
  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
 
 The
        information regarding our oil and gas reserves, the changes thereto and the
        estimated future net cash flows are dependent upon engineering, price and
        other
        assumptions used in preparing our annual reserve study. These estimates were
        prepared by the Company and have not been certified by an independent petroleum
        engineering firm. The Company plans to engage such appropriately qualified
        engineering firm to certify the estimates of our oil and gas reserves in
        accordance with applicable engineering standards and in accordance with the
        Securities and Exchange Commission guidelines. Changes in prices and cost
        levels, as well as the timing of future development costs, may cause actual
        results to vary significantly from the data presented. Our oil and gas reserve
        data represent estimates only and are not intended to be a forecast or fair
        market value of our assets.
 
 Our
        oil
        and gas reserve data and estimated future net cash flows have been prepared
        assuming we are successful in timely renewal of operating license agreements
        and
        negotiating production sharing terms which will allow constant production
        rates
        for the expected 10 year period. In accordance with the effective PSA, the
        profit sharing rate payable by the Company after the initial investment has
        been
        recovered equals 20%. (See above detailed description of the main terms of
        the
        standardized production sharing agreements concluded with the State of Ukraine).
        Also in 2005 the Company had completed construction of its own gas separation
        facilities that allows the Company to reduce significantly its cost for services
        currently purchased under the production sharing agreement (PSA) from the
        state-owned entity, Okhtirkaneftegas, which is the counter party to the PSA.
 
 Production
        sharing agreements are customarily awarded upon determination that the field
        is
        capable of producing commercial rates of production and that the applicant
        has
        complied with all other terms of its license and exploration contract. However,
        we are not guaranteed the right to a license renewal and production sharing
        agreements in the future. If we are not successful in negotiating operating
        license renewal and a production sharing agreements on acceptable terms,
        it
        would materially change our oil and gas reserve data and estimated future
        net
        cash flows.
 
 Successful
        Efforts Method of Accounting
 
 We
        will
        follow the successful efforts method of accounting for our investments in
        oil
        and gas properties, as more fully described in Note 1 of the Notes to
        Consolidated Financial Statements, following the completion of construction
        works on well #21 and launching it into commercial production. 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.
  29
 *Table
            of Contents*
  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.
  30
 *Table
            of Contents*
  **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
        EP. 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 Annual 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 subsidiary, unless
        otherwise indicated.
 
 All
        dollar amounts refer to US dollars unless otherwise indicated.
  31
 *Table
            of Contents*
  The
        above
        discussion should be read in conjunction with our financial statements and
        the
        related notes that appear elsewhere in this annual 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 June 30,
        2006
        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 significant 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.
  32
 *Table
            of Contents*
  **PART
        II - OTHER INFORMATION**
 
 **ITEM 1.**
              **LEGAL
                  PROCEEDINGS**
 
 Other
        than as set forth below, 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.
 
 ***Esko
        Pivnich***
 
 *JSC
        Ukrneft, Okhtirkaneftegas*  *-* ****** In
        2003
        the Company filed a claim against JSC Ukrneft, Okhtirkaneftegas, with respect
        to
        the advance paid by the Company in 2002 in amount of $198,880 to complete
        certain capital construction works under PSA # 01-SD dated April 26, 2000
        (Notes
        4 and 6). In April 2004 after a number of hearings by courts of different
        circuits, the Supreme Court of Ukraine ordered Okhtirkaneftegas to pay the
        outstanding balance to the Company without further delays. Despite this final
        ruling of the Supreme Court, as of August 14, 2006 the balance has not been
        paid. The Company plans to void PSA # 01-SD and to offset the amount due
        to it
        against amounts payable to JSC Ukrneft and its subsidiary Okhtirkaneftegas
        in
        2006.
 
 *DP
        NAK Nedra Ukraini Poltavnaftogasgeologiya -* In
        2006
        The Company sued Poltavneftegasgeologiya for expected profits in the amount
        of
        $474,053 resulting from a refusal of Poltavneftegasgeologiya to execute its
        obligations under the terms of PSA # 01-SD. The Court of Poltavskiy region
        has
        ruled in the Company’s favor and obliged Poltavneftegasgeologiya to pay the
        Company amount of $356,994. Poltavneftegasgeoligia has filed a appeal with
        inter-regional court of Kiev city. As of August 14, 2006, no new hearings
        took
        place and according to management’s estimates there is a high possibility of
        wining the case. Pending final resolution of this matter, the Company has
        not
        recorded this as income.
 
 *Taxes
        -* During
        2004 the Company was audited by the State Tax Inspection of Podolsk region,
        Kiev, and was assessed additional VAT and Profit tax fines and penalties
        thereon
        in the aggregate amount of $598,324 related to FY2003 and FY2002. The amounts
        were accrued in the consolidated financial statements in full. Esko Pivnich
        appealed against the decision to the Civil Court of Kiev and the matter was
        ruled in favor of Esko Pivnich. However, the tax authorities have filed a
        counter-appeal with the Supreme Civil Court of Kiev. The Supreme Civil Court
        resolved that the matter be referred back to Civil Court of Kiev and appointed
        a
        committee to conduct an accounting investigation which was completed in February
        2006. Since the investigation no additional hearings have been held. Since
        the
        appeal has been won and became effective, it is highly likely that the Company
        will prevail in these proceedings. Nevertheless, the respective tax liability
        has not been removed or reversed pending the final resolution of the
        matter.
 
 ***Pari***
 
 *Poltavaneftegasgeologiya* - Under
        the terms of PSA # 10-5/2000 dated July 20, 2000 Poltavaneftegasgeologiya
        (Note
        4) acted as the holder of the main geological and exploration licenses to
        develop the Sakhalin and Skvortsivsk field and Pari was a major investor,
        having
        contributed into the establishment of PSA approximately $31,152. No operating
        activities have ever been under this agreement and Pari moved to void all
        its
        obligations under PSA and obtain a refund of its’ initial investment in amount
        of $31,152. As of the date of this report the matter has not been resolved.
        Respectively, the Pari’s investment amount was totally written off in
        2003.
 
 *Cabinet
        of Ministers of Ukraine* - During
        the first half of 2006 the Cabinet of Ministers of Ukraine mandated a review
        of
        the procedures of issuance of approximately 500 production and exploration
        licenses granted by the Ministry of National Resources of Ukraine in 2004.
        The
        Company’s properties Rogan, Rakitnyansk and Karaikozovsk held by Esko Pivnich,
        and Peremishlyansk, Chukvinsk, Niklovitsk and Pilipovsk held by Pari were
        also
        subject to review as part of this process. The purpose of the review was
        to
        determine the effectiveness of the procedures involved in the issuance of
        the
        licenses. The preliminary findings of the review were referred to the Supreme
        Court of Ukraine which issued a preliminary conclusion that all of the Company’s
        licenses were properly issued and are to remain valid. At present, the review
        is
        being officially finalized and we expect to receive a final approval upon
        the
        conclusion of this review in 2006.
  33
 *Table
            of Contents*
  **Item
                  2.**
              **Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds**
 
 None
  **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 June 28, 2005, and Schedule 14F-1
        filed by the Company on January 6, 2005.
 
 The
        following Consolidated Financial Statements pertaining to Sunrise Energy
        Resources are filed as part of this quarterly report:
 
 Consolidated
        Balance Sheets as of June 30, 2006 and December 31, 2005
 
 Consolidated
        Statements of Changes in Stockholders’ Equity (Capital Deficit) for the six
        months ended June 30, 2006
 
 Consolidated
        Statements of Operations and Comprehensive Loss for the six months ended
        June
        30, 2006 and 2005
 
 Consolidated
        Statements of Cash Flows for the six months ended June 30, 2006 and
        2005
  Notes
        to
        the Consolidated Financial Statements for the periods ended June 30, 2006
        and
        December 31, 2005
 
 **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
 *Table
            of Contents*
  Also
        filed with this form are:
 
 Convertible
        Debenture Subscription Agreement dated March 30, 2006
 
 Convertible
        Debenture Subscription Agreement dated June 6, 2006
 
 **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:
                  November 7, 2006
              Konstantin
                  TsirulnikovPresident
                  and Chief Executive Officer
   35