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


**Washington,
      D.C. 20549**




**FORM
      10-QSB**




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


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




T **Quarterly
      Report pursuant to
      Section 13 or 15(d) of the Securities Exchange Act of
      1934**






**For
      the six months ended**


**June
      30, 2007**


£ **Transition
        Report pursuant to
        Section 13 or 15(d) of the Securities Exchange Act of
        1934**




**Commission
      File Number 1-11248**




**SUNRISE
      ENERGY RESOURСES,
      INC.**


(Name
      of
      Registrant as specified in its charter)




**Delaware**
            
            **84-0938688**(State
                or other jurisdiction of incorporation
                or organization)
            
            (I.R.S.
                Employer 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: (646) 8258083**




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





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







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




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




Check
      whether the Registrant (1) has filed all reports required to be filed by Section
      13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
      months (or for such shorter period that the Registrant was required to file
      such
      reports), and (2) has been subject to such filing requirements for the past
      90
      days.  Yes T  No
£




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




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




State
      issuer’s revenues for its most recent fiscal year: $ 1,874,207.







1




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates as of August 14, 2007 within past 60 days:
      $11,137,091.




As
      of
      August 14, 2007, the Registrant had 18,328,455 shares of common stock $.001
      par
      value issued and outstanding.




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




2




**SUNRISE
      ENERGY RESOURCES, INC.**




**FORM
      10-QSB**


**TABLE
      OF CONTENTS**




**PART
                I.  FINANCIAL INFORMATION**
            PageFinancial
                Statements (unaudited)Item
                1.Consolidated
                Balance Sheets – June 30, 2007 and December 31,
                2006
            4Consolidated
                Statement of Operations and Comprehensive Loss -
                for the six months ended June 30, 2007 and 2006
            5Consolidated
                Statements of Changes in Stockholder’s Equity
                (Capital Deficit) – June 30, 2007 and December 31,
                2006
            6Consolidated  Statements  of  Cash  Flows  -
                for the six months ended June 30, 2007 and 2006
            7Notes
                to Unaudited Consolidated Financial
                Statements
            8Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            27Item
                3.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            34Item
                4.
            Controls
                and Procedures
            35**PART
                II.**
            **OTHER
                INFORMATION**
            36Item
                1.
            Legal
                Proceedings
            36Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            36Item
                3.
            Defaults
                upon Senior Securities
            36Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            36Item
                5.
            Other
                Information
            37Item
                6.
            Exhibits
                and Reports on Form 8-K
            37**SIGNATURES**
            
            37




3
 ***Table
          of Contents***




**PART
      I.**




**SUNRISE
      ENERGY RESOURCES INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**(Expressed
      in US Dollars)**







**June
                30,**
              **2007**
            
            
            **December
                31,**
              **2006**ASSETS
            
            **(UNAUDITED)**CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            201,366
            
            
            $
            203,146Accounts
                receivable – related party
            
            
            312,824
            
            
            
            165,492Other
                accounts receivable and prepayments
            
            
            1,057,004
            
            
            
            1,014,849Inventories
            
            
            32,497
            
            
            
            341,013Other
                current assets
            
            
            124,492Taxes
                receivable
            
            
            1,497,422
            
            
            
            1,029,565Total
                current assets
            
            
            3,225,605
            
            
            
            2,754,065NONCURRENT
                ASSETSProperty,
                plant and equipment, net
            
            
            8,509,214
            
            
            
            5,472,450Lease/concession
                acquisition cost
            
            
            134,642
            
            
            
            161,570Long-term
                financial investments
            
            
            77,534
            
            
            
            3,513Deferred
                tax asset
            
            
            71,830
            
            
            
            72,417**TOTAL
                ASSETS**
            
            **$**
            **12,018,825**
            
            
            **$**
            **8,464,015**LIABILITIES
                AND STOCKHOLDERS' EQUITYCURRENT
                LIABILITIESAccounts
                payable
            
            $
            225,863
            
            
            $
            237,358Accounts
                payable – related party
            
            
            738,214
            
            
            
            764,645Taxes
                payable
            
            
            1,011,847
            
            
            
            944,670Short
                term notes payable
            
            
            2,406,464
            
            
            
            19,598Other
                accounts payable and accruals
            
            
            1,031,427
            
            
            
            1,275,416Other
                accounts payable – related party
            
            
            275,091
            
            
            
            275,091Prepayments
                for oil and gas
            
            
            434,699
            
            
            
            572,974Interest
                payable
            
            
            365,547
            
            
            
            152,354Interest
                payable-related party
            
            
            59,115
            
            
            
            56,866Profit
                interest payable
            
            
            18,290
            
            
            
            58,946Total
                current liabilities
            
            
            6,566,557
            
            
            
            4,357,918Long
                term notes payable
            
            
            5,025,347
            
            
            
            4,169,147Long-term
                payable to related party
            
            
            1,391,900
            
            
            
            1,391,900Commitments
                and Contingencies (Note 25)
            
            
            -
            
            
            
            -STOCKHOLDERS’
                EQUITYCommon
                Stock, $.001 par value, 75,000,000 authorized, 18,300,288 and
                17,161,014  issued and outstanding as of June 30, 2007 and
                December 31, 2006
            
            
            18,300
            
            
            
            17,161Additional
                Paid in Capital (Deficit)
            
            
            1,242,535
            
            
            
            80,824Retained
                earnings (Accumulated deficit)
            
            
            (2,193,622
            )
            
            
            (1,520,742
            )Accumulated
                other comprehensive (loss) - foreign currency
            
            
            (32,192
            )
            
            
            (32,192
            )Total
                stockholders' equity (deficit)
            
            
            (964,979
            )
            
            
            (1,454,949
            )**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            **$**
            **12,018,825**
            
            
            **$**
            **8,464,015**





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


4
 ***Table
          of Contents***


**SUNRISE
      ENERGY RESOURCES INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS**


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


**UNAUDITED**







**For
                the three months ended**
            
            
            **For
                the six months ended****June
                30,**
            
            
            **June
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006**REVENUESProduced
                oil & gas
            
            $
            488,758
            
            
            $
            529,732
            
            
            $
            1,072,874
            
            
            $
            815,184Purchased
                oil & gas
            
            
            122,680
            
            
            
            
            
            
            
            122,680
            
            
            
            120,174Total
            
            
            611,438
            
            
            
            529,732
            
            
            
            1,195,554
            
            
            
            935,358COST
                OF SALES
            
            
            (94,523
            )
            
            
            
            
            
            
            (94,523
            )
            
            
            (116,637
            )516,916
            
            
            
            529,732
            
            
            
            1,101,031
            
            
            
            818,721Operating
                expenses
            
            
            (451,784
            )
            
            
            (197,903
            )
            
            
            (768,899
            )
            
            
            (328,506
            )Depreciation
                expense
            
            
            (94,842
            )
            
            
            (79,993
            )
            
            
            (140,890
            )
            
            
            (149,963
            )Bad
                debt (expense) recovery
            
            
            -
            
            
            
            (5,149
            )
            
            
            -
            
            
            
            21,144Other
                operating income (expenses), net
            
            
            183,554
            
            
            
            (9,305
            )
            
            
            203,704
            
            
            
            4,958Sales,
                general and administrative expenses
            
            
            (273,824
            )
            
            
            (234,450
            )
            
            
            (552,165
            )
            
            
            (352,664
            )OPERATING
                INCOME (LOSS)
            
            
            (119,980
            )
            
            
            2,932
            
            
            
            (157,219
            )
            
            
            13,690OTHER
                INCOME (EXPENSE)Interest
                income (expense), net
            
            
            (289,021
            )
            
            
            (50,504
            )
            
            
            (411,338
            )
            
            
            (92,403
            )PSA
                working interest expense
            
            
            (41,192
            )
            
            
            
            
            
            
            (41,192
            )Foreign
                exchange (loss)
            
            
            (3,432
            )
            
            
            (6,977
            )
            
            
            (17,439
            )
            
            
            (6,977
            )Other
                income (expense_
            
            
            3,074
            
            
            
            
            
            
            
            (8,488
            )LOSS
                BEFORE TAX
            
            
            (450,551
            )
            
            
            (54,549
            )
            
            
            (635,676
            )
            
            
            (85,690
            )INCOME
                TAX
            
            
            (3,643
            )
            
            
            (32,893
            )
            
            
            (37,205
            )
            
            
            (57,735
            )NET
                LOSS
            
            $
            (454,194
            )
            
            $
            (87,442
            )
            
            $
            (672,881
            )
            
            $
            (143,425
            )BASIC  (LOSS)
                EARNINGS  PER SHARE
            
            $
            (0.03
            )
            
            $
            (0.01
            )
            
            $
            (0.04
            )
            
            $
            (0.01
            )WEIGHTED
                AVERAGE COMMON SHARES OUTSTANDING
            
            
            17,766,724
            
            
            
            17,161,014
            
            
            
            17,730,651
            
            
            
            17,080,507





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


5
 ***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**
            
            
            **Additional**
            
            
            **Retained**
            
            
            **Accumulated**
            
            
            **Total****Stock**
            
            
            **Paid-in**
            
            
            **Earnings**
            
            
            **Other**
            
            
            **Stockholder's****Capital**
            
            
            
            
            
            **Comprehensive**
            
            
            **Equity****Shares**
            
            
            **Amount**
            
            
            
            
            
            **(Accumulated**
            
            
            
            
            
            **(Capital****Deficit)**
            
            
            **(Loss)**
            
            
            **Deficit)****BALANCE,
                DECEMBER 31, 2004**
            
            ****
            **17,000,000**
            
            
            ****
            **17,000**
            
            
            ****
            **(15,623**
            **)**
            
            ****
            **(594,905**
            **)**
            
            ****
            **-**
            
            
            ****
            **(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**
            
            
            ****
            **(15,623**
            **)**
            
            ****
            **(1,181,700**
            **)**
            
            ****
            **(32,192**
            **)**
            
            ****
            **(1,212,515**
            **)**Common
                stock issued upon Pari acquisition
            
            
            161,014
            
            
            
            161
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            ****
            **161**Additional
                paid-in capital on Pari acquisition
            
            
            
            
            
            
            
            
            
            
            96,447
            
            
            
            
            
            
            
            
            
            
            ****
            **96,447**Net
                income (loss) for the year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (339,042
            )
            
            
            
            
            
            ****
            **(339,042**
            **)****BALANCE,
                DECEMBER 31, 2006**
            
            ****
            **17,161,014**
            
            
            ****
            **17,161**
            
            
            ****
            **80,824**
            
            
            ****
            **(1,520,742**
            **)**
            
            ****
            **(32,192**
            **)**
            
            ****
            **(1,454,949**
            **)**Private
                placement of shares
            
            
            1,089,274
            
            
            
            1,089
            
            
            
            1,034,261
            
            
            
            
            
            
            
            
            
            
            
            1,035,351Shares
                issued for services
            
            
            50,000
            
            
            
            50
            
            
            
            127,450
            
            
            
            
            
            
            
            
            
            
            
            127,500Net
                income (loss) for the six months
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (672,881
            )
            
            
            -
            
            
            
            (672,881
            )**BALANCE,
                JUNE 30, 2007**
            
            ****
            **18,300,288**
            
            
            **$**
            **18,300**
            
            
            **$**
            **1,242,535**
            
            
            **$**
            **(2,193,623**
            **)**
            
            **$**
            **(32,192**
            **)**
            
            **$**
            **(964,979**
            **)**





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


6
 ***Table
          of Contents***


**SUNRISE
      ENERGY RESOURCES INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Expressed
      in US Dollars)**


**UNAUDITED**







**For
                the six months ended**
              **June
                30,****2007**
            
            
            **2006****CASH
                (USED IN) PROVIDED BY  OPERATING
                ACTIVITIES:**Net
                loss  from continuing operations for the period
            
            $
            (672,881
            )
            
            $
            (143,425
            )Adjustments
                to reconcile net loss from continuing operations to net cash in operating
                activities:Depreciation
                expense
            
            
            140,890
            
            
            
            149,963Supplier’s
                fines and penalties accruals
            
            
            -
            
            
            
            -Provision
                for doubtful accounts
            
            
            (39,007
            )
            
            
            (21,145
            )Deferred
                tax (gain)
            
            
            587
            
            
            
            (16,460
            )Net
                imputed interest expense (income)
            
            
            161,442
            
            
            
            23,263Other
                non-monetary expenses
            
            
            3,008Changes
                in assets and liabilities:(Increase)
                Decrease in accounts receivable
            
            
            (108,325
            )
            
            
            486,840(Increase)
                Decrease in other accounts receivable and prepayments
            
            
            (42,155
            )
            
            
            (98,446
            )(Increase)
                Decrease in inventories
            
            
            308,516
            
            
            
            (383,259
            )(Increase)
                Decrease in taxes receivable
            
            
            (467,857
            )
            
            
            (321,399
            )(Decrease)
                Increase in accounts payable
            
            
            (37,926
            )
            
            
            (397,796
            )(Decrease)
                Increase in taxes payable
            
            
            67,177
            
            
            
            95,182(Decrease)
                Increase in other accounts payable and accruals
            
            
            (243,989
            )
            
            
            71,125(Decrease)
                Increase in prepayments for oil and gas
            
            
            (138,275
            )
            
            
            (188,605
            )(Decrease)
                Increase  in profit sharing agreement dividend
                payable
            
            
            (40,656
            )(Decrease)
                Increase in interest payable
            
            
            215,441
            
            
            
            26,528NET
                CASH FLOW FROM OPERATING ACTIVITIES
            
            
            (894,010
            )
            
            
            (717,634
            )**CASH
                PROVIDED BY FINANCING ACTIVITIES:**Short
                term notes received
            
            
            2,285,425Short
                term notes repaid
            
            
            (60,000
            )Long
                term loans  received
            
            
            
            
            
            
            1,112,000Proceeds
                from share issuance
            
            
            1,035,351Promissory
                notes issued
            
            
            856,200
            
            
            
            1,417,000Short
                term loans repaid
            
            
            
            
            
            
            (514,851
            )NET
                CASHFLOW FROM FINANCING ACTIVITIES
            
            
            4,116,976
            
            
            
            2,014,149**CASH
                USED IN INVESTING ACTIVITIES**Purchase
                of property, plant and equipment
            
            
            (3,150,725
            )
            
            
            (1,268,043
            )Long
                term investment purchased
            
            
            (74,022
            )Cash
                inflow on the acquisition of Pari, Ltd.
            
            
            
            
            
            
            4,549NET
                CASH FLOW FROM INVESTING ACTIVITIES
            
            
            (3,224,747
            )
            
            
            (1,263,494
            )Effect
                of exchange rate changes
            
            
            -
            
            
            
            -**INCREASE
                (DECREASE) IN CASH**
            
            
            (1,780
            )
            
            
            33,021**CASH,
                at the beginning of the period**
            
            
            203,146
            
            
            
            3,419**CASH,
                at the end of the period**
            
            $
            201,366
            
            
            $
            36,440**INCOME
                TAX PAID**
            
            $
            (40,550
            )
            
            $
            (23,387
            )**INTEREST
                PAID IN CASH**
            
            $
            0
            
            
            $
            (74,195
            )Non-cash
                investing and financing transactions:Issuance
                of common stock for acquisition of Pari, Ltd.
            
            $
            -
            
            
            $
            96,608Issuance
                of common stock to Dutchess Private Equity Fund for placement agency
                services
            
            
            127,500
            
            
            
            -





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


7
 ***Table
          of Contents***




**NOTES
      TO THE CONSOLIDATED STATEMENTS
      (UNAUDITED)**




**1.       
      NATURE OF BUSINESS**




All
      operating activities of Sunrise Energy Resources Inc. are conducted through
      its
      wholly owned Ukrainian subsidiaries, TOV Energy-Servicing Company Esko Pivnich
      (“Esko Pivnich” or “EP”) and Pari, Ltd. (“Pari”) both formed as Ukrainian Closed
      Joint Stock Companies (CJSC). Esko Pivnich and Pari are engaged in oil and
      gas
      exploration and production in the country of Ukraine.During the second quarter
      of 2007 the Company revenues were derived exclusively from Esko Pivnich’s
      activities on Karaikozovsk block in Eastern Ukraine where the Company was
      producing from 2 wells internally labeled #2 and #3. In February 2007, the
      Company completed a third well on Karaikozovsk block, the internally labeled
      #21.




With
      regard to the wells #2 and #3 of Karaikozovsk block, Esko Pivnich’s involvement
      is governed by production sharing agreements (PSA). Since 2000, Esko Pivnich
      has
      been a party to the following production sharing agreements on Karaikozovsk
      block.





**PSA**
            
            **Counterparty**
            
            **Status**
            
            **EP
                Capital**
              **Contribution*,**
              **%**
            
            **EP
                Profit**
              **Share*,**
              **%*****Esko
                Pivnich***PSA
                # 01-SD dated April 26, 2000
            
            Poltavaneftegazgeologiya
            
            Superceded
                by PSA # 35/970-SD.
            
            100%
            
            60%PSA
                # 35/970-SD dated August 19, 2004
            
            Okhtyrkaneftogaz
            
            Presently
                in effect.
            
            80%
            
            80%




*
      Esko
      Pivnich’s capital constribution and profit share are applicable only to Wells #2
      and #3 of Karaikozovsk block. Well #21 of Karaikozovsk block has been 100%
      financed by Esko Pivnich. Accordingly, 100% of profits or losses from Well
      #21
      shall accrue to Esko Pivnich.




The
      Company is currently negotiating the terms of  production sharing
      agreements on Rakitnyansk and Rogan leases in the Eastern Ukraine by Pari and
      Peremyshlyansk, Niklovitsk, Pilipivsk and Sheremetyevsk field leases held by
      Pari in the Western Ukraine. In the event, the Company does not enter into
      any
      production sharing agreements with respect to remaining properties, EP shall
      be
      responsible for 100% of the capital expenditures on such properties and,
      accordingly, 100% of the profits or losses from wells drilled on these
      properties shall accrue to the Company.




In
      addition to selling oil and gas
      produced from its Karaikozovsk block, during the periods presented, the Company
      purchased oil and gas from third parties. The purchased hydrocarbons were
      subsequently resold to third parties in order to enable Esko Pivnich to fulfill
      its monthly delivery obligations.




Sunrise
      Energy Resources Inc. currently has its headquarters at the following address:
      551 Fifth Avenue, Suite 2020, New York, New York 10017.




Esko
      Pivnich and Pari conduct their operations from a Kiev office located at the
      following address: 10a Rileeva St., Kiev, Ukraine.




As
      at
      June 30, 2007 and December 31, 2006 the company employed 50 people.





8
 ***Table
          of Contents***





**2.       
      PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS**





***Basis
      of Presentation******–***The accompanying
      unaudited condensed consolidated financial statements have been prepared in
      accordance with U.S. generally accepted accounting principles (“GAAP”) for
      interim financial information and with the instructions to Form 10-QSB.
      Accordingly, they do not include all of the information and footnotes required
      by GAAP for complete financial statements. In the opinion of management, all
      adjustments (consisting of normal recurring adjustments) considered necessary
      for a fair presentation have been included. Operating results for the six months
      period ended June 30, 2007 are not indicative of the results that may be
      expected for the year ending December 31, 2007.





As
      contemplated by the Securities and Exchange Commission (SEC) under Rules of
      Regulation S-B, the accompanying financial statements and related footnotes
      have
      been condensed and do not contain certain information that will be included
      in
      the Company's annual financial statements and footnotes thereto. For further
      information, refer to the Company's audited consolidated financial statements
      and related footnotes thereto included in the Company's annual report on Form
      10-KSB for the year ended December 31, 2006.




***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 $672,881 during the six months ended June 30, 2007,
      and,
      as of June 30, 2007 the Company's current liabilities exceeded its current
      assets by $3,340,952. 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.




·         The
      Company plans to continue raising additional equity capital and considers such
      contributions as significant source of funding for the development of its
      Licenses.


·         Based
      on its expected production capabilities from the expenditures that will be
      made
      as a result of equity and debt financing, the Company believes that it can
      generate adequate cash flows to support its operations.


·         Nevertheless,
      additional funding requirements may be necessary before the Company is able
      to
      rely solely on the production from the licensed properties for the Company’s
      cash flow requirements.




***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.




9
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The
      prevailing exchange rates as at June 30, 2007 and December 31, 2006 were
      approximately 1 U.S. dollar to 5.0500 Ukrainian Hrivnas. For the periods
      ended June 30, 2007 and 2006, the average exchange rate for 1U.S. dollar was
      $5.0500 and $5.0500 Ukrainian Hrivnas, respectively.








**3.** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





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





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





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





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




***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
            2
                yearsImprovements
              and Workover CostsOffice
                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.




In
      accordance with SFAS 144, we test our long-lived assets for impairment by
      comparing the carrying value of the assets with the undiscounted expected
      cashflows from the investments. In the event, the aggregate undiscounted
      expected cashflows from the investments are below the carrying value of the
      above investments, the unamortized costs of such fixed assets will be reduced
      to
      their fair value. Simultaneously, we will recognize the impairment loss as
      the
      amount by which the fair value of the investments exceeds their carrying
      value.




10
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We
      assess
      unproved properties on an annual basis to determine whether they have been
      impaired. If we drill a dry well on a property and elect to abstain from further
      drilling on this property, the above property will be deemed impaired and we
      will recognize the impairment loss. Costs related to infrastructure are
      evaluated by the management based on continuing valuation and future benefit
      to
      the Company. If such assets are determined to have lost value, we will recognize
      impairment at the time.




***Leasing******–***
      Leases are classified as finance leases whenever the terms of the lease transfer
      substantially all the risk and rewards of ownership to the lessee. All other
      leases are classified as operating leases.





There
      were no assets held under financial leases. Operating leases are expensed in
      the
      period in which they are incurred.





***Inventories******–***
      Inventories are stated at the lower of cost or net realizable value. Cost
      comprises direct cost of extracted oil and gas, its transportation and handling
      physically in the pipelines or storages prior to the delivery for
      sale.





Cost
      is
      calculated using weighted average method. Net realizable value represents the
      estimated selling price less all estimated costs to completion and costs to
      be
      incurred in marketing, selling and distribution.





***Accounts
      Receivable –*** Accounts receivable are stated at their net
      realizable value after deducting provisions for uncollectible
      amounts.





***Cash
      and Cash Equivalents –*** Cash include petty cash and cash held on
      current bank accounts. Cash equivalents include short-term investments with
      an
      original maturity of three months or less that are readily convertible to known
      amount of cash which are subject to insignificant risk of changes in value.
      Cash
      and cash equivalents as of June 30, 2007 and December 31, 2006 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.




11
 ***Table
          of Contents***


***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.





***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





***Convertible
      Notes and Other Debt Instruments involving Company’s Common Stock
      -*********In
      February 2007, the FASB issued SFAS No. 159, *The Fair Value Option for
      Financial Assets and Financial Liabilities*(“SFAS No. 159”). SFAS No. 159
      permits entities to choose to measure many financial assets and financial
      liabilities at fair value. Unrealized gains and losses on items for which the
      fair value option has been elected are reported in earnings. SFAS No. 159 is
      effective for fiscal years beginning after November 15, 2007. We plan to adopt
      SFAS No. 159 on January 1, 2008 and have not yet determined the impact, if
      any,
      on our consolidated financial statements at the time.




12
 ***Table
          of Contents***


***FASB
      Interpretation No.48, Accounting for Uncertainty in Income Taxes***.
      We adopted FASB Interpretation No.48, Accounting for Uncertainty in Income
      Taxes-an interpretation of FASB Statement No. 109 (“FIN48”), effective January
      1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes
      recognized in an entity’s financial statements in accordance with SFAS No. 169,
      Accounting for Income Taxes. It prescribes a recognition threshold and
      measurement attribute for financial statements disclosure of tax positions
      taken
      or expected to be taken on a tax return and also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition.




During
      2004 the Company was audited by the State Tax Authority of Podolsk region,
      Kiev,
      and was assessed additional VAT and Profit tax fines and penalties in the
      aggregate amount of $598,682 related to 2003 and 2002 years. The amounts were
      accrued in the respective consolidated financial statements in full (See Note
      14
      of the Consolidated Financial Statements). “Esko-Pivnich” appealed against the
      decision and won the appellate hearing, however, the tax administration filed
      a
      counter appeal with the Supreme Civil Court of Kiev. The Supreme Civil Court
      had
      referred the matter back to Civil Court of Kiev and appointed a committee to
      conduct an accounting investigation. To date the Company has not received any
      further correspondence on this matter. In addition, a legal precedent was
      established in early 2007 where another Ukrainian Oil&gas producer prevailed
      in a similar case. Since the initial appeal was ruled in favor of the Company,
      no correspondence from the Supreme court of Kiev has been received and a
      favorable legal precedent has been established, the Company believes that it
      has
      excellent chances of prevailing in this case.




Despite
      the applicability of FIN48 to the above situation with the Company chose not
      to
      reverse the accrued provision at this time due to the unpredictability of the
      local government actions. The Company will not reverse the accrued liability
      until there is a final court decision that cannot be appealed.






**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 $596,188.





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.





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)***




In
      2004
      Esko Pivnich, the Company’s wholly owned subsidiary filed an application with
      the Ukrainian State Committee for Mineral Resources to continue the exploration
      and development of Karaikozovsk field and in July 2004 Esko Pivnich obtained
      the
      exploration license for Karikozovsk block for the period of 5 years.In accordance with the
      terms of PSA #35/970 Esko Pivnich was obligated to finance 80% of the capital
      expenditures while Oktyrkanaftogaz was obligated to finance 20% of the capital
      expenditures required to maintain and operate Wells #2 and #3. Esko Pivnich
      and
      Okhtyrkanaftogaz participated in the resulting profits (losses) from Wells
      #2
      and #3 in the same proportions.




13
 ***Table
          of Contents***




**5.        ACCOUNTS
      RECEIVABLE, related party**




Accounts
      receivable as of June 30, 2007 and December 31, 2006 consisted of $312,824
      and
      $165,492, respectively. These amounts were due from CJSC Infox, and resulted
      from several crude oil shipments which took place during 2003 and 2004.
      Management of the Company believes this amount will be paid during
      2007.




**6.        OTHER
      ACCOUNTS RECEIVABLE AND PREPAYMENTS**




Other
      accounts receivable and prepayments as of June 30, 2007 and December
      31**,** 2006 consisted of the following:





**6/30/2007**
            
            
            **12/31/2006**Vixen
                JLM
            
            $
            466,515
            
            
            $
            495,030Okhtirkaneftegas
            
            
            198,880
            
            
            
            198,880Poltavaneftegasgeologiya
            
            
            79,678
            
            
            
            8,713Other
            
            
            311,931
            
            
            
            312,226**Total**
            
            **$**
            **1,057,004**
            
            
            **$**
            **1,014,849**




The
      advance paid to Vixen JLM relates to well casings for construction workovers.
      The amount paid to Okhtirkaneftegas is currently pending litigation (Note 25)
      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 2007.




**7.        INVENTORIES**




Inventories
      as of as of June 30, 2007 and December 31, 2006 consisted of the
      following:





**6/30/2007**
            
            
            **12/31/2006**Crude
                oil – at cost
            
            $
            32,497
            
            
            $
            341,013**Total**
            
            **$**
            **32,497**
            
            
            **$**
            **341,013**





Inventories
      as of June 30, 2007 and December 31, 2006 are represented by the balances of
      crude oil produced internally in the total amount of 742 bbls and 6,285 bbls,
      for the respective period.




**8.       
      TAXES RECEIVABLE**




14
 ***Table
          of Contents***




Taxes
      receivable as of June 30, 2007 and December 31, 2006 consisted of the
      following:





**6/30/2007**
            
            
            **12/31/2006**VAT
                receivable
            
            $
            1,489,868
            
            
            $
            1,000,715Other
                prepaid tax
            
            
            7,554
            
            
            
            28,850**Total**
            
            **$**
            **1,497,422**
            
            
            **$**
            **1,029,565**




Taxes
      receivable balances are represented by VAT receivable and other advance tax
      payments. VAT receivable was discounted at 15% annual rate based on average
      six
      months turnover period.




**9.        PROPERTY,
      PLANT AND EQUIPMENT**




Property,
      plant and equipment as of June 30, 2007 and December 31, 2006 consisted of
      the
      following:




**6/30/2007**
            
            
            **12/31/2006**Oil
                & gas facilities improvements and work over costs
            
            $
            4,953,569
            
            
            
            1,660,103Office
                equipment
            
            
            41,976
            
            
            
            39,572Construction
                in progress
            
            
            4,784,513
            
            
            
            4,933,429Total
            
            
            9,780,058
            
            
            
            6,633,103Accumulated
                Depreciation
            
            
            (1,270,844
            )
            
            
            (1,160,653
            )**Net
                Book Value**
            
            **$**
            **8,509,214**
            
            
            **$**
            **5,472,450**




**10.     
      LEASE /CONCESSION ACQUISITION COST**




As
      of
      June 30, 2007, the Lease/Concession acquisition cost of $134,642 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 25).




**11.    
       LONG-TERM FINANCIAL INVESTMENT**




As
      at
      June 30, 2007, long-term investments consisted of $75,554 investment into a
      production sharing agreement with Galateya Ltd. on Chukvinsk block located
      in
      Western Ukraine. The investment was made by Pari, a wholly owned subsidiary
      of
      the Company in the form of pipes for future wells to be drilled on the
      property.  Since the investment was made, no activity has taken place
      in the PSA and the pipes were carried at cost. Pari has a 51% interest in the
      PSA. However, Pari does not have operating control of the field and does not
      exercise any significant influence.





The
      balance of the long-term investment as of June 30, 2007 and December 31, 2006
      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**




15
 ***Table
          of Contents***




The
      Company’s provision for income tax for the periods ended June 30, 2007 and
      December 31, 2006 is as follows:





**6/30/2007**
            
            
            **12/31/2006**Current
                tax
            
            $
            29,845
            
            
            $
            64,752Deferred
                tax gain
            
            
            7,360
            
            
            
            (9,668
            )**Total
                income tax expense (benefit)**
            
            **$**
            **37,205**
            
            
            **$**
            **55,085**





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, 2007 and December 31, 2006 in the
      Company’s deferred tax position is as follows:





**6/30/2007**
            
            
            **12/31/2006**Net
                asset at the beginning of the period
            
            $
            71,830
            
            
            $
            72,417Charged
                to income for the period
            
            
            (587
            )
            
            
            9,667**Net
                asset at the end of the period**
            
            **$**
            **71,243**
            
            
            **$**
            **82,084**





The
      tax
      effect on any substantial temporary differences, which give rise to the deferred
      tax assets as at June
      30,
      2007 and December 31, 2006 is presented below:





**6/30/2007**
            
            
            **12/31/2006****Temporary
                differences that give rise to deferred tax assets**Provision
                for doubtful receivables
            
            $
            46,931
            
            
            $
            85,937Valuation
                of VAT receivable
            
            
            107,691
            
            
            
            75,343Low
                value items written off
            
            
            2,587
            
            
            
            1,755Difference
                in depreciable value of property, plant and equipment due to
                expensing in prior period allowed by Ukrainian low
            
            
            128,689
            
            
            
            126,633**Total**
            
            **$**
            **285,898**
            
            
            **$**
            **289,668**




The
      deferred tax assets as at June 30, 2007 and December 31, 2006, calculated at
      effective Ukrainian income tax rate of 25%, consists of the
      following:





16
 ***Table
          of Contents***





**6/30/2007**
            
            
            **12/31/2006****Deferred
                tax assets**Provision
                for doubtful receivables
            
            $
            11,733
            
            
            $
            21,485Valuation
                of VAT receivable
            
            
            27,278
            
            
            
            18,836Low
                value items written off
            
            
            647
            
            
            
            439Difference
                in depreciable value of property, plant and equipment due to expensing
                in
                prior period under Ukrainian low
            
            
            32,172
            
            
            
            31,657**Total**
            
            **$**
            **71,830**
            
            
            **$**
            **72,417**





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:





**6/30/2007**
            
            
            **12/31/2006**(Loss)
                before income tax and minority interest
            
            $
            (635,676
            )
            
            $
            (283,957
            )Theoretical
                income tax benefit at statutory rate of 25%
            
            
            (158,919
            )
            
            
            (70,989
            )Adjustments
                due to:Tax
                effect of (expenses) that are not deductible in determining taxable
                profit
            
            
            196,124
            
            
            
            126,074**Income
                tax (benefit)**
            
            **$**
            **37,205**
            
            
            **$**
            **55,085**




As
      of
      June 30, 2007 and December 31, 2006 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 $2,000,000 which
      expires in periods from 2021 to 2024. As a result, the company has a deferred
      tax asset of approximately $700,000.   This has been fully
      reserved because realization cannot be assured.




**13.     ACCOUNTS
      PAYABLE**




Accounts
      payable as of June 30, 2007 and December 31, 2006 consisted of the
      following:





**6/30/2007**
            
            
            **12/31/2006**Accounts
                payable
            
            $
            225,863
            
            
            $
            237,358CJSC
                Infox, related party
            
            
            738,214
            
            
            
            764,645**Total**
            
            **$**
            **964,077**
            
            
            **$**
            **1,002,003**




Third
      party accounts payable balances as of June 30, 2007 and December 31, 2006 were
      comprised mostly of payments due to Okhtirkaneftegas and Kachanovsky GPZ for
      services provided in the amounts of $195,969 (2006: $204,476) and $29,894 (2006:
      $32,882), respectively.




17
 ***Table
          of Contents***




The
      amounts of $738,214 and $764,645, payable to CJSC Infox (a related party),
      as of
      June 30, 2007 and December 31, 2006, 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, 2007 and December 31, 2006 consisted of the
      following:





**6/30/2007**
            
            
            **12/31/2006**Fines
                and penalties
            
            $
            598,325
            
            
            $
            598,682VAT
            
            
            354,106
            
            
            
            290,982Profit
                tax
            
            
            -
            
            
            
            302Exploration
                tax
            
            
            35,734
            
            
            
            29,898Resource
                Tax
            
            
            12,692
            
            
            
            18,658Social
                insurance
            
            
            5,319
            
            
            
            3,799Personal
                income tax
            
            
            1,957
            
            
            
            1,424Other
                taxes
            
            
            3,714
            
            
            
            925**Total**
            
            **$**
            **1,011,847**
            
            
            **$**
            **944,670**




Taxes
      payable as June 30, 2007 represent fines and penalties accrued in connection
      with litigation described in Note 25, and VAT payable relates mostly to sales
      made in 2007. As discussed in Note 25 with respect to the accrued fines and
      penalties of $598,325, although the Company has prevailed in the appellate
      hearing on this matter, the tax authorities filed a
      counter-appeal.  There has recently been a favorable legal precedent
      where another Ukrainian oil and gas producer prevailed in a similar matter
      and
      was cleared of all fines and penalties. Despite the applicability of FIN48
      the
      Company chose not to reverse the accrued provision at this time due to the
      unpredictability of the local government actions. The Company will not reverse
      the accrued liability until there is a final court decision that cannot be
      appealed.




**15.      SHORT
      TERM NOTES PAYABLE**




**Dutchess
      Note**




On
      March
      26, 2007, the Company issued to Dutchess Private Equities Fund, Ltd.
      ("Dutchess") a senior promissory note in the face amount of $2,553,125 for
      gross
      proceeds of $2,375,000 (the "Dutchess Note"). The Note bears interest at 7%
      per
      annum and matures on December 26, 2007 ("Dutchess Note Maturity Date"). Pursuant
      to the Dutchess Note, the Company is required to make payments to Dutchess
      of
      $20,000 on each monthly anniversary from the date of issuance through July
      26,
      2007. Thereafter the Company is required to pay Dutchess $515,170.57 on each
      monthly anniversary until paid in full. The Company may prepay the Dutchess
      Note
      in full within six (6) months of issuance by paying ninety-seven and one-half
      percent (97.5%) of the balance due on the face amount, without penalty. The
      Company has also agreed to provide to Dutchess collateral for the Dutchess
      Note
      in the form of forty (40) Put Notices; such Put Notices, which may be held
      in
      escrow, are more fully described pursuant to the Company's Investment Agreement
      with Dutchess, dated September 7, 2006. The Put Notices are to be submitted
      to
      Dutchess only in the event of default as provided in the Dutchess Note. In
      the
      event that the Dutchess Note is not paid in full by the Dutchess Maturity Date,
      then, as liquidated damages, the face amount of the Dutchess Note shall be
      increased ten percent (10%) as an initial penalty and an additional two and
      one-half percent (2.5%) per month for each month until the face amount is paid
      in full. Further, in the event of default as provided in the Dutchess Note,
      Dutchess may elect to, among other things, either switch the Residual Amount
      (as
      defined in the Dutchess Note) to a three-year, eighteen percent (18%) interest
      bearing convertible debenture at a twenty-five percent (25%) discount to the
      market during conversion or increase the Payment Amount (as defined in the
      Note)
      to fulfill the repayment of the Residual Amount. The Company also issued to
      Dutchess 50,000 shares (“the Dutchess Shares”) of the Company's restricted
      common stock as compensation of Dutchess’s placement agent services in
      connection with the transaction.




18
 ***Table
          of Contents***




In
      connection with the issuance of the Dutchess Note, the Company executed and
      delivered to Dutchess a Security Agreement ("Security Agreement"), and its
      subsidiaries, Esko Pivnich and Pari, executed and delivered a Secured Continuing
      Unconditional Guaranty ("Guaranty") and Negative Pledge ("Pledge"). Dutchess
      Note is senior to all other debt obligations of the Company.




The
      Company recognised the issuance discount of $267,700 resulting from the
      difference between the face amount of the Dutchess Note of $2,553,125 and net
      proceeds to the Company of $2,285,425. The above discount is being amortized
      to
      interest expense using the effective interest method over the expected term
      of
      the Dutchess Note. The Company amortized $161,442 of this amount during six
      months of 2007. In addition, the Company repaid $60,000 of the Dutchess Note
      during the first 6 months of 2007.




On
      the
      Dutchess Note closing date the Company recognized the value of 50,000 Dutchess
      Shares at the closing price of $2.55 per share which was equivalent to $127,500.
      This amount was recorded as a deferred cost in the Current Assets section of
      the
      balance sheet. The Company is amortizing the above amount over the expected
      term
      of the Dutchess Note pro-rata with the coupon payments to Dutchess. During
      the
      six months of 2007, the Company recognized an expense of $3,008 relating to
      Dutchess Shares.




**Other
      promissory notes**




Short
      term promissory notes outstanding as of June 30, 2007 and December 31, 2006,
      issued in November 2002 at no interest, were payable by
      November 5, 2005. These notes in the amounts of $14,257 and $5,341,
      are payable to Astark and Sipay, respectively. As of June 30, 2007 the holders
      of the notes had not called for the repayment of the respective
      amounts.  Any valuation adjustment due to the lack of interest has not
      been calculated, however, such amounts, if any, are not considered to have
      a
      material effect on these financial statements.




**16.      OTHER
      ACCOUNTS PAYABLE AND ACCRUALS**




Other
      accounts payable and accruals as of June 30, 2007 and December 31, 2006
      consisted of the following:





**6/30/2007**
            
            
            **12/31/2006**ZakhidUkrGeology
            
            $
            367,092
            
            
            
            297,204Chernigovneftegasgeology
            
            
            71,886
            
            
            $
            325,660Other
            
            
            592,449
            
            
            
            652,552**Sub
                total**
            
            ****
            **1,031,427**
            
            
            ****
            **1,275,416**Advances
                from former shareholders
            
            
            275,091
            
            
            
            275,091**Total**
            
            **$**
            **1,306,518**
            
            
            **$**
            **1,550,507**





Other
      accounts payable and accruals as of June 30, 2007 and December 31, 2006
      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.




Amounts
      of $367,092 (2006: $297,204) and $71,886 (2006: $325,660) represents payables
      to
      ZakhidUkrGeology and Chernigovneftegasgeology for the recurring research and
      development, geological and exploration works.




The
      amount of $275,091 (2006: $275,091) represents advances from shareholders with
      no specific terms, which were made to the Company in the most part during
      2005.




**17.** **PREPAYMENTS
      FOR OIL AND GAS**




19
 ***Table
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Prepayments
      for oil and gas as of June 30, 2007 and December 31, 2006 were $434,699 and
      $572,974, respectively and consisted of $none (2006: $316,040), $237,624 (2006:
      $none), $108,775 (2006: $191,010), $39,604 (2006: $none), $none (2006: $49,805)
      and $48,696 (2006: $16,119) payable to Ukrgazenergo, Montazhtransgas,
      Angronafta, Agrotemp, Atlantis Techno and other, respectively.




**18.      INTEREST
      PAYABLE**




Interest
      payable as of June 30, 2007
      and December, 31 2006, consisted of the following:




**6/30/2007**
            
            
            **12/31/2006**Millington
                Solutions Limited – Convertible notes
            
            $
            342,232
            
            
            $
            152,354**Related
                parties**Long
                term loan – Zaccam Trading, related Party
            
            $
            59,954
            
            
            $
            38,120Interest
                accrued on advances received from former shareholders
            
            
            22,476
            
            
            
            18,746Subtotal
                related parties
            
            $
            82,430
            
            
            $
            56,866**Total**
            
            **$**
            **424,662**
            
            
            **$**
            **209,221**





Long
      term
      loan from Zaccam Trading, a related party, at 3% per annum (Note 20) was
      obtained in 2006. Interest accrued on amounts payable to former shareholders
      represents weighted average LIBOR rate for the periods ended June 30, 2007
      and
      December 31, 2006.




**19.      PROFIT
      INTEREST PAYABLE**




As
      of
      June 30, 2007 and December 31, 2006, profit interest of  $18,290
      (2006:58,946) 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).




**20.     LONG
      TERM PAYABLES**




Long
      term
      payables as of June 30, 2007 and December 31, 2006 consisted of the
      following:




**Lender/Note**
            
            **Coupon**
              **Rate**
            
            
            **Conv.**
              **Price**
            
            **Issue
                date/**
              **Effective**
            
            **Due**
              **not
                earlier**
            
            **6/30/2007**
            
            
            **12/31/2006****$/share**
            
            **Date**
            
            **than**Fort Trade
            
            
            
            
            
            
            Nov-
                2004
            
            Nov-
                2009
            
            $
            465,347
            
            
            $
            465,347$
            465,347
            
            
            $
            465,347**Millington
                Solutions Ltd.**CD-1001
            
            
            10
            %
            
            $
            2.20
            
            03/30/2006
            
            03/30/2009
            
            
            917,200
            
            
            
            917,200СD-1009
            
            
            10
            %
            
            $
            2.20
            
            06/6/2006
            
            06/6/2009
            
            
            1,990,200
            
            
            
            1,990,200CD-1011
            
            
            6
            %
            
            $
            1.40
            
            07/25/2006
            
            07/25/2009
            
            
            805,900
            
            
            
            796,400CD-1013
            
            
            7
            %
            
            $
            3.00
            
            02/01/2007
            
            02/01/2010
            
            
            846,700
            
            
            
            -$
            4,560,000
            
            
            $
            3,703,800**Related
                parties**Zaccam
                Trading, Ltd.
            
            
            
            
            
            
            
            
            03/5/2005
            
            03/5/2015
            
            $
            1,391,900
            
            
            $
            1,391,900$
            1,391,900
            
            
            $
            1,391,900**Total**
            
            
            
            
            
            
            
            
            
            
            
            
            **$**
            **6,417,247**
            
            
            **$**
            **5,561,047**




20
 ***Table
          of Contents***





**Fort
      Trade**





As
      of
      June 30, 2007 and December 31, 2006, the amount of $465,347 represented interest
      free note payable for geological and research services rendered by Fort Trade
      during 2004.




**Millington
      Solutions**




Effective
      March 30 and June 6, 2006, Sunrise Energy Resources, Inc. executed a Convertible
      Note Subscription Agreement with Millington Solutions Limited to complete a
      $1.0
      million and $2.0 million, respectively, private placement financing in the
      form
      of 10% convertible notes. Each tranche will mature in 3 years of the receipt
      of
      funds. The coupon is accrued at the rate of 10% per annum on the unconverted
      amount and is payable annually on each 12 month anniversary of each tranche
      until conversion or maturity. The Notes can be converted into Common shares
      of
      the Company at a conversion price of $2.20 at the holder's option at any time
      before the maturity date of each tranche. For Notes converted between interest
      due dates, the interest would accrue pro-rata and would be paid in the form
      of
      additional shares of the Company's Common stock. The number of such additional
      shares shall be calculated at the same conversion price.




On
      July
      25, 2006 the Company executed a new Convertible Note Subscription Agreement
      with
      Millington Solutions Limited for the total amount of $1.0 million with 6% сoupon
      and the conversion price of $1.40 per share. All other terms were identical
      to
      the Convertible Note Subscription Agreements that were signed on March 30 and
      June 6, 2006.





On
      February 1, 2007, the Company executed Convertible Note Subscription Agreement
      with Millington Solutions Limited for the total amount of $1.0 million with
      7%
сoupon
      and the conversion price of $3.00 per share. All other terms were identical
      to
      the Convertible Note Subscription Agreements that were signed on March 30 and
      June 6, 2006.





On
      March
      15, 2007 the Company and Millington Solutions Ltd. agreed that interest accrued
      under the Convertible Debenture Note agreements CD-1001, CD-1009, CD-1011 and
      CD-1013 (“the Notes”) may be at the Borrower’s election paid when due in
      accordance with the Convertible Debenture Note terms; or fully or partially
      capitalized. In the event, the Borrower elects to capitalize the accrued
      interests under the Notes, the accrued interest shall be added to the
      outstanding principal. Following such election, the interest in subsequent
      periods shall accrue on the increased principal balance at the rate provided
      by
      each Convertible Debenture Note agreement. The increased outstanding principal
      may be converted into the Borrower’s shares of common stock in accordance with
      the terms of each Convertible Debenture Note. On March 20, 2007, the Borrower
      elected to capitalize the interest payments on CD-1001 and CD-1009 due on the
      first annual anniversary of each tranche. Millington Solutions was duly notified
      of the Borrower’s election and the Lender’s acknowledgement of the above
      election is kept on the Company’s file.





**Zaccam
      Trading Ltd. (a related party)**




Long
      term
      payable to Zaccam Trading, Ltd., related party as of December 31, 2006
      represents uncollateralized credit line facility with the limit of $5,000,000
      bearing 3% per annum accruing on outstanding principal and payable annually
      (See
      also Note 17).




**21.      MILLINGTON
      CONVERTIBLE DEBENTURE VALUATION**




The
      management believes that apart from the embedded conversion option the
      convertible debentures issued by the Company to Millington Solutions Ltd. do
      not
      have any other embedded derivatives. As can be seen from the following table,
      at
      the time of issuance, all embedded conversion features were far out of the
      money:





21
 ***Table
          of Contents***





**Convertible
                Debenture**
            
            **Coupon**
              **Rate**
            
            
            **Conv.**
              **Price**
            
            
            **Maximum**
              **Price***
            
            
            **Average**
              **Price***
            
            
            **Negative**
              **Intrinsic**
              **Value****
            
            **First
                Tranche**
            
            **Last**
              **Tranche****$/share**
            
            
            
            
            
            
            
            
            
            
            **Date**
            
            **Date**CD-1001
            
            
            10
            %
            
            $
            2.20
            
            
            $
            0.85
            
            
            $
            0.85
            
            
            
            (61
            %)
            4/5/2006
            
            5/30/2006СD-1009
            
            
            10
            %
            
            $
            2.20
            
            
            $
            1.00
            
            
            $
            0.73
            
            
            
            (55
            %)
            6/18/2006
            
            10/1/2006CD-1011
            
            
            6
            %
            
            $
            1.40
            
            
            $
            1.00
            
            
            $
            0.83
            
            
            
            (29
            %)
            9/21/2006
            
            1/26/2007CD-1013
            
            
            7
            %
            
            $
            3.00
            
            
            $
            2.50
            
            
            $
            2.65
            
            
            
            (17
            %)
            2/12/2007
            
            6/22/2007





*
      Highest
      and average closing prices on the date of receipt of funds under each tranche
      during the period between the first and the last tranche of each
      Note.


**
      Negative intrinsic value is calculated as discount from the conversion
      price.





The
      Company believes that upon issuance the Convertible Debenture was issued at
      fair
      value for the following reasons:





·
            the
                conversion feature was far out of the money and was designed as
                compensation to the investor for a relatively low coupon
                rate;


·
            there
                were no warrants attached to the Millington Convertible
                Note;


·
            in
                the event of conversion, the Company had sufficient authorized shares
                to
                cover the conversions;


·
            All
                tranches of CD-1001, CD-1009 and CD-1011 were originally issued with
                the
                conversion feature being out of the money. Despite having been in
                the
                money during July-August of 2007, none of the tranches of CD-1001,
                CD-1009
                and CD-1011 have been converted as of the date of this filing primarily
                due to the limited liquidity of the
                stock.





Due
      to
      the above reasons, the Company believes that the conversion feature does not
      require separate accounting from the host contract as a derivative instrument
      pursuant to the provisions of SFAS No. 133, “Accounting for Derivative
      Instruments and Hedging Activities” (“SFAS 133”). Alternatively, if the Company
      elected to comply with SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments — an amendment of FASB Statements No. 133 and 140,
      the Company would need to measure the debentures in their entirety at fair
      value
      with changes in fair value recorded as either a gain or a loss in the
      consolidated statement of operations under the caption “Change in fair value of
      convertible debt instrument”.





Fair
      value of the Debentures comprising the value of the straight bond plus the
      value
      of embedded call option may be determined by Black-Scholes option pricing model.
      The use of the above formula requires certain assumptions that are subject
      to
      significant management judgment.




The
      volatility of the common stock is estimated using a combination of historical
      and implied volatility, as discussed in SEC Staff Accounting Bulletin
      No. 107. By using this combination, the Company is taking into
      consideration the historical realized volatility, as well as factoring in
      estimates of future volatility that the Company believes will differ from
      historical volatility as a result of the market performance of the common stock,
      the volume of activity of the underlying shares, the availability of actively
      traded common stock options, and overall market conditions.





The
      risk-free interest rate used in the Black-Scholes option pricing model is
      determined by looking at historical U.S. Treasury zero-coupon bond issues with
      terms equal to the expected terms of the equity awards. In addition, an expected
      dividend yield of zero is used in the option valuation model, because the
      Company does not expect to pay any cash dividends in the foreseeable
      future.





For
      the
      period from March 1, 2007 to June 30, 2007 during which the Company’s shares
      traded in the range from $2.50 to $2.65 per share the daily volatility
      assumption was 1.67%. In addition, the annualized risk-free rate of 5% was
      assumed. Using the above base assumptions, and assuming that the convertibles
      would be outstanding for 3 years before they are converted i.e. no early
      conversion, the fair value of the conversion feature of the convertible
      debentures outstanding on June 30, 2007 on the issuance day would be
      $199,582.  The fair value of the same convertible debentures on June
      30, 2007 given the closing price of $2.55 on that date and using the assumption
      that debentures with the conversion price of $2.20 (CD-1001 and CD-1009) would
      be converted within 270 days by December 31, 2007, debentures with the
      conversion price of $1.40 (CD-1011) would be converted within 180 days while
      debentures with the conversion price of $3.00 would be converted within 365
      days. Based on these assumptions the aggregate value of the conversion features
      related to the beneficial conversion amounts to $1,435,248. To comply with
      SFAS
      No. 155, the Company would need to record a loss of $1,235,666 from change
      in
      fair value of convertible debt instrument and increase the carrying value of
      the
      convertible debentures in the liabilities’ section of the Company’s balance
      sheet by the same amount. The Company believes that recording imaginary and
      estimated gains or losses would cause the financial statements to be
      misleading.





22
 ***Table
          of Contents***




**22.      SHAREHOLDERS’
      EQUITY**




During
      the first 6 months of 2007, the Company placed 1,089,274 of unregistered shares
      with non-US investors for the total net proceeds to the Company of $1,035,351.
      The placement was made in reliance on Regulation S as promulgated under the
      Securities Act of 1933. The placement continued during third quarter of
      2007.




No
      dividends were declared or paid by the Company during the periods ended June
      30,
      2007 and December 31, 2006.




**23.      LOSS
      PER COMMON SHARE**




Basic
      net
      loss per common share has been computed based on the weighted-average number
      of
      shares of common stock outstanding during the applicable period. In accordance
      with SFAS No. 128 *“Earnings per share”*, diluted net income per common
      share is computed based on the weighted-average number of shares of common
      stock
      and common stock equivalents outstanding during the applicable period, as if
      all
      potentially dilutive securites were converted into common stock. However,
      according to paragraph 16 of  SFAS No. 128, no potential common shares
      shall be included in the computation of any diluted per share amount when a
      loss
      from continuing operations exists.





**Six
                Months Ended****June
                30,****2007**
            
            
            **2006**(Unaudited)
              (in
                US dollars, except
              per
                share amounts)Net
                loss attributable to common stockholders
            
            $
            (672,881
            )
            
            $
            (143,425
            )Weighted
                average common shares outstanding, basic
            
            
            17,730,651
            
            
            
            17,080,507Loss
                per common share, basic
            
            $
            (0.04
            )
            
            $
            (0.01
            )Weighted
                average common shares outstanding, diluted
            
            
            17,730,651
            
            
            
            17,080,507Loss
                per common share, diluted
            
            $
            (0.04
            )
            
            $
            (0.01
            )




**24.     
      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, 2007 and December 31, 2006 see Notes
      4, 5, 13, 17, 19 and 21.




23
 ***Table
          of Contents***


As
      of
      June 30, 2007 and December 31, 2006, the total amounts of $312,824 and $165,492
      were due from CJSC Infox, related party.  Similarly, the total amounts
      of $738,214 and $764,645, 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.




**25.      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, 2007 are as follows:





**2007**Office
                rent – Esko Pivnich
            
            $
            30,000Office
                rent – Pari
            
            
            10,400**$**
            **40,400**





24
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***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, in respect
      to
      the advance payment made by the Company in 2002 in the amount of $198,880 in
      respect of certain capital construction works under PSA # 01-SD dated April
      26,
      2000 (Notes 4 and 6) which were not completed.




In
      April
      2004 after a number of hearings in courts of different levels, the Supreme
      Court
      of Ukraine ordered Okhtirkaneftegas to pay outstanding balance without further
      delays. As of June 30, 2007 the balance had still not been collected. Company
      plans to terminate PSA # 01-SD and offset the above amount against future
      payments due to JSC Ukrneft and its subsidiary Okhtirkaneftegas in
      2007.




Taxes




During
      2004 the Company was audited by the State Tax Authority of Podolsk region,
      Kiev,
      and was assessed additional VAT and Profit tax fines and penalties in the
      aggregate amount of $598,682 related to 2003 and 2002 years. The amounts were
      accrued in the respective consolidated financial statements in full (See Note
      14
      of the Consolidated Financial Statements). “Esko-Pivnich” appealed against the
      decision and won the appellate hearing, however, the tax administration filed
      a
      counter appeal with the Supreme Civil Court of Kiev. The Supreme Civil Court
      had
      referred the matter back to Civil Court of Kiev and appointed a committee to
      conduct an accounting investigation. To date the Company has not received any
      further correspondence on this matter. In addition, a legal precedent was
      established in early 2007 where another Ukrainian Oil&gas producer prevailed
      in a similar case.




Since
      the
      initial appeal was ruled in favor of the Company, no correspondence from the
      Supreme court of Kiev has been received and a favorable legal precedent has
      been
      established, the Company believes that it has excellent chances of prevailing
      in
      this case.




We
      adopted FASB Interpretation No.48, Accounting for Uncertainty in Income Taxes-an
      interpretation of FASB Statement No. 109 (“FIN48”), effective January 1, 2007.
      FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in an
      entity’s financial statements in accordance with SFAS No. 169, Accounting for
      Income Taxes. It prescribes a recognition threshold and measurement attribute
      for financial statements disclosure of tax positions taken or expected to be
      taken on a tax return and also provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition.




Despite
      the applicability of FIN48 in this situation, the Company chose not to reverse
      the accrued provision at this time due to the unpredictability of the local
      government actions. The Company will not reverse the accrued liability until
      there is a final court decision that cannot be appealed.




***Ukrainian
      Tax and
      Regulatory Environment******–***The government of Ukraine continues to
      reform the business and commercial infrastructure in its transition to a market
      economy. As a result laws and regulations affecting businesses continue to
      change rapidly. These changes are characterized by poor drafting, different
      interpretations and arbitrary application by the authorities. In particular
      taxes are subject to review and investigation by a number of authorities enabled
      by law to impose fines and penalties. While the Company believes it has provided
      adequately for all tax liabilities based on its understanding of the tax
      legislation, the above facts may create tax risks for the
      Company.




**26.** **RISK
      MANAGEMENT POLICIES**




25
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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:




**06/30/2007**
            
            
            **06/30/2006**Agrotemp
                (oil produced)
            
            $
            94,816
            
            
            $
            396,312Nafta
                Soyuz (oil produced)
            
            
            
            
            
            
            221,193Naftoimpex
                (oil produced)
            
            
            385,542Ukrgazenergo
                (oil produced)
            
            
            263,366Ukrtatnefta
                (oil produced)
            
            
            189,769Azov
                Oil Company (oil purchased)
            
            
            122,680Azov
                Oil Company (oil produced)
            
            
            139,381Torpeda
                (oil resold)
            
            
            
            
            
            
            120,174Torpeda
                (oil produced)
            
            
            
            
            
            
            65,076Spago
                TOV (oil produced)
            
            
            
            
            
            
            51,396Soyuz
                NPK (oil produced)
            
            
            
            
            
            
            42,410Okhtirkanaftogas
                (gas produced)
            
            
            
            
            
            
            12,990Other
            
            
            
            
            
            
            25,807**Total**
            
            **$**
            **1,195,554**
            
            
            **$**
            **935,358**




***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.




**27.      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.




**28.      SUBSEQUENT
      EVENTS**




None




26
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          of Contents***




**ITEM
      2.  MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**




**Discussion
      and Analysis of Financial Condition**




**Introduction**




The
      following discussion and analysis
      addresses changes in our financial condition and results of operations during
      the periods ended June 30, 2007 and 2006.




Management’s
      key objectives for six
      months period of 2007 were:




·
            Complete
                drilling Well #21 of Karaikozovsk
                property;


·
            Drill
                approximately 80% of the projected depth of Well #1 of the Company’s
                Peremyshlyansk property;


·
            Complete
                construction of gas treatment plant and pipeline tie-in with the
                trunk gas
                pipeline at Well #21 of Karaikozovsk
                property;


·
            Commence
                geological and research works on Rakitnyansk
                block;




We
      believe that these key objectives
      were achieved during the six months period of 2007. Our 2007 strategy for the
      Karaikozovsk field includes the launch of Well #21 during the third quarter
      of
      2007. We also plan to continue the workovers on Well #1 of our Rakitnyansk
      property. In addition, we plan to finish drilling the exploration Well #1 of
      Peremyshlyansk block in 2007.We have hired Netherland
      Sewell &
Associates to prepare a reserve report on Karaikozovsk property and we plan
      to
      complete this work before the end of 2007.




**Current
      Activities**




**Karaikozovsk
      block**




During
      six months of 2006 and 2007, our production predominantly came from Wells #2
      and
      #3 of Karaikozovsk block. During the first 6 months of 2007 Well #21 was
      successfully completed and thoroughly tested. According to the tests, Well
      #21
      may be expected to produce gas at the initial daily flow rate of approximately
      4.0mmcfpd.




**Rakitnyansk
      block**




Well
      #1
      of the Rakitnyansk block was drilled in 2002 to the depth of approximately
      4560m
      (15,000 ft) by Poltavaneftegazgeologiya, which held the license for Rakitnyansk
      block prior to Esko Pivnich. Poltavaneftegazgeologiya currently acts as Sunrise
      Energy's PSA partner on the Rakitnyansk block. During the first six months
      of
      2007, the Company has conducted extensive workovers and flow tests that
      exhibited flow rates of approximately 4.mmcfpd of natural gas, approximately
      50
      barrels of condensate per day on an 8mm choke.




The
      Company is currently in negotiations with the owner to lease the gas treatment
      facility, already on site, as well as the other related infrastructure. In
      addition to the existing treatment facility, the Company plans to build a
      gas/condensate separation unit and a four-mile gas pipeline to connect to the
      regional backbone gas network. The Company estimates a total investment of
      $1.0
      million may be required to launch Well #1 into production. This includes the
      construction of the gas pipeline and the separation unit. Furthermore, the
      Company estimates that Well #1 can be launched during fourth quarter of
      2007.




**Peremyshlyansk
      block**




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. 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, 2007, the Company has
      drilled approximately 80% of the well.




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**Results
      of Operations**




Oil
      and gas production and
      revenue




**Six
                Months Ended****June
                30,****2007**
            
            
            **2006**(Unaudited)
              (in
                US dollars, except
              production
                amounts)RevenuesRevenue
                from sales of produced oil
            
            $
            1,072,874
            
            
            $
            802,194Revenue
                from sales of resold oil
            
            
            122,680
            
            
            
            120,174Revenue
                from sales of produced gas
            
            
            
            
            
            
            12,990Revenue,
                net
            
            $
            1,195,554
            
            
            $
            935,358Oil
                sales, bblsProduced
                oil
            
            
            21,450
            
            
            
            15,088Resold
                oil
            
            
            2,454
            
            
            
            2,18823,904
            
            
            
            17,276Gas
                sales, mcf
            
            
            -
            
            
            
            14,178Average
                daily productionOil,
                bopd
            
            
            119
            
            
            
            83Gas,
                mcfpd
            
            
            -
            
            
            
            79Average
                selling pricesOil,
                $/BBL
            
            $
            50
            
            
            $
            53.2Gas,
                $/MCF
            
            
            -
            
            
            
            0.92





All
      sales
      agreements were short-term in nature, with the extension option by mutual
      agreement of the parties. Our crude oil is sold at wellhead while the natural
      gas in 2006 was sold at Kachanovsk gas treatment plant where it was primed
      to
      pipeline grade. We recognize revenue from the sale of oil when the purchaser
      takes delivery of the oil at the field. The company did not incur any additional
      transportation expenses.




The
      crude
      oil balances as of June 30, 2007 and June 30, 2006 amounted to 742 and 1,382
      Bbls, respectively.




Exploration




An
      exploration expense, which includes geological and geophysical expense and
      the
      cost of unsuccessful exploratory wells, is recorded as an expense in the period
      incurred under the successful efforts method of accounting. During the periods
      ended June 30, 2007 and 2006 we incurred $124,689 and $88,708, respectively
      in
      exploration expenses. The Company expects significant exploration expense in
      2007-2008 due to the 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).




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Depreciation,
      depletion and
      amortization




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




Oil
      and
      gas production equipment and workover costs were the main contributor into
      the
      depreciation expense for the periods ended June 30, 2007 and 2006 in the total
      amounts of $140,890 and $149,963. The reduction in the depreciation expense
      during the six months period of 2007 as compared to the respective period of
      2006 is primarily due to certain workover costs that were carried on the balance
      sheet in the as at June 30, 2006 were fully depreciated in 2006 while
      significant new fixed assets such as Well #21 and the gas treatment and
      separation facility were not yet launched into production in the first half
      of
      2007 and, accordingly, no depreciation was charged in relation to such assets
      during first half of 2007.




Sales,
      general and administrative expenses




Sales,
      general and administrative expenses for the period ended June 30, 2007 increased
      to $552,165 from $352,664 in the period ended June 30, 2006 mainly due to the
      increase in payroll and related taxes to $217,108 (2006: $136,054), legal and
      audit services  of $94,491 (2006: $64,812) and other professional
      services of $83,262 (2006: $58,425).




Interest
      income (expense)




Interest
      expense (net) for the periods ended June 30, 2007 and 2006, amounted to $411,338
      and $92,403, respectively. The increase was caused by additional $3,142,999
      of
      convertible debentures bearing coupon rates from 6% to 10% per annum as well
      as
      the interest on the Dutchess Note financing.




Convertible
      Notes




Effective
      March 30 and June 6, 2006, Sunrise Energy Resources, Inc. executed a Convertible
      Note Subscription Agreement with Millington Solutions Limited to complete a
      $1.0
      million and $2.0 million, respectively, private placement financing in the
      form
      of 10% convertible notes. Each tranche will mature in 3 years of the receipt
      of
      funds. The coupon is accrued at the rate of 10% per annum on the unconverted
      amount and is payable annually on each 12 month anniversary of each tranche
      until conversion or maturity (Note 20). The Notes can be converted into Common
      shares of the Company at a conversion price of $2.20 at the holder's option
      at
      any time before the maturity date of each tranche. For Notes converted between
      interest due dates, the interest would accrue pro-rata and would be paid in
      the
      form of additional shares of the Company's Common stock. The number of such
      additional shares shall be calculated at the same conversion price.




On
      July
      25, 2006 the Company executed a new Convertible Note Subscription Agreement
      with
      Millington Solutions Limited for the total amount of $1.0 million with 6% сoupon
      and the conversion price of $1.40 per share. All other terms were identical
      to
      the Convertible Note Subscription Agreements that were signed on March 30 and
      June 6, 2006.





On
      February 1, 2007, the Company executed Convertible Note Subscription Agreement
      with Millington Solutions Limited for the total amount of $1.0 million with
      7%
сoupon
      and the conversion price of $3.00 per share. All other terms were identical
      to
      the Convertible Note Subscription Agreements that were signed on March 30 and
      June 6, 2006.




On
      March
      15, 2007 the Company and Millington Solutions Ltd. agreed that interest accrued
      under the Convertible Debenture Note agreements CD-1001, CD-1009, CD-1011 and
      CD-1013 (“the Notes”) may be at the Borrower’s election paid when due in
      accordance with the Convertible Debenture Note terms; or fully or partially
      capitalized. In the event, the Borrower elects to capitalize the accrued
      interests under the Notes, the accrued interest shall be added to the
      outstanding principal. Following such election, the interest in subsequent
      periods shall accrue on the increased principal balance at the rate provided
      by
      each Convertible Debenture Note agreement. The increased outstanding principal
      may be converted into the Borrower’s shares of common stock in accordance with
      the terms of each Convertible Debenture Note. On March 20, 2007, the Borrower
      elected to capitalize the interest payments on CD-1001 and CD-1009 due on the
      first annual anniversary of each tranche. Millington Solutions was duly notified
      of the Borrower’s election and the Lender’s acknowledgement of the above
      election is kept on the Company’s file.




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Senior
      Promissory Notes




On
      March
      26, 2007, the Company issued to Dutchess Private Equities Fund, Ltd.
      ("Dutchess") a senior promissory note in the face amount of $2,553,125 for
      gross
      proceeds of $2,375,000 (the "Dutchess Note"). The Note bears interest at 7%
      per
      annum and matures on December 26, 2007 ("Dutchess Note Maturity Date"). Pursuant
      to the Dutchess Note, the Company is required to make payments to Dutchess
      of
      $20,000 on each monthly anniversary from the date of issuance through July
      26,
      2007. Thereafter the Company is required to pay Dutchess $515,170.57 on each
      monthly anniversary until paid in full. The Company may prepay the Dutchess
      Note
      in full within six (6) months of issuance by paying ninety-seven and one-half
      percent (97.5%) of the balance due on the face amount, without penalty. The
      Company has also agreed to provide to Dutchess collateral for the Dutchess
      Note
      in the form of forty (40) Put Notices; such Put Notices, which may be held
      in
      escrow, are more fully described pursuant to the Company's Investment Agreement
      with Dutchess, dated September 7, 2006. The Put Notices are to be submitted
      to
      Dutchess only in the event of default as provided in the Dutchess Note. In
      the
      event that the Dutchess Note is not paid in full by the Dutchess Maturity Date,
      then, as liquidated damages, the face amount of the Dutchess Note shall be
      increased ten percent (10%) as an initial penalty and an additional two and
      one-half percent (2.5%) per month for each month until the face amount is paid
      in full. Further, in the event of default as provided in the Dutchess Note,
      Dutchess may elect to, among other things, either switch the Residual Amount
      (as
      defined in the Dutchess Note) to a three-year, eighteen percent (18%) interest
      bearing convertible debenture at a twenty-five percent (25%) discount to the
      market during conversion or increase the Payment Amount (as defined in the
      Note)
      to fulfill the repayment of the Residual Amount. The Company also issued to
      Dutchess 50,000 shares (“the Dutchess Shares”) of the Company's restricted
      common stock as compensation of Dutchess’s placement agent services in
      connection with the transaction. The net proceeds to the Company of $2,285,425
      were used to finance the construction of the gas treatment plant and a pipeline
      on Karaikozovsk block that are necessary to operate Well #21 of the above block.
      The Dutchess Notes are senior to all other debt obligations of the
      Company.




**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, 2007, the Company
      had total current assets of $3,225,605 and total current liabilities of
      $6,566,557, respectively. As at June 30, 2007, the Company had cash balances
      of
      $201,366 and a working capital deficit of $3,340,952, respectively.




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




Starting
      from August 26, 2007 until December 26, 2007 the Company will need to pay
      Dutchess Private Equitie Fund, Ltd approximately $515,170 per month to service
      principal and interest payments under the Dutchess Note. The Company plans
      to
      use cash provided by its operating activities, borrowing as well as private
      equity and convertible debenture offerings to service the above payments.
      However, there is no assurance that the above sources will materialize or be
      sufficient to cover the obligatory payments under the Dutchess Note. The Company
      may also cover the shortfall by issuing its registered shares to Dutchess that
      Dutchess may sell into the market under the Equity Line of Credit with Dutchess.
      If by that time, the market in the Company’s share continues to be thin and
      illiquid and Dutchess elects to sell the shares into the market, the price
      of
      the Company’s stock may experience a sharp fall which may result in a
      significant dilution to the Company’s stockholders.




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Cash
      flow




Cash
      used
      in operating activities during the periods ended June 30, 2007 and 2006 amounted
      to $(894,010) and $(717,634), respectively.  The increase in cash
      outflow during six months of 2007, as compared to the respective period of
      2006,
      was primarily caused by the larger net loss of $(672,881) from $(143,425) in
      2006, and an increase in accounts receivable of $(108,325) compared to a
      reduction of $486,840 in 2006.




During
      the six months ended June 30, 2007 cash provided by financing activities in
      an
      amount of $4,116,976 was due to financing obtained under the convertible notes
      received in the amount of $856,200, net proceeds of the Dutchess Note of
      $2,285,425 and net proceeds from the private placements of Sunrise shares of
      $1,035,351.




During
      the six months ended June 30, 2007, the Company made capital expenditures of
      $3,150,725 most of which mainly represented the completion costs of Well #21
      of
      Karaikozovsk property and the construction costs of the gas/condensate treatment
      and separation facility while during the six months ended June 30, 2006, the
      capital expenditures amounted to $1,268,043 which mainly represented the
      drilling costs of Well #21 and workovers of Wells #2 and #3.




Cash
      Requirements




The
      Company anticipates it will require
      approximately $6,000,000 in 2007 to implement its capital expenditure program
      for the properties covered by the licenses, construction of infrastructure
      for
      Karaikozovsk and Rakitnyansk blocks, as well as the continuation of drilling
      of
      Well#1 on Peremyshlyansk property. The Company believes it will be able to
      raise
      these funds through equity, debt and convertible debt financing; however, there
      is no assurance that such funds will be raised and no certainty as to when
      such
      funds may be raised or on what terms.




**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.




31
 ***Table
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**Critical
      Accounting Policies and Recent Accounting Pronouncements**




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




**Going
      Concern**




The
      Company’s consolidated financial
      statements have been presented on the basis that it is a going concern, which
      contemplates the realization of assets and satisfaction of liabilities in the
      normal course of business. As shown in the consolidated financial statements,
      the Company incurred a net loss of $672,881 during the period ended June 30,
      2007, and, as of June 30, 2007, the Company’s current liabilities exceeded its
      current assets by $3,340,952. Additionally, to fully develop the area covered
      by
      the Licenses, the Company needs substantial additional
      funding.




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




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




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





o
            
            Based
                on its expected production capabilities from the expenditures that
                will be
                made as a result of equity and debt financing, the Company believes
                that
                it could generate adequate cash
                flow.





o
            
            Additional
                funding requirements may also be necessary before the Company is
                able to
                rely solely on the cash flow resulting from the production achieved
                on its
                licensed properties.





Accordingly,
      our independent auditors included an explanatory paragraph in their report
      on
      the December 31, 2006 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, 2007 and December 31, 2006 were
      approximately 1 U.S. dollar to $5.0500 Ukrainian Hrivnas. For the periods
      ended June 30, 2007 and 2006, the average exchange rate for 1 U.S. dollar was
      $5.0500 1Ukrainian Hrivnas, respectively.




32
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Principles
      of Consolidation




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




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




Use
      of
      Estimates




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




Oil
      and Gas Reserve Information




As
      of
      June 30, 2007, we have not been able to estimate the quantity of proved reserves
      within the meaning of Rule 4-10(a) of Regulation S-X. We plan to estimate our
      proved reserves for Karaikozovsk block in 2007. The Company has hired
      independent geologists to review these calculations.




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 3 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.




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.




33
 ***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 denominated in local currency (Hryvna)
      and
      converted to US$ for the financial statements presentation purposes. The US$
      -
      Hryvna exchange rate may move adversely to affect domestic oil and gas prices.
      In addition, there can be no assurance that the Ukrainian authorities would
      not
      introduce price stabilization mechanisms which may adversely affect oil and
      gas
      prices in US$ terms for the Company. 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.




34
 ***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, 2007
      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.




35
 ***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, 2007 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
      2007.




*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, 2007, 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. Since the initial appeal was
      ruled in favor of the Company, no correspondence from the Supreme court of
      Kiev
      has been received and a favorable legal precedent has been established, the
      Company believes that it has excellent chances of prevailing in this
      case.  Despite the applicability of FIN48 in this situation, the
      Company chose not to reverse the accrued provision at this time due to the
      unpredictability of the local government actions. The Company will not reverse
      the accrued liability until there is a final court decision that cannot be
      appealed.




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





During
      the first 6 months of 2007, the Company raised $1,035,351 from private
      placements of 1,089,274 shares Company’s unregistered stock to non-US investors
      in reliance on Regulation S as promulgated under the Securities Act of 1933.
      The
      proceeds from this offering were used for working capital and general corporate
      purposes.





**Item
      3. Defaults upon Senior Securities**





None





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





None




36
 ***Table
          of Contents***


**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 July 5, 2007.




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, 2007and December 31,
      2006




Consolidated   Statements
      of Changes in Stockholders’ Equity (Capital Deficit) for the six months ended
      June 30, 2007




Consolidated
      Statements of Operations and Comprehensive Loss for the six months ended June
      30, 2007 and    2006.




Consolidated
      Statements of Cash Flows for the six months ended June 30, 2007 and
      2006.




Notes
      to
      the Consolidated Financial Statements for the periods ended June 30, 2007and December 31,
      2006.




**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






**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:
                August 14 , 2007
            Konstantin
                TsirulnikovPresident
                and Chief Executive
                Officer






37