**U.S.
        SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
  **FORM
              10-QSB****/A**
 **For
          Annual and Transition Reports pursuant to Section 13 or 15(d) of
          the**
 **Securities
        Exchange Act of 1934 (Mark One)**
 
 **x**
              **Quarterly
                  Report pursuant to Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934**
 
 
 **For
        the nine months ended**
 **September
        30, 2006**
 
 **o**
              **Transition
                  Report pursuant to Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934**
 
 
 **Commission
        File Number 1-11248**
 
 **SUNRISE
        ENERGY RESOURSES, INC.**
 (Name
        of
        Registrant as specified in its charter)
 
 **Delaware**
              
              **84-0938688**(State
                  or other jurisdiction of 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: (212) 973-0063**
  Securities
        registered pursuant to Section 12(b) of the Act: None
 
 Securities
        registered pursuant to Section 12(g) of the Act: Common stock
 
 
 Check
        weather the issuer is not required to file reports pursuant to Section 13
        or
        15(d) of the Exchange Act o
 
 Note
        -
        Checking the box above will not relieve any registrant required to file reports
        pursuant to Section 13 or 15(d) of the Exchange Act from their obligations
        under
        those Sections.
 
 Check
        whether the Registrant (1) has filed all reports required to be filed by
        Section
        13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
        months (or for such shorter period that the Registrant was required to file
        such
        reports), and (2) has been subject to such filing requirements for the past
        90
        days. Yes x No o
 
 Indicate
        by check mark if disclosure of delinquent filers pursuant to Item 405 of
        Regulation S-K is not contained herein, and will not be contained, to the
        best
        of Registrant’s knowledge, in definitive proxy or information statements
        incorporated by reference in Part II of this Form 10-Q or any amendment to
        this
        Form 10-Q. o
 Indicate
          by check mark whether the registrant is an accelerated filer (as defined
          in
          Rule 12b-2 of the Act).  Yes o;  No x
  This
              filing has been amended to include additional disclosures in response
              to an SEC
              comment letter dated December 6, 2006 and restatement of the 2003 and
              2004
              Statements of Stockholder’s Equity to properly reflect reverse acquitition
              accounting and to restate the cash flow statements to reclassify certain
              transactions as non cash and properly classify foreign currency translation
              gains of losses.
 State
        issuer’s revenues for its most recent fiscal year: $1,762,631
  The
        aggregate market value of the voting and non-voting common equity held by
        non-affiliates as of November 13, 2006 within past 60 days:
        $4,939,843.
  As
        of
        November 13, 2006, the Registrant had 17,161,014 shares of common stock $.001
        par value issued and outstanding.
 
 Transitional
        Small Business Disclosure Format (Check one): Yes o ; 
        No x
 
 
  1
  **SUNRISE
        ENERGY RESOURCES, INC.**
 
 **FORM
        10-QSB**
 **TABLE
        OF CONTENTS**
 
 **PART
                  I.**
              **FINANCIAL
                  INFORMATION**
              PageFinancial
                  Statements (unaudited)Item
                  1.Consolidated
                  Balance Sheets - September 30, 2006 and December
                  31, 2005Consolidated
                  Statements of Operations and Comprehensive Loss -
                  for the three and nine months ended September 30, 2006 and
                  2005Consolidated
                  Statements of Changes in Stockholder’s Equity
                  (Capital Deficit) - September 30, 2006 and December 31,
                  2005Consolidated
                  Statements of Cash Flows - for the nine months
                  ended September 30, 2006 and 2005Notes
                  to Unaudited Consolidated Financial
                  StatementsItem
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and
                  Results of OperationsItem
                  3.
              Quantitative
                  and Qualitative Disclosures About Market
                  RiskItem
                  4.
              Controls
                  and Procedures**PART
                  II.**
              **OTHER
                  INFORMATION**Item
                  1.
              Legal
                  ProceedingsItem
                  2.
              Unregistered
                  Sales of Equity Securities and Use of
                  ProceedsItem
                  3.
              Defaults
                  upon Senior SecuritiesItem
                  4.
              Submission
                  of Matters to a Vote of Security
                  HoldersItem
                  5.
              Other
                  InformationItem
                  6.
              Exhibits
                  and Reports on Form 8-K**SIGNATURES**
  2
 *Table
            of Contents*
 
 **PART
        I.**
 **SUNRISE
        ENERGY RESOURCES INC.**
 **CONSOLIDATED
        BALANCE SHEETS**
 **(Expressed
        in US Dollars)**
 
 
 **September
                      30,**
                    **2006**
                  
                  **December
                      31,**
                    **2005**ASSETS
                  
                  **(UNAUDITED)**CURRENT
                      ASSETSCash
                      and cash equivalents
                  
                  $
                  10,625
                  
                  $
                  3,419Accounts
                      receivable - related party
                  
                  
                  215,695
                  
                  
                  720,797Other
                      accounts receivable and prepayments
                  
                  
                  1,075,072
                  
                  
                  760,797Other
                      accounts receivable - related party
                  
                  
                  -
                  
                  
                  122,574Inventories
                  
                  
                  561,436
                  
                  
                  159,266Taxes
                      receivable
                  
                  
                  793,377
                  
                  
                  185,736Total
                      current assets
                  
                  
                  2,656,205
                  
                  
                  1,952,589NONCURRENT
                      ASSETSProperty,
                      plant and equipment, net
                  
                  
                  3,714,348
                  
                  
                  951,025Lease/concession
                      acquisition cost
                  
                  
                  175,035
                  
                  
                  -Long-term
                      financial investments
                  
                  
                  3,249
                  
                  
                  1,980Deferred
                      tax asset
                  
                  
                  87,480
                  
                  
                  73,319**TOTAL
                      ASSETS**
                  
                  **$**
                  **6,636,317**
                  
                  **$**
                  **2,978,913**LIABILITIES
                      AND STOCKHOLDERS' EQUITYCURRENT
                      LIABILITIESAccounts
                      payable
                  
                  $
                  238,666
                  
                  $
                  218,104Accounts
                      payable - related party
                  
                  
                  187,719
                  
                  
                  592,554Taxes
                      payable
                  
                  
                  1,004,361
                  
                  
                  905,731Short
                      term bank loans
                  
                  
                  -
                  
                  
                  514,851Short
                      term notes payable
                  
                  
                  19,598
                  
                  
                  19,598Other
                      accounts payable and accruals
                  
                  
                  945,987
                  
                  
                  414,577Other
                      accounts payable - related party
                  
                  
                  300,391
                  
                  
                  244,191Prepayments
                      for oil and gas
                  
                  
                  284,112
                  
                  
                  500,867Interest
                      payable
                  
                  
                  115,143
                  
                  
                  17,711Profit
                      interest payable
                  
                  
                  17,997
                  
                  
                  17,997Total
                      current liabilities
                  
                  
                  3,113,974
                  
                  
                  3,446,181Long
                      term notes payable
                  
                  
                  3,460,847
                  
                  
                  465,347Long-term
                      payable to related party
                  
                  
                  1,391,900
                  
                  
                  279,900Commitments
                      and Contingencies (Note 24)
                  
                  
                  -
                  
                  
                  -STOCKHOLDERS’
                      EQUITYCommon
                      Stock, $.001 par value, 75,000,000 authorized, 17,161,014 and
                      17,000,000
                      issued and outstanding as of September 30, 2006 and December
                      31, 2005
                  
                  
                  17,161
                  
                  
                  17,000Additional
                      Paid in Capital
                  
                  
                  80,824
                  
                  
                  15,623Retained
                      earnings (Accumulated deficit)
                  
                  
                  (1,396,197
                  )
                  
                  (1,181,700
                  )Accumulated
                      other comprehensive (loss) - foreign currency
                  
                  
                  (32,192
                  )
                  
                  (32,192
                  )Total
                      stockholders' equity (deficit)
                  
                  
                  (1,330,404
                  )
                  
                  (1,212,515
                  )**TOTAL
                      LIABILITIES AND STOCKHOLDERS' EQUITY**
                  
                  **$**
                  **6,636,317**
                  
                  **$**
                  **2,978,913**
 The
        accompanying notes are an integral part of the consolidated financial
        statements.
  3
 *Table
            of Contents*
  **SUNRISE
        ENERGY RESOURCES INC.**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS**
 **(Expressed
        in US Dollars except share amounts)**
 **UNAUDITED**
 
 **For
                  the three months ended**
              
              **For
                  the nine months ended****September
                  30,**
              
              **September
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**REVENUESProduced
                  oil & gas
              
              $
              518,485
              
              $
              525,062
              
              $
              1,333,669
              
              $
              1,429,190Purchased
                  oil & gas
              
              
              -
              
              
              127,339
              
              
              120,174
              
              
              127,339Total
              
              
              518,485
              
              
              652,401
              
              
              1,453,843
              
              
              1,556,529COST
                  OF SALES
              
              
              -
              
              
              (127,051
              )
              
              (116,637
              )
              
              (127,051
              )GROSS
                  PROFIT
              
              
              518,485
              
              
              525,350
              
              
              1,337,206
              
              
              1,429,478Operating
                  expenses
              
              
              (198,354
              )
              
              (272,225
              )
              
              (526,860
              )
              
              (825,525
              )Depreciation
                  and amortization expense
              
              
              (79,936
              )
              
              (77,931
              )
              
              (229,899
              )
              
              (206,648
              )Bad
                  debt recovery
              
              
              1,387
              
              
              -
              
              
              22,531
              
              
              -Other
                  operating income (expenses), net
              
              
              (11,781
              )
              
              (223
              )
              
              (6,823
              )
              
              (24,288
              )Sales,
                  general and administrative expenses
              
              
              (191,223
              )
              
              (111,044
              )
              
              (543,887
              )
              
              (508,770
              )OPERATING
                  INCOME (LOSS)
              
              
              38,578
              
              
              63,927
              
              
              52,268
              
              
              (135,753
              )OTHER
                  INCOME (EXPENSE)Interest
                  income (expense), net
              
              
              (89,976
              )
              
              (36,551
              )
              
              (182,379
              )
              
              (99,602
              )Foreign
                  exchange (loss)
              
              
              (8,852
              )
              
              2,155
              
              
              (15,829
              )
              
              (30,928
              )Other
                  expense
              
              
              -
              
              
              (8,799
              )
              
              -
              
              
              (11,107
              )LOSS
                  BEFORE TAX
              
              
              (60,250
              )
              
              20,732
              
              
              (145,940
              )
              
              (277,390
              )INCOME
                  TAX (Note 12)
              
              
              (10,822
              )
              
              (53,342
              )
              
              (68,557
              )
              
              (62,210
              )NET
                  LOSS
              
              $
              (71,072
              )
              $
              (32,610
              )
              $
              (214,497
              )
              $
              (339,600
              )BASIC
                  (LOSS) EARNINGS  PER SHARE
              
              $
              (0.00
              )
              $
              (0.00
              )
              $
              (0.01
              )
              $
              (0.02
              )WEIGHTED
                  AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
              
              
              17,137,422
              
              
              17,000,000
              
              
              17,137,422
              
              
              17,000,000
 
 The
        accompanying notes are an integral part of the consolidated financial
        statements.
  4
 *Table
            of Contents*
  **SUNRISE
                    ENERGY RESOURCES INC.**
 **CONSOLIDATED
                    STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Restated)**
 **(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**
                            **Deficit)**
                          
                          **(Loss)**
                          
                          **(Capital**
                            **Deficit)****BALANCE,
                              DECEMBER 31, 2003 (Restated)**
                          
                          
                          **10,479,900**
                          
                          **$**
                          **10,480**
                          
                          **$**
                          **(9,103**
                          **)**
                          **$**
                          **48,462**
                          
                          
                          -
                          
                          **$**
                          **49,839**Common
                              Stock of the accounting target outstanding on the reverse
                              merger date
                              (Restated)
                          
                          
                          6,520,100
                          
                          
                          6,520
                          
                          
                          (6,520
                          )
                          
                          --
                          
                          
                          -
                          
                          
                          -Pre
                              acquisition deficit of Sunrise Energy Resources, Inc.
                          
                          
                          -
                          
                          
                          -
                          
                          
                          
                          
                          
                          (50,886)-
                          
                          
                          -
                          
                          
                          (50,886
                          )Net
                              (loss) for the year
                          
                          
                          -
                          
                          
                          -
                          
                          
                          -
                          
                          
                          (592,481
                          )
                          
                          -
                          
                          
                          (592,481
                          )-**BALANCE,
                              DECEMBER 31, 2004 (Restated)**
                          
                          
                          **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, $0.001 par value, 161,014 issued in connection
                              withPari
                              acquisition
                          
                          
                          161,014
                          
                          
                          161
                          
                          
                          96,447
                          
                          
                          -
                          
                          
                          -
                          
                          
                          96,608Net
                              loss for the nine months
                          
                          
                          -
                          
                          
                          -
                          
                          
                          -
                          
                          
                          (214,497
                          )
                          
                          -
                          
                          
                          (214,497
                          )**BALANCE,
                              SEPTEMBER 30, 2006**
                          
                          
                          **17,161,014**
                          
                          **$**
                          **17,161**
                          
                          **$**
                          **80,824**
                          
                          **$**
                          **(1,396,197**
                          **)**
                          **$**
                          **(32,192**
                          **)**
                          **$**
                          **(1,330,404**
                          **)**
  The
              accompanying notes are an integral part of the consolidated financial
              statements.
  5
 *Table
            of Contents*
 **SUNRISE
          ENERGY RESOURCES INC.**
 **CONSOLIDATED
              STATEMENTS OF CASH FLOWS (Restated)**
 **(Expressed
          in US Dollars)**
 **UNAUDITED**
 
 
 **For
                  the nine months ended**
                **September
                  30,****2006**
              
              **2005****CASH
                  (USED IN) PROVIDED BY OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (214,497
              )
              $
              (339,600
              )Adjustments
                  to reconcile net loss to net cash in operating activities:Depreciation
                  expense
              
              
              229,899
              
              
              206,648Supplier’s
                  fines and penalties accruals
              
              
              -
              
              
              1,002Loss
                  on disposal of fixed assets
              
              
              -
              
              
              37,293Provision
                  for doubtful accounts
              
              
              (22,531
              )
              
              23,647Deferred
                  tax (gain)
              
              
              (24,730
              )
              
              (34,006
              )Net
                  imputed interest expense (income)
              
              
              42,640
              
              
              1,665Changes
                  in assets and liabilities:Decrease
                  (increase) in accounts receivable
              
              
              527,830
              
              
              (36,802
              )(Increase)
                  in other accounts receivable and prepayments
              
              
              (185,581
              )
              
              (262,174
              )(Increase)
                  in inventories
              
              
              (402,165
              )
              
              (22,754
              )(Increase)
                  decrease in taxes receivable
              
              
              (589,103
              )
              
              (29,645
              )(Decrease)
                  increase in accounts payable
              
              
              (384,273
              )
              
              206,053Increase
                  in taxes payable
              
              
              97,218
              
              
              181,113Increase
                  in other accounts payable and accruals
              
              
              378,390
              
              
              212,928(Decrease)
                  increase in prepayments for oil and gas
              
              
              (216,755
              )
              
              337,658Increase
                  in interest payable
              
              
              97,432
              
              
              -NET
                  CASH FLOW FROM OPERATING ACTIVITIES
              
              
              (666,226
              )
              
              483,026**CASH
                  PROVIDED BY FINANCING ACTIVITIES:**Long
                  term loans received
              
              
              1,112,000
              
              
              100,000Promissory
                  notes issued
              
              
              2,995,500
              
              
              -Short
                  term loans repaid
              
              
              (514,851
              )
              
              -NET
                  CASHFLOW FROM FINANCING ACTIVITIES
              
              
              3,592,649
              
              
              100,000**CASH
                  USED IN INVESTING ACTIVITIES**Purchase
                  of property, plant and equipment
              
              
              (2,922,497
              )
              
              (623,919
              )Cash
                  inflow on the acquisition
              
              
              4,549
              
              
              -Long
                  term investments purchased
              
              
              (1,269
              )
              
              -NET
                  CASH FLOW FROM INVESTING ACTIVITIES
              
              
              (2,919,217
              )
              
              (623,919
              )**EFFECT
                  OF EXCHANGE RATE CHANGES**
              
              
              **-**
              
              
              **48,901****INCREASE
                  (DECREASE) IN CASH**
              
              
              7,206
              
              
              8,008**CASH,
                  at the beginning of the period**
              
              
              3,419
              
              
              15,082**CASH,
                  at the end of the period**
              
              $
              10,625
              
              $
              23,090**INCOME
                  TAX PAID**
              
              $
              (74,198
              )
              $
              (30,689
              )**INTEREST
                  PAID IN CASH**
              
              $
              23,387
              
              $
              (98,519
              )
  The
        accompanying notes are an integral part of the consolidated financial
        statements.
  6
 *Table
            of Contents*
 
 **NOTES
        TO THE CONSOLIDATED STATEMENTS
        (UNAUDITED)**
 
 **1.**
              **NATURE
                  OF BUSINESS**
 
 All
        of
        the operating activities of Sunrise Energy Resources, Inc. are conducted
        through
        the Company’s wholly owned subsidiaries, TOV Energy-Servicing Company Esko
        Pivnich (“Esko Pivnich”), a Ukrainian Closed Joint Stock Company (CJSC)
        established on January 20, 2000, and Pari, Ltd., (“Pari”) a Ukrainian Limited
        Liability company, established on July 5, 2000. The primary business activities
        of Esko Pivnich and Pari are oil and gas exploration, production and
        distribution in the country of Ukraine.
 
 The
        current principal activities of Esko Pivnich and Pari are conducted in the
        form
        of production sharing agreements (PSA), which as of September 30, 2006
        included the following:
 
 **Operating
                  Entity**
              
              **Principal
                  Activity**
              
              **Country
                  of incorporation**
              
              **Capital
                  Contribution,**
                **%**
              
              **Profit****Sharing,**
                **%*****Esko
                  Pivnich***
              
              Marketing
                and distribution of crude oil and natural gas
              
              Ukraine
              
              -
              
              -PSA
                  # 01-SD dated April 26, 2000
              
              Extraction
                of crude oil and natural gas
              
              Ukraine
              
              100%
              
              60%PSA
                  # 35/970-SD dated August 19, 2004
              
              Extraction
                of crude oil and natural gas
              
              Ukraine
              
              80%
              
              80%***Pari***
              
              Marketing
                and distribution of crude oil and natural gas
              
              Ukraine
              
              -
              
              -PSA
                  # 10-5/2000 dated July 20, 2000
              
              Extraction
                of crude oil and natural gas
              
              Ukraine
              
              75%
              
              75%PSA
                  #02-CID dated October 20, 2004
              
              Extraction
                of crude oil and natural gas
              
              Ukraine
              
              25%
              
              50%
 
 In
        addition, during the periods presented, the Company purchased and resold
        oil and
        gas and thus in effect acting as a trading company.
 
 Sunrise
        Energy Resources Inc. is currently registered at the following address: 551
        Fifth Avenue, Suite 2020, New York, New York 10017. Esko Pivnich and Pari
        are
        registered at the following address: 10a Rileeva St., Kiev, Ukraine. The
        Company
        conducts its operations from the same address.
 
 The
        number of employees of the Company at September 30, 2006 and December 31,
        2005
        amounted to 22.
  7
 *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 nine months period ended September 30, 2006 are not indicative
        of the results that may be expected for the year ending December 31,
        2006.
 
 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, 2005.
 
 
 ***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 $214,497
        during the nine months ended September 30, 2006, and, as of September 30,
        2006
        the Company's current liabilities exceeded its current assets by $457,769.
        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.
  8
 *Table
            of Contents*
 
 The
        prevailing exchange rates as at September 30, 2006 and December 31, 2005
        were
        approximately 1 U.S. dollar to 5.0500 Ukrainian Hrivnas. For the periods
        ended September 30, 2006 and 2005, the average exchange rate for 1U.S. dollar
        was $5.0500 and $5.1321 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 Improvements and Workover Costs
              
              
              2
                  yearsOffice
                  Improvements
              
              
              4
                  - 5 yearsComputer
                  Equipment
              
              
              3
                  years
 
 The
        gain
        or loss arising on the disposal or retirement of an asset is determined as
        the
        difference between the sales proceeds and the carrying amount of the asset
        and
        is recognized in the income statement.
  9
 *Table
            of Contents*
 
 ***Leasing***  ***-*** Leases
        are classified as finance leases whenever the terms of the lease transfer
        substantially all the risk and rewards of ownership to the lessee. All other
        leases are classified as operating leases.
 
 There
        were no assets held under financial leases. Operating leases are expensed
        in the
        period in which they are incurred.
 
 ***Inventories***  ***-*** Inventories are stated at the lower of cost or net realizable value. Cost
        comprises direct cost of extracted oil and gas, its transportation and handling
        physically in the pipelines or storages prior to the delivery for sale.
        Inventory also includes various supplies and spare parts.
 
 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
        September 30, 2006 and December 31, 2005 consisted mainly of the UAH and
        USD
        denominated current accounts.
 
 ***Loans
        and Other Borrowings***  ***-*** All
        loans and borrowings are recorded at the proceeds received, net of direct
        issue
        costs.
 ***Borrowing
        Costs***  ***-*** Borrowing costs are recognized as an expense in the period in which they
        are
        incurred.
 
 ***Convertible
        Notes and Other Debt Instruments involving Company’s Common Stock -*** Convertible
        notes payable by the Company are accounted for under Emerging Issues Task
        Force
        Release No. 00-27 which requires a beneficial conversion feature to be
        calculated. The value ascribed to the beneficial conversion feature is recorded
        as a debt discount. Upon conversion of the underlying debt into common stock,
        a
        pro-rata share of the unamortized debt discount is recorded as interest expense.
        Other debt settled with the Group’s common stock is marked to market at the date
        of settlement and respective gain or loss on its extinguishment is recognized.
        As of the date of this report no value was apportioned to beneficial conversion
        feature since the conversion price of the Notes is greater than the current
        market price for our common stock.
 
 ***Trade
        and Other Payables***  ***-*** Liabilities for trade and other amounts payable are stated at their nominal
        value.
 
 ***Value
        added tax on purchases and sales -*** Value
        added taxes (VAT) related to sales is payable to the Ukrainian tax authorities
        upon collection of receivables from customers. VAT on purchases is offset
        against VAT collected from sales. The tax authorities permit the settlement
        of
        VAT on a net basis. VAT related to sales and purchases which have not been
        settled at the balance sheet date, (VAT deferred) is recognized in the balance
        sheet on a gross basis and disclosed separately as a current asset and
        liability. Where provision has been made against debtors deemed to be
        uncollectible bad debt expense is recorded for the gross amount of the debtor,
        including VAT. The related VAT deferred liability is maintained until the
        debtor
        is settled or until the debtor is written off for statutory accounting
        purposes.
 
 ***Income
        Taxes***  ***-*** Income
        tax has been computed based on the results for the year as adjusted for items
        that are non-assessable or non-tax deductible.
 
 The
        Company has adopted Financial Accounting Standards No. 109 (“SFAS 109”), under
        which the deferred tax is accounted for using the balance sheet liability
        method
        in respect of temporary differences arising from differences between the
        carrying amount of assets and liabilities in the consolidated financial
        statements and the corresponding tax basis used in the computation of taxable
        profit. Deferred tax liabilities are generally recognized for all taxable
        temporary differences and deferred tax assets are recognized to the extent
        that
        it is probable that taxable profits will be available against which deductible
        temporary differences can be utilized. Deferred tax assets and liabilities
        are
        offset when they relate to income taxes levied by the same taxation authority
        and the Company intends to settle its tax assets and liabilities on a net
        basis.
  10
 *Table
            of Contents*
  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*** *-* In
        May
        2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections.
        SFAS No. 154 replaces Accounting Principles Board Opinion No. 20, Accounting
        changes, and SFAS No. 3, Reporting Accounting Changes in Internal Financial
        Statements, and changes the requirements for the accounting for and reporting
        of
        a change in accounting principle. SFAS No. 154 requires retrospective
        application of changes in accounting principle to the prior periods` financial
        statements, unless it is impracticable to determine either the period-specific
        effects or the cumulative effect of the change. SFAS No. 154 is effective
        for
        accounting changes and corrections of errors made in fiscal years beginning
        after December 15, 2005. The Company adopted SFAS No. 154 on January 1, 2006.
        Any impact on the Company’s consolidated results of operations and earnings per
        share will be dependent on the amount of any accounting changes or corrections
        of errors whenever recognized.
  11
 *Table
            of Contents*
  **4.**
              **PRODUCTION
                  SHARING AGREEMENTS**
 
 ***PSA
        # 01-SD dated April 26, 2000 (Esko Pivnich)***
 
 In
        August
        2000 the Company together with the state owned geological enterprise
        Poltavaneftegasgeologiya executed a production sharing agreement (“PSA”) to
        start exploration and development of the Karaikozovsk field located in the
        Krasnokutsk area of the Kharkov region. Under the terms of PSA
        Poltavaneftegasgeologiya acted as the holder of the main geological and
        exploration licenses allowing for the development of the Karaikozovsk field
        and
        the Company was a major investor, having contributed into the establishment
        of
        PSA approximately $628,146.
 
 In
        November 2000 a subsidiary of JSC Ukrneft, Okhtirkaneftegas, joined the PSA.
        Okhtirkaneftegas owned two wells in Karaikozovsk area, the operational usage
        of
        which were contributed into the PSA. Also, Okhtirkaneftegas was to provide
        PSA
        with certain exploration and capital repair services to be paid at external
        market rates.
 
 In
        May
        2003, due to the expiration of main geological and exploration licenses held
        by
        Poltavaneftegasgeologiya, all exploration and development activities on
        Karaikozovsk field were temporarily suspended.
 
 ***PSA
        # 35/970-SD dated August 19, 200 4 (Esko Pivnich)***
 
 The
        Company filed an application with the Ukrainian State Committee of Mineral
        Resources to continue the exploration and development of the Karaikozovsk
        field
        and in July 2004 the Company obtained the main geological and exploration
        license for a period of 5 years.
 
 In
        August
        2004 the Company together with Okhtirkaneftegas, contributed approximately
        $1,503 and $376 into the establishment of new PSA to continue exploration
        and
        development of Karaikozovsk field.
  ***PSA
        # 10-5/2000 dated July 20, 2000 (Pari)***
 
 In
        July
        2000 Pari together with the state owned geological enterprise
        Poltavaneftegasgeologiya executed a production sharing agreement (“PSA”) to
        start exploration and development of the Sakhalinsk and Skvortsivsk fields
        located in the Krasnokutsk area of the Kharkov region. Under the terms of
        said
        PSA Poltavaneftegasgeologiya acted as the holder of the main geological and
        exploration licenses allowing for the development of the Sakhalinsk and
        Skvortsivsk fields and the Company was a major investor, having contributed
        into
        the establishment of the PSA approximately $31,152 (See also Note
        24).
 
 Under
        the
        terms of the agreement Poltavaneftegasgeologiya was obliged to complete capital
        repairs on well#18 of the Sakhalin field. To the date of the expiration of
        the
        main geological and exploration license held by Poltavaneftegasgeologiya,
        a
        subsidiary of NAK Nadra Ukraini, a state owned company, no operating activities
        have been conducted. In accordance with the agreement, the Company moved
        to void
        its entire obligations under the PSA and obtain a refund of its initial
        investment in the amount of $31,152. As of the date of this report no resolution
        on this matter has been achieved. Accordingly, Pari’s investment was totally
        written off in 2003.
 
 ***PSA
        # 02-CID dated October 20, 2004 (Pari)***
 
 In
        October 2004 Pari entered into a production sharing agreement with TOV “Intek
        Geo” and JSC “Agronaftogastekhservice” to start exploration of the Pilipivsk
        field located in the Kosivskiy and Kolomiiskiy districts of the
        Ivanovo-Frankivsk region, Western Ukraine. In conformity with the terms of
        PSA
        02-CID Pari acts as a holder of the main geological and exploration licenses
        to
        develop Pilipivsk field while JSC “Agronaftogastekhservice” acts as an operator
        and TOV “Intek Geo” performs project management and oversight function. No
        capital contributions have been made as of the date of the report.
  12
 *Table
            of Contents*
  **5.**
              **ACCOUNTS
                  RECEIVABLE, related party**
 
 Accounts
        receivable as of September 30, 2006 and December 31, 2005 consisted of $215,695
        and $720,797, respectively. These amounts were due from CJSC Infox, and resulted
        from several crude oil shipments which took place during 2003 and 2004. During
        the nine months of 2006, Infox had partly repaid this balance. No provision
        for
        bad debts has been recorded for these accounts. Management of the Company
        believes this amount will be paid during 2006.
 
 **6.**
              **OTHER
                  ACCOUNTS RECEIVABLE AND
                  PREPAYMENTS**
 
 Other
        accounts receivable and prepayments as of September 30, 2006 and December
        31 **,** 2005
        consisted of the following:
 
 **9/30/2006**
              
              **12/31/2005**Vixen
                  JLM
              
              $
              495,030
              
              $
              511,069Okhtirkaneftegas
              
              
              198,880
              
              
              198,880Chernigovneftegasgeology
              
              
              136,064
              
              
              -Poltavaneftegasgeology
              
              
              45,123
              
              
              -Other
              
              
              199,975
              
              
              50,848**Total**
              
              **$**
              **1,075,072**
              
              **$**
              **760,797**
 
 Other
        accounts receivable and prepayments as at September 30, 2006 and December
        31,
        2005 are stated net of provision accrued for doubtful accounts and are comprised
        mostly of advances paid to Vixen JLM, Okhtirkaneftegas, Chernigovneftegasgeology
        and Poltavanftegasgeology, in the total amounts of $495,030 (2005: $511,069),
        $198,880 (2005: $198,880), $136,064 (2005: $None) and $45,123 (2005: $None),
        respectively.
 
 The
        advance paid to Vixen JLM relates to well casings for construction workovers.
        The amount paid to Okhtirkaneftegas is currently pending litigation (Note
        24)
        though no provision was accrued on it based on the management estimates of
        the
        possibility to offset this amount through cancellation of PSA# 01-SD agreement
        with Okhtirkaneftegas during 2006. Amounts of $136,064 and $45,123 due from
        Chernigovneftegasgeology and Poltavaneftegasgeology represents prepaids for
        geological and geophysical workovers on the properties covered by the licenses
        of the Company’s operating subsidiaries.
 
 **7.**
              **INVENTORIES**
 
 Inventories
        as of as of September 30, 2006 and December 31, 2005 consisted of the
        following:
 
 **9/30/2006**
              
              **12/31/2005**Crude
                  oil - at cost
              
              $
              133,391
              
              $
              130,159Other
                  consumables and spare parts
              
              
              428,045
              
              
              29,107**Total**
              
              **$**
              **561,436**
              
              **$**
              **159,266**
 
 Inventories
        as of September 30, 2006 and December 31, 2005 are represented by the balances
        of crude oil produced internally in the total amount of 3,251 and 566 bbls,
        for
        the respective period, and crude oil purchased in the amounts of None and
        2,188
        bbls, for the same periods. The amounts of $428,045 and $29,107, for the
        respective periods, represent certain spare parts and chemical reagents destined
        for the construction and technical maintenance of oil & gas
        facilities.
  13
 *Table
            of Contents*
 
 **8.**
              **TAXES
                  RECEIVABLE**
 
 Taxes
        receivable as of September 30, 2006 and December 31, 2005 consisted of the
        following:
 
 **9/30/2006**
              
              **12/31/2005**VAT
                  receivable
              
              $
              786,797
              
              $
              152,095Other
                  prepaid tax
              
              
              6,580
              
              
              33,641**Total**
              
              **$**
              **793,377**
              
              **$**
              **185,736**
 
 Taxes
        receivable balances are represented by VAT receivable and other advance tax
        payments. VAT receivable was discounted at 15% annual rate based on average
        six
        months turnover period.
 
 **9.**
              **PROPERTY,
                  PLANT AND EQUIPMENT**
 
 Property,
        plant and equipment as of September 30, 2006 and December 31, 2005 consisted
        of
        the following:
  **9/30/2006**
              
              **12/31/2005**Oil
                  & gas facilities improvements and work over costs
              
              $
              1,763,526
              
              $
              1,761,265Office
                  equipment
              
              
              37,896
              
              
              14,072Construction
                  in progress
              
              
              3,103,935
              
              
              161,416Total
              
              
              4,905,357
              
              
              1,936,753Accumulated
                  Depreciation
              
              
              (1,191,009
              )
              
              (985,728
              )**Net
                  Book Value**
              
              **$**
              **3,714,348**
              
              **$**
              **951,025**
  **10.**
              **LEASE
                  /CONCESSION ACQUISITION
                  COST**
 
 As
        of
        September 30, 2006, the Lease/Concession acquisition cost of $175,035 is
        stated
        net of amortization accrued and represents the implied value of the exploration
        licenses for the Peremishlyansk, Niklovitsk, Chukvinsk, Sheremetivsk and
        Pilipivsk properties held by Pari, Ltd (Note 22).
 
 **11.**
              **LONG-TERM
                  FINANCIAL INVESTMENT**
 
 Long-term
        investment as of September 30, 2006 and December 31, 2005 represents 10 common
        shares of JSC “Ukrneft” at par value of 0.25 UAH accounted for at cost, which
        approximates their fair market value of $1,980. Amount of $1,269 is carried
        at
        cost and represents investment in Production Sharing Agreement where the
        Company
        do not act as a controlling investor and do not exercise control or significant
        influence. Neither under accounting principles generally accepted in the
        United
        States of America (“US GAAP”) or under Ukrainian Accounting Principles any
        consolidation or equity method accounting is required.
  14
 *Table
            of Contents*
  **12.**
              **INCOME
                  TAX**
 
 The
        Company’s provision for income tax for the periods ended September 30, 2006 and
        December 31, 2005 is as follows:
 
 **9/30/2006**
              
              **12/31/2005**Current
                  tax
              
              $
              93,287
              
              $
              117,224Deferred
                  tax gain
              
              
              (24,730
              )
              
              (54,760
              )**Total
                  income tax expense (benefit)**
              
              **$**
              **68,557**
              
              **$**
              **62,464**
 
 Deferred
        taxes reflect the net tax effects of temporary differences between the carrying
        amounts of assets and liabilities for financial reporting purposes and the
        amounts used for tax purposes.
 
 The
        change for the periods ended September 30, 2006 and December 31, 2005 in
        the
        Company’s deferred tax position is as follows:
 
 **9/30/2006**
              
              **12/31/2005**Net
                  asset at the beginning of the period
              
              $
              73,319
              
              $
              17,218Charged
                  to income for the period
              
              
              14,161
              
              
              56,101**Net
                  asset at the end of the period**
              
              **$**
              **87,480**
              
              **$**
              **73,319**
 
 The
        tax
        effect on any substantial temporary differences, which give rise to the deferred
        tax assets as at
 
 September
        30, 2006 and December 31, 2005 is presented below:
 
 **9/30/2006**
              
              **12/31/2005****Temporary
                  differences that give rise to deferred tax assets**Provision
                  for doubtful receivables
              
              $
              83,562
              
              $
              106,092Valuation
                  of VAT receivable
              
              
              57,423
              
              
              13,442Low
                  value items written off
              
              
              1,931
              
              
              9,175Difference
                  in depreciable value of property, plant and equipment due to expensing
                  in
                  prior period allowed by Ukrainian low
              
              
              207,003
              
              
              164,565**Total**
              
              **$**
              **349,919**
              
              **$**
              **293,274**
  The
        deferred tax assets as at September 30, 2006 and December 31, 2005, calculated
        at effective Ukrainian income tax rate of 25%, consists of the
        following:
  15
 *Table
            of Contents*
 
 **9/30/2006**
              
              **12/31/2005****Deferred
                  tax assets**Provision
                  for doubtful receivables
              
              $
              20,891
              
              $
              26,523Valuation
                  of VAT receivable
              
              
              14,356
              
              
              3,361Low
                  value items written off
              
              
              483
              
              
              2,294Difference
                  in depreciable value of property, plant and equipment due to expensing
                  in
                  prior period under Ukrainian low
              
              
              51,750
              
              
              41,141**Total**
              
              **$**
              **87,480**
              
              **$**
              **73,319**
 
 The
        taxation charge for the respective period is different from that which would
        be
        obtained by applying the Ukrainian statutory income tax rate to the net loss
        before income tax. Below is a reconciliation of theoretical income tax at
        25% to
        the actual benefit recorded in the Company’s income statement:
 
 **9/30/2006**
              
              **12/31/2005**(Loss)
                  before income tax and minority interest
              
              $
              (145,940
              )
              $
              (315,834
              )Theoretical
                  income tax benefit at statutory rate of 25%
              
              
              (36,485
              )
              
              (78,959
              )Adjustments
                  due to:Tax
                  effect of (expenses) that are not deductible in determining taxable
                  profit
              
              
              105,042
              
              
              141,423**Income
                  tax (benefit)**
              
              **$**
              **68,557**
              
              **$**
              **62,464**
  As
        of
        September 30, 2006 and December 31, 2005 the Company had no loss carry forward
        for Ukrainian statutory income tax purposes. For United States income tax
        purposes, the Company has a net operating loss carry forward of over $1,000,000
        which expires in periods from 2021 to 2024. As a result, the company has
        a
        deferred tax asset of approximately $340,000. This has been fully reserved
        because realization cannot be assured.
 
 **13.**
              **ACCOUNTS
                  PAYABLE**
 
 Accounts
        payable as of September 30, 2006 and December 31, 2005 consisted of the
        following:
 
 **9/30/2006**
              
              **12/31/2005**Accounts
                  payable
              
              $
              238,666
              
              $
              218,104CJSC
                  Infox, related party
              
              
              187,719
              
              
              592,554**Total**
              
              **$**
              **426,385**
              
              **$**
              **810,658**
  Third
        party accounts payable balances as of September 30, 2006 and December 31,
        2005
        were comprised mostly of payments for the exploration and production services
        due to Okhtirkaneftegas and Kachanovsky GPZ in the amounts of $209,385 (2005:
        $180,707) and $29,281 (2005: $25,240), respectively.
  16
 *Table
            of Contents*
 
 The
        amounts of $187,719 and $592,554, payable to CJSC Infox, related party as
        of
        September 30, 2006 and December 31, 2005, respectively, generally relate
        to well
        reconstruction and repair services, provided by third party service companies
        and paid by CJSC Infox on behalf of the Company.
 
 **14.**
              **TAXES
                  PAYABLE**
 
 Taxes
        payable as of September 30, 2006 and December 31, 2005 consisted of the
        following:
 
 **9/30/2006**
              
              **12/31/2005**Fines
                  and penalties
              
              $
              598,324
              
              $
              598,324VAT
              
              
              317,971
              
              
              233,149Exploration
                  tax
              
              
              62,266
              
              
              33,684Profit
                  tax
              
              
              19,089
              
              
              29,526Resource
                  Tax
              
              
              -
              
              
              6,699Social
                  insurance
              
              
              4,858
              
              
              4,237Personal
                  income tax
              
              
              1,393
              
              
              112Other
                  taxes
              
              
              460
              
              
              -**Total**
              
              **$**
              **1,004,361**
              
              **$**
              **905,731**
  Taxes
        payable as of September 30, 2006 and December 31, 2005 represent fines and
        penalties accrued in connection with litigation proceedings described in
        Note
        24. The Company has prevailed in litigation relating to this issue as well
        as in
        subsequent court proceedings relating to the dispute. However, the Ukrainian
        authorities continue to bring additional proceedings and have not reversed
        the
        charge. Consequently, the company has not reversed the liability and does
        not
        plan to do so until this issue is completely resolved.
 
 VAT
        payable relates mostly to sales made during the nine month of 2006. Based
        on
        current Ukrainian legislation, VAT payable may not be offset against VAT
        receivable.
 
 **15.**
              **SHORT-TERM
                  BANK LOANS**
 
 Short-term
        bank loans as of September 30, 2006 and December 31, 2005 consisted of the
        following:
 
 **%,
                  currency**
              
              **9/30/2006**
              
              **12/31/2005**AB
                  Clearing House
              
              26%,
                  Ukrainian Hrivnas
              
              
              -
              
              $
              514,851**Total
                  dated Sept. 17, 2004 due March 9, 2006**
              
              
              
              
              
              **-**
              
              **$**
              **514,851**
 
 The
        loan
        amount from AB Clearing House outstanding as at December 31, 2005 was secured
        by
        the Company’s title to well casings purchased under an agreement dated July 20,
        2004. Proceeds of the loan were used mainly for immediate working capital
        requirements.
 
 Interest
        expense for the period ended September 30, 2006 was incurred in relation
        to the
        credit line facility obtained from AB Clearing House. The total interest
        payment
        for the above period consisted of $23,387, which represented an interest
        rate of
        26% per annum.
 
 17
 *Table
            of Contents*
  On
        March
        9, 2006, the Company had repaid in full the balance of short term loan and
        respective balance of interest payable in the amount of $11,369 that was
        accrued
        in 2005 and not repaid as of December 31, 2005 (Note 19).
 
 **16.**
              **SHORT
                  TERM NOTES PAYABLE**
 
 Short
        term promissory notes outstanding as of September 30, 2006 and December 31,
        2005, issued in November 2002 at no interest, were payable not earlier than
        November 5, 2005. These notes in the amounts of $14,257 and $5,341,
        are payable to Astark and Sipay, respectively. As of September 30, 2006 the
        issuers of the notes had not called for the repayment of the respective amounts.
        Any valuation adjustment due to the lack of interest has not been calculated,
        however, such amounts, if any, are not considered to have a material effect
        on
        these financial statements.
 
 **17.**
              **OTHER
                  ACCOUNTS PAYABLE AND
                  ACCRUALS**
 
 Other
        accounts payable and accruals as of September 30, 2006 and December 31, 2005
        consisted of the following:
 
 **9/30/2006**
              
              **12/31/2005**ZakhidUkrGeology
              
              $
              314,742
              
              
              -Chernigovneftegasgeology
              
              
              172,824
              
              $
              126,851Naftoservice
              
              
              138,943
              
              
              -John
                  A. Braden & Co.P.C. (audit fees)
              
              
              26,326Other
              
              
              293,152
              
              
              287,726**Sub
                  total**
              
              
              **945,987**
              
              
              **414,577**Advances
                  from former shareholders
              
              
              300,391
              
              
              244,191**Total**
              
              **$**
              **1,246,378**
              
              **$**
              **658,768**
 
 Other
        accounts payable and accruals as of September 30, 2006 and December 31, 2005
        consisted mostly of advances from former shareholders and other non-recurring
        research and development, geological and exploration works, as well as payroll,
        short-term advances to employees and other prepayments for repair and
        constructions services.
 
 Amount
        of
        $314,742 (2005: $None) payable to ZakhidUkrGeology relates to construction
        workovers of Well#1 on the Peremishlyansk property, and $172,824 (2005:
        $126,851) and $138,943 (2005: $None) are payable to Chernigovneftegasgeology
        and
        Naftoservice for the recurring research and development, geological and
        exploration works.
 
 The
        amount of $300,391 (2005: $244,191) represents advances from shareholders
        with
        no specific terms, which was paid to the Company in the most part during
        2005
        (Note 19).
 
 **18.**
              **PREPAYMENTS
                  FOR OIL AND GAS**
 
 Prepayments
        for oil and gas as of September 30, 2006 and December 31, 2005 consisted
        of
        $284,112 and $500,867, respectively and consisted of $191,010 (2005: $248,303),
        $49,805 (2005: $49,805), $24,950 (2005: $21,188) and $131 (2005: $195,733)
        payable to Angronafta, Atlantis Techno, RosAnt and Torpeda PP, respectively.
  18
 *Table
            of Contents*
  **19.**
              **INTEREST
                  PAYABLE**
 
 Interest
        payable as of September 30, 2006 and December, 31 2005, consisted of the
        following:
 
 **9/30/2006**
              
              **12/31/2005**Millington
                  Solutions Limited - Convertible notes
              
              $
              72,720
              
              
              -Long
                  term loan - Zaccam Trading, related Party
              
              
              27,449
              
              $
              2,167Interest
                  accrued on advances received from former shareholders
              
              
              14,974
              
              
              4,175Short
                  term loan - AB Clearing House
              
              
              -
              
              
              11,369**Total**
              
              **$**
              **115,143**
              
              **$**
              **17,711**
 
 Long
        term
        loan from Zaccam Trading, related party, at 3% per annum (Note 21) was obtained
        in 2005. Interest accrued on amounts payable to former shareholders represents
        weighted average LIBOR rate for the periods ended September 30, 2006 and
        December 31, 2005 (Note 17).
 
 Interest
        payable in amount of $72,720 was accrued on several tranches of long term
        10%
        and 6% convertible debt received during 2006 (Note21).
 
 Interest
        payable to AB Clearing House as at December 31, 2005, relates to the credit
        line
        facility obtained in 2004 at 26% per annum (Note 15).
 
 **20.**
              **PROFIT
                  INTEREST PAYABLE**
 
 As
        of
        September 30, 2006 and December 31, 2005, profit interest of $17,997 was
        payable
        to Poltavaneftegasgeologiya and represents an amount that was accrued and
        partially paid by the Company in respect to profits earned during 2002, and
        is
        calculated in accordance with PSA # 01-SD dated April 26, 2000 (Note
        24).
 
 **21.**
              **LONG
                  TERM PAYABLES**
 
 Long
        term
        payables as of September 30, 2006 and December 31, 2005 consisted of the
        following:
  **Issue
                  date/**
                **Effective
                  date**
              
              **Due**
                **not
                  earlier than**
              
              **9/30/2006**
              
              **12/31/2005**Zaccam
                  Trading, Ltd.
              
              March
                  5, 2005
              
              March
                  5, 2015
              
              $
              1,391,900
              
              $
              279,900Millington
                  Solutions Ltd., 10%
              
              March
                  30, 2006
              
              March
                  30, 2009
              
              
              917,200
              
              
              -Millington
                  Solutions Ltd., 10%
              
              June
                  6, 2006
              
              June
                  6, 2009
              
              
              1,928,300
              
              
              -Millington
                  Solutions Ltd., 6%
              
              July
                  25, 2006
              
              July
                  25, 2009
              
              
              150,000Fort
                  Trade
              
              Nov-
                  2004
              
              Nov-
                  2009
              
              
              465,347
              
              
              465,347**Total**
              
              
              
              
              
              
              
              **$**
              **4,852,747**
              
              **$**
              **745,247**
 
 19
 *Table
            of Contents*
  Effective
        March 30 and June 6, 2006, Sunrise Energy Resources, Inc. executed a Convertible
        Note Subscription Agreements with Millington Solutions Limited to complete
        a
        $1.0 million and $2.0 million, respectively, private placement financing
        in the
        form of 10% convertible notes. As of September 30, 2006, the Company has
        received several tranches totaling $917,200, which were covered by the $1.0
        million Subscription Agreement effective March 30, 2006, and an amount of
        $1,928,300, which was covered by the $2.0 million Subscription Agreement
        effective June 6, 2006. Each tranche will mature in 3 years of the receipt
        of
        funds. The interest is accrued at the rate of 10% per annum on the unconverted
        amount and is payable annually on each 12 month anniversary of each tranche
        until conversion or maturity (Note 19). The Notes can be converted into Common
        shares of the Company at a conversion price of $2.20 at the holder's option
        at
        any time until the maturity date of each tranche. For Notes converted between
        interest due dates, the interest would accrue pro-rata and would be paid
        in the
        form of additional shares of the Company's Common stock. The number of such
        additional shares would be calculated at the same conversion price.
  On
        July
        25, 2006 the Company had signed with Millington Solutions Limited a new 6%
        $1MM
        Convertible Note Subscription Agreement with other provisions being identical
        to
        the Agreements that were signed on March 30 and June 6, 2006.
 
 As
        of
        September 30, 2006 and December 31, 2005, the amount of $465,347 represents
        interest free note payable for geological and research services rendered
        by Fort
        Trade during 2004.
 
 Long
        term
        payable to Zaccam Trading, Ltd. (a related party) as of September 30, 2006
        and
        December 31, 2005 represents an unsecured credit line facility with a limit
        of
        $5,000,000 bearing 3% per annum charged on actual amount of debt (Note
        19).
 
 **22.**
              **SHAREHOLDERS’
                  EQUITY**
 
 On
        or
        about January 20, 2006, the Company executed a share purchase agreement with
        the
        shareholders of Pari, Ltd. The board of directors of Sunrise Energy Resources,
        Inc. approved the transaction on February 9, 2006. The shareholders of Pari
        sold
        100% of their holdings to Sunrise Energy Resources, Inc. for a consideration
        for
        161,014 newly issued Common shares of the Company, which at the time had
        an
        approximate market value of $96,608.
 
 The
        current consolidated financial statements account for the transaction in
        accordance with SFAS 141 “Business Combinations” under the “acquisition”
treatment, whereby Sunrise Energy Resources, Inc. is considered to be the
        actual
        acquirer, and Pari, Ltd. is the acquired entity. Based on the market value
        of
        the stock issued, the excess of the value of the stock over the book value
        of
        the assets has been allocated to the drilling/production concessions owned
        by
        Pari. No goodwill was recognized on the acquisition.
 
 Net
        assets of the acquired entity, Pari, Ltd. before the allocation of the balance
        to the drilling/production concessions as of December 31, 2005, were as
        follows:
 
 
 **12/31/2005**Cash
              
              $
              4,549Accounts
                  receivable and other current assets
              
              
              24,860Property,
                  Plant and Equipment, net
              
              
              43,797Accounts
                  Payable
              
              
              (166,580
              )Tax
                  liabilities
              
              
              (11,981
              )**100%
                  of Net Assets (Deficit)**
              
              **$**
              **(105,355**
              **)**
  No
        dividends were declared or paid by the Company during the periods ended
        September 30, 2006 and December 31, 2005.
  20
 *Table
            of Contents*
  **23.**
              **RELATED
                  PARTIES**
 
 Related
        parties include shareholders and entities under common ownership. Transactions
        with related parties are performed on terms that are comparable to those
        available to unrelated parties. For details of related party balances
        outstanding as of September 30, 2006 and December 31, 2005 see Notes 4, 5,
        13,
        17, 19 and 21.
 
 Our
        related parties include CJSC Infox and Zaccam Trading, Ltd. Although Pari,
        Ltd.
        was acquired in the first quarter of 2006, it is presented as a “related party”
in Company’s consolidated financial statements as of December 31,
        2005.
 
 During
        the periods ended September 30, 2006 and December 31, 2005, we have received
        several tranches of long term loans from Zaccam Trading, Ltd. which resulted
        in
        total amounts of $1,391,900 and $ 279,900
        outstanding at the end of the respective periods .
        The
        proceeds received were used mainly for construction workovers on well #21
        (Notes
        19 and 21).
 
 As
        of
        September 30, 2006 and December 31, 2005, the total amounts of $215,695 and
        $ 720,797 were due
        from CJSC Infox, related party, and were comprised of several crude oil
        shipments which took place in 2004 and 2003. Similarly, the total amounts
        of
        $187,719 and $ 592,554,
        respectively, payable
        to CJSC Infox, 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.
 
 **24.**
              **COMMITMENTS
                  AND CONTINGENCIES**
 
 ***Licenses’
        commitments***
 
 ***Esko
        Pivnich*** -
        During
        2004 EP received geological and exploration license agreements to develop
        the
        Karaikozovsk, Rogan and Rakitnyansk fields. The following amounts of investments
        are to be incurred under the terms of those agreements during the periods
        indicated in the table below:
 
 **Period**
              
              **Amount**Rogan
                  field
              
              
              2005-2009
              
              
              2,922,772Rakitnyansk
                  field
              
              
              2005-2009
              
              
              3,938,614Karaikozovsk
                  field
              
              
              2005-2009
              
              
              4,241,584**Total**
              
              
              
              
              **$**
              **11,102,970**
 
 
 ***Pari
        -*** During
        2004 Pari received geological and exploration license agreements to develop
        the
        Peremishlyansk, Chukvinsk, Scheremetivsk, Niklovitsks and Pilipivsk fields.
        The
        following amounts of investments are to be incurred under the terms of those
        agreements:
 
 **Period**
              
              **Amount**Peremishlyansk
                  field
              
              
              2004-2009
              
              
              2,336,634Chukvinsk
                  field
              
              
              2004-2009
              
              
              1,544,554Scheremetivsk
                  field
              
              
              2004-2009
              
              
              712,872Niklovitsks
                  field
              
              
              2004-2009
              
              
              594,059Pilipivsk
                  field
              
              
              2004-2009
              
              
              475,248**Total**
              
              
              
              
              **$**
              **5,663,367**
  21
 *Table
            of Contents*
  ***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 September 30, 2006 are as
        follows:
 
 **2006**Office
                  rent - Esko Pivnich
              
              $
              15,000Office
                  rent - Pari
              
              
              5,200**$**
              **20,200**
  ***Litigation***  ***-*** The
        Company has been and continues to be the subject of legal proceedings and
        adjudications from time to time. Management believes that the resolution
        of all
        business matters which will have a material impact on the Company’s financial
        position or operating results have been recorded.
 
 ***Esko
        Pivnich***
 
 *JSC
        Ukrneft, Okhtirkaneftegas*  *-* ****** In
        2003
        the Company filed a claim against JSC Ukrneft, Okhtirkaneftegas, with respect
        to
        the advance paid by the Company in 2002 in the amount of $198,880 to complete
        certain capital construction works under PSA # 01-SD dated April 26, 2000
        (Notes
        4 and 6). In April 2004 after a number of hearings by courts of different
        circuits, the Supreme Court of Ukraine ordered Okhtirkaneftegas to pay the
        outstanding balance to the Company without further delays. Despite this final
        ruling of the Supreme Court, as of November 13, 2006 the balance has not
        been
        paid. The Company plans to void PSA # 01-SD and to offset the amount due
        to it
        against amounts payable to JSC Ukrneft and its subsidiary Okhtirkaneftegas
        in
        2006.
 
 *DP
        NAK Nedra Ukraini Poltavnaftogasgeologiya -* In
        2006
        The Company sued Poltavneftegasgeologiya for expected profits in the amount
        of
        $474,053 resulting from a refusal of Poltavneftegasgeologiya to execute its
        obligations under the terms of PSA # 01-SD. The Court of Poltavskiy region
        has
        ruled in the Company’s favor and obliged Poltavneftegasgeologiya to pay the
        Company amount of $356,994. Poltavneftegasgeoligia has filed a appeal with
        inter-regional court of Kiev city. As of November 13, 2006, no new hearings
        took
        place and according to management’s estimates there is a high possibility of
        wining the case. Pending final resolution of this matter, the Company has
        not
        recorded this as income.
 
 *Taxes
        -* During
        2004 the Company was audited by the State Tax Inspection of Podolsk region,
        Kiev, and was assessed additional VAT and Profit tax fines and penalties
        thereon
        in the aggregate amount of $598,324 related to FY2003 and FY2002. The amounts
        were accrued in the consolidated financial statements in full. Esko Pivnich
        appealed against the decision to the Civil Court of Kiev and the matter was
        ruled in favor of Esko Pivnich. However, the tax authorities have filed a
        counter-appeal with the Supreme Civil Court of Kiev. The Supreme Civil Court
        resolved that the matter be referred back to Civil Court of Kiev and appointed
        a
        committee to conduct an accounting investigation which was completed in February
        2006. The tax liability has not been removed or reversed pending the final
        resolution of the matter.
 
 ***Pari***
 
 *Poltavaneftegasgeologiya* - Under
        the terms of the PSA # 10-5/2000 dated July 20, 2000, Poltavaneftegasgeologiya
        (Note 4) acted as the holder of the main geological and exploration licenses
        to
        develop the Sakhalin and Skvortsovsk field and Pari was a major investor,
        having
        contributed into the establishment of PSA approximately $31,152. No operating
        activities have ever been conducted under this agreement and Pari moved to
        void
        all its obligations under PSA and obtain a refund of its initial investment
        in
        the amount of $31,152. As of the date of this report the matter has not been
        resolved. Therefore, Pari’s investment amount was written off in
        2003.
  22
 *Table
            of Contents*
 
 *Cabinet
        of Ministers of Ukraine* - During
        the first half of 2006 the Cabinet of Ministers of Ukraine mandated a review
        of
        the procedures of issuance of approximately 500 production and exploration
        licenses granted by the Ministry of National Resources of Ukraine in 2004.
        The
        Company’s properties Rogan, Rakitnyansk and Karaikozovsk held by Esko Pivnich,
        and Peremishlyansk, Chukvinsk, Niklovitsk and Pilipovsk held by Pari were
        also
        subject to review as part of this process. The purpose of the review was
        to
        determine the effectiveness of the procedures involved in the issuance of
        the
        licenses. The
        preliminary findings of the review were referred to the Supreme Court of
        Ukraine
        which issued a preliminary conclusion that all of the Company’s licenses were
        properly issued and are to remain valid. At present, the review is being
        officially finalized and we expect to receive a final approval upon the
        conclusion of this review in 2006.
 
 ***Ukrainian
        Tax and Regulatory Environment***  ***-*** The
        government of Ukraine continues to reform the business and commercial
        infrastructure in its transition to a market economy. As a result laws and
        regulations affecting businesses continue to change rapidly. These changes
        are
        from time to time characterized by poor drafting, different interpretations
        and
        arbitrary application of laws and regulations by the authorities. In particular,
        taxes are subject to review and investigation by a number of authorities
        enabled
        by law to impose fines and penalties. While the Company believes it has provided
        adequately for all tax liabilities based on its understanding of the tax
        legislation, the above facts may create tax risks for the Company.
 
 **25.**
              **RISK
                  MANAGEMENT POLICIES**
 
 Management
        of risk is an essential element of the Company’s operations. The main risks
        inherent to the Company’s operations are those related to credit risk exposures,
        market movements in foreign exchange rates and in interest rates. A description
        of the Company’s risk management policies in relation to those risks is provided
        below.
 
 ***Credit
        risk*** **** ***-*** **** The
        Company is exposed to credit risk which is the risk that one party to a
        financial instrument will fail to discharge an obligation and cause the other
        party to incur a financial loss.
 
 The
        Company structures the levels of credit risk it undertakes by placing limits
        on
        the amount assigned or transacted in relation to a particular customer, or
        groups of customers. Limits on the level of credit risk by customer are approved
        quarterly by the Credit Committee.
  23
 *Table
            of Contents*
  Our
        sales
        to customers in excess of 5% were as follows:
  **9/30/2006**
              
              **9/30/2005**Agrotemp
                  (oil produced internally)
              
              $
              783,492
              
              $
              310,111Nafta
                  Soyuz (oil produced internally)
              
              
              337,169
              
              
              -Torpeda
                  (oil resold)
              
              
              120,174
              
              
              72,788Torpeda
                  (oil produced internally)
              
              
              65,076
              
              
              -Spago
                  TOV (oil produced internally)
              
              
              51,396
              
              
              -Soyuz
                  NPK (oil produced internally)
              
              
              42,410
              
              
              -Okhtirkaneftegas
                  (gas produced internally)
              
              
              12,990
              
              
              -Ukrtatnafta
                  (oil produced internally)
              
              
              -
              
              
              277,882Angronafta
                  (oil produced internally)
              
              
              -
              
              
              213,467Varadero
                  (oil produced internally)
              
              
              -
              
              
              253,747Alfa-Nafta
                  ((oil produced internally)
              
              
              -
              
              
              163,282Itak
                  PP (oil produced internally)
              
              
              -
              
              
              85,007Varadero
                  (oil resold)
              
              
              -
              
              
              25,525Other
              
              
              41,136
              
              
              154,720**Total**
              
              **$**
              **1,453,843**
              
              **$**
              **1,556,529**
 
 ***Currency
        risk -*** Currency
        risk is defined as the risk that the value of a financial instrument will
        fluctuate due to changes in foreign exchange rates.
 
 The
        Credit Committee sets limits on the level of exposure to a single currency
        (primarily Ukrainian Hrivna and US Dollar), by entities and in total.
 
 ***Interest
        rate risk -*** Interest
        rate risk arises from the possibility that changes in interest rates will
        affect
        the value of a financial instrument.
 
 Currently,
        the Company’s approach to the interest risk limitation is borrowing at fixed
        rates and for short periods.
 
 **26.**
              **CONCENTRATION
                  OF BUSINESS RISK**
 
 The
        Company’s operating activities are limited to Ukraine. Laws and regulations
        affecting businesses operating in Ukraine are subject to rapid changes and
        the
        Company’s assets and operations could be at risk due to negative changes in the
        political and business environments.
  **27.**
              **SUBSEQUENT
                  EVENTS**
 
 On
        September 7, 2006, The Company and Dutchess Private Equities Fund, L.P.
        (“Dutchess” or the “Investor”) entered into an Agreement whereby the Company
        will, pursuant to the terms and conditions of the Agreement have access to
        $20,000,000 equity line of credit. As part of the Agreement the Company is
        obligated to register shares of common stock to have in reserve for issuance
        pursuant to the Registration Rights Agreement entered into as part of this
        transaction.
 
 Pursuant
        to the Agreement, Investor shall commit to purchase up to $20,000,000 of
        the
        Company’s common stock over the course of twenty-four (24) months. The amount
        that the Company shall be entitled to request from each purchase (“Puts”) shall
        be equal to, at the Company’s election, either (i) 250,000 or; (ii) two hundred
        percent (200%) of the average daily volume (U.S. market only) of the Company’s
        common stock for the ten (10) trading days prior to the applicable put notice
        date, multiplied by the average of the three (3) daily closing best bid prices
        immediately preceding the put date. The put price shall be set at ninety-six
        percent (96%) of the lowest closing best posted bid price of the common stock
        during the pricing period. The pricing period shall be the five (5) consecutive
        trading days immediately after the put date. There are put restrictions applied
        on days between the put date and the closing date with respect to the particular
        Put. During this time, we shall not be entitled to deliver another put notice.
 
 Further,
        the Company shall reserve the right to withdraw that portion of the Put that
        is
        below seventy five per cent (75%) of the lowest closing bid prices for the
        ten
        (10) trading day period immediately preceding each put notice.
  24
 *Table
            of Contents*
  **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS**
 
 **Discussion
        and Analysis of Financial Condition**
 
 **Introduction**
 
 The
        following discussion and analysis addresses changes in our financial condition
        and results of operations during the year ended December 31, 2005 and periods
        ended September 30, 2006 and 2005.
 
 Management’s
        key objectives for nine months period of 2006 were:
 
 ·
              Drill
                  approximately 75% of the projected depth of Well #21 of the Company’s
                  Karaikozovsk property;
 ·
              Drill
                  approximately 30% of the projected depth of Well #1 of the Company’s
                  Peremishlyansk property;
 ·
              Complete
                  the acquisition of Pari Ltd.;
 ·
              Commence
                  geological and research works on Rogan and Rakitnyansk properties;
 ·
              Commence
                  the construction of access roads and other infrastructure on the
                  Company’s
                  Chukvinsk property.
 
 We
        believe that these key objectives were achieved during the nine months period
        of
        2006. Our 2006 strategy for the Karaikozovsk field includes the completion
        and
        launch of Well #21. We also intend to conduct limited reservoir stimulation
        on
        Well #2 to increase the production. We will also focus on the exploration
        drilling on the Peremishlyansk field and construction of infrastructure on
        the
        Chukvinsk property.
 
 In
        addition, we will continue the exploration activities on the Rogan and
        Rakitnyansk properties aiming to establish the optimal reservoir development
        scenarios.
 
 **Current
        Activities**
 During
              2005 and nine months of 2006, our production came primarily from Well
              #2 of
              Karaikozovsk block which produced at the average rate of around 105BOPD
              with
              only sporadic inflows from Well #3 which underwent continued repair
              and the pay
              interval stimulation throughout the first half of 2006. In the 3 rd quarter
              of 2006 the production from Well#3 stabilized at the level of 35BOPD.
  Esko-Pivnich,
              the Company’s wholly owned subsidiary is currently completing the drilling of
              Well #21 on Karaikozovsk block. Of the projected depth of 4810m (15,777ft)
              the
              Company drilled approximately 3800m (12,464ft) which represents approximately
              79% of the projected depth. The Company plans to complete the drilling
              of the
              Well #21 in the fourth quarter of 2006. The drilling completion will
              be followed
              by the extensive testing of the well. We expect that the well may be
              launched
              into commercial production during the first half of 2007.
  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 September 30, 2006,
              the Company
              has drilled approximately 1500m (4927ft) of Well #1 of the Peremishlyansk
              property which represents approximately 40% of its design depth.
 25
 *Table
                of Contents*
 **Results
        of Operations**
 
 Oil
        and gas production and revenue
 
 The
        crude
        oil balances as of September 30, 2006 and December 31, 2005 amounted to 3,251
        and 533 Bbls, respectively.
 
 During
        the nine months ended September 30, 2006 and 2005, Esko Pivnich produced
        25,810
        (2005: 32,984) barrels (“Bbls”) of crude oil and 20,462 (2005: 50,029) thousands
        of cubic feet (“MCFs”) of natural gas, respectively.
 
 We
        recognize revenue from the sale of oil when the purchaser takes delivery
        of the
        oil at the field. During the nine months period ended September 30, 2006
        and
        2005, Esko Pivnich sold its internally produced 23,125 (2005: 33,748) Bbls
        of
        crude oil at the average prices of $56 (2005: $44) per barrel translating
        into
        net revenues from sales of internally produced oil of $1,305,351 (2005:
        $1,384,842). Also for the nine months ended September 30, 2006 and 2005 the
        Company sold 20,462 (2005: 50,029) MCFs of internally produced gas at average
        prices of $1.38 (2005: $0.89) per MCF translating into revenues of $28,318
        (2005: $44,348).
 
 Additionally
        during the nine months ended September 30, 2006 we sold 2,188 bbls of purchased
        crude oil at the average price of $54.87 per barrel translating into revenues
        of
        $120,174. Cost of sales amounted to $116,637.
 
 All
        sales
        agreements were short-term in nature, with the extension option by mutual
        agreement of the parties. Our crude oil and natural gas are sold at the pipeline
        measuring node and are subject or free of any transportation costs depending
        on
        the terms of specific customer agreements.
 
 Exploration
 
 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 September 30, 2006 and 2005 we incurred $161,742 and $236,210,
        respectively in exploration expenses. The Company expects significant
        exploration expense in 2007-2008 due to the new operating licenses obtained
        in
        2004-2005, and significant investment obligations attached to them, based
        on the
        concluded license agreement with the Ministry of Resources of Ukraine (see
        above).
 
 During
        the periods ended September 30, 2006 and 2005, the Exploration and Resource
        taxes, amounted to $282,827 and $340,257, respectively.
 
 Other
        operating income for the period ended September 30, 2006 was mostly due to
        change in provision for doubtful accounts of $22,531 which resulted from
        the
        repayment of amount receivable from Vector NDI for office rent services prepaid
        by the company during 2004.
 
 Depreciation,
        depletion and amortization
 
 Depreciation,
        depletion and amortization (“DD&A”) of oil and gas properties is calculated
        under units of production method, following the successful efforts method
        of
        accounting, as described in Note 1 of the Notes to Consolidated Financial
        Statements.  As
        at the
        date of this report no such costs were incurred.
 
 Oil
        and
        gas production equipment and workover costs were the main contributor into
        the
        depreciation expense for the periods ended September 30, 2006 and 2005 in
        the
        total amounts of $229,899 and $206,648. The increase in the depreciation
        expense
        during the nine months period of 2006 as compared to the respective period
        of
        2005 is primarily due to the launching of storage and separation facility
        as
        well as due to workover costs capitalized in the second half of
        2005.
  26
 *Table
            of Contents*
  Sales,
        general and administrative expenses
 
 Sales,
        general and administrative expenses for the periods ended September 30, 2006
        increased to $543,887 from $508,769 for the period ended September 30, 2005
        mainly due to the increase in payroll and related taxes of $202,419 (2005:
        $123,710), legal and audit services of $78,476 (2005: $30,952) and other
        professional services of $108,018 (2005: $72,514).
 Interest
        income (expense)
 
 Interest
        expense (net) for the periods ended September 30, 2006 and 2005, amounted
        to
        $182,379 and $99,602, respectively.
 
 Interest
        expense for the period ended September 30, 2005 related primarily to the
        credit
        line facility obtained from AB Clearing House at 26% per annum. During the
        nine
        months ended September 30, 2006 the interest expense was primarily due to
        amounts received by the Company under a 10% convertible notes, as well as
        to a
        long term loan obtained from Zaccam Trading (a related party) at 3% and interest
        accrued on amounts received from former shareholders at weighted average
        LIBOR
        rate for the respective period.
 
 Long
        term credit line facility
 
 On
        March
        5, 2005 the Company entered into an agreement with Zaccam Trading, Ltd. (a
        related party) to obtain a long term credit line with indebtedness limit
        of up
        to $5 million, bearing interest at 3% per annum and due on March 5, 2015.
        Interest is charged on the actual amount of debt for the period of using
        the
        funds. Proceeds were mainly used to finance construction workovers on Well#21
        of
        the Karaikozovsk property.
 
 Convertible
        Notes
 
 Effective
        March 30 and June 6, 2006, Sunrise Energy Resources, Inc. executed two separate
        Convertible Note Subscription Agreements with Millington Solutions Limited
        to
        complete a $1.0 million and $2.0 million private placement financing in the
        form
        of 10% convertible notes and $1 million Subscription Agreement in the form
        of 6%
        convertible note. As of September 30, 2006, the Company has received several
        tranches aggregating to $917,200, which are covered by the $1.0 million
        Subscription Agreement effective March 30, 2006, a tranches totaling to
        $1,928,300 covered by the $2.0 million Subscription Agreement effective June
        6,
        2006 and $150,00 under the 6% Convertible notes covering $1 million Subscription
        Agreement. Each tranche will mature in 3 years of the receipt of funds. The
        interest will accrue at the rate of 10% and 6% per annum, depending on the
        terms
        of Agreement for each tranche on the unconverted amount and will be payable
        annually on each 12 month anniversary of each tranche until conversion or
        maturity. The Notes can be converted to the Company's Common stock at a
        conversion price of $2.20 for the 10% notes and 1.40 for the 6% notes at
        the
        holder's option, at any time until the maturity date of each tranche. For
        Notes
        converted between interest due dates, the interest will be accrued pro-rata
        and
        paid in the form of additional shares of the Company's Common stock. The
        number
        of such additional shares will be calculated at the same conversion price.
 
 **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 September 30, 2006, the
        Company had total current assets of $2,656,205 and total current liabilities
        of
        $3,113,974, respectively. As at September 30, 2006, the Company had cash
        balances of $10,625 and a working capital deficit of $457,769,
        respectively.
  27
 *Table
            of Contents*
  We
            are
            currently discussing various financing options with private investors,
            including
            with certain of the Company’s shareholders, however, no assurance can be given
            as to if, when and under what terms such new financing may be received
            by the
            Company. Failure to timely receive such financing may cause us to significantly
            curtail or altogether suspend our capital expenditure program. This may,
            in
            turn, have material adverse effect on our production activities.
  On
                September 7, 2006, The Company and Dutchess entered into an Agreement
                whereby
                the Company will, pursuant to the terms and conditions of the Agreement
                have
                access to $20,000,000 equity line of credit. As part of the Agreement
                the
                Company is obligated to register shares of common stock to have in
                reserve for
                issuance pursuant to the Registration Rights Agreement entered into
                as part of
                this transaction. No assurance can be given as to if and when the
                Company’s
                Registration Statement for the above shares filed with the Securities
                and
                Exchange Commission will be effective. If we are unable to timely
                register the
                above shares we will not receive the funds under the above equity
                line of credit
                which may cause us to curtail or altogether suspend our capital expenditure
                program. This may, in turn, have material adverse effect on our production
                activities.
  Cash
        flow
  Cash
        (used in)/provided by operating activities during the periods ended September
        30, 2006 and 2005 amounted to $(666,226) and $483,026, respectively. Significant
        cash outflow for the nine months of 2006, as compared to the respective period
        of 2005, was primarily caused by the increase in inventory balance of $402,165
        (2005: $22,754), taxes receivable of $589,103 (2005: $29,645) as well as
        due to
        the reduction of accounts payable of $384,273 (2005: increase of $206,053).
        The
        above items overweighed the cash inflows that were mostly due to decrease
        in
        accounts receivable of $527,830 (2005: increase of $36,802) and increase
        in
        other accounts payable of $378,390 (2005: increase of $212,928).
 
 During
        the nine months ended September 30, 2006 cash provided by financing activities
        in an amount of $3,592,649 was due to financing obtained under the convertible
        notes received in the amount of $2,995,500 and long term loan received in
        an
        amount of 1,112,000 (2005: $100,000), and mainly was used to finance
        construction workovers, as well as to repay short term loan payable to AB
        Clearing House resulting in cash outflow of $514,851. In addition, such amounts
        were partly used to service the negative cash flow from operations.
 
 During
        the nine months ended September 30, 2006 and 2005, the Company invested in
        workovers a total amount of $2,922,497 and $623,919, respectively, which
        was
        financed by the above mentioned convertible notes and the long term loan.
        Cash
        inflow recorded on the acquisition of Pari amounted to $4,549 .
 
 Cash
        Requirements
 
 The
        Company anticipates it will require approximately $6,700,000 in 2007 to
        implement its capital expenditure program for the properties covered by the
        licenses and for the drilling of Well #21 on the Karaikozovsk property and
        Well#1 on the Peremishlyansk property. The Company believes it will be able
        to
        raise these funds through equity, debt and convertible debt financing; however,
        there is no assurance that such funds will be raised and no certainty as
        to when
        such funds may be raised or on what terms.
 
 **Income
        Taxes, Net Operating Losses and Tax Credits**
 
 Currently,
        the Company is liable for Ukrainian income tax at a rate of 25% of the pre-tax
        earnings as defined by applicable tax regulations under the Ukrainian income
        tax
        legislation. The taxation system in Ukraine is evolving as the central
        government transforms itself from a command to a market-oriented economy.
        Based
        on current tax law and the United States — Ukraine income tax treaty, the income
        tax paid in Ukraine may be credited against the Company’s tax liability when
        determining the Company’s US income taxes payable, if any.
 
 **Critical
        Accounting Policies and Recent Accounting Pronouncements**
 
 We
        have
        identified the policies below as critical to our business operations and
        the
        understanding of our financial statements. The impact of these policies and
        associated risks are discussed throughout Management’s Discussion and Analysis
        where such policies affect our reported and expected financial results. A
        complete discussion of our accounting policies is included in Note 1 of the
        Notes to Consolidated Financial Statements.
 
 **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 $214,497
        during the period ended September 30, 2006, and, as of September 30, 2006,
        the
        Company’s current liabilities exceeded its current assets by $457,769.
        Additionally, to fully develop the area covered by the Licenses, the Company
        needs substantial additional funding.
  28
 *Table
            of Contents*
  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, 2005 consolidated financial statements expressing concerns
        about our ability to continue as a going concern. Our financial statements
        contain additional note disclosures describing the circumstances that lead
        to
        this disclosure by our independent auditors.
 
 Functional
        and Reporting Currency
 
 The
        reporting currency of the accompanying consolidated financial statements
        is the
        US dollars. Ukrainian entities use Ukrainian Hrivna (UAH) as their functional
        currency since most of their revenues and operating expenses are denominated
        in
        Ukrainian Hrivnas. The Ukrainian Hrivna is not a fully convertible currency
        outside of Ukraine. The translation of Hrivna denominated assets and liabilities
        into US dollars for the purpose of these consolidated financial statements
        does
        not indicate that the Company could or will in the future realize or settle
        in
        US dollars the translated values of these assets and liabilities.
 
 The
        prevailing exchange rates as at September 30, 2006 and December 31, 2005
        were
        approximately 1 U.S. dollar to $5.0500 Ukrainian Hrivnas. For the periods
        ended September 30, 2006 and 2005, the average exchange rate for 1 U.S. dollar
        was $5.0500 and $5.1321Ukrainian Hrivnas, respectively.
  29
 *Table
            of Contents*
  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
 
 The
        information regarding our oil and gas reserves, the changes thereto and the
        estimated future net cash flows are dependent upon engineering, price and
        other
        assumptions used in preparing our annual reserve study. These estimates were
        prepared by the Company and have not been certified by an independent petroleum
        engineering firm. The Company plans to engage such appropriately qualified
        engineering firm to certify the estimates of our oil and gas reserves in
        accordance with applicable engineering standards and in accordance with the
        Securities and Exchange Commission guidelines. Changes in prices and cost
        levels, as well as the timing of future development costs, may cause actual
        results to vary significantly from the data presented. Our oil and gas reserve
        data represent estimates only and are not intended to be a forecast or fair
        market value of our assets.
 
 Our
        oil
        and gas reserve data and estimated future net cash flows have been prepared
        assuming we are successful in timely renewal of operating license agreements
        and
        negotiating production sharing terms which will allow constant production
        rates
        for the expected 10 year period. In accordance with the effective PSA, the
        profit sharing rate payable by the Company after the initial investment has
        been
        recovered equals 20%. (See above detailed description of the main terms of
        the
        standardized production sharing agreements concluded with the State of Ukraine).
        Also in 2005 the Company had completed construction of its own gas separation
        facilities that allows the Company to reduce significantly its cost for services
        currently purchased under the production sharing agreement (PSA) from the
        state-owned entity, Okhtirkaneftegas, which is the counter party to the
        PSA.
 
 Production
        sharing agreements are customarily awarded upon determination that the field
        is
        capable of producing commercial rates of production and that the applicant
        has
        complied with all other terms of its license and exploration contract. However,
        we are not guaranteed the right to a license renewal and production sharing
        agreements in the future. If we are not successful in negotiating operating
        license renewal and a production sharing agreements on acceptable terms,
        it
        would materially change our oil and gas reserve data and estimated future
        net
        cash flows.
 
 Successful
        Efforts Method of Accounting
 
 We
        will
        follow the successful efforts method of accounting for our investments in
        oil
        and gas properties, as more fully described in Note 1 of the Notes to
        Consolidated Financial Statements, following the completion of construction
        works on well #21 and launching it into commercial production. This accounting
        method has a pervasive effect on our reported financial position and results
        of
        operations.
  30
 *Table
            of Contents*
  Revenue
        Recognition
 
 For
        revenue from product sales, the Company recognizes revenue in accordance
        with
        SEC Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial
        Statements” (“SAB 104”). SAB 104 requires that four basic criteria must be met
        before revenue can be recognized: (1) persuasive evidence of an arrangement
        exists; (2) delivery has occurred; (3) the selling price is fixed and
        determinable; and (4) collectibility is reasonably assured.
 
 Criterion
        (1) is met as every delivery is covered by a separate contract and the title
        passes to the customer only upon customer’s acceptance at point of destination,
        which is in compliance with criterion (2). Determination of criteria (3)
        and (4)
        are based on management’s judgments regarding the fixed nature of the selling
        prices of the products delivered and the collectibility of those amounts.
        Provisions for discounts and rebates to customers, and other adjustments
        are
        provided for in the same period the related sales are recorded. The Company
        defers any revenue for which the product has not been delivered and accepted
        by
        its customers. In accordance with the Company’s standard contract terms, once
        delivered and accepted the product cannot be returned and no claims can be
        presented to the Company. The Company recognizes revenue on gross
        basis.
  31
 *Table
            of Contents*
  **ITEM
        3. Quantitative and Qualitative Disclosures about Market
        Risk**
 
 **Oil
        and Gas prices**
 
 The
        demand for, and price of, oil and gas is highly dependent on a variety of
        factors, including international supply and demand, the level of consumer
        demand, weather conditions, the price and availability of alternative fuels,
        actions taken by governments and international cartels, and global economic
        and
        political developments. International oil prices have fluctuated widely in
        recent years and may continue to fluctuate significantly in the future. The
        Company believes it may benefit significantly due to the recent changes in
        the
        Ukrainian market for gas. In addition, and although not foreseen, the Ukrainian
        government may oblige domestic producers to sell oil or gas to the state
        or
        domestic purchasers at prices well below international levels for indeterminate
        periods of time.
 
 **Currency
        Exchange Risk** ****
 
 Domestic
        sales of oil and gas in Ukraine are made in local currency (Hryvna) and then
        converted to US$. The US$ - Hryvna exchange rate may move adversely to affect
        oil and gas prices. In addition, there can be no assurance that the Ukrainian
        authorities may not introduce price stabilization mechanisms which adversely
        affect oil and gas prices in US$ terms for EP. While many of Sunrise’s financial
        obligations are denominated in United States dollars, a number of foreign
        currency effects may arise from exchange rate movements. Sunrise does not
        engage
        in active speculative hedging to minimize exchange rate risk.
 
 **Disclosure
        regarding Forward-Looking Statements**
 
 This
        quarterly Report contains forward looking statements (as such term is defined
        in
        the Private Securities Litigation Reform Act of 1995). All statements, other
        than statements of historical fact, contained in this report are forward
        looking
        statements, including, without limitation, statements regarding the future
        financial position, business strategy, proposed acquisitions, budgets,
        litigation, projected costs and plans and objectives of or involving Sunrise
        or
        its subsidiaries. Sunrise Shareholders can identify many of these statements
        by
        looking for words such as “believe”, “expects”, “will”, “intends”, “projects”,
“anticipates”, “estimates”, “continues” or similar words or the negative
        thereof. There can be no assurance that the plans, intentions or expectations
        upon which these forward looking statements are based will occur. Forward
        looking statements are subject to risks, uncertainties and assumptions,
        including those discussed elsewhere in this report. Although Sunrise believes
        that the plans, intentions and expectations represented in such forward looking
        statements are reasonable, there can be no assurance that such plans, intentions
        and expectations will prove to be correct. Some of the risks which could
        affect
        future results and could cause results to differ materially from those expressed
        in the forward looking statements contained herein include: risks inherent
        in
        the future prices for oil and natural gas, political and regulatory risks,
        risks
        inherent in currency exchange rates, risks inherent in the prices for services
        and government fiscal regimes and the risk that actual results will vary
        from
        the results forecasted and such variations may be material.
 
 The
        information contained in this report, including the information set forth
        under
“Risk Factors”, identifies additional factors that could affect the operating
        results and performance of Sunrise. We urge you to carefully consider those
        factors.
 
 The
        forward looking statements contained herein are expressly qualified in their
        entirety by this cautionary statement. The forward looking statements included
        in this Report are made as at the date of this Quarterly Report and Sunrise
        undertakes no obligation to publicly update such forward looking statements
        to
        reflect new information, subsequent events or otherwise.
 
 As
        used
        in this annual report, the terms “we”, “us”, “our”, “Company” and “Sunrise”
means Sunrise Energy Resources, Inc. and its consolidated subsidiaries, unless
        otherwise indicated.
 
 All
        dollar amounts refer to US dollars unless otherwise indicated.
  32
 *Table
            of Contents*
  The
        above
        discussion should be read in conjunction with our financial statements and
        the
        related notes that appear elsewhere in this quarterly report.
 
 **ITEM
        4. CONTROLS AND PROCEDURES**
  The
        Company’s Principal executive officers and principal financial officer, based on
        their evaluation of the Company’s disclosure controls and procedures (as defined
        in Rules 13a-15(e) of the Securities Exchange Act of 1934) as of September
        30,
        2006 have concluded that the Company’s disclosure controls and procedures are
        adequate and effective to ensure that material information relating to the
        Company’s and its consolidated subsidiaries is recorded, processed , summarized
        and reported within the time periods specified by the SEC’s rules and forms,
        particularly during the period in which this quarterly report has been
        prepared.
 The
              Company’s principal executive officers and principal financial officer have
              concluded that there were no changes in the Company’s internal controls or in
              other factors that could significantly affect these controls as of
              the end of
              the period covered by this report based on such evaluation, and that
              there was
              no significant deficiencies or material weaknesses in the Company’s internal
              controls.
 33
 *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 November 13, 2006 the balance has not
        been
        paid. The Company plans to void PSA # 01-SD and to offset the amount due
        to it
        against amounts payable to JSC Ukrneft and its subsidiary Okhtirkaneftegas
        in
        2006.
 
 *DP
        NAK Nedra Ukraini Poltavnaftogasgeologiya -* In
        2006
        The Company sued Poltavneftegasgeologiya for expected profits in the amount
        of
        $474,053 resulting from a refusal of Poltavneftegasgeologiya to execute its
        obligations under the terms of PSA # 01-SD. The Court of Poltavskiy region
        has
        ruled in the Company’s favor and obliged Poltavneftegasgeologiya to pay the
        Company amount of $356,994. Poltavneftegasgeoligia has filed a appeal with
        inter-regional court of Kiev city. As of November 13, 2006, no new hearings
        took
        place and according to management’s estimates there is a high possibility of
        wining the case. Pending final resolution of this matter, the Company has
        not
        recorded this as income.
 
 *Taxes
        -* During
        2004 the Company was audited by the State Tax Inspection of Podolsk region,
        Kiev, and was assessed additional VAT and Profit tax fines and penalties
        thereon
        in the aggregate amount of $598,324 related to FY2003 and FY2002. The amounts
        were accrued in the consolidated financial statements in full. Esko Pivnich
        appealed against the decision to the Civil Court of Kiev and the matter was
        ruled in favor of Esko Pivnich. However, the tax authorities have filed a
        counter-appeal with the Supreme Civil Court of Kiev. The Supreme Civil Court
        resolved that the matter be referred back to Civil Court of Kiev and appointed
        a
        committee to conduct an accounting investigation which was completed in February
        2006. Since the investigation no additional hearings have been held. Since
        the
        appeal has been won and became effective, it is highly likely that the Company
        will prevail in these proceedings. Nevertheless, the respective tax liability
        has not been removed or reversed pending the final resolution of the
        matter.
 
 ***Pari***
 
 *Poltavaneftegasgeologiya* - Under
        the
        terms of PSA # 10-5/2000 dated July 20, 2000 Poltavaneftegasgeologiya (Note
        4)
        acted as the holder of the main geological and exploration licenses to develop
        the Sakhalin and Skvortsivsk field and Pari was a major investor, having
        contributed into the establishment of PSA approximately $31,152. No operating
        activities have ever been under this agreement and Pari moved to void all
        its
        obligations under PSA and obtain a refund of its’ initial investment in amount
        of $31,152. As of the date of this report the matter has not been resolved.
        Respectively, the Pari’s investment amount was totally written off in
        2003.
 
 *Cabinet
        of Ministers of Ukraine* - During
        the first half of 2006 the Cabinet of Ministers of Ukraine mandated a review
        of
        the procedures of issuance of approximately 500 production and exploration
        licenses granted by the Ministry of National Resources of Ukraine in 2004.
        The
        Company’s properties Rogan, Rakitnyansk and Karaikozovsk held by Esko Pivnich,
        and Peremishlyansk, Chukvinsk, Niklovitsk and Pilipovsk held by Pari were
        also
        subject to review as part of this process. The purpose of the review was
        to
        determine the effectiveness of the procedures involved in the issuance of
        the
        licenses. The preliminary findings of the review were referred to the Supreme
        Court of Ukraine which issued a preliminary conclusion that all of the Company’s
        licenses were properly issued and are to remain valid. At present, the review
        is
        being officially finalized and we expect to receive a final approval upon
        the
        conclusion of this review in 2006.
  34
 *Table
            of Contents*
  **Item
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds**
 
 None
  **Item
        3. Defaults upon Senior Securities**
 
 None
 
 **Item
        4. Submission of Matters to a Vote of Security
        Holders**
 
 None
 
 **Item
        5. Other Information**
 
 None
 
 **Item
        6. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES AND REPORTS ON
        FORM 8-K**
 
 ***Reports
        on Form 8-K***
 
 A
        Current
        Report on Form 8-K filed by the Company on September 11, 2006, and Schedule
        14F-1 filed by the Company on January 6, 2005.
 
 The
        following Consolidated Financial Statements pertaining to Sunrise Energy
        Resources are filed as part of this quarterly report:
 
 Consolidated
        Balance Sheets as of September 30, 2006  and
        December 31, 2005
 
 Consolidated
        Statements of Changes in Stockholders’ Equity (Capital Deficit) for the nine
        months ended September 30, 2006
 
 Consolidated
        Statements of Operations and Comprehensive Loss for the three and nine months
        ended September 30, 2006 and 2005
 
 Consolidated
        Statements of Cash Flows for the nine months ended September 30, 2006 and
        2005
 
 Notes
        to
        the Consolidated Financial Statements for the periods ended September 30,
        2006  and
        December 31, 2005
 
 **Exhibit**
                **Number**
              
              **Description**
              
              **Incorporation
                  by Reference**31.1
              
              Rule
                  13a-14(a) Certification of Chief Executive Officer
              
              Filed
                  Herewith31.2
              
              Rule
                  13a-14(a) Certification of Chief Financial Officer
              
              Filed
                  Herewith32.1
              
              Section
                  1350 Certification of Chief Executive Officer
              
              Filed
                  Herewith32.2
              
              Section
                  1350 Certification of Chief Financial Officer
              
              Filed
                  Herewith
 
 35
 *Table
            of Contents*
  **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:
                      February 6, 2007
                  Konstantin
                      TsirulnikovPresident
                      and Chief Executive Officer
  36