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


**Washington,
      D.C. 20549**




**FORM
      10-QSB**




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


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




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




**For
      the three months ended**


**March
      31, 2007**




 ̈
            **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    ̈




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




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




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




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







1




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 acquisition
      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: $1,874,207




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates as of May 11, 2007 within past 60 days: $15,958,687.




As
      of May
      11, 2007, the Registrant had 17,295,167 shares of common stock $.001 par value
      issued and outstanding.




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




2




**SUNRISE
      ENERGY RESOURCES, INC.**




**FORM
      10-QSB**


**TABLE
      OF CONTENTS**




**PART
                I.  FINANCIAL INFORMATION**
            PageFinancial
                Statements (unaudited)Item
                1.Consolidated
                Balance Sheets – March 31, 2007 and December 31,
                2006Consolidated
                Statements of Operations and Comprehensive Loss -
                for the three  months ended March 31, 2007 and
                2006Consolidated
                Statements of Changes in Stockholder’s Equity
                (Capital Deficit) – March 31, 2007 and December 31,
                2006Consolidated
                Statements of Cash Flows - for the
                three  months ended  March 31, 2007 and
                2006Notes
                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**




3
 *Table
            of Contents*




**PART
      I.**




**SUNRISE
      ENERGY RESOURCES INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**(Expressed
      in US Dollars)**


**March
                31,**
              **2007**
            
            
            **December
                31,**
              **2006**ASSETS
            
            **(UNAUDITED)**CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            1,413,094
            
            
            $
            203,146Accounts
                receivable – related party
            
            
            312,824
            
            
            
            165,492Other
                accounts receivable and prepayments
            
            
            911,261
            
            
            
            1,014,849Inventories
            
            
            161,692
            
            
            
            341,013Taxes
                receivable
            
            
            1,135,433
            
            
            
            1,029,565Other
                current assets
            
            
            127,345
            
            
            
            -Total
                current assets
            
            
            4,061,649
            
            
            
            2,754,065NONCURRENT
                ASSETSProperty,
                plant and equipment, net
            
            
            6,356,501
            
            
            
            5,472,450Lease/concession
                acquisition cost of Pari
            
            
            148,106
            
            
            
            161,570Long-term
                financial investments
            
            
            77,534
            
            
            
            3,512Deferred
                tax asset
            
            
            69,204
            
            
            
            72,417**TOTAL
                ASSETS**
            
            **$**
            **10,712,995**
            
            
            **$**
            **8,464,015**LIABILITIES
                AND STOCKHOLDERS' EQUITYCURRENT
                LIABILITIESAccounts
                payable
            
            $
            247,732
            
            
            $
            237,358Accounts
                payable – related party
            
            
            437,224
            
            
            
            764,645Taxes
                payable
            
            
            978,762
            
            
            
            944,670Short
                term bank loansShort
                term notes payable
            
            
            2,313,212
            
            
            
            19,598Other
                accounts payable and accruals
            
            
            991,058
            
            
            
            1,275,416Other
                accounts payable – related party
            
            
            275,091
            
            
            
            275,091Prepayments
                for oil and gas
            
            
            268,659
            
            
            
            572,974Interest
                payable
            
            
            274,600
            
            
            
            152,354Interest
                payable – related party
            
            
            39,669
            
            
            
            56,866Profit
                interest payable
            
            
            17,997
            
            
            
            58,946Total
                current liabilities
            
            
            5,844,004
            
            
            
            4,357,918Long
                term notes payable
            
            
            5,005,347
            
            
            
            4,169,147Long-term
                payable to related party
            
            
            1,391,900
            
            
            
            1,391,900Commitments
                and Contingencies (Note 24)STOCKHOLDERS’
                EQUITYCommon
                Stock, $.001 par value, 75,000,000 authorized, 17,233,160 and
                17,161,014  issued and outstanding as of March 31, 2007 and
                December 31, 2006
            
            
            17,233
            
            
            
            17,161Additional
                Paid in Capital
            
            
            226,131
            
            
            
            80,824Retained
                earnings (Accumulated deficit)
            
            
            (1,739,428
            )
            
            
            (1,520,742
            )Accumulated
                other comprehensive (loss) - foreign currency
            
            
            (32,192
            )
            
            
            (32,192
            )Total
                stockholders' equity (deficit)
            
            
            (1,528,258
            )
            
            
            (1,454,949
            )**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            **$**
            **10,712,995**
            
            
            **$**
            **8,464,015**




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




4
 *Table
            of Contents*





**SUNRISE
      ENERGY RESOURCES INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS**


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


**UNAUDITED**


**For
                the three months ended****March
                31,****2007**
            
            
            **2006**REVENUES
            
            
            
            
            
            -Produced
                oil & gas
            
            $
            584,116
            
            
            $
            285,452Purchased
                oil & gas
            
            
            -
            
            
            
            120,174Total
            
            
            584,116
            
            
            
            405,626COST
                OF SALES
            
            
            -
            
            
            
            (116,637
            )584,116
            
            
            
            288,989Operating
                expenses
            
            
            (317,115
            )
            
            
            (130,603
            )Depreciation
                expense
            
            
            (46,048
            )
            
            
            (69,970
            )Bad
                debt recovery
            
            
            
            
            
            
            -Other
                operating income (expenses)
            
            
            20,150
            
            
            
            40,556Sales,
                general and administrative expenses
            
            
            (278,341
            )
            
            
            (118,214
            )OPERATING
                INCOME (LOSS)
            
            
            (37,239
            )
            
            
            10,758OTHER
                INCOME (EXPENSE)Interest
                income
            
            
            
            
            
            
            67Interest
                expense
            
            
            (122,317
            )
            
            
            (41,966
            )Production
                sharing agreement working interest expenseForeign
                exchange (loss)
            
            
            (14,007
            )Other
                expense
            
            
            (11,561
            )LOSS
                BEFORE TAX
            
            
            (185,124
            )
            
            
            (31,141
            )INCOME
                TAX (Note 12)
            
            
            (33,563
            )
            
            
            (24,842
            )NET
                LOSS
            
            $
            (218,687
            )
            
            $
            (55,983
            )BASIC  AND
                DILUTED LOSS PER SHARE
            
            $
            (0.01
            )
            
            $
            (0.00
            )BASIC
                AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
            
            
            17,175,169
            
            
            
            17,022,057




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




5
 *Table
            of Contents*





**SUNRISE
      ENERGY RESOURCES INC.**


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


**(CAPITAL
      DEFICIT)**


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


**UNAUDITED**


**Accumulated**
            
            
            **Retained**
            
            
            **Additional**
            
            
            **Total****Common
                Stock**
            
            
            **Other
                Comprehensive**
            
            
            **Earnings**
            
            
            **Paid-in**
            
            
            **Stockholder's
                Equity****Shares**
            
            
            **Amount**
            
            
            **(Loss)**
            
            
            **(Accumulated
                Deficit)**
            
            
            **Capital**
            
            
            **(Capital
                Deficit)****BALANCE,
                DECEMBER 31, 2003**
            
            ****
            **10,479,900**
            
            
            **$**
            **10,480**
            
            
            **$**
            **-**
            
            
            **$**
            **48,462**
            
            
            **$**
            **(9,103**
            **)**
            
            **$**
            **49,839**Common
                Stock, $0.001 par value, 75,000,000 issued and outstanding
            
            
            6,520,100
            
            
            
            6,520
            
            
            
            -
            
            
            
            -
            
            
            
            (6,520
            )
            
            
            17,000To
                give effect on the acquisition of EP as of December 31,
                2004
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (50,886
            )
            
            
            -
            
            
            
            (50,886
            )Pre
                acquisition deficit of Sunrise Energy Resources, Inc.
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
                (loss) for the year
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (592,481
            )
            
            
            -
            
            
            
            (592,481
            )**BALANCE,
                DECEMBER 31, 2004**
            
            ****
            **17,000,000**
            
            
            ****
            **17,000**
            
            
            ****
            **-**
            
            
            ****
            **(594,905**
            **)**
            
            ****
            **(15,623**
            **)**
            
            ****
            **(593,528**
            **)**Net
                (loss for the year)
            
            ****
            **-**
            
            
            ****
            **-**
            
            
            
            -
            
            
            
            (586,795
            )
            
            
            -
            
            
            
            (586,795
            )Comprehensive
                loss for the year
            
            ****
            **-**
            
            
            ****
            **-**
            
            
            
            (32,192
            )
            
            
            -
            
            
            
            -
            
            
            
            (32,192
            )**BALANCE,
                DECEMBER 31, 2005**
            
            ****
            **17,000,000**
            
            
            ****
            **17,000**
            
            
            ****
            **(32,192**
            **)**
            
            ****
            **(1,181,700**
            **)**
            
            ****
            **(15,623**
            **)**
            
            ****
            **(1,212,515**
            **)**Common
                stock issued upon Pari acquisition
            
            
            161,014
            
            
            
            161
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            161Additional
                paid-in capital on Pari acquisition
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            96,447
            
            
            
            96,447Net
                income (loss) for the year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (339,042
            )
            
            
            
            
            
            
            (339,042)**BALANCE,
                DECEMBER 31, 2006**
            
            ****
            **17,161,014**
            
            
            ****
            **17,161**
            
            
            ****
            **(32,192**
            **)**
            
            ****
            **(1,520,742**
            **)**
            
            ****
            **80,824**
            
            
            ****
            **(1,454,949**
            **)**Private
                placement of shares
            
            
            22,146
            
            
            
            22
            
            
            
            
            
            
            
            
            
            
            
            17,857
            
            
            
            17,879Shares
                issued for services
            
            
            50,000
            
            
            
            50
            
            
            
            
            
            
            
            
            
            
            
            127,450
            
            
            
            127,500Net
                income (loss) for the three months
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (218,687
            )
            
            
            -
            
            
            
            (218,687
            )**BALANCE,
                MARCH 31, 2007**
            
            ****
            **17,233,160**
            
            
            **$**
            **17,233**
            
            
            **$**
            **(32,192**
            **)**
            
            **$**
            **(1,739,429**
            **)**
            
            **$**
            **226,131**
            
            
            **$**
            **1,528,257**




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




6
 *Table
            of Contents*





**SUNRISE
      ENERGY RESOURCES INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Expressed
      in US Dollars)**


**UNAUDITED**


**For
                the three months ended**
              **March
                31,****2007**
            
            
            **2006****CASH
                (USED IN) PROVIDED BY  OPERATING
                ACTIVITIES:**Net
                loss
            
            $
            (218,687
            )
            
            $
            (55,983
            )Adjustments
                to reconcile net loss to net cash in operating activities:Depreciation
                expense
            
            
            46,048
            
            
            
            69,970Provision
                for doubtful accounts
            
            
            (20,198
            )
            
            
            (26,293
            )Deferred
                tax (gain)
            
            
            3,213
            
            
            
            (6,267
            )Net
                imputed interest expense (income)
            
            
            8,190
            
            
            
            2,877Other
                non-monetary expenses
            
            
            155
            
            
            
            -Changes
                in assets and liabilities:Decrease
                (increase) in accounts receivable
            
            
            (127,134
            )
            
            
            57,183(Increase)
                in other accounts receivable and prepayments
            
            
            103,588
            
            
            
            88,499(Increase)
                in inventories
            
            
            179,321
            
            
            
            38,102(Increase)
                decrease in taxes receivable
            
            
            (105,868
            )
            
            
            (34,820
            )(Decrease)
                increase in accounts payable
            
            
            (317,047
            )
            
            
            46,504Increase  in
                taxes payable
            
            
            34,092
            
            
            
            19,997Increase
                in other accounts payable and accruals
            
            
            (284,358
            )
            
            
            (215,160
            )(Decrease)
                increase in prepayments for oil and gas
            
            
            (304,315
            )
            
            
            (147,551
            )Increase
                in dividend payable
            
            
            (40,949
            )
            
            
            -Increase
                in interest payable
            
            
            105,048
            
            
            
            (3,369
            )NET
                CASH FLOW FROM OPERATING ACTIVITIES
            
            
            (938,902
            )
            
            
            (166,311
            )**CASH
                PROVIDED BY FINANCING ACTIVITIES:**Senior
                short term loan/notes received
            
            
            2,285,425
            
            
            
            -Long
                term loans  received
            
            
            -
            
            
            
            1,112,000Proceeds
                from share issuance
            
            
            17,879
            
            
            
            -Promissory
                notes issued
            
            
            836,200
            
            
            
            -Short
                term loans repaid
            
            
            
            
            
            
            (514,851
            )NET
                CASHFLOW FROM FINANCING ACTIVITIES
            
            
            3,139,504
            
            
            
            597,149**CASH
                USED IN INVESTING ACTIVITIES**Purchase
                of property, plant and equipment
            
            
            (916,635
            )
            
            
            (142,315
            )Cash
                inflow on the acquisition
            
            
            -
            
            
            
            4,549Long
                term investments purchased
            
            
            (74,022
            )
            
            
            -NET
                CASH FLOW FROM INVESTING ACTIVITIES
            
            
            (990,657
            )
            
            
            (137,766
            )**EFFECT
                OF EXCHANGE RATE CHANGES**
            
            ****
            **-**
            
            
            ****
            **-****INCREASE
                (DECREASE) IN CASH**
            
            
            1,209,948
            
            
            
            293,072**CASH,
                at the beginning of the period**
            
            
            203,146
            
            
            
            3,419**CASH,
                at the end of the period**
            
            $
            1,413,094
            
            
            $
            296,491




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




7
 *Table
            of Contents*





**SUNRISE
      ENERGY RESOURCES INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**SUPPLEMENTAL
      INFORMATION**


**(Expressed
      in US Dollars)**


**UNAUDITED**


**Three
                Months Ended****March
                31,****2007**
            
            
            **2006**Cash
                paid for:Interest
            
            $
            -
            
            
            $
            23,387Income
                taxes
            
            
            67,654
            
            
            
            31,109Non-cash
                investing and financing transactions:Issuance
                of common stock for acquisition of Pari, Ltd.
            
            $
            -
            
            
            $
            96,608Issuance
                of common stock to Dutchess Private Equity Fund for placement agency
                services
            
            
            127,500
            
            
            
            -




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




8
 *Table
            of Contents*




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




**1.**
            **NATURE
                OF BUSINESS**




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




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





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




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




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




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




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




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




As
      at March 31, 2007 and December 31,
      2006 the Company had 50 and 50 employees respectively.




9
 *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 three
      months period ended March 31, 2007 are not indicative of the results that may
      be
      expected for the year ending December 31, 2007.





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




***Going
      concern -***The Company’s consolidated financial statements have
      been presented on the basis that it is a going concern, which contemplates
      the
      realization of assets and satisfaction of liabilities in the normal course
      of
      business. As shown in the consolidated financial statements, the Company
      incurred a net loss of $218,687 during the three months ended March 31, 2007,
      and, as of March 31, 2007 the Company's current liabilities exceeded its current
      assets by $1,782,354. Additionally, in order to fully develop the area covered
      by its licenses, the Company would require substantial amounts in additional
      funding.




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




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




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




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




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




***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.





10
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The
      prevailing exchange rates as at March 31, 2007 and December 31, 2006 were
      approximately 1 U.S. dollar to 5.0500 Ukrainian Hrivnas. For the periods
      ended March, 2007 and 2006, the average exchange rate for 1U.S. dollar was
      $5.0500 Ukrainian Hrivnas, respectively.




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





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





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





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





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




***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. The Company is currently obtaining an
      independent reserve valuation so that depletion can be properly
      calculated.




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:




Property
                and Equipment
            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.





11
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In
      accordance with SFAS 144, we test our long-lived assets for impairment by
      comparing the carrying value of the assets with the undiscounted expected
      cashflows from the investments. In the event, the aggregate undiscounted
      expected cashflows from the investments are below the carrying value of the
      above investments, the unamortized costs of such fixed assets will be reduced
      to
      their fair value. Simultaneously, we will recognize the impairment loss as
      the
      amount by which the fair value of the investments exceeds their carrying
      value.




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




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





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





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





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





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





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




***Loans
      and Other Borrowings******–*** All loans and
      borrowings are recorded at the proceeds received, net of direct issue
      costs.




***Borrowing
      Costs******–*** Borrowing costs are recognized as
      an expense in the period in which they are incurred.




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




***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.





12
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***Income
      Taxes******–*** Income tax has been computed
      based on the results for the year as adjusted for items that are non-assessable
      or non-tax deductible.





The
      Company has adopted Financial Accounting Standards No. 109 (“SFAS 109”), under
      which the deferred tax is accounted for using the balance sheet liability method
      in respect of temporary differences arising from differences between the
      carrying amount of assets and liabilities in the consolidated financial
      statements and the corresponding tax basis used in the computation of taxable
      profit. Deferred tax liabilities are generally recognized for all taxable
      temporary differences and deferred tax assets are recognized to the extent
      that
      it is probable that taxable profits will be available against which deductible
      temporary differences can be utilized. Deferred tax assets and liabilities
      are
      offset when they relate to income taxes levied by the same taxation authority
      and the Company intends to settle its tax assets and liabilities on a net
      basis.





Deferred
      tax is calculated at rates that are expected to apply to the period when the
      asset is realized or the liability is settled. It is charged or credited to
      the
      income statement, except when it relates to items credited or charged directly
      to equity, in which case the deferred tax is also dealt with in
      equity.





***Fair
      Value of Financial Instruments***– SFAS No. 107, “Disclosures
      About Fair Value of Financial Instruments,” requires disclosure of the fair
      value of certain financial instruments. Unless otherwise noted, it is
      management’s opinion that the Company is not exposed to significant interest,
      currency or credit risks arising from these financial instruments. The fair
      value of financial instruments approximate their carrying values due to the
      immediate or short term maturity of these financial instruments.





***Earnings
      (Loss) per Share –*** Earnings (loss) per share are computed in
      accordance with SFAS No. 128, "Earnings Per Share". Basic earnings (loss) per
      share are calculated by dividing the net income (loss) available to common
      stockholders by the weighted average number of shares outstanding during the
      year. Diluted earnings per share reflect the potential dilution of securities
      that could share in earnings of an entity. In a loss year, dilutive common
      equivalent shares are excluded from the loss per share calculation as the effect
      would be anti-dilutive.




***Comprehensive
      Income (Loss) -***Statement of SFAS 130, “Reporting Comprehensive
      Income,” establishes standards for reporting and displaying of comprehensive
      income, its components and accumulated balances. Comprehensive income (loss)
      is
      defined to include all changes in equity except those resulting from investments
      by owners and distributions to owners. Among other disclosures, SFAS 130
      requires that all items that are required to be recognized under current
      accounting standards as components of comprehensive income (loss) be reported
      in
      a financial statement that is displayed with the same prominence as other
      financial statements. Foreign exchange translation gains and losses of the
      Company are reflected in Comprehensive gains and losses.




***Retirement
      Benefit Costs******–*** The operating divisions
      of the Company situated in Ukraine contribute to the state pension, medical
      and
      social insurance and employment funds on behalf of all its current employees.
      Any related expenses are recognized in the income statement as
      incurred.





***Segment
      Reporting******–*** The Company’s business
      operations are located in Ukraine and relate primarily to exploration and
      development of crude oil and natural gas properties. Therefore, business
      activities are subject to the same risks and returns and addressed in the
      consolidated financial statements of the Company as one reportable
      segment.





13
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            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 $596,188.





In
      November 2000 a subsidiary of JSC Ukrneft, Okhtirkaneftegas, joined the PSA.
      Okhtirkaneftegas owned two wells in Karaikozovsk area, the operational usage
      of
      which were contributed into the PSA. Also, Okhtirkaneftegas was to provide
      PSA
      with certain exploration and capital repair services to be paid at external
      market rates.





In
      May
      2003, due to the expiration of main geological and exploration licenses held
      by
      Poltavaneftegasgeologiya, all exploration and development activities on
      Karaikozovsk field were temporarily suspended.





***PSA
      # 35/970-SD dated August 19, 200 4 (Esko Pivnich)***





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




**5.**
            **ACCOUNTS
                RECEIVABLE, related party**




Accounts
      receivable as of March 31, 2007 and December 31, 2006 consisted of $312,824
      and
      $165,492, respectively. The amounts due from CJSC Infox at December 31, 2006
      resulted from several crude oil shipments which took place during 2003 and
      2004.
      During the first three months of 2007, the Company paid $147,332 to CJSC Infox
      to purchase pipes for Well #21 of Karaikozovsk property. No provision for bad
      debts has been recorded for these accounts. Management of the Company believes
      this amount will be paid during 2007.




**6.**
            **OTHER
                ACCOUNTS RECEIVABLE AND
                PREPAYMENTS**




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





**3/31/2007**
            
            
            **12/31/2006**Vixen
                JLM
            
            $
            495,030
            
            
            $
            495,030Okhtirkaneftegas
            
            
            198,980
            
            
            
            198,980Fakel
            
            
            59,406
            
            
            
            -Bukros
            
            
            45,545
            
            
            
            45,545Poltavaneftegasgeology
            
            
            8,713
            
            
            
            8,713Other
            
            
            103,587
            
            
            
            266,581**Total**
            
            **$**
            **911,261**
            
            
            **$**
            **1,014,849**




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




14
 *Table
            of Contents*




**7.**
            **INVENTORIES**




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





**3/31/2007**
            
            
            **12/31/2006**Crude
                oil – at cost
            
            $
            161,692
            
            
            $
            341,013**Total**
            
            **$**
            **161,692**
            
            
            **$**
            **341,013**





Inventories
      as of March 31, 2007 and December 31, 2006 are represented by 2,878 and 6,285
      bbls of crude oil produced.




**8.**
            **TAXES
                RECEIVABLE**




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





**3/31/2007**
            
            
            **12/31/2006**VAT
                receivable
            
            $
            1,126,703
            
            
            $
            1,000,715Other
                prepaid tax
            
            
            8,730
            
            
            
            28,850**Total**
            
            **$**
            **1,135,433**
            
            
            **$**
            **1,029,565**




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




**9.**
            **PROPERTY,
                PLANT AND EQUIPMENT**




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




**3/31/2007**
            
            
            **12/31/2006**Wells
                and infrastructure
            
            $
            1,745,628
            
            
            $
            1,660,103Office
                equipment
            
            
            39,870
            
            
            
            39,572Construction
                in progress
            
            
            5,761,235
            
            
            
            4,933,429Total
            
            
            7,546,733
            
            
            
            6,633,104Accumulated
                Depreciation
            
            
            (1,190,231
            )
            
            
            (1,160,653
            )**Net
                Book Value**
            
            **$**
            **6,
                356,501**
            
            
            **$**
            **5,472,450**




**10.**
            **LEASE
                /CONCESSION ACQUISITION
                COST**




As
      of
      March 31, 2007, the Lease/Concession acquisition cost of $148,106 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**




15
 *Table
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As
      at
      March 31, 2007, long-term investments consisted of $75,554 investment into
      a
      production sharing agreement with Galateya Ltd. on Chukvinsk block located
      in
      Western Ukraine. The investment was made by Pari, a wholly owned subsidiary
      of
      the Company in the form of pipes for future wells to be drilled on the
      property.  Since the investment was made, no activity has taken place
      in the PSA and the pipes were carried at cost. Pari has a 51% interest in the
      PSA.





The
      balance of long-term investment as at March 31, 2007 represents 10 common shares
      of JSC “Ukrneft” at par value of 0.25 UAH accounted for at cost, which
      approximates their fair market value.




**12.**
            **INCOME
                TAX**




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





**3/31/2007**
            
            
            **12/31/2006**Current
                tax
            
            $
            23,576
            
            
            $
            64,752Deferred
                tax gain
            
            
            9,987
            
            
            
            (9,668
            )**Total
                income tax expense (benefit)**
            
            **$**
            **33,563**
            
            
            **$**
            **55,085**





Deferred
      taxes reflect the net tax effects of temporary differences between the carrying
      amounts of assets and liabilities for financial reporting purposes and the
      amounts used for tax purposes.





The
      change for the periods ended March 31, 2007 and December 31, 2006 in the
      Company’s deferred tax position is as follows:





**3/31/2007**
            
            
            **12/31/2006**Net
                asset at the beginning of the period
            
            $
            69,204
            
            
            $
            72,417Charged
                to income for the period
            
            
            (3,213
            )
            
            
            9,667**Net
                asset at the end of the period**
            
            **$**
            **65,991**
            
            
            **$**
            **82,084**





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





**3/31/2007**
            
            
            **12/31/2006****Temporary
                differences that give rise to deferred tax assets**Provision
                for doubtful receivables
            
            $
            65,740
            
            
            $
            85,938Valuation
                of VAT receivable
            
            
            81,828
            
            
            
            75,343Low
                value items written off
            
            
            1,689
            
            
            
            1,755Difference
                in depreciable value of property, plant and equipment  due to
                expensing in prior period allowed by Ukrainian low
            
            
            127,661
            
            
            
            123,633**Total**
            
            **$**
            **276,918**
            
            
            **$**
            **289,668**




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





16
 *Table
            of Contents*





**3/31/2007**
            
            
            **12/31/2006****Deferred
                tax assets**Provision
                for doubtful receivables
            
            $
            16,435
            
            
            $
            21,485Valuation
                of VAT receivable
            
            
            20,432
            
            
            
            18,336Low
                value items written off
            
            
            422
            
            
            
            439Difference
                in depreciable value of property, plant and equipment due to expensing
                in
                prior period under Ukrainian low
            
            
            31,915
            
            
            
            31,657**Total**
            
            **$**
            **69,204**
            
            
            **$**
            **72,417**





The
      taxation charge for the respective period is different from that which would
      be
      obtained by applying the Ukrainian statutory income tax rate to the net loss
      before income tax. Below is a reconciliation of theoretical income tax at 25%
      to
      the actual benefit recorded in the Company’s income statement:





**3/31/2007**
            
            
            **12/31/2006**(Loss)
                before income tax and minority interest
            
            $
            (185,124
            )
            
            $
            (283,957
            )Theoretical
                income tax benefit at statutory rate of 25%
            
            
            (46,281
            )
            
            
            (70,989
            )Adjustments
                due to:Tax
                effect of (expenses) that are not deductible in determining taxable
                profit
            
            
            79,844
            
            
            
            126,074**Income
                tax (benefit)**
            
            **$**
            **33,563**
            
            
            **$**
            **55,085**




As
      of
      March 31, 2007 and December 31, 2006 the Company had no loss carry forward
      for
      Ukrainian statutory income tax purposes. For United States income tax purposes,
      the Company has a net operating loss carry forward of over $1,250,000 which
      expires in periods from 2021 to 2024. As a result, the company has a deferred
      tax asset of approximately $425,000.   This has been fully
      reserved because realization cannot be assured.




**13.**
            **ACCOUNTS
                PAYABLE**




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





**3/31/2007**
            
            
            **12/31/2006**Accounts
                payableOkhtyrkaneftegas
            
            $
            217,522
            
            
            $
            204,476Kachanovsky
                GPZ
            
            
            30,210
            
            
            
            32,882$
            247,732
            
            
            $
            237,358CJSC
                Infox, related party
            
            
            437,224
            
            
            
            764,645Total
            
            **$**
            **684,956**
            
            
            **$**
            **1,002,003**




17
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            of Contents*




Third
      party accounts payable balances as of March 31, 2007 and December 31, 2006
      were
      comprised mostly of payments for exploration and production services due to
      Okhtirkaneftegas and Kachanovsky GPZ in the amounts of $217,522 (2006: $204,476)
      and $30,210 (2006: $32,882), respectively.




The
      amounts of $437,224 and $764,645, payable to CJSC Infox, related party as of
      March 31, 2007 and December 31, 2006, respectively, generally relate to well
      reconstruction and repair services, provided by third party service companies
      and paid by CJSC Infox on behalf of the Company.




**14.**
              **TAXES
                  PAYABLE**




Taxes
      payable as of March 31, 2007 and December 31, 2006 consisted of the
      following:





**3/31/2007**
            
            
            **12/31/2006**Fines
                and penalties
            
            $
            598,324
            
            
            $
            598,682VAT
            
            
            325,995
            
            
            
            290,983Exploration
                tax
            
            
            46,200
            
            
            
            29,898Profit
                tax
            
            
            -
            
            
            
            302Resource
                Tax
            
            
            -
            
            
            
            18,658Social
                insurance
            
            
            5,358
            
            
            
            3,799Personal
                income tax
            
            
            1,829
            
            
            
            1,424Other
                taxes
            
            
            1,056
            
            
            
            925**Total**
            
            **$**
            **978,762**
            
            
            **$**
            **944,670**




Taxes
      payable as March 31, 2007 represent fines and penalties accrued in connection
      with litigation described in Note 25, and VAT payable relates mostly to sales
      made in 2006. As discussed in Note 25 with respect to the accrued fines and
      penalties of $598,324, although the Company has prevailed in the appellate
      hearing on this matter, the tax authorities filed a
      counter-appeal.  There has recently been a favorable legal precedent
      where another Ukrainian oil and gas producer prevailed in a similar matter
      and
      was cleared of all fines and penalties. Despite the applicability of FIN48
      the
      Company chose not to reverse the accrued provision at this time due to the
      unpredictability of the local government actions. The Company will not reverse
      the accrued liability until there is a final court decision that cannot be
      appealed.




**15.**
            **SHORT
                TERM NOTES PAYABLE**




**Dutchess
      Note**




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




18
 *Table
            of Contents*




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




The
      Company recognised the issuance discount of $267,700 resulting from the
      difference between the face amount of the Dutchess Note of $2,553,125 and net
      proceeds to the Company of $2,285,425. The above discount is being amortized
      to
      interest expense using the effective interest method over the expected term
      of
      the Dutchess Note. The Company amortized $8,190 of this amount during first
      quarter 2007 with a corresponding increase in the carrying value of the
      Debentures as no coupon payment took place in first quarter 2007.




On
      the
      Dutchess Note closing date the Company recognized the value of 50,000 Dutchess
      Shares at the closing price of $2.55 per share which was equivalent to $127,500.
      This amount was recorded as a deferred cost in the Current Assets section of
      the
      balance sheet. The Company is amortizing the above amount over the expected
      term
      of the Dutchess Note pro-rata with the coupon payments to Dutchess. During
      the
      first three months of 2007, the Company recognized an expense of $155 relating
      to Dutchess Shares.




**Other
      promissory notes**




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




**16.**
            **OTHER
                ACCOUNTS PAYABLE AND
                ACCRUALS**




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





**3/31/2007**
            
            
            **12/31/2006**ZakhidUkrGeology
            
            $
            310,094
            
            
            $
            297,204Chernigovneftegasgeology
            
            
            116,623
            
            
            
            325,660MI-SVAKO
            
            
            145,360
            
            
            
            189,750Naftoservice
            
            
            31,237
            
            
            
            40,143Other
            
            
            387,744
            
            
            
            422,659**Total**
            
            **$**
            **991,058**
            
            
            **$**
            **1,275,416****Related
                parties**Advances
                from shareholders
            
            
            275,091
            
            
            
            275,091**$**
            **275,091**
            
            
            **$**
            **275,091****Total**
            
            **$**
            **1,266,149**
            
            
            **$**
            **1,550,507**




The
      amount of $310,094 due to Zakhidukrgeologiya was related to drilling services
      of
      the exploration Well #1 of Peremyshlyansk block. The amount of $116,623 due
      to
      Chernigovneftegazgeologiya was related to drilling services in respect of Well
      #21 of Karaikozovsk block. The amount due to M-I Swaco of $145,360 was related
      to drillbits and other drilling equipment used in drilling the exploration
      Well
      #1 on the Company’s Peremyshalyansk block.




19
 *Table
            of Contents*




Other
      accounts payable and accruals as of March 31, 2007 mostly consisted of
      non-recurring geological research, geological and exploration works, as well
      as
      payroll, short term advances to employees and other prepayments for repair
      and
      constructions services.




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




Prepayments
      for oil and gas as of March 31, 2007 and December 31, 2006 represented cash
      advances received from the Company’s customer in respect of future oil
      deliveries. The above advances consisted of:




**3/31/2007**
            
            
            **12/31/2006**Ukrgazenergo
            
            $
            -
            
            
            $
            316,040Angronafta
            
            
            178,082
            
            
            
            191,010Atlantis
                Techno
            
            
            49,805
            
            
            
            49,805Naftoimpex
            
            
            36,040Other
                prepayments
            
            
            4,732
            
            
            
            16,119**Prepayments
                for oil and gas**
            
            **$**
            **268,659**
            
            
            **$**
            **572,974**




**18.**
            **INTEREST
                PAYABLE**




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




**3/31/2007**
            
            
            **12/31/2006**Millington
                Solutions Limited – Convertible notes
            
            $
            243,233
            
            
            $
            152,354**Related
                parties**Long
                term loan – Zaccam Trading, related Party
            
            $
            48,559
            
            
            $
            38,120Interest
                accrued on advances received from former shareholders
            
            
            22,476
            
            
            
            18,746Subtotal
                related parties
            
            $
            71,035
            
            
            $
            56,866**Total**
            
            **$**
            **314,268**
            
            
            **$**
            **209,221**





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




**19.**
            **PROFIT
                INTEREST PAYABLE**




As
      of
      March 31, 2007 and December 31, 2006, profit interest of  $17,997
      (12/31/2006: $58,946) 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 25). The Company treated this as expense in its profit and loss
      account.





20
 *Table
            of Contents*




**20.**
            **LONG
                TERM PAYABLES**




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





**Lender/Note**
            
            **Coupon
                Rate**
            
            
            **Conv.
                Price$/share**
            
            **Issue
                date/Effective Date**
            **Due
                not earlier than**
            
            **3/31/2007**
            
            
            **12/31/2006**Fort Trade
            
            
            
            
            
            
            Nov-
                2004
            Nov-
                2009
            
            $
            465,347
            
            
            $
            465,347$
            465,347
            
            
            $
            465,347**Millington
                Solutions Ltd.**CD-1001
            
            
            10
            %
            
            $
            2.20
            
            03/30/2006
            03/30/2009
            
            
            917,200
            
            
            
            917,200СD-1009
            
            
            10
            %
            
            $
            2.20
            
            06/6/2006
            06/6/2009
            
            
            1,990,200
            
            
            
            1,990,200CD-1011
            
            
            6
            %
            
            $
            1.40
            
            07/25/2006
            07/25/2009
            
            
            805,900
            
            
            
            796,400CD-1013
            
            
            7
            %
            
            $
            3.00
            
            02/01/2007
            02/12/2010
            
            
            826,700
            
            
            
            -$
            4,540,000
            
            
            $
            3,703,800**Related
                parties**Zaccam
                Trading, Ltd.
            
            
            
            
            
            
            
            
            03/5/2005
            03/5/2015
            
            $
            1,391,900
            
            
            $
            1,391,000$
            1,391,900
            
            
            $
            1,391,900**Total**
            
            
            
            
            
            
            
            
            
            
            
            **$**
            **6,397,247**
            
            
            **$**
            **5,561,047**





**Fort
      Trade**





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




**Millington
      Solutions**




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




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





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





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





21
 *Table
            of Contents*





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




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




**21.**
            **MILLINGTON
                CONVERTIBLE DEBENTURE
                VALUATION**




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





**Convertible
                Debenture**
            
            **Coupon**
              **Rate**
            
            
            **Conv.**
              **Price
                $/share**
            
            
            **Maximum**
              **Price***
            
            
            **Average**
              **Price***
            
            
            **Negative**
              **Intrinsic**
              **Value****
            
            **First
                Tranche Date**
            **Last**
              **Tranche
                Date**CD-1001
            
            
            10
            %
            
            $
            2.20
            
            
            $
            0.85
            
            
            $
            0.85
            
            
            
            (61
            %)
            4/5/2006
            5/30/2006СD-1009
            
            
            10
            %
            
            $
            2.20
            
            
            $
            1.00
            
            
            $
            0.73
            
            
            
            (55
            %)
            6/18/2006
            10/1/2006CD-1011
            
            
            6
            %
            
            $
            1.40
            
            
            $
            1.00
            
            
            $
            0.83
            
            
            
            (29
            %)
            9/21/2006
            1/26/2007CD-1013
            
            
            7
            %
            
            $
            3.00
            
            
            $
            2.50
            
            
            $
            3.00
            
            
            
            (17
            %)
            2/12/2007
            3/1/2007




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


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





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





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


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


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


·
            despite
                being in the money, none of the tranches of CD-1001, CD-1009 and
                CD-1011
                have been converted as of the date of this filing primarily due to
                the
                limited liquidity of the stock.





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





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





22
 *Table
            of Contents*





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





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





For
      the
      period from March 1, 2007 to April 30, 2007 during which the Company’s shares
      traded in the range from $2.50 to $2.65 per share the daily volatility
      assumption was 1.67%. In addition, the annualized risk-free rate of 5% was
      assumed. Using the above base assumptions, and assuming that the convertibles
      would be outstanding for 3 years before they are converted i.e. no early
      conversion, the fair value of the conversion feature of the convertible
      debentures outstanding on March 31, 2007 on the issuance day would be
      $195,960.  The fair value of the same convertible debentures on March
      31, 2007 given the closing price of $2.62 on that date and using the assumption
      that debentures with the conversion price of $2.20 (CD-1001 and CD-1009) would
      be converted within 270 days by December 31, 2007, debentures with the
      conversion price of $1.40 (CD-1011) would be converted within 180 days
      by  September 30, 2007 while debentures with the conversion price of
      $3.00 would be converted within 365 days by March 31, 2007. Based on these
      assumptions the aggregate value of the conversion features related to the
      beneficial conversion amounts to $1,557,014. To comply with SFAS No. 155, the
      Company would need to record a loss of $1,361,054 from change in fair value
      of
      convertible debt instrument and increase the carrying value of the convertible
      debentures in the liabilities’ section of the Company’s balance sheet by the
      same amount.





**Convertible
                Debenture**
            
            **Change
                in**
              **Fair
                Market**
            
            
            **Valuation
                of convertible**
              **debenture
                feature****Value
                of Conversion**
              **Feature**
            
            
            **Upon
                Issuance**
            
            
            **On
                3/31/2007**CD-1001
            
            $
            (232,945
            )
            
            $
            9,387
            
            
            $
            242,332СD-1009
            
            
            (511,364
            )
            
            
            14,463
            
            
            
            525,827CD-1011
            
            
            (689,249
            )
            
            
            32,792
            
            
            
            722,042CD-1013
            
            
            72,504
            
            
            
            139,317
            
            
            
            66,813**Total**
            
            $
            (1,361,054
            )
            
            $
            195,960
            
            
            $
            1,557,014





The
      Company believes that recording imaginary and estimated gains or losses would
      cause the financial statements to be misleading.




**22.**
            **SHAREHOLDERS’
                EQUITY**




During
      the first 3 months of 2007, the Company raised $17,879 from private placements
      of 22,146 shares Company’s unregistered stock to non-US investors in reliance on
      Regulation S as promulgated under the Securities Act of 1933.





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





23
 *Table
            of Contents*




**23.**
            **LOSS
                PER COMMON SHARE**




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





**Three
                Months Ended****March
                31,****2007**
            
            
            **2006**(Unaudited)
              (in
                US dollars, except
              per
                share amounts)Net
                loss attributable to common stockholders
            
            $
            (218,687
            )
            
            $
            (55,983
            )Weighted
                average common shares outstanding, basic
            
            
            17,175,569
            
            
            
            17,022,057Loss
                per common share, basic
            
            $
            (0.01
            )
            
            $
            (0.00
            )Weighted
                average common shares outstanding, basic
            
            
            17,175,569
            
            
            
            17,022,057Loss
                per common share, basic
            
            $
            (0.01
            )
            
            $
            (0.00
            )




**24.**
            **RELATED
                PARTIES**




Related
      parties include shareholders and entities under common ownership. Transactions
      with related parties are performed on terms that are comparable to those
      available to unrelated parties. For details of related party balances
      outstanding as of   March 31, 2007 and December 31, 2006 see
      Notes 4, 5, 13, 19 and 20.





Our
      related parties include CJSC Infox and Zaccam Trading, Ltd. During the period
      ended March 31, 2007 we did not receive any funds from our related parties.
      During 2006 we received $1,112,000 from Zaccam Trading, Ltd, which was used
      to
      drill well #21 of Karaikozovsk block.





As
      of
      March 31, 2007 and December 31, 2007, the total amounts of $312,824 and $165,492
      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 $437,224 and $764,645, 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
      wholly owned subsidiaries EP and Pari.




**25.**
            **COMMITMENTS
                AND CONTINGENCIES**




***Licenses’
      commitments***




***Esko
      Pivnich -***During 2005 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:




24
 *Table
            of Contents*





**Period**
            
            
            **Amount**Rogan
                field
            
            
            2005-2009
            
            
            
            2,922,772Rakitnyansk
                field
            
            
            2005-2009
            
            
            
            3,938,614Karaikozovsk  field
            
            
            2005-2009
            
            
            
            4,241,584**Total**
            
            
            
            
            
            **$**
            **11,102,970**




***Pari
      -***During 2004 Pari received geological and exploration license
      agreements to develop the Peremishlyansk, Chukvinsk, Scheremetivsk, Niklovitsks
      and Pilipivsk fields. The following amounts of investments are to be incurred
      under the terms of those agreements:





**Period**
            
            
            **Amount**Peremishlyansk
                field
            
            
            2004-2009
            
            
            
            2,336,634Chukvinsk
                field
            
            
            2004-2009
            
            
            
            1,544,554Scheremetivsk
                field
            
            
            2004-2009
            
            
            
            712,872Niklovitsks
                field
            
            
            2004-2009
            
            
            
            594,059Pilipivsk
                field
            
            
            2004-2009
            
            
            
            475,248**Total**
            
            
            
            
            
            **$**
            **5,663,367**




***Environmental
      remediation –***Under Ukrainian law, the Company is obligated to
      meet certain environmental remediation obligations related to its oil and gas
      production activities. This amount cannot be estimated at this time but is
      considered not to be a material amount.




Lease
      commitments – The Company leases office space on a yearly basis and the rent is
      disclosed in other notes. The Company’s future lease commitments as of March 31,
      2007 are as follows:





**2007**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.





*JSC
      Ukrneft, Okhtirkaneftegas**–*******In 2003
      the Company filed a claim against JSC Ukrneft, Okhtirkaneftegas, in respect
      to
      the advance payment made by the Company in 2002 in the amount of $198,880 in
      respect of certain capital construction works under PSA # 01-SD dated April
      26,
      2000 (Notes 4 and 6) which were not completed.





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





25
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            of Contents*





Taxes




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





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





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





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





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




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




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.




26
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Our
      sales
      to customers in excess of 5% were as follows:




**3/31/2007**
            
            
            **12/31/2006**Agrotemp
                (oil produced internally)
            
            $
            -
            
            
            $
            892,921NaftaImpex
                (oil produced internally)
            
            
            104,524
            
            
            
            -Torpeda
                (oil resold)
            
            
            
            
            
            
            120,174Torpeda
                (oil produced internally)
            
            
            
            
            
            
            65,076Spago
                TOV (oil produced internally)
            
            
            
            
            
            
            51,396Soyuz
                NPK (oil produced internally)
            
            
            
            
            
            
            42,410CJSC
                Ukrnafta (gas produced internally)
            
            
            
            
            
            
            12,990Ukrgazenergo
                (oil produced internally)
            
            
            263,366
            
            
            
            302,574Ukrtatneft
                (oil produced internally)
            
            
            189,769Nafto
                Soiuz ((oil produced internally)
            
            
            -
            
            
            
            337,169Bogodukhovsi
                zavod (oil produced internally)
            
            
            
            
            
            
            25,808Other
            
            
            26,457
            
            
            
            23,689**Total**
            
            **$**
            **584,116**
            
            
            **$**
            **1,874,207**




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




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




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




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




**27.**
            **CONCENTRATION
                OF BUSINESS RISK**




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




**28.**
            **SUBSEQUENT
                EVENTS**




On
      or
      around April 18, 2007 the Company’s wholly owned subsidiary Esko Pivnich
      extended the license area of Karaikozovsk lease by approximately 34% from 21,242
      acres to 28,490 acres. The new area known as Pavlyukovsk block is adjacent
      to
      Karaikozovsk block currently operated by the Company and has similar geological
      structure. The Company plans to conduct seismic tests and start drilling an
      exploration well on the extended area in late 2007 and 2008.




27
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**MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF
      OPERATIONS**




**Discussion
      and Analysis of Financial Condition**




**Introduction**




The
      following discussion and analysis
      addresses changes in our financial condition and results of operations during
      the periods ended March 31, 2007 and 2006.




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




·
            Complete
                drilling Well #21 of Karaikozovsk
                property;




·
            Drill
                approximately 60% of the projected depth of Well #1 of the Company’s
                Peremyshlyansk property;





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




·
            Commence
                geological and research works on Rakitnyansk
                block;




We
      believe that these key objectives
      were achieved during the three months period of 2007. Our 2007 strategy for
      the
      Karaikozovsk field includes the completion of the related infrastructure and
      launch of Well #21 in early third quarter of 2007. We also plan to start
      building a pipeline from Well #1 of Rakitnyansk block to tie into the regional
      gas pipeline. In addition, we plan to finish drilling the exploration Well
      #1 of
      Peremyshlyansk block in 2007.We plan to engage an
      reputable
      independent petroleum engineering firm in 2007 to prepare a reserve report
      on
      Karaikozovsk property.




**Current
      Activities**




**Karaikozovsk
      block**




During
      2006 and three months of 2007, our production predominantly came from Well
      #2 of
      Karaikozovsk block which produced at the average rate of approximately 105BOPD
      with only sporadic inflows from Well #3 which produced during third quarter
      of
      2006 at the rate of approximately 35BOPD but was temporarily shut-in during
      first three months of 2007 to allow the completion of Well #21 located in the
      proximity of Well #3. During the first quarter of 2007 Well #21 was successfully
      completed and thoroughly tested. According to the tests, Well #21 may be
      expected to produce gas at the initial daily flow rate of approximately
      4.0mmcfpd.




**Rakitnyansk
      block**




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




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




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**Peremyshlyansk
      block**




On
      March
      20, 2006, Pari, Ltd., a wholly owned subsidiary of Sunrise Energy Resources,
      Inc., commenced the preparatory work to drill its first exploration well on
      the
      Peremishlyansk block. The drilling contract has been signed with GP
      "ZakhidUkrGeologiya", a Ukrainian drilling contractor. The well is designed
      to
      be approximately 3700m (12,139 ft) deep. As of March 31, 2007, the Company
      has
      drilled approximately 60% of the Peremishlyansk property.




**Results
      of Operations**




Oil
      and gas production and
      revenue




**Three
                Months Ended****March
                31,****2007**
            
            
            **2006**(Unaudited)
              (in
                US dollars, exceptproduction
                amounts)RevenuesRevenue
                from sales of produced oil
            
            $
            584,116
            
            
            $
            274,912Revenue
                from sales of resold oil
            
            
            
            
            
            
            120,174Revenue
                from sales of produced gas
            
            
            
            
            
            
            10,540Revenue,
                net
            
            $
            584,116
            
            
            $
            405,626Oil
                sales, bblsProduced
                oil
            
            
            7,980
            
            
            
            5,651Resold
                oil
            
            
            
            
            
            
            2,1887,980
            
            
            
            7,839Gas
                sales, mcf
            
            
            -
            
            
            
            8,645Average
                daily productionOil,
                bopd
            
            
            87
            
            
            
            62Gas,
                mcfpd
            
            
            -
            
            
            
            1.2Average
                selling pricesOil,
                $/BBL
            
            $
            73.20
            
            
            $
            50.40Gas,
                $/MCF
            
            
            -
            
            
            
            1.2





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




The
      crude
      oil balances as of March 31, 2007 and March 31, 2006 amounted to 2,878 and
      902
      Bbls, respectively.




29
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Exploration




An
      exploration expense, which includes geological and geophysical expense and
      the
      cost of unsuccessful exploratory wells, is recorded as an expense in the period
      incurred under the successful efforts method of accounting. During the periods
      ended March 31, 2007 and 2006 we incurred $55,930 and $39,830, respectively
      in
      exploration expenses. The Company expects significant exploration expense in
      2007-2008 due to the licenses obtained in 2004-2005, and significant investment
      obligations attached to them, based on the concluded license agreement with
      the
      Ministry of Resources of Ukraine (see above).




Depreciation,
      depletion and
      amortization




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




Oil
      and
      gas production equipment and workover costs were the main contributor into
      the
      depreciation expense for the periods ended March 31, 2007 and 2006 in the total
      amounts of $46,048 and $69,970. The reduction in the depreciation expense during
      the three months period of 2007 as compared to the respective period of 2006
      is
      primarily due to certain workover costs that were carried on the balance sheet
      in the first quarter of 2006 were fully depreciated in 2006 while significant
      new fixed assets such as Well #21 were not yet launched into production in
      first
      quarter of 2007 and, accordingly, no depreciation was charged in relation to
      such assets during first quarter of 2007.




Sales,
      general and administrative expenses




Sales,
      general and administrative expenses for the period ended March 31, 2007
      increased to $278,341 from $118,214 in the period ended March 31, 2006 mainly
      due to the increase in payroll and related taxes to $50,593 (2006: $27,523),
      legal and audit services  of $38,180 (2006: $Nil) and other
      professional services of $22,070 (2006: $4,333).




Interest
      income (expense)




Interest
      expense (net) for the periods ended March 31, 2007 and 2006, amounted to
      $122,317 and $41,966, respectively. The increase was caused by additional
      $4,540,000 of convertible debentures bearing coupon rates from 6% to 10% per
      annum.




Convertible
      Notes




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




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





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





30
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On
      March
      15, 2007 the Company and Millington Solutions Ltd. agreed that interest accrued
      under the Convertible Debenture Note agreements CD-1001, CD-1009, CD-1011 and
      CD-1013 (“the Notes”) may be at the Borrower’s election paid when due in
      accordance with the Convertible Debenture Note terms; or fully or partially
      capitalized. In the event, the Borrower elects to capitalize the accrued
      interests under the Notes, the accrued interest shall be added to the
      outstanding principal. Following such election, the interest in subsequent
      periods shall accrue on the increased principal balance at the rate provided
      by
      each Convertible Debenture Note agreement. The increased outstanding principal
      may be converted into the Borrower’s shares of common stock in accordance with
      the terms of each Convertible Debenture Note. On March 20, 2007, the Borrower
      elected to capitalize the interest payments on CD-1001 and CD-1009 due on the
      first annual anniversary of each tranche. Millington Solutions was duly notified
      of the Borrower’s election and the Lender’s acknowledgement of the above
      election is kept on the Company’s file.




Senior
      Promissory Notes




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




**Liquidity
      and Capital
      Resources**




Since
      inception, we have financed our operations from private sources. We anticipate
      continuing losses in the near future while Esko Pivnich and Pari establish
      steady production of oil and gas in Ukraine. As at March 31, 2007, the Company
      had total current assets of $4,061,649 and total current liabilities of
      $5,844,004, respectively. As at March 31, 2007, the Company had cash balances
      of
      $1,413,094 and a working capital deficit of $1,782,354,
      respectively.




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




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




Cash
      flow




Cash
      (used in)/provided by operating activities during the periods ended March 31,
      2007 and 2006 amounted to $(938,902) and $(166,311),
      respectively.  Significant cash outflow for the three months of 2007,
      as compared to the respective period of 2006, was primarily caused by the larger
      net loss of $(218,687) from $(55,983) in 2006, increase in accounts receivable
      of $(127,134) vs. a reduction of $57,183 in 2006, decrease in accounts payable
      of  ($317,047) vs. an increase of $46,504 in 2006, $(304,315)
      reduction in prepayments for oil and gas vs. a reduction of $(147,551) in 2006,
      a reduction in other accounts payable of ($284,358) vs. a reduction of
      $(215,160) in 2006 and growth in taxes receivable of $(105,868) vs. a growth
      of
      $(34,820) in 2006.




During
      the three months ended March 31, 2007 cash provided by financing activities
      in
      an amount of $3,139,504 was due to financing obtained under the convertible
      notes received in the amount of $836,200 and net proceeds of the Dutchess Note
      of $2,285,425.




During
      the three months ended March 31, 2007, the Company made capital expenditures
      of
      $916,635 most of which mainly represented the completion costs of Well #21
      of
      Karaikozovsk property while during the three months ended March 31, 2006, the
      capital expenditures amounted to $186,112 which mainly represented the workovers
      of Wells #2 and #3. During the three months ended March 31, 2007, the capital
      expenditures were mainly financed by the proceeds of the convertible
      debentures.




Cash
      Requirements




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




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




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




32
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**Critical
      Accounting Policies and Recent Accounting Pronouncements**




We
      have identified the policies below
      as critical to our business operations and the understanding of our financial
      statements. The impact of these policies and associated risks are discussed
      throughout Management’s Discussion and Analysis where such policies affect our
      reported and expected financial results. A complete discussion of our accounting
      policies is included in Note 2 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 $218,687 during the period ended March 31,
      2007, and, as of March 31, 2007, the Company’s current liabilities exceeded its
      current assets by $1,782,354. Additionally, to fully develop the area covered
      by
      the Licenses, the Company needs substantial additional
      funding.






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




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




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




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




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




Accordingly,
      our independent auditors included an explanatory paragraph in their report
      on
      the December 31, 2006 consolidated financial statements expressing concerns
      about our ability to continue as a going concern. Our financial statements
      contain additional note disclosures describing the circumstances that lead
      to
      this disclosure by our independent auditors.




Functional
      and Reporting Currency




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




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





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Principles
      of Consolidation




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




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




Use
      of
      Estimates




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




Oil
      and Gas Reserve Information




As
      of March 31, 2007, we have not been
      able to estimate the quantity of proved reserves within the meaning of Rule
      4-10(a) of Regulation S-X. We plan to estimate our proved reserves for
      Karaikozovsk block in 2007 once we complete Well #21 of Karaikozovsk block. The Company has
      hired independent geologists to review these calculations.




**S**uccessful
      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 2 of the Notes to Consolidated Financial Statements,
      following the completion of construction works on well #21 and launching it
      into
      commercial production. This accounting method has a pervasive effect on our
      reported financial position and results of operations.




Revenue
      Recognition




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




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




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**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.




35
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            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 March 31,
      2007
      have concluded that the Company’s disclosure controls and procedures are
      adequate and effective to ensure that material information relating to the
      Company’s and its consolidated subsidiaries is recorded, processed , summarized
      and reported within the time periods specified by the SEC’s rules and forms,
      particularly during the period in which this quarterly report has been
      prepared.




The
      Company’s principal executive officers and principal financial officer have
      concluded that there were no 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.




36
 *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
      3 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
      2007.




*DP
      NAK Nedra Ukraini Poltavnaftogasgeologiya –*In 2006 The Company sued
      Poltavneftegasgeologiya for expected profits in the amount of $474,053 resulting
      from a refusal of Poltavneftegasgeologiya to execute its obligations under
      the
      terms of  PSA # 01-SD. The Court of Poltavskiy region has ruled in the
      Company’s favor and obliged Poltavneftegasgeologiya to pay the Company amount of
      $356,994. Poltavneftegasgeoligia has filed a appeal with inter-regional court
      of
      Kiev city. As of May 11, 2007, no new hearings took place and according to
      management’s estimates there is a high possibility of wining the case. Pending
      final resolution of this matter, the Company has not recorded this as
      income.




*Taxes
      –*During 2004 the Company was audited by the State Tax Inspection of
      Podolsk region, Kiev, and was assessed additional VAT and Profit tax fines
      and
      penalties thereon in the aggregate amount of $598,324 related to FY2003 and
      FY2002. The amounts were accrued in the consolidated financial statements in
      full. Esko Pivnich appealed against the decision to the Civil Court of Kiev
      and
      the matter was ruled in favor of Esko Pivnich. Since the initial appeal was
      ruled in favor of the Company, no correspondence from the Supreme court of
      Kiev
      has been received and a favorable legal precedent has been established, the
      Company believes that it has excellent chances of prevailing in this
      case.  Despite the applicability of FIN48 in this situation, the
      Company chose not to reverse the accrued provision at this time due to the
      unpredictability of the local government actions. The Company will not reverse
      the accrued liability until there is a final court decision that cannot be
      appealed.




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





During
      the first 3 months of 2007, the Company raised $17,879 from private placements
      of 22,146 shares Company’s unregistered stock to non-US investors in reliance on
      Regulation S as promulgated under the Securities Act of 1933. The proceeds
      from
      this offering were used for working capital and general corporate
      purposes.





**Item
      3. Defaults upon Senior Securities**





None





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





None





37
 *Table
            of Contents*





**Item
      5. Other Information**





None




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




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




A
      Current
      Report on Form 8-K filed by the Company on March 28, 2007.




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




Consolidated
      Balance Sheets as of March
      31, 2007and December 31,
      2006




Consolidated   Statements
      of Changes in Stockholders’ Equity (Capital Deficit) for the three months ended
      March 31, 2007




Consolidated
      Statements of Operations and Comprehensive Loss for the three months ended
      March
      31, 2007 and 2006.




Notes
      to
      the Consolidated Financial Statements for the periods ended March 31, 2007and December 31,
      2006




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




**SIGNATURES**




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




Sunrise
                Energy Resources, Inc./s
                Konstantin TsirulnikovDate:
                May 15, 2007
            Konstantin
                TsirulnikovPresident
                and Chief Executive
                Officer






38