U.S.
SECURITIES AND EXCHANGE COMMISSIONWashington,
D.C. 20549

FORM
10-QSB

For
Annual and Transition Reports pursuant to Section 13 or 15(d) of theSecurities
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 quarter endedJune
30, 2005

|[ |  | ]
Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- |  | ------------------------------------------------------------------------------------------

Commission
File Number 1-11248

SUNRISE
ENERGY RESOURCES, INC.(Name of
Registrant as specified in its charter)

|                                | 
|------------------------------- | 
|Delaware                        | 
|(State or other jurisdiction of | 
|incorporation or organization)  | 

|                                                       | 
|------------------------------------------------------ | 
|551 Fifth Avenue, Suite 601                            | 
|New York, New York                                     | 
|(Address of principal executive office)                | 
|5353 Memorial Drive, Suite 4012                        | 
|Houston, TX 77007                                      | 
|(Former name or address, if changed since last report) | 

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

Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by section 13 or 15(d) of the Securities and Exchange Act of 1934 during
the preceding 12 month (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  [   ]

APPLICABLE
ONLY TO CORPORATE ISSUERS

State
the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date:

|                              | 
|----------------------------- | 
|Common Stock, $0.01 par value | 
|(Class)                       | 

Transitional
Small Business Disclosure Format (check one):  Yes   [  ]       No   [X]

---

SUNRISE
ENERGY RESOURCES, INC.FORM 10-QSBTABLE
OF CONTENTS

|                                                                                                | Page
|----------------------------------------------------------------------------------------------- | ----
|PART I.  FINANCIAL INFORMATION                                                                  |     
|Item 1. Financial Statements (unaudited)                                                        |     
|Consolidated Balance Sheet - June 30, 2005 and December 31, 2004                                |     
|Consolidated Statement of Operations and Comprehensive Loss - for the six months ended          |     
|June 30, 2005 and 2004                                                                          |     
|Consolidated Statement of Changes in Stockholders Equity (Capital Deficit) - June 30, 2005 and |     
|December 31, 2004                                                                               |     
|Consolidated Statement of Cash Flows - for the six months ended June 30, 2005 and 2004          |     
|Notes to Unaudited Consolidated Financial Statements                                            |     
|Item 2.  Managements Discussion and Analysis of Financial Condition                            |     
|and Results of Operations                                                                       |     
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                              |     
|Item 4. Controls and Procedures                                                                 |     
|PART II - OTHER INFORMATION                                                                     |     
|Item 1.  Legal Proceedings                                                                      |     
|Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                            |     
|Item 3.  Defaults Upon Senior Securities                                                        |     
|Item 4.  Submission of Matters to a Vote of Security Holders                                    |     
|Item 5.  Other Information                                                                      |     
|Item 6.  Exhibits and Reports on Form 8-K                                                       |     
|SIGNATURES                                                                                      |     

2

---

PART I.

ITEM  1.
FINANCIAL STATEMENTS

SUNRISE
ENERGY RESOURCES INC.CONSOLIDATED BALANCE SHEETS(Expressed in US Dollars)UNAUDITED

|                                                                 | June 30,2005 | December 31,2004
|---------------------------------------------------------------- | ------------ | ----------------
|ASSETS                                                           |              |                 
|CURRENT ASSETS                                                   |             
|Cash and cash equivalents                                        |              | $        4,234  
|Accounts receivable (Note 5)                                     |              | --              
|Accounts receivable - related party (Note 5)                     |              | 720,084         
|Other accounts receivable and prepayments (Note 6)               |              | 788,998         
|Other accounts receivable - related party (Note 6)               |              | 39,980          
|Inventories (Note 7)                                             |              | 53,299          
|Taxes receivable (Note 8)                                        |              | 110,606         
|                                                                 |              |                 
|Total current assets                                             |              | 1,717,201       
|NONCURRENT ASSETS                                                |             
|Property, plant and equipment, net (Note 9)                      |              | 781,098         
|Long-term financial investments (Note 10)                        |              | 1,978           
|Deferred tax asset (Note 11)                                     |              | 38,584          
|                                                                 |              |                 
|TOTAL ASSETS                                                     |              | $ 2,538,861     
|                                                                 |              |                 
|                                                                 |              |                 
|                                                                 |              |                 
|LIABILITIES AND STOCKHOLDERS' EQUITY                             |             
|CURRENT LIABILITIES                                              |             
|Accounts payable (Note 12)                                       |              | $    312,691    
|Accounts payable - related party (Note 12)                       |              | 493,178         
|Taxes payable (Note 13)                                          |              | 824,944         
|Short term bank loans  (Note 14)                                 |              | 514,342         
|Other accounts payable and accruals (Note 15)                    |              | 676,780         
|Other accounts payable - related party (Note 15)                 |              | 115,000         
|Profit interest payable (Note 16)                                |              | 17,979          
|                                                                 |              |                 
|Total current liabilities                                        |              | 2,954,914       
|Long-term payable related party (Note 17)                        |              | 484,464         
|Commitments and Contingencies (Note 20)                          |              | --              
|STOCKHOLDERS EQUITY                                             |             
|Common Stock, $.001 par value, 75,000,000 authorized, 17,000,000 |             
|issued and outstanding (Note 18)                                 |              | 17,000          
|Additional Paid in Capital                                       |              | (66,509         
|Retained earnings (Accumulated deficit)                          |              | (851,008        
|                                                                 |              |                 
|Total stockholders equity (deficit)                             |              | (900,517        
|                                                                 |              |                 
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                       |              | $ 2,538,861     
|                                                                 |              |                 
|                                                                 |              |                 

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

3

---

SUNRISE
ENERGY RESOURCES INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in US Dollars except share amounts)UNAUDITED

|                                                  | For the six months endedJune 30, |               
|------------------------------------------------- | -------------------------------- | --------------
|
|REVENUES                                          |                                  |               
|Produced oil & gas                                |                                  | $      904,128
|                                                  |                                  |               
|                                                  |                                  | 904,128       
|COST OF SALES                                     |                                  | --            
|                                                  |                                  |               
|                                                  |                                  | 904,128       
|Operating expenses                                |                                  | (553,300      
|Depreciation expense                              |                                  | (128,717      
|Other expenses                                    |                                  | (24,065       
|Sales, general and administrative expenses        |                                  | (397,725      
|                                                  |                                  |               
|OPERATING LOSS                                    |                                  | (199,679      
|OTHER INCOME (EXPENSE)                            |                                 
|Interest income (expense), net                    |                                  | (63,051       
|Foreign exchange loss                             |                                  | (33,083       
|Other income (expense), net                       |                                  | (2,308        
|                                                  |                                  |               
|(LOSS) INCOME BEFORE TAX                          |                                  | (298,121      
|INCOME TAX (Note 11)                              |                                  | (8,868        
|                                                  |                                  |               
|NET (LOSS) INCOME AND COMPREHENSIVE INCOME (LOSS) |                                  | $    (306,989 
|                                                  |                                  |               
|                                                  |                                  |               
|BASIC DILUTED LOSS (EARNINGS)  PER SHARE          |                                  | 0.018         
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING        |                                  | 17,000,000    

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

4

---

SUNRISE
ENERGY RESOURCES INC.CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
(CAPITAL DEFICIT)(Expressed in US Dollars except share amounts)UNAUDITED

|                                        | CommonStock | RetainedEarnings(Accumulated | AdditionalPaid-in | TotalStockholdersEquity(Capital |  
|--------------------------------------- | ----------- | ---------------------------- | ----------------- | -------------------------------- | -
|
|BALANCE, DECEMBER 31, 2002              |             | 137,700                      |                   | $     1,377                      |  
|Net (loss) for the year                 |             | --                           |                   | --                               |  
|                                        |             |                              |                   |                                  |  
|BALANCE, DECEMBER 31, 2003              |             | 137,700                      |                   | 1,377                            |  
|Common Stock, $.001 par value,          |            
|75,000,000 authorized, 17,000,000       |            
|issued and outstanding (Note 18)        |             | 17,000,000                   |                   | 17,000                           |  
|To give effect to the acquisition of EP |            
|as of  December 31, 2004 (Note 18)      |             | (137,700                     | )                 | (1,377                           | )
|Pre acquisition (deficit) of Sunrise    |            
|Energy Resources Inc.                   |             | --                           |                   | --                               |  
|Net (loss) for the year                 |             | --                           |                   | --                               |  
|                                        |             |                              |                   |                                  |  
|BALANCE, DECEMBER 31, 2004              |             | 17,000,000                   |                   | (544,019                         | )
|                                        |             |                              | 17,000           
|Net (loss) for the six months ended     |             | --                           |                   | --                               |  
|                                        |             |                              |                   |                                  |  
|BALANCE, June 30, 2005                  |             | 17,000,000                   |                   | $   17,000                       |  
|                                        |             |                              |                   |                                  |  
|                                        |             |                              |                   |                                  |  

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

5

---

SUNRISE
ENERGY RESOURCES INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Expressed in US Dollars)
UNAUDITED

|                                                            | For the six months endedJune 30, |            
|----------------------------------------------------------- | -------------------------------- | -----------
|
|CASH USED IN OPERATING ACTIVITIES:                          |                                  |            
|Net (loss) income from continuing operations for the period |                                  | $(306,989  
|Adjustments to reconcile net loss from continuing           |                                 
|operations to net cash in operating activities:             |                                 
|Tax fines and penalties accruals                            |                                  | --         
|Depreciation expense                                        |                                  | 128,717    
|Supplier`s fines and penalties accruals                     |                                  | 985        
|Provision for doubtful accounts                             |                                  | 23,340     
|Deferred tax (gain) expense                                 |                                  | (21,366    
|Net accrued interest                                        |                                  | (1,377     
|Changes in assets and liabilities:                          |                                 
|Decrease (increase) in accounts receivable                  |                                  | (35,765    
|(Increase) decrease in other accounts receivable and        |                                 
|prepayments                                                 |                                  | (188,483   
|Decrease (increase) in inventories                          |                                  | (17,268    
|Decrease in taxes receivable                                |                                  | 13,430     
|(Decrease) increase in accounts payable                     |                                  | 199,677    
|Increase in taxes payable                                   |                                  | 69,160     
|Increase (decrease)in other accounts payable and accruals   |                                  | 438,277    
|                                                            |                                  |            
|                                                            |                                  | 302,338    
|CASH PROVIDED BY FINANCING ACTIVITIES:                      |                                  | --         
|                                                            |                                  |            
|                                                            |                                  |            
|CASH USED IN INVESTING ACTIVITY:                            |                                 
|Purchase of property, plant and equipment                   |                                  | (361,081   
|Effect of exchange rate changes                             |                                  | 47,895     
|                                                            |                                  |            
|INCREASE (DECREASE) IN CASH:                                |                                  | (10,848    
|CASH, at the beginning of the period                        |                                  | 15,082     
|                                                            |                                  |            
|CASH, at the end of the period                              |                                  | $     4,234
|                                                            |                                  |            
|                                                            |                                  |            
|INTEREST (PAID)/RECEIVED                                    |                                  | $   66,269 
|                                                            |                                  |            
|                                                            |                                  |            

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

6

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NOTES TO THE
CONSOLIDATED STATEMENTS (UNAUDITED)

1.       NATURE OF BUSINESS

| | All
of the operating activities of Sunrise Energy Resources Inc. are conducted through its
wholly owned subsidiary, TOV Energy-Servicing Company Esko Pivnich (Esko
Pivnich), a Ukrainian Closed Joint Stock Company (CJSC) established on January 20,
2000 under the laws of Ukraine. The primary business activities of Esko Pivnich are oil
and gas exploration, production and distribution in the country of Ukraine.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
current principal activities of Esko Pivnich are conducted in the form of production
sharing agreements (PSA), which as of July 30, 2005 included the following:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Operating Entity      | Principal Activity | Country ofincorporation | CapitalContribution,% | ProfitSharing,%
|--------------------- | ------------------ | ----------------------- | --------------------- | ---------------
|Esko Pivnich          |                    | Marketing and           |                       | Ukraine        
|                      |                    | distribution of         |                      
|                      |                    | crude oil and           |                      
|                      |                    | natural gas             |                      
|PSA # 01-SD dated     |                    | Extraction of crude     |                       | Ukraine        
|April 26, 2000        |                    | oil and natural gas     |                      
|PSA # 35/970-SD       |                    | Extraction of crude     |                       | Ukraine        
|dated August 19, 2004 |                    | oil and natural gas     |                      

| | Sunrise
Energy  Resources Inc. is currently  registered at the following  address:  551 Fifth
Avenue,  Suite  601, New York, New York 10017.  Former office address of the Company was
at 5353 Memorial  Drive,  Suite 4012  Houston, Texas 77007.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Esko
Pivnich is registered at the following address: 10a Rileeva St., Kiev, Ukraine.
| | ------------------------------------------------------------------------------------

| | The
principal  operating  office of the Company is  situated  at:  13/10
Novokonstantinovskaya  St.,  Kiev,  Ukraine.
| | ---------------------------------------------------------------------------------------------------------------------

| | The
number of employees of the Company at June 30, 2005 and December 31, 2004 was 22  and 20,
respectively.
| | -----------------------------------------------------------------------------------------------------------

2.      
PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

| | Basis
of Presentation  These consolidated
financial statements have been prepared by the Company in accordance with
accounting principles generally accepted in the United States of America
(US GAAP).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Going
concern The Companys consolidated financial statements have
been presented on the basis that it is a going concern, which contemplates the realization
of assets and satisfaction of liabilities in the normal course of business. As shown in
the consolidated financial statements, the Company incurred a net loss of $306,989 and
$491,674 during the six months ended June 30, 2005 and year ended December 31, 2004,
respectively, and, as of June 30, 2005 and December 31, 2004 the Companys current
liabilities exceeded its current assets by $1,237,713 and $699,766, respectively.
Additionally, to fully develop the area covered by the Licenses, the Company needs
substantial additional funding.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7

---

NOTES TO THE
CONSOLIDATED STATEMENTS (UNAUDITED)

| | In
view of the matters described in the preceding paragraph, recoverability of a major
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, primarily
by the Companys ability to raise additional funds in equity markets, 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 existence.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 existence.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o |  | The
Company plans to continue to raise additional capital in the equity markets  as
significant source of funding the development of 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. Additional funding requirements may also be  necessary before the
Company is able to rely solely on the production from the  licensed properties for the
cash flow of the Company.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 their
most revenues and operating expenses are denominated in Ukrainian Hrivnas. The
Ukrainian Hrivna is not a fully convertible currency outside of the territory of
the 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 at June 30, 2005 and December 31, 2004 were
approximately 1 U.S. dollar to 5,0550 and 5,3054 Ukrainian Hrivnas,
respectively. For the June 30, 2005 and 2004, the average exchange rate for
1U.S. dollar was 5,1994 and 5,3261 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

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NOTES TO THE
CONSOLIDATED STATEMENTS (UNAUDITED)

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

| | Property,
Plant and Equipment  Oil and gas properties are accounted
for using the successful efforts method of accounting whereby property
acquisitions, successful exploratory wells, all development costs, and support
equipment and facilities are capitalized. Unsuccessful exploratory wells are
expensed when a well is determined to be non-productive. Other exploratory
expenditures, including geological and geophysical costs are expensed as
incurred. Depreciation, depletion and amortization of capitalized costs of oil
and gas properties is calculated using the unit-of-production method based upon
proved reserves for the cost of property acquisitions and proved developed
reserves for exploration and development costs. As of the date of these
consolidated financial statements no such costs were incurred.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Production
and related overhead costs are expensed as incurred. Depreciation of assets not
directly associated with oil production and certain workover costs on properties
subject to time limited licenses has been calculated on a straight-line basis
over the economic lives of such assets, estimated to be in the following ranges:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | 
|------------------------------- | 
|Oil and Gas Facilities          | 
|Improvements and Workover Costs | 
|Office Improvements             | 
|Computer Equipment              | 

| | The
gain or loss arising on the disposal or retirement of an asset is determined as
the difference between the sales proceeds and the carrying amount of the asset
and is recognized in the income statement.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| | Inventories
 Inventories are stated at the lower of cost or net
realizable value. Cost comprises direct cost of extracted oil and gas, its
transportation and handling physically in the pipelines or storages prior to the
delivery for sale. Inventory also includes various supplies and spare parts.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Accounts
Receivable  Accounts receivable are stated at their net
realizable value after deducting provisions for uncollectible amounts.
| | ----------------------------------------------------------------------------------------------------------------------------------------

| | Cash
and Cash Equivalents  Cash include petty cash and cash held
on current bank accounts. Cash equivalents include short-term investments with
an original maturity of three months or less that are readily convertible to
known amount of cash which are subject to insignificant risk of changes in
value. Cash and cash equivalents as of June 30, 2005 and December 31, 2004
consisted mainly of the UAH and USD denominated current accounts.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

---

NOTES TO THE
CONSOLIDATED STATEMENTS (UNAUDITED)

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

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

| | Trade
and Other Payables  Liabilities for
trade and other amounts payable are stated at their nominal value.
| | -------------------------------------------------------------------------------------------------------------

| | Value
added tax on purchases and sales Value added taxes (VAT)
related to sales is payable to tax authorities upon collection of receivables
from customers. VAT on purchases is offset against VAT collected from sales. The
tax authorities permit the settlement of VAT on a net basis. VAT related to
sales and purchases which have not been settled at the balance sheet date, (VAT
deferred) is recognized in the balance sheet on a gross basis and disclosed
separately as a current asset and liability. Where provision has been made
against debtors deemed to be uncollectible bad debt expense is recorded for the
gross amount of the debtor, including VAT. The related VAT deferred liability is
maintained until the debtor is settled or until the debtor is written off for
statutory accounting purposes.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

| | Fair
value of Financial Instruments The Companys
financial instruments consist of cash, accounts receivable, accounts payable and
accrued liabilities. Unless otherwise noted, it is managements opinion
that the Company is not exposed to significant interest, currency or credit
risks arising from these financial instruments. The fair value of financial
instruments approximate their carrying values due to the immediate or short term
maturity of these financial instruments.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Because
the reverse merger was effective December 31, 2004, the 2004 earnings (loss) per
share is calculated as if the total shares as of the end of the year were
outstanding during the entire year. Prior period earnings (loss) per share are
not presented.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

---

NOTES TO THE
CONSOLIDATED STATEMENTS (UNAUDITED)

| | Comprehensive
Income Statement of SFAS 130, Reporting Comprehensive
Income, establishes standards for reporting and displaying of comprehensive income,
its components and accumulated balances. Comprehensive income 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 be
reported in a financial statement that is displayed with the same prominence as other
financial statements. Foreign exchange measurement gains and losses of the Company are not
significant and are reflected in the net income and loss.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Segment
Reporting  The Companys business
operations are located in Ukraine and relate primarily to marketing and
distribution of crude oil and natural gas products. Therefore, business
activities are subject to the same risks and returns and addressed in the
consolidated financial statements of the Company as one reportable segment.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | New
accounting pronouncementsIn December 2003, FASB
issued a revision to Interpretation No. 46, Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51
(FIN 46R or the Interpretation). FIN 46R
clarifies the application of ARB No. 51, Financial statements,
to certain entities in which equity investors do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support. FIN 46R requires the consolidation of these entities, known as variable
interest entities (VIEs), by the primary beneficiary of the entity.
The primary beneficiary is the entity, if any, that will absorb a majority of
the entitys expected losses, receive a majority of the entitys
expected residual returns, or both.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Among
other changes, the revisions of FIN 46R (a) clarified some requirements of
the original FIN 46, which had been issued in January 2003, (b) eased
some implementation problems, and (c) added new scope exceptions. FIN 46R
deferred the effective date of the Interpretation for public companies, to the
end of the first reporting period ending after March 15, 2004, except that
all public companies must at a minimum apply the provisions of the
Interpretation to entities that were previously considered special-purpose
entities under the FASB literature prior to the issuance of FIN 46R
by the end of the first reporting period ending after December 15, 2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company did not have any transactions within the scope of FIN 46R.
| | ----------------------------------------------------------------------

| | In
December 2003, the Securities Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 104, Revenue Recognition. SAB 104 updates
portions of the interpretive guidance included in Topic 13 of the codification
of Staff Accounting Bulletins in order to make this interpretive guidance
consistent with current authoritative accounting and auditing guidance and SEC
rules and regulations. The Company believes it is following the guidance of SAB
104.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4.      
PRODUCTION SHARING AGREEMENTS

| | PSA
# 01-SD dated April 26, 2000
| | --------------------------------

| | 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 Karaikozovsks field located in Krasnokutsk area
of Kharkov region. Under the terms of PSA Poltavaneftegasgeologiya acted as the holder of
the main geological and exploration licenses to develop Karaikozovsks field and the
Company was a major investor, having contributed into the establishment of PSA
approximately $596,188.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

---

| | 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 Karaikozovsks
field were temporarily suspended.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | PSA
# 35/970-SD dated August 19, 2004
| | -------------------------------------

| | The
Company filed an application with the Ukrainian State Committee of Mineral Resources to
continue the exploration and development of Karaikozovsks field and in July 2004 the
Company obtained the main geological and exploration license for the period of 5 years.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
August 2004 the Company together with Okhtirkaneftegas, contributed approximately $1,503
and $376 into the establishment of new PSA to continue exploration and development of
Karaikozovsks field.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5.       ACCOUNTS
RECEIVABLE

| | Accounts
receivable as of June 30, 2005 and December 31, 2004 consisted of the following:
| | -----------------------------------------------------------------------------------------

|                          | 6/30/2005 | 12/31/2004
|------------------------- | --------- | ----------
|Angronafta                |           | --        
|                          |           |           
|Total                     |           | --        
|                          |           |           
|                          |           |           
|CJSC Infox, related party |           | $720,084  
|                          |           |           
|Total                     |           | $720,084  
|                          |           |           
|                          |           |           

| | Accounts
receivable as of June 30, 2005 and December 31, 2004 consisted primarily of the
accounts receivable from CJSC Infox, related party, in amounts of $720,084 and
$699,292, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Account
receivable from Angronafta as of December 31, 2004 is due for crude oil sold in
2004, whereas the receivable from CJSC Infox, related party, comprised from
several crude oil shipments which took place in 2004 and 2003. No provision for
these accounts was accrued; management of the Company assesses both amounts as
recoverable during 2005.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6. OTHER
ACCOUNTS RECEIVABLE AND PREPAYMENTS

| | Other
accounts receivable and prepayments as of June 30, 2005 and December 31, 2004
consisted of the following:
| | ---------------------------------------------------------------------------------------------------------------

|                                          | 6/30/2005 | 12/31/2004
|----------------------------------------- | --------- | ----------
|Vixen JLM                                 |           | $ 494,738 
|Okhtirkaneftegas (Note 20)                |           | 198,683   
|Okhtirkaneftegas - advance for production |          
|services                                  |           | 41,955    
|Bukros                                    |           | 48,467    
|Vector NDI                                |           | 29,036    
|KAM                                       |           | 18,791    
|Valmi                                     |           | 5,568     
|Other                                     |           | 22,557    
|Less provision for doubtful accounts      |           | (70,797   
|                                          |           |           
|Total                                     |           | $ 788,998 
|                                          |           |           
|                                          |           |           
|Pari, related party                       |           | 39,980    
|                                          |           |           
|Total                                     |           | $ 828,978 
|                                          |           |           
|                                          |           |           

12

---

NOTES TO THE
CONSOLIDATED STATEMENTS (UNAUDITED)

| | Other
accounts  receivable  and  prepayments as at June 30, 2005 and  December 31, 2004
comprised  mostly of  advances  paid to Vixen JLM and  Okhtirkaneftegas  in amounts of
$494,738  and $198,683  (2004:  $364,515 and  $189,306),  respectively.  Advance paid to
Vixen JLM relates to well casings to be delivered in 2005.  Amount  paid to
Okhtirkaneftegas  is currently  pending  litigation (Note 20), though no provision was
accrued on it  based on the management  estimates of the possibility to offset such
amount against  services to be purchased  from Okhtirkaneftegas during 2005.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other
accounts  receivable  as of June 30, 2005 and  December  31, 2004  represent  prepayments
relating to  office  repairs and office rent,  Vector NDI, KAM,  Valmi - in amounts of
$29,036,  $18,791 and $5,568 (2004:  $27,666, $17,904 and $none), respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7.      
INVENTORIES

| | Inventories
as of as of June 30, 2005 and December 31, 2004 consisted of the following:
| | ---------------------------------------------------------------------------------------

|                                  | 6/30/2005 | 12/31/2004
|--------------------------------- | --------- | ----------
|Crude oil - at cost               |           | $50,914   
|Other consumables and spare parts |           | 2,385     
|                                  |           |           
|Total                             |           | $53,299   
|                                  |           |           
|                                  |           |           

| | Inventories
as of June 30, 2005 and December 31, 2004 were represented by the crude oil
balance in amount of 1,688 and 1,585 bbls, and certain spare parts in amount of
$2,385 and $none, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Inventories
as of December 31, 2004 were represented by the technical crude oil balance
produced at the end of December 2004 and valued at full cost of its production.
The December 31, 2004 balance was liquidated at a discount in the beginning of
2005.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8.       TAXES
RECEIVABLE

Taxes
receivable as of June 30, 2005 and December 31, 2004 consisted of the following:

|                  | 6/30/2005 | 12/31/2004
|----------------- | --------- | ----------
|VAT receivable    |           | $110,484  
|Other tax prepaid |           | 122       
|                  |           |           
|Total             |           | $110,606  
|                  |           |           
|                  |           |           

| | Taxes
receivable balance as of June 30, 2005 and December 31, 2004 represented by VAT
receivable and other advance tax payments in amounts of $110,484 and $101,692
(2004: $122 and $24), respectively. VAT receivable was discounted at 15% annual
rate based on average six months turnover period.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

---

NOTES TO THE
CONSOLIDATED STATEMENTS (UNAUDITED)

9.       PROPERTY,
PLANT AND EQUIPMENT, net

Property,
plant and equipment as of June 30, 2005 and December 31, 2004 consisted of the
following:

|                                           | 6/30/2005 | 12/31/2004  
|------------------------------------------ | --------- | ------------
|Oil & gas facilities improvements and work |           | $ 1,329,062 
|over costs                                 |          
|Office equipment                           |           | 60,306      
|Construction in progress                   |           | 196,640     
|                                           |           |             
|                                           |           | 1,586,008   
|Accumulated Depreciation                   |           | (804,910    
|                                           |           |             
|Net Book Value                             |           | $    781,098
|                                           |           |             
|                                           |           |             

10.     
LONG-TERM FINANCIAL INVESTMENT

| | Long-term
investment as of June 30, 2005 and December 31, 2004 represented 10 common
shares of JSC Ukrneft at par value of 0.25 UAH accounted for at
cost, which approximates their fair market value.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11.      INCOME
TAX

The
Companys provision for income tax for the periods ended June 30, 2005 and
2004 is as follows:

|                                   | 6/30/2005 | 6/30/2004
|---------------------------------- | --------- | ---------
|Current tax                        |           | $ 30,234 
|Deferred tax gain                  |           | (21,366  
|                                   |           |          
|Total income tax (benefit) expense |           | $   8,868
|                                   |           |          
|                                   |           |          
|                                   |          

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

| | The
change for the periods ended June 30, 2005 and December 31, 2004 in the
Companys deferred tax position is as follows:
| | --------------------------------------------------------------------------------------------------------------------------

|                                             | 6/30/2005 | 12/31/2004
|-------------------------------------------- | --------- | ----------
|Net liability at the beginning of the period |           | $17,218   
|Charged to income for the period             |           | 21,366    
|                                             |           |           
|Net asset at the end of the period           |           | $38,584   
|                                             |           |           
|                                             |           |           

| | The
tax effect on the major temporary differences that give rise to the deferred tax
assets as at June 30, 2005 and December 31, 2004 is presented below:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------

14

---

NOTES TO THE
CONSOLIDATED STATEMENTS (UNAUDITED)

|                                        | 6/30/2005 | 12/31/2004
|--------------------------------------- | --------- | ----------
|Temporary differences that give rise to |           |           
|deferred tax assets                     |          
|Provision for doubtful receivables      |           | $  70,797 
|Valuation of VAT receivable             |           | 8,004     
|Low value items written off             |           | 14,092    
|Difference in depreciable value of      |          
|property, plant and equipment           |           | 61,442    
|                                        |           |           
|Total                                   |           | $154,335  
|                                        |           |           
|                                        |           |           
|                                        |          

| | The
deferred tax assets as at June 30, 2005 and December 31, 2004, calculated at
effective Ukrainian income tax rate of 25%, is consisted of the following:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|                                   | 6/30/2005 | 12/31/2004
|---------------------------------- | --------- | ----------
|Deferred tax assets                |           |           
|Provision for doubtful receivables |           | $17,699   
|Valuation of VAT receivable        |           | 2,001     
|Low value items written off        |           | 3,523     
|Difference in depreciable value of |          
|property, plant and equipment      |           | 15,361    
|                                   |           |           
|Total                              |           | $38,584   
|                                   |           |           
|                                   |           |           

| | The
taxation charge for the periods 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:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                         | 06/30/2005 | 12/31/2004 
|---------------------------------------- | ---------- | -----------
|(Loss) before income tax and minority    |            | $(298,121  
|interest                                 |           
|Theoretical income tax benefit at        |           
|statutory rate of 25%                    |            | (45,829    
|Adjustments due to:                      |           
|Tax effect of (expenses) that are not    |           
|deductible in determining taxable profit |            | 54,697     
|                                         |            |            
|Income tax (benefit)                     |            | $     8,868
|                                         |            |            
|                                         |            |            

| | As
of June 30, 2005 and December 31, 2004 the Company had no loss carry forward for
Ukrainian statutory income tax purposes.
| | ----------------------------------------------------------------------------------------------------------------------------

15

---

NOTES TO THE
CONSOLIDATED STATEMENTS (UNAUDITED)

12.      ACCOUNTS
PAYABLE

Accounts
payable as of June 30, 2005 and December 31, 2004 consisted of the following:

|                          | 6/30/2005 | 12/31/2004
|------------------------- | --------- | ----------
|Okhtirkaneftegas          |           | $274,691  
|Kachanozovsky GPZ         |           | 25,843    
|Other                     |           | 12,157    
|                          |           |           
|                          |           | $312,691  
|                          |           |           
|                          |           |           
|                          |           |           
|CJSC Infox, related party |           | 493,178   
|                          |           |           
|Total                     |           | $805,869  
|                          |           |           
|                          |           |           

| | Third
parties accounts payable balances as of June 30, 2005 and December 31, 2004 were
comprised mostly of payables to Okhtirkaneftegas and Kachanozovsky GPZ for
services in amounts of $274,691 and $25,843 (2004:$196,875 and $20,995),
respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
amount payable to the related party, CJSC Infox, as of June 30, 2005 and
December 31, 2004 in the amounts of $493,178 and $376,165, respectively, arose
in 2003 and 2002 and were mostly related to wells reconstruction and
repair services, provided by third party service companies and paid by CJSC
Infox on behalf of the Company.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13.      TAXES
PAYABLE

Taxes
payable as of June 30, 2005 and December 31, 2004 consisted of the following:

|                    | 6/30/2005 | 12/31/2004
|------------------- | --------- | ----------
|Fines and penalties |           | $597,732  
|VAT                 |           | 178,225   
|Social insurance    |           | 4,311     
|Personal Income Tax |           | 1,165     
|Profit Tax          |           | 10,252    
|Exploration Tax     |           | 25,015    
|Resource Tax        |           | 8,230     
|Other payables      |           | 14        
|                    |           |           
|Total               |           | $824,944  
|                    |           |           
|                    |           |           

| | Taxes
payable as of June 30, 2005 and December 31, 2004 represent fines and penalties
accrued in connection with litigation described in Note 20, and VAT payable in
amounts of $597,732 and $178,225 (2004: $569,521 and $171,082), respectively.
VAT payable relates mostly to sales made during six months of 2005 and in 2004.
Based on the current Ukrainian law VAT payable may not be set off against VAT
receivable. (See also Note 20).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

---

NOTES TO THE
CONSOLIDATED STATEMENTS (UNAUDITED)

14.     
SHORT-TERM BANK LOANS

| | Short-term
bank loans as of June 30, 2005 and December 31, 2004 consisted of the following:
| | -------------------------------------------------------------------------------------------

|                  | %, currency | 6/30/2005     | 12/31/2004
|----------------- | ----------- | ------------- | ----------
|                  |             | 26%,Ukrainian |           
|AB Clearing House |             | Hrivnas       |           
|                  |             |               |           
|Total             |             |               |           
|                  |             |               |           
|                  |             |               |           

| | The
loan from AB Clearing House outstanding as at June 30, 2005 and December 31,
2004 is secured by the Companys title to well casings purchased under an
agreement dated July 20, 2004 and is payable on August 22, 2005. Proceeds of the
loans were used mainly for immediate working capital requirements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Interest
expense for the six months ended June 30, 2005 and 2004 was incurred in respect
of the credit line facility and short-term loan obtained from AB Clearing House
in the amount of $63,096 and $none, respectively, which represented the interest
rate of 26% per annum.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17

---

NOTES TO THE
CONSOLIDATED STATEMENTS (UNAUDITED)

15.     OTHER
ACCOUNTS PAYABLE AND ACCRUALS

Other
accounts payable and accruals as of June 30, 2005 and December 31, 2004
consisted of the following:

|                                   |  | 6/30/2005             | 12/31/2004
|---------------------------------- |  | --------------------- | ----------
|Angronafta                         |  | Prepaid for oil & gas |           
|Chernigovneftegasgeology           |  | Research and geology  |           
|Atlantis Techno, LLC               |  | Research and geology  |           
|Bukros                             |  | Prepaid for oil & gas |           
|Fort Trade PP                      |  | Research and geology  |           
|Mrs. Vasilishina T.V               |  | Advance to employee   |           
|Mr. Golovko O.I                    |  | Advance to employee   |           
|RosAnt                             |  | Prepaid for oil & gas |           
|Ans TOV                            |  | Prepaid for oil & gas |           
|                                   |  | Prepaid for repair    |           
|Kiirahbud                          |  | and construction      |           
|Poltavneftegasgeology              |  | Research and geology  |           
|ICR Engineering                    |  | Research and geology  |           
|Strim TOV                          |  | Prepaid for oil & gas |           
|Agrotemp                           |  | Prepaid for oil & gas |           
|Naftoimpex                         |  | Prepaid for oil & gas |           
|                                   |  | Prepaid for repair    |           
|Spetsgasbud                        |  | and construction      |           
|Quant Plus                         |  |                       |           
|Payroll and other settlements with | 
|employees                          |  |                       |           
|Other                              |  |                       |           
|                                   |  |                       |           
|Total                              |  |                       |           
|                                   |  |                       |           
|                                   |  |                       |           
|Advances from former Esko Pivnich  | 
|shareholders                       |  |                       |           
|                                   |  |                       |           
|Total                              |  |                       |           
|                                   |  |                       |           
|                                   |  |                       |           

| | Other
accounts payable and accruals as of June 30, 2005 and December 31, 2004 mostly
consisted of advances from former shareholders and other non-recurring research
and development, geological and exploration works, as well as payroll, short
term advances to employees and other prepayments for repair and constructions
services.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16.     PROFIT
INTEREST PAYABLE

Profit
interest payable as of June 30, 2005 and December 31, 2004 consisted of the
following:

|                         | 6/30/2005 | 12/31/2004
|------------------------ | --------- | ----------
|Poltavaneftegasgeologiya |           | $17,979   
|                         |           |           
|Total                    |           | $17,979   
|                         |           |           
|                         |           |           

| | Profit
interest payable was accrued and partially paid by the Company in respect to
profits earned for 2002 year in accordance with PSA # 01-SD dated April 26,
2000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

18

---

NOTES TO THE
CONSOLIDATED STATEMENTS (UNAUDITED)

17.    
LONG-TERM PAYABLE

| | Long
term payable as of June 30, 2005 and December 31, 2004 consisted of the  following:
| | ----------------------------------------------------------------------------------------

|           | Issuedate | Duenot earlier than | 6/30/2005 | 12/31/2004
|---------- | --------- | ------------------- | --------- | ----------
|Fort Trade |           | Nov-                |           | Nov- 2009 
|           |           | 2004                |           |           
|           |           | Nov-                |          
|Astark     |           | 2002                |           | Nov - 2005
|           |           | Nov-                |          
|Sipay      |           | 2002                |           | Nov - 2005
|           |           |                     |           |           
|Total      |           |                     |           |           
|           |           |                     |           |           
|           |           |                     |           |           

| | Long-term
payable to Astark and Sipay as of June 30, 2005 and December 31, 2004 are
represented by promissory notes issued in November 2002 at no interest and
payable not earlier than November 5, 2005. Any valuation adjustment due to the
lack of interest has not been calculated. Fort Trade is a related party and the
Company is not required to recognize any deferred interest on this interest free
note.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18.    
SHAREHOLDERS EQUITY

| | On
or about October 4, 2004 the Company entered into a Stock Purchase Agreement and
Plan of Reorganization for the acquisition of Esko Pivnich, the Companys
current operating subsidiary. The transaction was entered by and between Sunrise
Energy Services, Inc., the Companys predecessor, and EP and its
shareholders. Under the terms of the Agreement, the shareholders of Esko Pivnich
acquired a total of approximately 91% of Sunrises shares.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
current consolidated financial statements account for the transaction in
accordance with SFAS 141 Business Combinations under the
reverse acquisition treatment, whereby Esko Pivnich is considered to
be the actual acquirer, and Sunrise Energy Services Inc., the dormant shell
entity or the nominal acquirer. Since no fair market value can be determined for
the issuers stock, no goodwill is recognized on the reverse acquisition.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net
assets of the  acquired  entity,  Sunrise  Energy  Resources,  Inc.  (formerly  known as
Sunrise  Energy  Services, Inc.) as at December 31, 2004, were as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                   | 12/31/2004
|---------------------------------- | ----------
|Cash                               |           
|Accounts Payable                   |           
|Advances from former shareholders  |           
|Other accounts payable             |           
|                                   |           
|100% of Net Assets                 |           
|                                   |           
|                                   |           
|Less cash balances held as at      |           
|December 31, 2004                  |           
|                                   |           
|Preacquisition deficit             |           
|                                   |           
|                                   |           
|Cash inflow on reverse acquisition |           
|                                   |           
|                                   |           

| | No
dividends were declared or paid by the Company during the six months ended June  30, 2005.
| | ---------------------------------------------------------------------------------------------

19

---

NOTES TO THE
CONSOLIDATED STATEMENTS (UNAUDITED)

19.     RELATED
PARTIES

| | Related
parties include shareholders and entities under common ownership. Transactions
with related parties are performed on terms that are comparable to those
available to unrelated parties. For details of related party balances
outstanding as of June 30, 2005 and December 31, 2004 see Notes 4, 5, 6, 12, 15
and 17.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20.
COMMITMENTS AND CONTINGENCIES

| | Licenses
commitments During 2004 the Company received geological
and exploration license agreements to develop Karaikozovsks, Rogan and
Rakitnyansk fields. The following amounts of investments are to be incurred
under the terms of those agreements during the periods indicated in the table
below:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      | Period | Amount   
|--------------------- | ------ | ---------
|Rogan field           |        | 2005-2009
|Rakitnyansk field     |        | 2005-2009
|Karaikozovsks  field |        | 2005-2009
|                      |        |          
|Total                 |        |          
|                      |        |          
|                      |        |          

| | Environmental
remediation Under the laws of Ukraine the Company is
obligated to conform to certain environmental remediation obligations related to
the oil and gas production activities. This amount can not be estimated but is
considered to not be material.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Lease
commitments The Company leases office space and the rent
is disclosed in other notes. The Companys future lease commitments as of
June 30, 2005 are as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     | 2005
|---- | ----
|2005 |     
|     |     
|     |     

| | 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 paid by
the Company in 2002 in amount of $196,683 to complete certain capital
construction works under the terms of PSA # 01-SD dated April 26, 2000 (Notes 4
and 6). In April 2004 after the number of hearings by the courts of different
levels, the Supreme Court of Ukraine ordered Okhtirkaneftegas to pay the
outstanding balance without further delays. As of June 30, 2005 the balance had
not been paid.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Taxes
During 2004 the Company was examined by the State Tax Inspection of
Podolsk region, Kiev, and was assessed additional VAT and Profit tax fines and
penalties in the aggregate amount of $597,732 related to 2003 and 2002 years.
The amounts were accrued in the respective consolidated financial statements in
full. The Company has filed an appeal against the State Tax Inspection of
Podolsk region, Kiev, protesting and the Company believes it will prevail.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20

---

NOTES TO THE
CONSOLIDATED STATEMENTS (UNAUDITED)

| | 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21.    
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 environment.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21

---

ITEM  2.
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 2004 and six months ended June 30, 2005.

There
is limited or no comparability for revenue and operating expense to the
comparable periods in 2004 and 2005, as sales and production were suspended in
spring 2003 and were resumed only in January 2005.

Managements
key objectives for 2004 were:

|o |  | Conclude
new  production  sharing  agreement  with  the  Company's  primary  PSA  partner,
Okhtirkaneftegas;
|- |  | ------------------------------------------------------------------------------------------------------------

|o |  | Complete
the workovers on Well #2 and Well#3 on the Karaikozovsk's field;
|- |  | -------------------------------------------------------------------------

|o |  | Commence
the construction of separation units on Well #2 and Well#3 on the Karaikozovsk's field;
|- |  | ------------------------------------------------------------------------------------------------

|o |  | Obtain
operating licenses for Rogan and Rakitnyansk fields;
|- |  | -----------------------------------------------------------

We
believe that these key objectives were achieved in 2004.

Our
2005 strategy for Karaikozovsks field includes launching Wells #2 and #3
into commercial production, completing construction of the separation units on
the wellsites, and commencement of drilling of Well #21. In addition, we will
continue the exploration activities on Rogan and Rakitnyansk properties aiming
to establish the optimal reservoir development scenarios.

Current
Activities

During
2003, our production was limited to Well #2 and Well#3 of Karaikozovsks
deposit.  The production activities were suspended in spring of 2003 due to
the expiration of the original operating license for Karaikozovsks
property. We have not produced any commercial quantities from
Karaikozovsks deposit during the balance of 2004. Following the issuance
of the new license in August 2004, we embarked on an extensive testing and well
workover program in order to establish the most optimal development scenario and
prepare the wells for commercial production in 2005. The preparatory work
included reservoir stimulation as well as partial replacement of casing in order
to increase potential flow rates while maintaining the optimal reservoir
pressure. The additional perforation and stimulation programs for wells have
been completed. The production from Well #2 was resumed in January 2005.

On or
around June 21, 2005 the Company completed scheduled workovers and repairs on
Well #3. Since the completion of the above workovers and repairs, over 1000
barrels of oil has been extracted from this well during the test runs. The well
is expected to be launched into commercial production in third quarter of 2005.

On or
around May 31, 2005 Esko-Pivnich, the Companys wholly-owned operating
subsidiary completed the construction of a new storage and separation facility
with a total storage capacity of approximately 200 tons. The new facility
commenced operations on July 15, 2005. The new facility is designed to decrease
the Companys operating expenses, resulting from reduced fees that were
previously paid to Okhtirkaneftegaz, the state-owned Oil &Gas Company for
similar services. In addition, the launch of the new facilities will enable the
Company to reduce crude losses during extraction, separation and storage.

22

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The
Company entered into an agreement with Chernigivneftegazgeologia, a Ukrainian
oil&gas engineering contractor to drill a new production Well #21. The
anticipated construction costs of around US$1.2 million are expected to be
financed out of the operating cashflow, vendor loans and bank loans.

Results of
Operations

Oil and gas
production and revenue

With
the exception of testing flow runs, no commercial volumes were produced from
Karaikozovsks property during the year ended December 31, 2004 pending the
issuance of the new operating license and the conclusion of new production
sharing agreement (see above for additional discussion). The crude extracted
under the test runs conducted during 2004 amounted to 2,552 Bbls of which
approximately 1,585 Bbls remained in the Companys inventory at the end of
the year. The crude oil balance as of June 30, 2005 amounted to 1,688 Bbls.

During
the six months ended June 30, 2005, Esko Pivnich produced 23,979 barrels
(Bbls) of crude oil and 39,060 thousands of cubic feet
(MCFs) of natural gas, respectively. Crude oil production was
limited to Well #2 of the property, while natural gas was mainly produced from
Well # 3.

We
recognize revenue from the sale of oil when the purchaser takes delivery of the
oil at the field. During the six months period ended June 30, 2005 Esko Pivnich
sold its internally produced 23,875 Bbls of crude oil at the average prices of
$36.38 per barrel translating into net revenues from sales of internally
produced oil of $868,647. Also for the six months 2005 the Company sold 39,060
MCFs of internally produced gas at average prices of $0.91 translating into
revenues of $35,482.

All
sales agreements were short-term in nature, with the extension option by mutual
agreement of the parties. Our crude oil and natural gas sales are sold at the
pipeline measuring node and are not subject to transportation costs.

Exploration

Exploration
expense, which includes geological and geophysical expense and the cost of
unsuccessful exploratory wells, is recorded as an expense in the period incurred
under the successful efforts method of accounting. During the periods ended June
30, 2005 and 2004 we incurred $175,753 and $ none, respectively in exploration
expenses. The increase is primarily due to the fact that the new license for
Karaikozovsks property was issued only in July 2004.

The
Company expects significant exploration expense in 2005-2008 due to the new
operating licenses obtained in 2005, including licenses for two new fields,
Rogan and Rakitnyansk, and significant investment obligations attached to them,
based on the concluded license agreement with the Ministry of Resources of
Ukraine (see above).

During
the periods ended June 30, 2005 and 2004, the Exploration and Resource taxes,
amounted to $222,606 and $36,140, respectively.

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.

Oil
and gas production equipment and work over costs contributed the most into the
depreciation expense for the periods ended June 30, 2005 and 2004 in total
amounts of $128,717 and $132,832. The main decrease in the depreciation expense
in period ended June 30, 2005 as compared to the period ended June 30, 2004 was
primarily because workover costs had been full depreciated at June 30, 2005.

23

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Sales,
general and administrative expenses

Sales,
general and administrative expenses for the period ended June 30, 2005 increased
to $397,725 from $54,042 in the period ended June 30, 2004 mainly due to the
increase in insurance expense (2005:2004  $68,641 and $none), legal and
professional services (2005:2004  $153,146 and $27,598), as well as
transportation expenses (2005:2004 $41,931 and $1,468) and payroll (2005:2004
 $62,685 and $13,707).

In
March 2005 the Company insured its business continuity risks. The above
insurance premium was paid in respect to March  June 2005 period only.
Legal and professional services increased mainly due to the recurring
legislation disputes and audit fees, while transportation and payroll expense
increased due to the increase in Companys operations and opening an office
in New York in 2005.

Interest
(expense), income net

Net
interest (expense) income, for the six months ended June 30, 2005 and 2004, was
$(63,051) and $(6,432), respectively.

Interest
expense for the six months ended June 30, 2005 related to the short-term bank
loans obtained from AB Clearing House in the amount of $514,342 and interest of
$63,096 at 26%. Proceeds of the loans were used mainly for immediate working
capital requirements.

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 establishes steady
production of oil and gas in Ukraine. As at June 30, 2005 and December 31, 2004
the Company had total current assets of $1,717,201 and $1,524,288 and total
current liabilities of $2,954,914 and $2,224,054. As at June 30, 2005 and 2004,
the Company had cash balances of $4,234 and $15,082 and a working capital
deficit of $1,237,713 and $699,766.

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

Cash flow

Cash
provided by operating activities for the periods ended June 30, 2005 and 2004
amounted to $302,338 and $792. Significant cash inflow in the period ended June
30, 2005, as compared to the respective period in 2004, was primarily caused by
the increase in trade and other accounts payable and taxes payable of $199,677,
$438,277 and $69,160, respectively. Though, during the six months ended June 30,
2005, as compared to the six months ended June 30, 2004, there were cash outflow
due to the increase in trade and other accounts receivable and inventories in
amounts $35,765, $188,483 and $17,268, respectively.

Main
operating activities were suspended in 2004 providing no base for operating cash
flows comparison with 2005.

During
six month of 2005 and 2004, the Company invested in workovers a total amount of
$361,081 and $2,589, which was mainly financed by its own operating cash flows.
Significant increase in capital expenditure in the period ended June 30, 2005
was caused by the renewal of the production sharing and main operating license
agreements as compared to 2004.

24

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Cash
Requirements

The
Group anticipates it will require around $4,000,000 to implement its capital
expenditure program for Karaikozovsks property including the completion of
separators and new well drilling. The Group believes it will be able to raise
these funds through equity and debt financing; however, there is no guarantee
that such funds will be raised and no certainty as to when such funds may be
raised.

Critical
Accounting Policies and Recent Accounting Pronouncements

We
have identified the policies below as critical to our business operations and
the understanding of our financial statements.  The impact of these
policies and associated risks are discussed throughout Managements
Discussion and Analysis where such policies affect our reported and expected
financial results.  A complete discussion of our accounting policies is
included in Note 1 of the Notes to Consolidated Financial Statements.

Going Concern

The
Companys consolidated financial statements have been presented on the
basis that it is a going concern, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business. As shown in
the consolidated financial statements, the Company incurred a net loss of
$306,989 and $491,674 during the periods ended June 30, 2005 and 2004,
respectively, and, as of June 30, 2005 and December 31, 2004, the Companys
current liabilities exceeded its current assets by $1,237,713 and $699,766,
respectively. 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
major 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, primarily by the Companys ability to raise additional
funds in equity markets, 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 existence.

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 existence.

|o |  | The
Company plans to continue to raise additional capital in the equity markets as
significant  source of funding the development of 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. Additional funding requirements may also be necessary before the Company is
able to rely solely on the production from the licensed properties for the cash flow of
the Company.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 their most revenues and operating expenses are denominated in
Ukrainian Hrivnas. The Ukrainian Hrivna is not a fully convertible currency
outside of the territory of the 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.

25

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The
prevailing exchange rate at June 30, 2005 and December 31, 2004 was
approximately 1 U.S. dollar to 5,0550 and 5,3054, Ukrainian Hrivnas,
respectively. For the June 30, 2005 and 2004, the average exchange rate for
1U.S. dollar was 5,1994 and 5,3261, Ukrainian Hrivnas, respectively.

Principles
of Consolidation

The
consolidated financial statements incorporate the financial statements of
Sunrise Energy Resources Inc. and other enterprises, where the Company, directly
or indirectly exercises control. Control is achieved where the Company has the
power to govern the financial and operating policies of an 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.

Use of
Estimates

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

Oil and Gas
Reserve Information

The
information regarding our oil and gas reserves, the changes thereto and the
estimated future net cash flows are dependent upon engineering, price and other
assumptions used in preparing our annual reserve study.  The above
estimates were prepared by the Company and have not been certified by a
qualified independent petroleum engineering firm. The Company plans to engage
such appropriately qualified engineering firm to certify the estimates of our
oil and gas reserves in accordance with applicable engineering standards and in
accordance with Securities and Exchange Commission guidelines.  Changes in
prices and cost levels, as well as the timing of future development costs, may
cause actual results to vary significantly from the data presented.  Our
oil and gas reserve data represent estimates only and are not intended to be a
forecast or fair market value of our assets.

Our
oil and gas reserve data and estimated future net cash flows have been prepared
assuming we are successful in timely renewal of operating license agreements and
negotiating production sharing terms which will allow constant production rates
for the expected 10 year period.  In accordance with the effective PSA, the
profit sharing rate payable by the Company after the initial investment has been
recovered equals 20%. (See above detailed description of the main terms of the
standardized production sharing agreements concluded with the State of Ukraine).
Also in 2005 the Company expects the completion of construction of own gas
separation facilities that will allow significant reduction in the cost of
services currently purchased under the production sharing agreement (PSA) from
the state-owned entity with which we are a contract partner, Okhtirkaneftegas.

Production
sharing agreements are customarily awarded upon determination that the field is
capable of commercial rates of production and that the applicant has complied
with the other terms of its license and exploration contract.  However, we
are not guaranteed the right to a license renewal and production sharing
agreements in the future.  If we are not successful in negotiating
operating license renewal and a production sharing agreements on acceptable
terms, it will materially change our oil and gas reserve data and estimated
future net cash flows.

26

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Successful
Efforts Method of Accounting

We
follow the successful efforts method of accounting for our investments in oil
and gas properties, as more fully described in Note 1 of the Notes to
Consolidated Financial Statements.  This accounting method has a pervasive
effect on our reported financial position and results of operations.

Revenue
Recognition

For
revenue from product sales, the Group 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.

Recent
Accounting Pronouncements

In
December 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 123 (R), Share-Based
Payment (SFAS No. 123 (R)) that requires compensation costs related
to share-based payment transactions to be recognized in the financial
statements. With limited exceptions, the amount of compensation cost will be
measured based on the grant date fair value of the equity or liability
instruments issued. In addition, liability awards will be remeasured each
reporting period. Compensation cost will be recognized over the period that an
employee provides service in exchange for the award. This Statement replaces
SFAS No. 123 and is effective as of the first interim or quarterly reporting
period that begins after June 15, 2005. The cumulative effect of applying this
Statement, if any, is not expected to be material.

In
November 2004, the FASB issued Statement of Financial Accounting Standards No.
151, Inventory Costs (SFAS No. 151) to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs, and
spoilage. The Statement requires that abnormal expenses be recognized in the
period in which they were incurred. The Statement is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. SFAS No. 151
is not expected to effect our consolidated financial statements.

In December
2004, the FASB issued  Statement of Financial  Accounting  Standards No. 153,  Exchanges
of Nonmonetary  Assets  (SFAS  No.  153) to  eliminate  an  exception  from
fair value  measurement  in APB  Opinion  No. 29, for  nonmonetary  exchanges of similar
productive assets.  SFAS No. 153 replaces this exception with a general exception  from
fair  value  measurement  for  exchanges  of  nonmonetary  assets  that do not have
commercial  substance.  A  nonmonetary  exchange  has  commercial  substance  if the
future  cash flows of the entity are  expected  to change  significantly  as a result of
the  exchange.  SFAS No. 153 is not  expected  to effect our  consolidated  financial
statements.

27

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

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

The
forward looking statements contained herein are expressly qualified in their
entirety by this cautionary statement. The forward looking statements included
in this Report are made as at the date of this Quarter 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
quarterly  report,  the terms we,  us,  our,  Company and
Sunrise mean Sunrise  Energy  Resources,  Inc.,  whereas the term Group means
Sunrise Energy Resources,  Inc. and its consolidated  subsidiary,  unless otherwise
indicated.

All
dollar amounts refer to US dollars unless otherwise indicated.

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

28

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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-14 ( c ) of the Securities Exchange Act of
1934) as of June 30, 2005 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 their consolidated subsidiary is
recorded, processed , summarized and reported within the time periods specified
by the SEC s rules and forms, particularly during the period in which this
quarterly report has been prepared.

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

29

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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 Sunrise or any of Sunrises 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.

JSC Ukrneft,
Okhtirkaneftegas

In
2003 the Company initiated legal proceedings against JSC Ukrneft,
Okhtirkaneftegas, with respect to certain advance payments made by EP in 2002,
which totaled $196,683. The payments were made in order to complete certain
construction work under the terms of the PSA # 01-SD, dated April 26, 2000 (see:
Notes 4 and 6 of the Consolidated Financial Statements). In April 2004 after the
conclusion of legal proceedings in courts of first and appellate levels, the
Supreme Court of Ukraine ordered Okhtirkaneftegas to pay the outstanding balance
without further delays. As of June 30, 2005 the balance had not been paid.

Taxes

During
2004 the Company was examined by the State Tax Inspection of Podolsk region,
Kiev, and was assessed additional VAT and Profit tax fines and penalties in the
aggregate amount of $597,732, which was made in relation to the 2003 and 2002
tax years. The amounts were accrued in the respective consolidated financial
statements in full (see: Note 13 of the Consolidated Financial Statements). The
Company has filed an appeal against the State Tax Inspection of Podolsk region,
Kiev, protesting the above sums. The Company believes it has legal and factual
basis upon which to overcome the tax authoritys decision.

We
know of no other material, active or pending legal proceedings against us, nor
are we involved as a plaintiff in any material proceedings or pending
litigation. There are no proceedings in which any of our directors, officers or
affiliates, or, to the best of our knowledge, any registered or beneficial
shareholders are an adverse party or have a material interest adverse to us in a
matter concerning Sunrise or our operations.

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

As
part of the transaction described above, in exchange of the EP shares,
Registrant has issued 10,479,900 shares to a purchaser outside the United States
who was the holder of the majority of the outstanding stock of Esko Pivnich. The
sale of the shares is exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, as the purchaser had full information
concerning the business and affairs of Registrant and all certificates issued
bear appropriate restrictive legends. No underwriter was involved in the
transaction.

Item 3.  
Defaults upon Senior Securities

None.

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

None.

Item 5.  
Other Information

None.

30

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ITEM 
6.  EXHIBITS AND REPORTS ON FORM 8-K

Reports
on Form 8-K

A
Current Report on Form 8-K filed by the Company on June 28, 2005.

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

Review  Report
of  Independent  Registered  Public  Accounting  Firm - John Braden and Co., P.C. for the
six months  ended June 30, 2005.

Consolidated
Balance Sheets as of June 30, 2005 and December 31, 2004

Consolidated
Statements of Changes in Stockholders Equity (Capital Deficit) for the six
months ended June 30, 2005.

Consolidated
Statement of Operations and Comprehensive Loss for the six months ended June 30, 2005 and
2004

Consolidated
Statements of Cash Flows for the six months ended June 30, 2005 and 2004

Notes
to the Consolidated Financial Statements for the six months ended June 30, 2005
and 2004 and year ended December 31, 2004

|ExhibitNumber | Description | Incorporation by Reference                             
|------------- | ----------- | -------------------------------------------------------
|31            | .1          | Rule 13a-14(a) Certification of Chief Executive Officer
|31            | .2          | Rule 13a-14(a) Certification of Chief Financial Officer
|32            | .1          | Section 1350 Certification of Chief Executive Officer  
|32            | .2          | Section 1350 Certification of Chief Financial Officer  

31

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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.
|-------------------- | ------------------------------
|                     |                               
|Date: August 8, 2005 |                               
|                     |                               

32

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