U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K




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


Securities
Exchange Act of 1934 (Mark One)


x
                      Annual
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934
 
 For the
fiscal year ended
 December
31, 2008
 
  ̈
                      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
                    84-0938688(State
      or other jurisdiction of
                    (I.R.S.
      Employerincorporation
      or organization)
                    Identification
      Number)





570
      7th
      AvenueNew
      York, New York
                    10018(Address
      of principal executive office)
                    (Zip
      Code)




Registrant’s
telephone number, including area code: (917) 4634210




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




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




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




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




SEC
      2337 (12-05)
            Persons
      who are to respond to the collection of information contained in this form
      are not required to respond unless the form displays a currently valid OMB
      control number.




Check whether the Registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90
days.              YesxNo ̈




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







Indicate
by  check
mark  weather  the  registrant  is a
shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes  ̈   No x




State
issuer’s revenues for its most recent fiscal year: $2,372,529




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates as of March 30, 2009 within past 60 days: $174,660.





As of
March 27, 2009, the Registrant had 23,542,337 shares of common stock issued and
outstanding, or committed for issuance.




Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act).  Yes ̈Nox




2




SUNRISE
ENERGY RESOURCES, INC.FORM


10-K


TABLE
OF CONTENTS




Part
      I.Item
      1.
                                                    
                                                    Description of Business
                                                    4Item
      2.
                                                    
                                                    Description of Properties
                                                    11Item
      3.
                                                    
                                                    Legal Proceedings
                                                    15Item
      4.
                                                    
                                                    Submission of Matters to a Vote
      of Security Holders
                                                    15Part
      II.Item
      5.
                                                    
                                                    Market for Common Equity and
      Related Stockholder Matters
                                                    15Item
      6.
                                                    
                                                    Management’s
      Discussion and Analysis of Financial Conditionand
      Results
                                                      of
      Operations
                                                    16Item
      7.
                                                    
                                                    Financial Statements and
      Supplementary Data
                                                    24Item
      8.
                                                    
                                                    Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                                    50Item
      8a.
                                                    
                                                    Controls and Procedures
                                                    50Part
      III.Item
      9.
                                                    
                                                    Directors, Executive Officers,
      Promoters and Control Persons
                                                    52Item
      10.
                                                    
                                                    Executive Compensation
                                                    54Item
      11.
                                                    
                                                    Security Ownership
      of Certain Beneficial Owners and Managementand
      Related Stockholders Matters
                                                    55Item
      12.
                                                    
                                                    Certain Relationships and Related
      Transactions
                                                    56Item
      14.
                                                    
                                                    Principal Accountant Fees and
      Services
                                                    57Part
      IV.Item
      13.
                                                    
                                                    Exhibits, Financial Statement
      Schedules and Reports on Form 8-K
                                                    56Signatures
                                                    
                                                    
                                                    58Certifications


3




PART
I.




ITEM  1.
DESCRIPTION OF BUSINESS




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




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




The forward looking statements
contained herein are expressly qualified in their entirety by this cautionary
statement. The forward looking statements included in this Report are made as at
the date of this Annual Report and Sunrise undertakes no obligation to publicly
update such forward looking statements to reflect new information, subsequent
events or otherwise.




As used in this annual report, the
terms "we", "us", "our", "Company" and "Sunrise" means Sunrise Energy Resources,
Inc. and its consolidated subsidiaries, 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 annual
report.




COMPANY
OVERVIEW




Sunrise
Energy Resources, Inc. (“Sunrise” or the “Company”) was incorporated in the
State of Delaware on April 1 1991. We are engaged in the development and
production of oil and gas properties. Our business activities are presently
conducted in Ukraine and we have 8 properties including 3 in Eastern Ukraine and
5 in Western Ukraine. One property out of eight is currently producing. The
producing Karaikozovsk block is located in Kharkov Region, Eastern Urkaine. Our
activities on the Karaikozovsk block are governed by License number 2489 issued
by the Ukrainian State Licensing Agency, on July 2, 2004 for a period of 5
years. The above license is subject to the fulfillment of the license agreement
investment terms. In addition to the above mentioned license, in 2004 we were
granted License Number 2581 and License Number 2507 for the
exploration and development of the Rogan and Rakitnyansk blocks for a period of
5 years.  During 2008 our production was limited to Karaikozovsk
field.




All of
the operating activities of Sunrise Energy Resources Inc. are conducted through
its wholly owned subsidiaries: TOV Energy-Servicing Company Esko Pivnich (“Esko
Pivnich”), a Ukrainian Closed Joint Stock Company (CJSC) established on January
20, 2000 and Pari, Ltd. organized 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.  On October 4, 2004 Sunrise
Energy Resources Inc. and certain stockholders of Sunrise Energy Resources Inc.
entered into a Stock Purchase Agreement and Plan of Reorganization with the
shareholders of Esko Pivnich (the “Agreement”). Pursuant to the Agreement,
Sunrise Energy Resources Inc.  acquired all of the outstanding common
stock of Esko Pivnich, an oil and gas production and development company
incorporated and operating in Ukraine. In addition, certain stockholders of
Sunrise Energy Resources Inc. sold 5.0 million shares to shareholders of Esko
Pivnich (“EP Shareholders”), and the Company also issued 10,479,900 shares to EP
Shareholders. As a result of the transaction, Esko Pivnich became a wholly-owned
subsidiary of Sunrise.


4





On or
about January 31, 2005, NevWest Securities Corp has filed with the NASD Form
15c-211 and related information on behalf of the Company to act as a market
maker for the Company’s securities. On or about May 23, 2005, Company’s common
shares were approved for trading on the OTCBB under the symbol
SEYR.




On
January 20, 2006, Sunrise Energy Resources, Inc. executed a share purchase
agreement with the shareholders of Pari, Ltd, a Ukrainian limited liability
company holding exploration licenses for Niklovitsk, Peremyshlyansk, Chukvinsk,
Pilipovsk and Sheremetyevsk exploration blocks in the Western Ukraine. The board
of directors of Sunrise Energy Resources, Inc. approved the transaction on
February 9, 2006. At the time of Pari acquisition, the latter did not have any
proved reserves as defined in Rule 4-10(a) of Regulation S-X.




On March
11, 2009 Sunrise Energy Resources, Inc. received a letter from the Company’s
geologists, Netherland, Sewell & Associates, Inc. stating that based on the
prices and costs used in the evaluation, which was conducted in accordance with
the guidelines of the US Securities and Exchange Commission (SEC), they have
determined that there were no proved reserves in Karaikozovsk field as of
December 31, 2008. The Company did not have any proved reserves as defined in
Rule 4-10(a) of Regulation S-X in the remaining 7 properties. No geological
study has been conducted in regard of these properties.




On March
13, 2008, Millington Solutions LLC notified the Company that it did not intend
to extend the maturity date of the convertible note CD-1001 as well as the
maturity dates of the convertible notes CD-1009, CD-1011 and CD-1013 tranches.
Accordingly, in the event, the Company is unable to secure adequate financing to
service the redemption of CD-1001 in the amount of $1,211,621 including interest
accrued to March 30, 2009, the Company shall be in default on
CD-1001.




In the
event, the Company is unable to secure adequate financing to service the
redemption of the convertible note CD-1001 the Company shall technically be in
default on all tranches CD-1001, CD-1009, CD-1011 and CD-1013 which at that time
become immediately due for repayment in the total amount of $5,684,837 including
capitalized interest as of March 31, 2009.




On March
27, 2009, the Company received a proposal from Millington Solutions LLC to
transfer all Company’s assets to Millington Solutions LLC in exchange for the
total extinguishment of all liability to Millington Solutions LLC including but
not limited to principal and interest accrued under the convertible debenture
notes CD-1001, CD-1009, CD-1011 and CD-1013. Millington also agreed to assume
all liabilities. Upon deliberation, the management on March 30, 2009 determined
to accept the proposal of Millington Solutions LLC for the following key
reasons:




·
            The
      Company believed that it exhausted all possible ways to raise external
      financing to redeem CD-1001 in the first instance and other Millington
      Notes;


·
            All
      of the Company’s licenses expire in July 2009 and are unlikely to be
      renewed due to the absence of proved reserves, uncertain prospects and a
      significant capital infusion required to renew the licenses and further
      develop them.





Under the
proposed transaction structure, the 100% stakes in Esko Pivnich and Pari will be
transferred to Millington Solutions LLC in satisfaction of any and all amounts
owed to Millington Solutions LLC by the Company. Simultaneously, Millington
Solutions LLC will assume and hold the Company harmless of any and all
liabilities associated with Esko Pivnich and Pari whether existing prior to the
transaction or arising afterwards including without limitation any and all
environmental remediation liabilities.




Availability
of Reports




Sunrise’s
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and amendments to those reports filed or furnished pursuant to Section
13 (a) or 15 (a) of the Securities Act of 1934 are available from the Securities
and Exchange Commission and can be found on the SEC’s website at www.sec.govand at the
Company’s website www.sunriseenergy.us.


5




Company
Properties




Areas




As of
December 31, 2008, the Company’s subsidiaries Esko Pivnich and Pari held
licenses for the following lease areas listed below:




Lease AreaSubsidiary/Lease
                                                
                                                AcresEsko-PivnichKaraikozovsk
                                                
                                                
                                                32,373Rakitnyansk
                                                
                                                
                                                7,908Rogan
                                                
                                                
                                                12,85053,131PariPeremyshlyansk
                                                
                                                
                                                42,009Niklovitsk
                                                
                                                
                                                8,649Chukvinsk
                                                
                                                
                                                3,954Pilipovsk
                                                
                                                
                                                37,067Sheremetyevsk
                                                
                                                
                                                9,291100,970Total
                                                
                                                
                                                154,101




Strategy




We intend
to continue evaluating opportunities to settle all outstanding liabilities. If
in doing so, it becomes necessary to dispose of all or substantially all of the
Company’s assets, we will immediately engage in the search of new merger or
acquisition opportunities.




Customers




During 2008 and 2007 the Company
produced approximately 3.7MBBLS and 17.6 MBBLS of crude oil net to the Company,
respectively. In addition, the Company produced 396 MMCF of natural gas in 2008
and 201MMCF in 2007, as well as 2.1MMBLS and 7.1MBBLS of condensate in 2008 and
2007.  The produced oil & gas and condensate were separated and
treated to commercial grade at the Company’s on-site separation and storage
facility. Our sales during 2008 and 2007 were mostly to independent oil &
gas traders.




Competition




The oil & gas industry is highly
competitive, and our future plans can be adversely affected by competition from
larger and more established oil & gas companies. We compete for reserve
acquisitions, exploration licenses, concessions and marketing agreements against
companies with financial resources that may significantly exceed
ours.




The Ukrainian government may take broad
actions to overhaul the current oil & gas regulations, which could allow the
entry into the market of additional oil & gas companies, thus increasing the
current competition and changing the business climate. However, these changes
would also allow the Company to further develop its current properties as well
as apply for additional licenses, while using our advantages of operating
experience, distribution channels and qualified personnel to further advance our
plans.




Government
Regulation




Our
operations are subject to various levels of governmental controls and
regulations in the United States and in Ukraine.  We attempt to comply with
all legal requirements in the conduct of our operations and employ business
practices that we consider to be prudent under the circumstances in which we
operate.


6




In Ukraine legislation affecting the
oil and gas industry is under constant review, and may be amended to address
industry trends and governmental objectives.  Pursuant to such legislation,
various governmental departments and agencies have issued extensive rules and
regulations that affect the oil and gas industry, some of which carry
substantial penalties for failure to comply.  These laws and regulations
can have a significant impact on the industry by increasing the cost of doing
business and, consequently, can adversely affect our profitability. 
Inasmuch as new legislation affecting the industry is commonplace and existing
laws and regulations are frequently amended or reinterpreted, we are unable to
predict the future cost or impact of complying with such laws and
regulations.




Regulations
Governing Ukrainian Companies




Our operating subsidiaries Esko Pivnich
and Pari were organized in the form of a Closed Joint Stock Companies (“CJSC”).
A Ukrainian CJSC is a limited liability legal entity similar to a corporation
formed under US law. Shareholders in a Ukrainian joint stock companies are
generally not liable for debts and obligations of the company. In limited
liability companies, any transfer of shares by a shareholder to a third party is
subject to the pre-emptive right of the other shareholders to acquire such
shares at the price offered to a third party.




Under Ukrainian law, most corporate
decisions are adopted by a simple majority. Resolutions concerning amendment of
the company’s charter, reorganizations (including mergers and/or acquisitions),
liquidation, increase in authorized shares, and certain other “significant”
transactions require the approval of the shareholders holding two thirds of the
outstanding shares.




A Ukrainian limited liability company
has no obligation to pay dividends to the holders of common shares. Any
dividends paid to the shareholders must be recommended by the board of directors
and subsequently approved by a majority vote of shareholders. If approved,
dividends may be paid on a quarterly basis.




Regulations
Governing Ukrainian Production Sharing Agreements (Joint Activity
Agreement)




Production Sharing Agreements (PSA) in
Ukraine are concluded between the State-owned company Ukrnafta or its regional
subsidiary and an investor (normally an exploration and production company).
According to standard PSA terms the State assigns to the investor the right to
explore and extract mineral resources in the designated subsoil area(s) and to
perform the exploration program set forth in the agreement for a specified
period of time. In return, the investor undertakes to perform the assigned works
at its own cost and risk, with further compensation of the costs and receipt of
payment (remuneration) in the form of a portion of the PSA
profit.




The State guarantees to the investor
the issuance, in compliance with established procedures, of approvals, quotas,
permits (licenses) to use subsoil and carry out business activity associated
with the proposed exploration deposits, acts for the provision of mining
allocations, documents certifying the right to use the land, as well as other
permits related to the use of subsoil, and performance of the works stipulated
by the PSA.




Profit production (or “profit
interest”) means the portion of the actual production which is shared between
the investor and the State, and is defined as the difference between produced
production and cost-recovery production, which is defined as portion of the
produced production which is transferred to the Company for its ownership as
reimbursement of its costs.




Title to all production produced under
the agreement remains with the State until such time as the minerals are
extracted and have been measured in accordance with the terms of the PSA. Once
extracted and measured, the portion allocated to the Company is transferred to
the Company and is lawfully owned by the Company.




The Company has the right to freely
dispose of the portion of its allocated production pursuant to the terms and
conditions set forth in the PSA, which include: to sell in Ukraine, export,
exchange, transfer free of charge and perform any other operations with such
production. Such production shall not be subject to licensing or quotas during
export, or similar restrictions during its sale in the territory of
Ukraine.




Taxation in
Ukraine




As Ukrainian tax resident entities,
Esko Pivnich and Pari are subject to all applicable Ukrainian taxes, many of
which currently impose a significant burden on our profits. The most significant
Ukrainian taxes and duties affecting Esko Pivnich and Pari
include:




1. 
20% value added tax (“VAT”), applicable only to domestic sales and all
purchases. Exports denominated in foreign currency are not subject to VAT if
denominated in foreign currency.VAT paid on purchases may
be offset against the VAT received from customers. The net VAT is payable to the
government.


7




2.  25% income tax which includes
6% federal income tax, 17% regional income tax and 2% local income
tax;




3.  Withholding tax on dividends
payable to Sunrise Energy Resources Inc as the overseas shareholder of Esko
Pivnich and Pari. The tax must be withheld by Esko Pivnich and Pari at source
from any dividend distributed to Sunrise Energy Resources Inc. The current rate
of withholding tax on dividends payable to corporate foreign shareholders is
15%. However, such dividends are subject to and must be made in accordance with
regulations contained in the United States – Ukraine tax treaty which limits the
tax on dividends payable to Sunrise to 5% (as long as Sunrise holds more than a
10% interest in Esko Pivnich);




4. 
Our wholly owned subsidiaries are subject to the following payroll related taxes
and contributions: Statutory Pension Fund Contribution, Social Insurance Fund
Contribution, Unemployment Fund Contribution, and Emergency Insurance Fund
Contribution. The current rates applicable to the above contributions to various
state funds in 2008 are set out below:





Name
                  
                  % rate charged on net
                    payroll and payable by
                    the Company
                  
                  
                  % rate charged on gross
                    payroll and payable by
                    the employeeStatutory
      Pension Fund
                  
                  
                  32.3
                  %
                  
                  
                  2.0
                  %Social
      Insurance Fund
                  
                  
                  2.90
                  %
                  
                  
                  1.0
                  %Unemployment
      Fund
                  
                  
                  1.60
                  %
                  
                  
                  0.5
                  %Emergency
      Insurance Fund
                  
                  
                  2.62
                  %
                  
                  
                  0.5
                  %Personal
      Income Tax
                  
                  
                  —
                  
                  
                  
                  13.0
                  %Total
      payable
                  
                  
                  39.42
                  %
                  
                  
                  17.0
                  %





The same
rates are projected for 2009.





The
Ukrainian tax system is undergoing a major review. New tax laws, including those
applicable to value-added tax and income tax, were introduced and/or reviewed in
the last several years. The cost of legal and accounting advice attributable to
keeping up with changes in the Ukrainian tax laws has been steadily increasing.
Similarly, penalties for violations, even inadvertent ones, have also gradually
increased over the above-mentioned period. These and other regulations could
materially increase our production costs and have a material adverse effect on
our profitability.




Offices and
Employees




The
headquarters of Sunrise Energy Resources, Inc. are located in New York City at
570 Seventh Avenue, New York, NY 10018. The Ukrainian offices of Esko Pivnich
and Pari are located at the following address: 10a Ryleeva St., Kiev, Ukraine.
The Company currently has 50 full time employees, all of which but 3 are located
in Ukraine.




Risk
Factors




The following offers a brief overview
of some of the risk factors to be considered in relation to the business of
Sunrise, including its related subsidiaries. Specific risk factors to be
considered include, but are not limited to, the following:




Risks and Issues
Associated with Sunrise




An investment in Sunrise is highly
speculative, involves a considerable degree of risk and is suitable only for
persons or entities which have very substantial financial means and who can
afford to hold their ownership interests for an indefinite period of time. While
various oil and gas investment opportunities are abundant, potential investors
should consider the risks that pertain to oil and gas development projects in
general, and ventures in Ukraine in particular.




Technical
Risk




Return on
investment is dependent upon successful oil and gas production from EP and
Pari’s’s projects.


8




Market
risk




In the event of successful development
of additional oil and gas reserves, the marketing of Sunrise’s production of oil
and gas from such reserves may be dependent on market fluctuations and the
availability of processing and refining facilities and transportation
infrastructure, including access to shipping facilities, pipelines and pipeline
capacity at economically viable tariffs over which Sunrise may have limited or
no control. Pipelines may be inadequately maintained and subject to capacity
constraints and tariffs may be increased with little or no notice and without
taking into account producer concerns. In addition, EP’s ability to export oil
and gas may depend on obtaining licenses and quotas, the granting of which may
be at the discretion of the relevant regulatory authorities. There may be delays
in obtaining such export licenses and quotas leading to the income receivable by
Sunrise from the export of oil and gas being adversely
affected




In the
event, we complete the transaction with Millington Solutions LLC and transfer
all or substantially all of our assets to Millington, we will be come a
blank-check company and will begin searching for a viable business opportunity
or a viable merger candidate. There is no assurance that such opportunity will
materialize and no assurance as to the timing of a merger
transaction.




Reliance on
strategic relationships




In conducting its business, Sunrise
will rely on continuing existing strategic relationships and forming new ones
with other entities in the oil and gas industry, such as joint venture partners,
joint activity agreement partners, production sharing agreement partners and
certain regulatory and governmental departments.There can be no assurance that our
existing relationships will continue to be maintained or that new ones will be
successfully formed. Until July 2007, Sunrise’s operation of Wells #2 and #3 on
Karaikozovsk Lease were subject to a joint activity agreement with
Okhtyrkanaftogaz, a subsidiary of the state-controlled Ukrnafta. After July 2007, the above joint
activity agreement was terminated and superceded by a well lease
agreement.




Competition




A number of other oil and gas companies
operate, and are allowed to bid for exploration and production licenses and
other interests, in Ukraine, thereby providing competition to the Company.
Larger companies, in particular, may have access to greater resources than
Sunrise which may give them a competitive advantage.




Prices for oil and
gas




The demand for, and price of, oil and
gas is highly dependent on a variety of factors, including international supply
and demand, the level of consumer demand, weather conditions, the price and
availability of alternative fuels, actions taken by governments and
international cartels, and global economic and political developments.
International oil prices have fluctuated widely in recent years and may continue
to fluctuate significantly in the future. The Company believes it may benefit
significantly due to the recent developments in the Ukrainian market for gas. In
addition, and although not foreseen, the Ukrainian government may oblige
domestic producers to sell oil or gas to  the state or domestic
purchasers at prices well below international levels for indeterminate periods
of time.




Currency Exchange
Risk




Domestic sales of oil and gas in
Ukraine are denominated in local currency (Hryvnia). The US$:Hryvnia exchange
rate may move adversely to affect our revenues expressed in US dollars. 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 dollar terms. 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 hedge its exposure to
UAH/USD exchange rate risk.




While the
UAH/USD exchange rate stayed flat at UAH5.05 to $1 for almost 6 years prior to
2008, during the second half of 2008, the Ukrainian hryvna weakened to UAH7.70
to $1 which is equivalent to 34% devaluation. Due to Ukraine’s political and
economic turmoil, the exchange rate is expected to fluctuate broadly in the near
future while maintaining a general devaluation trend.




Economic and
political risk




Sunrise’s operations are confined to
Ukraine where there may be a number of associated risks that maybe outside of
the Company’s control. These risks may include contract renegotiation, contract
cancellation, economic, social, or political instability or change,
hyperinflation, currency non-convertibility or instability and changes of laws
affecting foreign ownership, government participation, taxation, working
conditions, rates of exchange, exchange controls, exploration licensing and
petroleum export licensing and export duties as well as government control over
domestic oil and gas pricing.


9




Legal
systems




Ukraine and other jurisdictions in
which Sunrise might operate in the future may have less developed legal systems
than more established economies which could result in risks such as (i)
effective legal redress in the courts of such jurisdictions, whether in respect
of a breach of law or regulation, or in an ownership dispute, being more
difficult to obtain; (ii) a higher degree of discretion on the part of
governmental authorities; (iii) the lack of judicial or administrative guidance
on interpreting applicable rules and regulations; (iv) inconsistencies or
conflicts between and within various laws, regulations, decrees, orders and
resolutions; or (v) relative inexperience of the judiciary and courts in such
matters. In certain jurisdictions the commitment of local business people,
government officials and agencies and the judicial system to abide by legal
requirements and negotiated agreements may be more uncertain, creating
particular concerns with respect to Sunrise’s licenses and agreements for
business. These may be susceptible to revision or cancellation and legal redress
may be uncertain or delayed. There can be no assurance that joint activity
agreements, joint ventures, licenses, license applications or other legal
arrangements will not be adversely affected by the actions of government
authorities or others and the effectiveness of and enforcement of such
arrangements in these jurisdictions cannot be assured.




Drilling and
operating risks




Exploration, development and production
activities may be delayed or adversely affected by factors outside Sunrise’s
controls. These include adverse climatic conditions, the performance of joint
venture or farm-in partners on whom EP may be or may become reliant, compliance
with governmental requirements, shortage or delays in installing and
commissioning plant and equipment or import or customs delays. Problems may also
arise due to the quality or failure of locally obtained equipment or
interruptions to services (such as power, water, fuel or transport or processing
capacity) or technical support which result in failure to achieve expected
target dates for exploration or production and/or result in a requirement for
greater expenditure. Drilling may involve unprofitable efforts, not only with
respect to dry holes and non-commercial wells, which are wells that, though
yielding some oil or gas, are not sufficiently productive to justify commercial
development or cover operating and other costs. Completion of a well does not
ensure a profit on the investment or recovery of drilling, completion and
operating costs. Substantial operational risks are involved in the drilling for,
development of and production from oil and gas fields, including blow-outs,
cratering, explosions, pollution, seepage or leaks, fire, earthquake activity,
unusual or unexpected geological conditions and other hazards which may delay,
or ultimately prevent, the exploitation of such fields or may result in cost
overruns or substantial losses to Sunrise due to substantial environmental
pollution or damage, personal injury or loss of life, clean up responsibilities,
regulatory investigation and penalties or suspension of operations. Such hazards
can also severely damage or destroy equipment, surrounding areas or property of
third parties. Damage or loss occurring as a result of such risks may give rise
to claims against EP, Pari and/or Sunrise.




Environmental
Regulation




The Government of Ukraine, the Ministry
of Natural Resources, and other competent agencies establish special rules,
restrictions and standards for enterprises conducting activities affecting the
Ukrainian environment. A principle of Ukrainian environmental law is that any
environmental damage caused by an unlawful activity (i.e. activity conducted in
violation of existing standards and restrictions) must be fully compensated.
Sunrise is not aware of any claims, demands, proceedings or other actions
against Sunrise EP or Pari in respect of environmental
matters.




Uninsured
Risks




There may be circumstances where
Sunrise’s insurance or that of the operator of a field will not cover or be
adequate to cover the consequences of certain events or where the Company may
become liable for pollution or other operational hazards against which it either
cannot insure or may have elected not to have insured on account of high premium
costs or otherwise. Moreover, there can be no assurance that Sunrise will be
able to maintain adequate insurance in the future at rates the Board of
Directors consider reasonable. Thus, Sunrise may become subject to liability for
hazards which cannot be insured against or against which it may elect not to be
insured because of high premium costs or other commercial reasons. There can be
no assurance that Sunrise will be able to obtain insurance at reasonable rates
(or at all), or that any coverage it obtains will be adequate and available to
cover any such claims.


10




Dependence on Key
Personnel




Sunrise is dependent on the services of
certain key executives and personnel for its success. While Sunrise may enter
into employment contracts with those persons, the retention of their services
cannot be guaranteed. In addition, EP and Pari may find it difficult to recruit
new executives and employees. The business may suffer if Sunrise fails to
attract, hire or retain the necessary personnel or to retain existing
employees.




Risks Associated
with International Operations




We are subject to risks inherent to
international operations, including adverse governmental actions, political
risks and expropriation of assets, loss of revenues and the risk of civil unrest
or war. Our primary oil and gas properties are located in Ukraine, which until
1990 was part of the Soviet Union. Ukraine retains many of the laws and customs
from the former Soviet Union, but has developed and is continuing to develop its
own legal, regulatory and financial systems. As the political and regulatory
environment changes, we may face uncertainty with respect to the interpretation
of our agreements and in the event of dispute, may have limited recourse within
the current or future legal and political system.




Transferability of
our common shares




Sunrise
Energy Resources` common stock is listed on the OTC Bulletin Board quotation
system under the symbol SEYR.OB. On or about February 1, 2005 NevWest
Securities, a NASD member firm filed Form 15c211 with the NASD to initiate
quotation of our post transaction stock on the OTCBB quotation system.Our common stock began
quotation on the OTC Bulletin Board on or about May 23, 2005.




Unregistered Sales
of Equity Securities




During
the year ended December 31, 2008, the Company issued 1,837,655 shares to
purchasers outside the United States in consideration of the net proceeds of
$1,837,655. 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.




Amendments
to Articles of Incorporation or Bylaws; Change in Name




As described in Company’s Quarterly
Report on Form 10-QSB for the quarter ended September 30, 2004, the Company
amended and restated its Certificate of Incorporation effective October 1, 2004.
A copy of the Amended and Restated Certificate of Incorporation was filed as an
exhibit to the Form 10-QSB.




The Amended and Restated Certificate of
Incorporation increased the Company’s authorized Capital from 10,000,000 shares
of $1.00 par value common stock to 77,500,000 million shares, par value $0.001,
of which up to 2,500,000 shares may be designated as preferred shares, par value
$0.001. In addition, the name of the Company was changed from Sunrise Energy
Services, Inc. to Sunrise Energy Resources, Inc.




ITEM  2.
DESCRIPTION OF PROPERTY




Our
facilities consist of leased offices in New York City and Kiev, Ukraine, as well
as some production properties on the territory of Ukraine. Our executive office
in New York is located at 570 7th Avenue,
Suite 800, New York, NY 10018, and consists of office space obtained under a
sub-lease arrangement with New York Dental Meeting Inc.




Company’s
offices in Ukraine are located at 10a Ryleeva Street Kiev, Ukraine. In addition,
the Company’s subsidiary Esko Pivnich owns the production Well #21 of
Karaikozovsk lease, exploration Well #1 of Peremyshlyansk lease, oil, gas and
condensate separation and treatment facility, workers accommodation huts, motor
vehicles and supporting infrastructure.


11




Petroleum
industry in Ukraine




Domestic Ukrainian extraction
represents 21% – 24% (or 18 billion cu m) of demand for natural gas and 10% —
12% (or 4 million ton) of demand for crude oil. The supply-demand gap is
addressed by imports. The imports mainly come from the neighboring Russia as
well as from Kazakhstan and Turkmenistan who also transship their oil & gas
via the Ukrainian territory.




With its
extensive network of oil and natural gas pipelines, Ukraine is a key transit
state for Russian oil and natural gas exports bound for Eastern and Western
Europe. The continued increase in oil and natural gas production in Russia and
in the Caspian Sea region should enable Ukraine to capture additional transit
business from these regions. Ukraine may also capture additional oil transit
revenues by using the recently completed Odessa-Brody pipeline.




At present, Ukraine’s annual demand
stands at around 70 billion cubic meters of natural gas and 32-34 million tons
of crude oil. Average annual oil and gas production amounts to 18 billion cubic
meters of natural gas and 4 million tons of crude oil. This internal demand
stimulates domestic production in an effort to substitute imports that primarily
come from Russia and Turkmenistan.




There are three petroliferous provinces
in Ukraine. They are located in the West (the Carpathian region), in the east
(the Dnipro-Donetsk region), and in the south (the Black Sea and the Crimea
region). According to various estimates, Ukraine’s hydrocarbons resources may
amount to approximately 7-8 billion tons in oil equivalent (approximately 50
billion BOE). Ukraine counts at least 300 potentially economically viable oil
and gas fields, of which around 200 have been developed.




Exploration
and Producing Licenses




During 2004 the Company received
geological and exploration license agreements to develop the Karaikozovsk’s,
Rogan and Rakitnyansk fields. Particular information with respect to each of
these licenses is listed in the following table:




No.
                                                                                                    
                                                                                                    Date
                                                                                                      issued
                                                                                                    
                                                                                                    Period
                                                                                                    
                                                                                                    Block
                                                                                                    
                                                                                                    Location
                                                                                                    
                                                                                                    Acreage
                                                                                                      (acres)
                                                                                                    
                                                                                                    Activities#
      2489
                                                                                                    
                                                                                                    Dated
      2 July 2004
                                                                                                    
                                                                                                    Valid
      for:
                                                                                                      5
      (five) years
                                                                                                    
                                                                                                    Karaikozovsk
      Field Geographical coordinates:
                                                                                                      Northern
      latitude:
                                                                                                      1.50000'50"
                                                                                                      2.50002'10"
                                                                                                      3.49057'10"
                                                                                                      4.49057'00"
                                                                                                      Eastern
      longitude: 35001'40"
                                                                                                      35010'30"
                                                                                                      35013'00"
                                                                                                      35006'20"
                                                                                                    
                                                                                                    Administrative
      district: Kharkiv Administrative region: Krasnokutsk Reference
      location:
                                                                                                      10
      km south of Krasnokutsk
                                                                                                    
                                                                                                    
                                                                                                    32,373
                                                                                                    
                                                                                                    Geological
      Exploration and development of natural gas, crude oil#
      2581
                                                                                                    
                                                                                                    Dated
      18 October 2004
                                                                                                    
                                                                                                    Valid
      for:
                                                                                                      5
      (five) years
                                                                                                    
                                                                                                    Rogan
      Field Geographical coordinates:
                                                                                                      Northern
      latitude:
                                                                                                      1.
      49054’50”
                                                                                                      2.
      49053’30”
                                                                                                      3.
      49051’20”
                                                                                                      4.
      49053’30”.
                                                                                                      Eastern
      longitude: 36030’40”
                                                                                                      36042’10”
                                                                                                      36039’50”
                                                                                                      36029’00”
                                                                                                    
                                                                                                    Administrative
      district: Kharkiv Administrative region: Kharkiv, Chuguev reference
      location: 2 km west of Krasnokutsk
                                                                                                    
                                                                                                    
                                                                                                    12,850
                                                                                                    
                                                                                                    Geological
      Exploration and development of natural gas, crude oil#
      2507
                                                                                                    
                                                                                                    Dated
      22 October 2004
                                                                                                    
                                                                                                    Valid
      for:
                                                                                                      5
      (five) years
                                                                                                    
                                                                                                    Rakitnyansk
      Field
                                                                                                      Geographical
      coordinates: Northern latitude:
                                                                                                      1.49054’20”
                                                                                                      2.49052’50”
                                                                                                      3.49051’00”
                                                                                                      4.49053’10
                                                                                                      Eastern
      longitude:
                                                                                                      35048’50”
                                                                                                      25056’00”
                                                                                                      35056’00”
                                                                                                      35047’00”
                                                                                                    
                                                                                                    Administrative
      district: Kharkiv Administrative region: Novodolazk,
Valkiv
                                                                                                    
                                                                                                    
                                                                                                    7,908
                                                                                                    
                                                                                                    Geological
      Exploration and development of natural gas, crude oil773076
                                                                                                      Series
      AA
                                                                                                    
                                                                                                    Dated
      28 October, 2004
                                                                                                    
                                                                                                    November
      5 2004 –
                                                                                                      November
      5 2009
                                                                                                    
                                                                                                    Type
      of activity: prospecting (exploring) for natural resources geological
      support of geo-exploration works.
                                                                                                      Drilling
      of wells for prospecting (exploration) purposes of oil and natural gas.
      Assembly and disassembly of drilling equipment for purposes of prospecting
      (exploring) of oil and gas.
                                                                                                      Exploration
      and commercial development of oil and gas deposits cementing of
      stabilizing columns, major repairs, conservation and plugging of oil and
      gas wells.#775113
                                                                                                      Series
      AA
                                                                                                    
                                                                                                    Dated
      28 October, 2004
                                                                                                    
                                                                                                    October
      28 2004 –
                                                                                                      October
      2009
                                                                                                    
                                                                                                    Construction
      activities#
      867363
                                                                                                      Series
      AA
                                                                                                    
                                                                                                    Dated
      10 November, 2004
                                                                                                    
                                                                                                    November
      21 2004 –
                                                                                                      November
      20 2009
                                                                                                    
                                                                                                    Supplying
      of natural gas on an unregulated tariff basis




12




Esko Pivnich -During 2004 EP received geological and exploration license agreements to
develop the Karaikozovsk, Rogan and Rakitnyansk fields. The following amounts of
investments are to be incurred under the terms of those agreements during the
periods indicated in the table below:




Amount
                                      
                                      
                                      Amount
                                      
                                      
                                      RemainingPeriod
                                      
                                      
                                      To be invested
                                      
                                      
                                      invested
                                      
                                      
                                      InvestmentRogan
      field
                                      
                                      2005-2009
                                      
                                      
                                      $
                                      1,916,883
                                      
                                      
                                      $
                                      935,747
                                      
                                      
                                      $
                                      981,136Rakitnyansk
      field
                                      
                                      2005-2009
                                      
                                      
                                      
                                      2,583,117
                                      
                                      
                                      
                                      565,357
                                      
                                      
                                      
                                      2,017,760Karaikozovsk  field
                                      
                                      2005-2009
                                      
                                      
                                      
                                      2,781,818
                                      
                                      
                                      
                                      6,536,988
                                      
                                      
                                      
                                      -Total
                                      
                                      
                                      
                                      
                                      
                                      $
                                      7,281,818
                                      
                                      
                                      $
                                      8,038,092
                                      
                                      
                                      $
                                      2,998,896




The
amounts mandatory for investment are denominated in UAH and have been translated
using the prevailing exchange rates as at December 31, 2008.




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




Amount
                                    
                                    
                                    Amount
                                    
                                    
                                    RemainingPeriod
                                    
                                    
                                    To be invested
                                    
                                    
                                    Invested
                                    
                                    
                                    InvestmentPeremishlyansk
      field
                                    
                                    2004-2009
                                    
                                    
                                    $
                                    1,532,468
                                    
                                    
                                    $
                                    3,130,156
                                    
                                    
                                    $
                                    -Chukvinsk
      field
                                    
                                    2004-2009
                                    
                                    
                                    
                                    1,012,987
                                    
                                    
                                    
                                    3,788
                                    
                                    
                                    
                                    1,009,199Scheremetivsk
      field
                                    
                                    2004-2009
                                    
                                    
                                    
                                    467,533
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    467,533Niklovitsk
      field
                                    
                                    2004-2009
                                    
                                    
                                    
                                    389,610
                                    
                                    
                                    
                                    11,661
                                    
                                    
                                    
                                    377,949Pilipivsk
      field
                                    
                                    2004-2009
                                    
                                    
                                    
                                    311,689
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    311,689Total
                                    
                                    
                                    
                                    
                                    
                                    $
                                    3,714,287
                                    
                                    
                                    
                                    3,145,605
                                    
                                    
                                    
                                    2,166,370


The
amounts mandatory for investment are denominated in UAH and have been translated
using the prevailing exchange rates as at December 31, 2008.




13


Productive
Wells





As at
December 31, 2008, the Company had the following number of productive wells and
wells in progress.


Property
                                                                                                                  
                                                                                                                  Karaikozovsk
                                                                                                                  
                                                                                                                  
                                                                                                                  Rogan
                                                                                                                  
                                                                                                                  
                                                                                                                  Rakitnyansk
                                                                                                                  
                                                                                                                  
                                                                                                                  Peremysh-
                                                                                                                  
                                                                                                                  
                                                                                                                  TotallyanskGross BasisOilProductive
      Wells
                                                                                                                  
                                                                                                                  
                                                                                                                  3
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  3Wells
      in Progress
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -GasProductive
      Wells
                                                                                                                  
                                                                                                                  
                                                                                                                  3
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  3Wells
      in Progress
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  1
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  1Natural
      Gas LiquidsProductive
      Wells
                                                                                                                  
                                                                                                                  
                                                                                                                  1
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  1Wells
      in Progress
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -Net basisOilProductive
      Wells
                                                                                                                  
                                                                                                                  
                                                                                                                  3
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  3Wells
      in Progress
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -GasProductive
      Wells
                                                                                                                  
                                                                                                                  
                                                                                                                  3
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  3Wells
      in Progress
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  1
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  1Natural
      Gas LiquidsProductive
      Wells
                                                                                                                  
                                                                                                                  
                                                                                                                  1
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  1Wells
      in Progress
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -





Note: In
accordance with the Joint Activity Agreement # 35/970-SD dated August 19, 2004
Esko-Pivnich had 80% working interest in Wells #2 and #3 of Karaikozovsk lease.
Effective as of July 31, 2007, the Joint Activity Agreement was terminated and
superceded by a lease agreement.




Overview of
Regional Geology




Karaikozovsk
field




The Company’s most explored and
developed reserves are currently located in the Karaikozovsk lease. All of
Sunrise’s production activities during 2008 were conducted on the above lease.
The Karaikozovsk lease is located close to the northern border of the
Dnieper-Donetsk depression. The structure was discovered in 1957-1958 when the
exploration drilling and mapping of the area was conducted. Additional
geophysical studies of the area were conducted in 1963 which covered Mesozoic,
Permian and Upper Carboniferous horizons while in 1971 Middle and Lower
Carboniferous horizons were explored. As a result of the detailed seismic
studies conducted in 1972-1973, the area was prepared for exploration drilling,
which began in 1976. In 1981 Well #2 was drilled and tested on the Serpukhovian
deposits at the producing horizons of S-5, S-5a at the depth interval of
4981-5196 m (approximately 16,400 ft). These tests resulted in a flow rate of 75
cu.m/day (approximately 430 barrels per day), using 10mm choke. In 1982 the
field was recorded on the state balance.




The total number of wells drilled in
the area included: 12 wildcats and prospecting wells of which two proved
commercially viable. The rocks carbonate-terrigenous thickness was uncovered
from Quaternary to Lower Carboniferous (Visean stage).




The tectonic fault divides Karaikozovsk
lease into two blocks: Karaikozovsk and Lubivsk block.




Proved
reserves




On March
11, 2009 we received a letter from the Company’s geologists, Netherland, Sewell
& Associates, Inc. stating that based on the prices and costs used in the
evaluation, which was conducted in accordance with the guidelines of the US
Securities and Exchange Commission (SEC), they have determined that there were
no proved reserves in Karaikozovsk field as of December 31, 2008. Based on the
SEC guidelines and requirements for proving reserves, the Company has no
reserves or production in the remaining 7 properties.


14




ITEM 3. 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.




We are not aware of any 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 involved or
have a material interest against us in a matter concerning Sunrise or our
operations.




ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




No matters were submitted to a vote of
security holders during the year ended December 31, 2008. The only matter
submitted to a vote of our security holders during the year ended December 31,
2004, was a proposal for the Amendment and Restatement of the Company’s
Certificate of Incorporation, which was approved by a written consent of holders
holding a total of more than 90% of the outstanding shares. The Amended and
Restated Certificate of Incorporations became effective September 30,
2004.




PART
II:




ITEM 5. MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS




Sunrise
Energy Resources` common stock is listed on the OTC Bulletin Board quotation
system under the symbol SEYR.OB. On or about February 1, 2005 NevWest
Securities, a NASD member firm filed Form 15c211 with the NASD to initiate
quotation of our post transaction stock on the OTCBB quotation system.Our common stock began
quotation on the OTC Bulletin Board on or about May 23, 2005.




The
following quotations reflect the high and low daily closing prices for our
common stock obtained from Quotestream for the periods indicated below are as
follows:




OTC
Bulletin Board




Quarter
      ended
                      
                      High
                      
                      
                      LowMarch
      31, 2008
                      
                      $
                      1.15
                      
                      
                      $
                      1.10June
      30, 2008
                      
                      $
                      1.15
                      
                      
                      $
                      1.01September
      30, 2008
                      
                      $
                      1.01
                      
                      
                      $
                      0.08December
      31, 2008
                      
                      $
                      0.08
                      
                      
                      $
                      0.08




Computershare Trust Company Inc.,
located at 350 Indiana Street Suite 800 Golden Colorado 80401 (Tel 303-262-0600
Fax 303-262-0700) is the registrar and transfer agent for our common
shares.




As of March 30, 2009, we had 23,542,337
shares of common stock outstanding or committed for issuance, and approximately
1,250 stockholders of record. This number of stockholders does not include
stockholders who hold our securities in street name.


15




Dividend
Policy




We have not declared or paid any cash
dividends since inception. Although there are no restrictions that limit our
ability to pay dividends on our common shares, we intend to retain our future
earnings for use in our operations and expansion of our business and do not
intend to pay any cash dividends in the foreseeable future. We do not anticipate
that cash dividends will be issued in the foreseeable
future.




Changes in
Securities




The Amended and Restated Certificate of
Incorporation became effective October 1, 2004 and increased Company’s
authorized Capital from 10,000,000 shares of $1.00 par value common stock to
77,500,000 million shares, par value $0.01, of which up to 2,500,000 shares may
be designated as preferred shares, par value $0.001. In addition, the name of
the Company was changed from Sunrise Energy Services, Inc. to Sunrise Energy
Resources, Inc.




As part of the transactions described
above, Sunrise Energy Resources, Inc. has issued and delivered to the EP and
Pari Shareholders a total of 10,479,900 and 161,014 shares of its common stock,
respectively. The sale and subsequent transfer 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
Company and all certificates issued bear appropriate restrictive legends. No
underwriter was involved in the transaction.




ITEM 6.
MANAGEMENT DISCUSSION AND ANALYSIS OF PRINCIPAL CONDITIONS AND
OPERATIONS




Risk
Factors




(SEE
ALSO DISCUSSION OFCERTAIN RISK FACTORS IN ITEM 1 OF THIS ANNUAL
REPORT)




Much of the information included in
this Annual Report includes or is based upon estimates, projections or other
“forward looking statements”. Such forward looking statements include any
projections or estimates made by us and our management in connection with our
business operations. While these forward-looking statements, and any assumptions
upon which they are based, are made in good faith and reflect our current
judgment regarding the direction of our business, actual results will almost
always vary, sometimes materially, from any estimates, predictions, projections,
assumptions or other future performance suggested herein.




Such estimates, projections or other
“forward looking statements” involve various risks and uncertainties as outlined
below. We caution the reader that important factors in some cases have affected
and, in the future, could materially affect actual results and cause actual
results to differ materially from the results expressed in any such estimates,
projections or other “forward looking statements”.




Our common shares are considered
speculative during our search for new and additional business opportunities.
Prospective investors should consider carefully the risk factors set out below
and elsewhere in this Report.




Exploration
and Development Risks




Our success is dependent on finding,
developing and producing economic quantities of oil and gas.  Our future
drilling operations may not be successful in finding and producing economic
reserves.  We are also subject to other operating risks normally associated
with the exploration, development and production of oil and gas.  These
risks include high pressure or irregularities in geological formations,
blowouts, cratering, fires, shortages or delays in obtaining equipment and
qualified personnel, equipment failure or accidents, and adverse weather
conditions, such as winter snowstorms.  These risks can result in
unfavorable events, or they may result in higher costs and operating
delays.  We maintain very limited insurance coverage and such coverage may
not be effective to fully compensate for these risks.  In many cases, such
coverage is either not available or is not cost-effective in light of our
operations in Ukraine.




Oil and Gas
reserve risks




Proved oil and gas reserves are the
estimated quantities of natural gas, crude oil and condensate that geological
and engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Reserves are considered proved if economical production is supported
by either actual production or conclusive formation tests. Reserves that can be
produced economically through application of improved recovery techniques are
included in the “proved” classification when successful testing by a pilot
project or the operation of an installed program in the reservoir provides
support for the engineering analysis on which the project or program is based.
Proved developed oil and gas reserves can be expected to be recovered through
existing wells with existing equipment and operating
methods.


16




Sunrise emphasizes that the volumes of
reserves are estimates which, by their nature, are subject to revision. These
estimates were made using available geological and reservoir data, as well as
production performance data. These estimates are reviewed annually and revised,
either upward or downward, as warranted by additional performance data. In
addition, our reserves are contained in carbonate reservoirs, and there is
substantial uncertainty with regard to carbonate reservoirs as compared to
sandstone reservoirs.




On March
11, 2009 we received a letter from the Company’s geologists, Netherland, Sewell
& Associates, Inc. stating that based on the prices and costs used in the
evaluation, which was conducted in accordance with the guidelines of the US
Securities and Exchange Commission (SEC), they have determined that there were
no proved reserves in Karaikozovsk field as of December 31, 2008. Based on the
SEC guidelines and requirements for proving reserves, the Company has no
reserves or production in the remaining 7 properties.




Marketing
and oil & gas prices




Our
future success is dependent on being able to transport and market our production
either within Ukraine or export it to international markets.  Thus, our
revenues could be adversely affected by issues which are beyond our control
relating to the crude oil and gas transportation infrastructure both within and
outside Ukraine. The export of oil from Ukraine depends on access to
transportation routes, primarily pipeline systems, which can have limited
available capacity and are subject to other restrictions.  Gas pipeline
access is the only method to sell gas production either domestically or for
export, and thus the Company is subject to the risk that unless the Company
obtains access to pipelines to transfer gas to Ukraine, the price at which the
Company sells its gas may remain well below the market price.  We have
connected the gas and condensate separation facility at Karaikozovsk lease to
Bogodukhov-Stepove regional gas pipeline.  There is no gas pipeline
connection at the Company’s other properties as they are not presently
producing. The majority of our customers buy the oil and condensate from us at
wellsite by collecting it from our storage facility in tank-trucks. Prior to the
completion and launch of the Company’s oil, gas and condensate separation and
gathering facility at Karaikozovsk property in September 2007, we also shipped
certain amounts of oil and gas mixture that we produced by pipe to Kachanovskiy
oil refinery for separation and treatment to pipeline grade.




The
prices of oil, gas and natural gas liquids are subject to significant volatility
in response to changes in supply, market uncertainty and a variety of other
factors beyond our control.




Limited operating history;
anticipated losses; uncertainly of future results




The Company has a limited operating
history upon which an evaluation of its prospects can be made. There can be no
assurance that the Company will effectively execute its business plan and expand
its operations, or that the Company’s future operational and financial
objectives will be met. Future development and operating results will depend on
many factors, including access to adequate capital, the demand for the Company’s
products, the level of product and price competition, the Company’s success in
setting up and expanding distribution channels, and whether the Company can
control costs. Many of these factors are beyond the control of the Company. In
addition, the Company’s future prospects must be considered in light of the
risks, expenses, and difficulties frequently encountered in establishing a new
business in the oil and gas industry, which is characterized by intense
competition, rapid technological change, highly litigious competitors and
significant regulation.




Political
Risks




The market in Ukraine is monitored by
the government, which could impose taxes or restrictions at any time which would
make operations unprofitable and infeasible and cause a write-off of capital
investment in Ukrainian opportunities.




A number of factors, beyond the
Company’s control and the effect of which cannot be accurately predicted may
affect raising capital to finance the Company’s expansion. These factors include
the regulation of foreign ownership and investment, acceptance of foreign
investors, and the regulation of oil and gas production and exporting
activities.


17




Risks
Associated with International Markets




The
Company’s operations have thus far been confined to Ukraine. However, the future
success of the Company will depend in part on its ability to generate sales on
international markets. There can be no assurance, however, that the Company will
be successful in generating these sales. In addition, these will be subject to a
number of risks, including: foreign currency risk; the risks that agreements may
be difficult or impossible to enforce and receivables difficult to collect
through a foreign country’s legal system; foreign customers may have longer
payment cycles; or foreign countries could impose withholding taxes or otherwise
tax the Company’s foreign income, impose tariffs, embargoes, or exchange
controls, or adopt other restrictions on foreign trade. In addition, the laws of
certain countries do not protect the Company’s operations to the same extent as
the laws of the United States.




Although not all of our present
officers or directors are key to our continuing operations, we rely upon the
continued service and performance of these officers and directors, and our
future success depends on the retention of these people, whose knowledge of our
business and whose technical expertise would be difficult to replace. At this
time, none of our officers or directors is bound by employment agreements, and
as a result, any of them could leave with little or no prior
notice.




Competition for qualified individuals
is likely to be intense, and we may not be able to attract, and retain
additional highly qualified personnel in the future. The failure to attract,
integrate, motivate and retain these employees could harm our
business.




Regulation




Although we will be subject to
regulation under the Securities Exchange Act of 1934, management believes that
we will not be subject to regulation under the Investment Company Act of 1940,
insofar as we will not be engaged in the business of investing or trading in
securities. In the event that we engage in business combinations which result in
us holding passive investment interests in a number of entities, we could be
subject to regulation under the Investment Company Act of 1940, meaning that we
would be required to register as an investment company and could be expected to
incur significant registration and compliance costs. We have obtained no formal
determination from the Securities and Exchange Commission as to the status of
our company under the Investment Company Act of 1940 and, consequently, any
violation of such act would subject us to material adverse
consequences.




Exposure to
foreign exchange rate fluctuations




With the majority of our operations
being located in Ukraine, all of our revenues and the majority of our expenses
are denominated in Ukrainian hryvnas. We currently do not and do not plan in the
near future to hedge our exposure to changing foreign exchange rates. Any
unfavorable changes in the applicable foreign exchange rates may have a material
effect on our financials and performance.




While the
UAH/USD exchange rate stayed flat at UAH5.05 to $1 for almost 6 years prior to
2008, during the second half of 2008, the Ukrainian hryvna weakened to UAH7.70
to $1 which is equivalent to 34% devaluation. Due to Ukraine’s political and
economic turmoil, the exchange rate is expected to fluctuate broadly in the near
future while maintaining a general devaluation trend.




Indemnification
of Directors, Officers and Others




Our by-laws contain provisions with
respect to the indemnification of our officers and directors against all
expenses (including, without limitation, attorneys’ fees, judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding arising by reason of the fact that the person is one of our
officers or directors) incurred by an officer or director in defending any such
proceeding to the maximum extent permitted by Delaware law.




Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of our company under Delaware law or
otherwise, we have been advised that the opinion of the Securities and Exchange
Commission is that such indemnification is against public policy as expressed in
the Securities Act of 1933 and is, therefore,
unenforceable.


18




Future
Dilution




Our statutory documents authorize the
issuance of 75,000,000 common shares, each with a par value of $0.001. In the
event that we are required to issue any additional shares or enter into private
placements to raise financing through the sale of equity securities, investors’
interests in our Company will be diluted and investors may suffer dilution in
their net book value per share depending on the price at which such securities
are sold. If we issue any such additional shares, such issuances also will cause
a reduction in the proportionate ownership and voting power of all other
shareholders. Further, any such issuance may result in a change in our
control.




Anti-Takeover
Provisions




We do not currently have a shareholder
rights plan or any anti-takeover provisions in our By-laws or corporate charter.
Without any anti-takeover provisions, there is no deterrent for a take-over of
the Company, which may result in a change in our management and
directors.




Discussion
and Analysis of Financial Condition




Introduction




The following discussion and analysis
addresses changes in our financial condition and results of operations during
the years ended December 31, 2008 and 2007.




Management’s key objectives for 2008
were:





o Acquire a 3-D seismic of Karaikozovsk
lease;


o Transfer Well #3 of Karaikozovsk
lease to produce from V-14 gas horizon;


o Deepen Well #14 on Karaikozovsk lease
and sidetrack the salt dome;


o Approach completion of Well #1 of
Peremyshlyank field;


o Commence geological and research
works on Rogan and Rakitnyansk properties;




Except
transferring Well #3 of Karaikozovsk property to produce from a gas horizon and
performing limited work at the Company’s Rogan and Rakitnyansk properties, other
key management objectives were not attained as a result of the inability to
raise sufficient funding.




Current
Activities




During
2008, our production was limited to Wells #2, #3 and #21 of Karaikozovsk
lease.  During the year we produced 3.7 MBBLS of oil from Well #2. During
the year we also produced 76.2 MMCF of natural gas from Well #3 and 320.4 MMCF
of natural gas from Well #21. In addition, during the year we produced 0.2 MBBLS
and 1.9 MBBLS of condensate from Wells #3 and #21.




As at
December 31, 2008, the Company completed drilling approximately 95% of
exploration Well #1 of Peremyshlyank lease in Western Ukraine. The Company
lacked sufficient funds to drill the well to the projected depth, test the well
and complete it.  Because the well has not been completed and
therefore geological evaluation cannot be performed in accordance with SEC
guidelines, the costs associated with drilling this well are classified as
drilling in progress.   If ultimate evaluation determines there
are no proved reserves, these costs will be expensed.




Results
of Operations




Oil and gas
production and revenue




During
the year ended December 31, 2008, Esko Pivnich had net production of 3,687
barrels (“BBLS”) of crude oil, 396,604 thousands of cubic feet (“MCF”) of
natural gas, and 2,090 barrels (“BBLS”) of condensate respectively. As at
December 31, 2008 the Company carried inventory of oil of 283 BBLS and 368 BBLS
of condensate while as at December 31, 2007 the Company had the inventory of 103
BBLS of oil and 635 BBLS of condensate.




We
recognize revenue from the sale of oil and condensate when the purchaser takes
delivery of the oil at the field. The revenue from the sale of natural gas is
recognized at the metering node installed at the point of connection of the
Bogodukhov-Stepove gas pipeline with the gas flow line from the storage and
separation facility at Karaikozovsk lease.


19




During
the year ended December 31, 2008 the Company sold 3,405 BBLS of its internally
produced crude oil at an average price of $72.70 per BBL translating into net
revenues from sales of internally produced oil of $247,535. In addition, the
Company sold 395,505 MCF of gas at an average price of $4.63/MCF translating
into net revenues from sales of produced gas of $1,832,862. Also, the Company
generated $173,480 from the sales of 2,351 BBLS of produced condensate at an
average price of $73.79.




Efffective
from August 1, 2007, the Company had 100% working interest in Karaikozovsk lease
but had to pay Okhtyrkanaftogaz a monthly rental fee equivalent to $18,495 for
the usage of Wells #2 and #3 of Karaikozovsk property. The Company has 100%
working interest and does not have to pay any rental fees with respect to Well
#21 of Karaikozovsk field since the Company financed 100% of Well #21 drilling
costs.




All sales
agreements were short-term in nature. The above agreements can be extended
subject to the consent of the parties. Our crude oil and natural gas liquids are
sold on the ex-works basis and natural gas is sold at the pipeline measuring
node. Therefore, the company does not normally incur significant transportation
expenses.




Production
Costs




Provided
below is the analysis of the average selling prices and production costs during
2006-2008 period presented on the net basis.


For the years
                                                            
                                                            12/31/2008
                                                            
                                                            
                                                            12/31/2007
                                                            
                                                            
                                                            12/31/2006EndedProduction1Oil,
      BBLS
                                                            
                                                            
                                                            3,687
                                                            
                                                            
                                                            
                                                            17,577
                                                            
                                                            
                                                            
                                                            29,494Natural
      Gas Liquids, BBLS
                                                            
                                                            
                                                            2,090
                                                            
                                                            
                                                            
                                                            7,068
                                                            
                                                            
                                                            
                                                            -Natural
      Gas, MCF
                                                            
                                                            
                                                            396,604
                                                            
                                                            
                                                            
                                                            201,414
                                                            
                                                            
                                                            
                                                            21,377Barrels
      of Oil Equivalent, BOE3
                                                            
                                                            
                                                            71,878
                                                            
                                                            
                                                            
                                                            58,213
                                                            
                                                            
                                                            
                                                            33,057Average
      sales priceOil,
      $/BBL
                                                            
                                                            
                                                            72.70
                                                            
                                                            
                                                            
                                                            51.78
                                                            
                                                            
                                                            
                                                            55.14Natural
      Gas Liquids, BBLS
                                                            
                                                            
                                                            73.79
                                                            
                                                            
                                                            
                                                            54.70Natural
      Gas, $/MCF
                                                            
                                                            
                                                            4.63
                                                            
                                                            
                                                            
                                                            3.06
                                                            
                                                            
                                                            
                                                            1.36Average
      oil and natural gas cost of production, $/BOE2
                                                            
                                                            
                                                            21.76
                                                            
                                                            
                                                            
                                                            26.36
                                                            
                                                            
                                                            
                                                            24.03







1





2Includes
direct lifting costs (labor, repairs and maintenance, materials and supplies),
expensed workover costs and the
administrative costs of field production personnel, insurance and ad valorem
taxes.





3Natural
gas is converted to oil equivalent at the rate of 6MCF of gas equaling 1
BOE.


20




Operating
income




The
average sales prices rose in 2008 from their 2007 levels in sync with the global
energy boom experienced in second and third quarter of 2008. This effect was not
lasting. When the boom was followed by a slump in late 2008 the Company’s sales
prices also went down from their highs to $30.20 per barrel for crude oil,
$39.95 per barrel of condensate and $4.12 per MCF of natural gas in December
2008.




The
reduction in the average production costs from $26.36/BOE in 2007 down to
$21.76/BOE in 2008 was mainly caused by the streamlining of the Company’s
operations and the management’s cost cutting programs as well as a higher
absorption of fixed production overheads resulting from the higher
production.




Exploration and
development




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 2008 and 2007, we
incurred $342,484and
$285,397 in exploration
and development expenses, respectively.




Depreciation,
depletion and amortization




Depreciation, depletion and
amortization (“DD&A”) of oil and gas properties is calculated using the
useful life of assets method.




The
depreciation of Well #21 drilling and in-ground infrastructure costs in the
amount of $1,600,000 was the largest contributor into the total depreciation
charge for 2008 in the amount of $1,909,821.




Sales, general and
administrative expenses




Sales,
general and administrative expenses in 2008 went down to $1,193,607 from
$1,492,790 in 2007. The reduction was mainly caused by smaller Other
Professional Expenses that went down from $346,386 in 2007 to $139,125 in 2008
and Miscellaneous Expenses that went down from $308,826 in 2007 to $51,830 in
2008.




Interest
expense




Interest
expense went down from $919,498 in 2007 to $522,584 in 2008 as a result of the
lower amount of debt in the Company’s capital structure. The main contributor to
the reduction was the extinguishment of the Dutchess Note in February
2008.




Impairment
Loss




Based on
the geologists’ report stating that the Company had no proved reserves in
Karaikozovsk lease as of December 31, 2008, in accordance with SFAS 144, we
recognized the impairment loss in the amount of $3,519,704. The impairment loss
was computed as the difference between the carrying value of the assets and
their estimated realizable value.




Liquidity and
Capital Resources




Since inception, we have financed our
operations from private sources. We anticipate continuing losses in the near
future while Esko Pivnich and Pari establish steady production of hydrocarbons
in Ukraine. As at December 31, 2008 the Company had total current assets of
$2,038,656 and total current liabilities of $10,984,513. As at December 31,
2008, the Company had cash balances of $43,396 and a working capital deficit of
$8,945,857.




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


21




Cash
flow




Cash
(used)/provided by operating activities for the years ended December 31, 2008
and 2007 amounted to $1,150,443 and $(848,262), respectively. The increase in
operating cashflow by $1,998,705 was primarily caused by a larger decrease in
other accounts receivable of $606,091 (2007: decrease of $23,311), a decrease in
taxes receivable of $273,077 in 2008 (2007: increase of $705,554), and a smaller
reduction in taxes payable of $152,687 (2007:$513,839).




During
2008 and 2007, the Company invested in fixed assets a total amount of $3,698,730
and $4,761,141, respectively, which were financed by private equity placements,
convertible debentures placements and promissory notes.




Cash
Requirements




The
Company anticipates it will require around $6 million to service the principal
and interest payments on the Company’s liabilities including the principal and
the accrued interest on the Millington Solutions LLC convertible debentures
facility in the amount of $5,684,837 and pay the on-going maintenance expenses.
Because the Company has been unable to obtain additional capital to fund these
requirements, the Company has agreed to transfer 100% stakes in Esko Pivnich and
Pari containing substantially all assets of the Company to Millington Solutions
LLC in settlement of all amounts owed to the latter.




Income Taxes, Net
Operating Losses and Tax Credits




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




Critical Accounting
Policies and Recent Accounting Pronouncements




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




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 rate at
December 31, 2008 was approximately 1 U.S. dollar to 7.70 Ukrainian Hrivnas
from 1 U.S. dollar to 5.05 Ukrainian Hrivnas at December 31, 2008. For the
years ended December 31, 2008 and 2007, the average exchange rates to 1 U.S.
dollar were approximately 5.267 and 5.05 Ukrainian Hrivnas,
respectively.




While the
UAH/USD exchange rate stayed flat at UAH5.05 to $1 for almost 6 years prior to
2008, during the second half of 2008, the Ukrainian hryvna weakened to UAH7.70
to $1 which is equivalent to 34% devaluation. Due to Ukraine’s political and
economic turmoil, the exchange rate is expected to fluctuate wildly in the near
future while continuing on the devaluation trend.




Principles
of Consolidation




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


22




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




On March 11, 2009 we received a letter
from the Company’s geologists, Netherland, Sewell & Associates, Inc. stating
that based on the prices and costs used in the evaluation, which was conducted
in accordance with the guidelines of the US Securities and Exchange Commission
(SEC), they have determined that there were no proved reserves in Karaikozovsk
field as of December 31, 2008. At present, the Company does not have proved
reserves as defined in Rule 4-10(a) of Regulation S-X for the remaining 7
properties.




Successful
Efforts Method of Accounting




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




Revenue
Recognition




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




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




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 $6,449,398 during the year ended December 31,
2008, and, as of December 31, 2008, the Company’s current liabilities exceeded
its current assets by $8,945,857. Additionally, to fully develop the area
covered by the Company’s 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.




23


·
            During
      2009, the Company needs to raise approximately $6 million to repay the
      Millington Notes. If the Company fails to raise the above amount it will
      explore alternative opportunities of settling the Millington Notes. Such
      alternative opportunities may include sale of some or all of the Company’s
      assets.





·
            Subject to a successful
      resolution of the Millington situation, the Company plans to continue to
      raise additional capital in the equity markets as significant source of
      funding the development of the
Licenses.




Accordingly, our independent auditors
included an explanatory paragraph in their report on the December 31, 2008
financial statements regarding concerns about our ability to continue as a going
concern. Our financial statements contain additional note disclosures describing
the circumstances that lead to this disclosure by our independent
auditors.




ITEM 7.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




Our consolidated financial statements
are stated in United States dollars and are prepared in accordance with United
States generally accepted accounting principles. The Report of Independent
Registered Public Accounting Firm, John A. Braden & Co., P.C. on the
consolidated financial statements of Sunrise Energy Resources, Inc., and its
subsidiaries (the “Company”) for the year ended December 31, 2008 is included
herein immediately preceding the audited consolidated financial statements for
the respective periods.




*Former name of
Sunrise Energy Resources, Inc. as filed in information statement on from 14f-1
on January 3, 2005, pursuant to Section 14fc of the Act reporting the Company’s
plan to complete the acquisition and modify the control of the Company and the
make up of the Board of Directors.




SUNRISE
ENERGY RESOURCES, INC.


CONSOLIDATED
FINANCIAL STATEMENTS


DECEMBER
31, 2008 AND 2007





IndexReport
      of Independent Registered Public Accounting Firm – John A. Braden &
      Company, P.C.
                          
                          
                          F-1Consolidated
      Balance Sheet
                          
                          
                          F-2Consolidated
      Statement of Operations and Comprehensive Loss
                          
                          
                          F-3Consolidated
      Statements of Changes in Stockholders’ Equity (Capital
      Deficit)
                          
                          
                          F-4Consolidated
      Statements of Cash Flows
                          
                          
                          F-5Notes
      to the Consolidated Financial Statements
                          
                          
                          F-5-F-27


24


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




TO THE DIRECTORS AND STOCKHOLDERS OF
SUNRISE ENERGY RESOURCES, INC AND SUBSIDIARIES:




We have audited the accompanying
consolidated balance sheet of Sunrise Energy Resources, Inc. and Subsidiaries
(“the Company”) as of December 31, 2008, and the related consolidated statements
of operations and comprehensive loss, changes in stockholders’ equity and cash
flows for the years ended December 31, 2008 and 2007. These financial statements
are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our
audit.




We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.




In our opinion, the financial
statements referred to above present fairly, in all material respects, the
financial position of Sunrise Energy Resources, Inc and Subsidiaries at December
31, 2008, and the related consolidated results of their operations and cash
flows for the years ended December 31, 2008 and 2007, in conformity with
accounting principles generally accepted in the United States of
America.




The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going
concern. As shown in the financial statements, the Company incurred a net loss
of $6,449,398 during the year ended December 31, 2008, and, as of December 31,
2008, the Company’s current liabilities exceeded its current assets by
$8,945,857. These factors, among others, including the Company’s ability to
develop the properties for which the Company has licenses, as discussed in Note
1 to the financial statements, raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.




John A.
Braden & Company, P.C.




Houston,
Texas


March 30,
2009


25




SUNRISE
ENERGY RESOURCES INC.


CONSOLIDATED
BALANCE SHEETS


(Expressed
in US Dollars)




December 31,
                      2008ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                    
                    $
                    43,396Accounts
      receivable – related party
                    
                    
                    120,095Other
      accounts receivable and prepayments
                    
                    
                    384,637Inventories
                    
                    
                    28,486Taxes
      receivable
                    
                    
                    1,462,042Total
      current assets
                    
                    
                    2,038,656NONCURRENT
      ASSETSProperty,
      plant and equipment, net
                    
                    
                    189,614Drilling
      in process
                    
                    
                    4,953,041Lease/concession
      acquisition cost of Pari
                    
                    
                    53,857Long-term
      financial investments
                    
                    
                    2,303Deferred
      tax asset
                    
                    
                    53,843TOTAL
      ASSETS
                    
                    $
                    7,291,314LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                    
                    $
                    137,595Accounts
      payable – related party
                    
                    
                    2,751,568Taxes
      payable
                    
                    
                    278,144Short
      term notes payable
                    
                    
                    5,987,408Other
      accounts payable and accruals
                    
                    
                    864,878Other
      accounts payable -  related party
                    
                    
                    275,091Prepayments
      for oil and gas
                    
                    
                    298,632Interest  payable
                    
                    
                    239,886Interest
      payable – related party
                    
                    
                    139,508Profit
      interest payable
                    
                    
                    11,802Total
      current liabilities
                    
                    
                    10,984,512Long-term
      payable – related party
                    
                    
                    1,205,900STOCKHOLDERS’
      EQUITYCommon
      Stock, $.001 par value, 75,000,000 authorized, 23,542,337 issued and
      outstanding
                    
                    
                    23,542Additional
      Paid-in-Capital
                    
                    
                    6,479,170Retained
      earnings (Accumulated deficit)
                    
                    
                    (9,972,957
                    )Accumulated
      other comprehensive income – foreign currency
                    
                    
                    (1,428,853
                    )Total
      stockholders' equity (deficit)
                    
                    
                    (4,899,098
                    )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                    
                    $
                    7,291,314




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


26




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




For
      the years ended December 312008
                  
                  
                  2007REVENUESProduced
      oil & gas
                  
                  $
                  2,253,866
                  
                  
                  $
                  2,377,642Purchased
      oil & gas
                  
                  
                  118,663
                  
                  
                  
                  389,7902,372,529
                  
                  
                  
                  2,767,432COST
      OF SALES
                  
                  
                  (177,172
                  )
                  
                  
                  (354,524
                  )2,195,357
                  
                  
                  
                  2,412,908Operating
      expenses
                  
                  
                  (1,564,073
                  )
                  
                  
                  (1,713,658
                  )Depreciation
      and depletion  expenses
                  
                  
                  (1,909,821
                  )
                  
                  
                  (697,173
                  )Other
      operating income (expense)
                  
                  
                  97,270
                  
                  
                  
                  (11,241
                  )Sales,
      general and administrative expenses
                  
                  
                  (1,193,607
                  )
                  
                  
                  (1,492,790
                  )OPERATING
      INCOME (LOSS)
                  
                  
                  (2,374,874
                  )
                  
                  
                  (1,501,954
                  )OTHER
      INCOME (EXPENSE)Interest
      income
                  
                  
                  
                  
                  
                  
                  758Interest
      expense
                  
                  
                  (522,584
                  )
                  
                  
                  (919,498
                  )Production
      sharing agreement working interest expense
                  
                  
                  
                  
                  
                  
                  (40,109
                  )Foreign
      exchange (loss) gain
                  
                  
                  (5,951
                  )
                  
                  
                  (26,011
                  )Loss
      on disposal of fixed assets
                  
                  
                  
                  
                  
                  
                  (74,875
                  )Gain
      from reversal of accrued VAT liability
                  
                  
                  
                  
                  
                  
                  598,324Other
      income (expense), net
                  
                  
                  (32,275
                  )(LOSS)
      INCOME BEFORE TAX AND EXTRAORDINARY ITEMS
                  
                  
                  (2,935,683
                  )
                  
                  
                  (1,963,365
                  )LOSS
      ON IMPAIRMENT OF ASSETS
                  
                  
                  (3,519,704
                  )INCOME
      TAX
                  
                  
                  5,990
                  
                  
                  
                  (39,452
                  )NET
      LOSS
                  
                  
                  (6,449,398
                  )
                  
                  
                  (2,002,817
                  )Other
      comprehensive lossForeign
      currency translation loss
                  
                  
                  (1,396,661
                  )
                  
                  
                  -COMPREHENSIVE
      LOSS
                  
                  $
                  (7,846,059
                  )
                  
                  $
                  (2,002,817
                  )BASIC
      LOSS (EARNINGS) PER SHARE
                  
                  $
                  (0.35
                  )
                  
                  $
                  (0.11
                  )WEIGHTED
      AVERAGE COMMON SHARES OUTSTANDING
                  
                  
                  22,623,335
                  
                  
                  
                  18,894,350




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


27




SUNRISE
ENERGY RESOURCES INC.


CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY


(CAPITAL
DEFICIT)


(Expressed
in US Dollars except share amounts)




Retained
              
              
              Accumulated
              
              
              TotalCommon
              
              
              Additional
              
              
              Earnings
              
              
              Other
              
              
              Stockholder'sStock
              
              
              Paid-in
              
              
              (Accumulated
              
              
              Comprehensive
              
              
              EquityShares
              
              
              Amount
              
              
              Capital
              
              
              Deficit)
              
              
              (Loss)
              
              
              (Capital
                Deficit)BALANCE,
      DECEMBER 31, 2006
              
              
              17,161,014
              
              
              
              17,161
              
              
              
              80,824
              
              
              
              (1,520,742
              )
              
              
              (32,192
              )
              
              
              (1,454,949
              )Private
      placement of shares
              
              
              4,493,668
              
              
              
              4,494
              
              
              
              4,435,079
              
              
              
              
              
              
              
              
              
              
              
              4,439,573Shares
      issued for services
              
              
              50,000
              
              
              
              50
              
              
              
              127,450
              
              
              
              
              
              
              
              
              
              
              
              127,500Net
      loss for the year
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,002,817
              )
              
              
              
              
              
              
              (2,002,817
              )BALANCE,
      DECEMBER 31, 2007
              
              
              21,704,682
              
              
              $
              21,705
              
              
              $
              4,643,353
              
              
              $
              (3,523,559
              )
              
              $
              (
      32,192
              )
              
              $
              1,109,307Private
      placement of shares
              
              
              1,837,655
              
              
              
              1,837
              
              
              
              1,835,817
              
              
              
              
              
              
              
              
              
              
              
              1,837,654Net
      loss for the year
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,449,398
              )
              
              
              
              
              
              
              (6,449,398
              )Comprehensive
      loss for the year
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,396,661
              )
              
              
              (1,396,661
              )BALANCE,
      DECEMBER 31, 2008
              
              
              23,542,337
              
              
              $
              23,542
              
              
              $
              6,479,170
              
              
              $
              (9,972,957
              )
              
              $
              (1,428,853
              )
              
              $
              (4,899,098
              )




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


28




SUNRISE
ENERGY RESOURCES INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS (RESTATED)


(Expressed
in US Dollars)




For
      the years ended December 312008
                              
                              
                              2007CASH
      PROVIDED BY (USED IN) OPERATING ACTIVITIES:Net
      loss
                              
                              $
                              (6,449,398
                              )
                              
                              $
                              (2,002,817
                              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and depletion expense
                              
                              
                              1,909,821
                              
                              
                              
                              697,173Loss
      on impairment of assets
                              
                              
                              3,519,704Provision
      for doubtful accounts
                              
                              
                              
                              
                              
                              
                              -Deferred
      tax (gain) expense
                              
                              
                              21,935
                              
                              
                              
                              (3,360
                              )Net
      accrued interest
                              
                              
                              75,233
                              
                              
                              
                              413,515Ammortization
      of shares issued for services
                              
                              
                              
                              
                              
                              
                              127,500Changes
      in assets and liabilities:(Increase)
      decrease in accounts receivable
                              
                              
                              45,396
                              
                              
                              
                              -(Increase)
      in other accounts receivable and  prepayments
                              
                              
                              606,901
                              
                              
                              
                              23,311(Increase)
      decrease in inventories
                              
                              
                              10,063
                              
                              
                              
                              302,465(Increase)
      decrease in taxes receivable
                              
                              
                              273,077
                              
                              
                              
                              (705,554
                              )Increase
      (decrease) in accounts payable
                              
                              
                              810,509
                              
                              
                              
                              1,076,650Increase
      (decrease)  in taxes payable
                              
                              
                              (152,687
                              )
                              
                              
                              (513,839
                              )Increase
      (decrease)  in other accounts payable and
    accruals
                              
                              
                              99,179
                              
                              
                              
                              (509,718
                              )Increase
      (decrease)  in prepayments for oil and gas
                              
                              
                              (113,596
                              )
                              
                              
                              (160,746
                              )Increase in
      interest payable
                              
                              
                              494,306
                              
                              
                              
                              407,1591,150,443
                              
                              
                              
                              (848,261
                              )CASH
      PROVIDED BY FINANCING ACTIVITIES:Short
      term notes issued
                              
                              
                              
                              
                              
                              
                              2,523,103Short
      term notes repaid
                              
                              
                              (558,257
                              )
                              
                              
                              (2,140,683
                              )Long
      term loans received
                              
                              
                              
                              
                              
                              
                              -Proceeds
      from share issuance
                              
                              
                              1,837,655
                              
                              
                              
                              4,439,573Short
      terms loans paid
                              
                              
                              
                              
                              
                              
                              -Long
      term  notes issued
                              
                              
                              
                              
                              
                              
                              856,200Long
      term notes repaid
                              
                              
                              
                              
                              
                              
                              (186,000
                              )1,279,398
                              
                              
                              
                              5,492,193CASH
      USED IN INVESTING ACTIVITES:Purchase
      of property, plant and equipment
                              
                              
                              (3,698,730
                              )
                              
                              
                              (4,761,141
                              )Long
      term investment purchased
                              
                              
                              
                              
                              
                              
                              (74,022
                              )Cash
      inflow on the acquisition
                              
                              
                              
                              
                              
                              
                              -(3,698,730
                              )
                              
                              
                              (4,835,163
                              )Effect
      of exchange rate changes
                              
                              
                              1,300,370INCREASE
      (DECREASE) IN CASH:
                              
                              
                              31,481
                              
                              
                              
                              (191,231
                              )CASH,
      at the beginning of the period
                              
                              
                              11,915
                              
                              
                              
                              203,146CASH,
      at the end of the period
                              
                              $
                              43,396
                              
                              
                              $
                              11,915INCOME
      TAX PAID
                              
                              $
                              146,697
                              
                              
                              $
                              45,945INTEREST
      PAID IN CASH
                              
                              $
                              -
                              
                              
                              $
                              316,798Non-cash
      investing and financing transactions:Issuance
      of common stock to Dutchess Private Equity Fund for placement agency
      services
                              
                              $
                              -
                              
                              
                              $
                              127,500Issuance
      of promissory Note as payment for services to MI SWACO
                              
                              $
                              -
                              
                              
                              $
                              237,677




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


29




1.NATURE OF
BUSINESS




All
operating activities of Sunrise Energy Resources Inc. are conducted through its
wholly owned Ukrainian subsidiaries, TOV Energy-Servicing Company Esko Pivnich
(“Esko Pivnich” or “EP”) and Pari  (“Pari”) both formed as Ukrainian
Closed Joint Stock Companies (CJSC). Esko Pivnich and Pari are engaged in oil
and gas exploration and development in the country of Ukraine.During 2008 the Company’s
revenues were derived exclusively from Esko Pivnich’s activities on Karaikozovsk
lease in Eastern Ukraine where the Company was producing from 3 wells internally
labeled #2, #3 and #21.  Well #21 of Karaikozovsk property was put
into production on September 1, 2007.




Until
July 31, 2007, Esko Pivnich’s involvement in wells #2 and #3 of Karaikozovsk
lease was governed by joint activity agreements (JAA). On that date the
effective JAA #35/970-SD was superseded by a Lease Agreement # 4/1220-OR dated
August 1, 2007. In accordance with the lease agreement, the Company’s wholly
owned subsidiary Esko Pivnich shall pay Okhtirkaneftegas an equivalent of
$18,945 per month at the prevailing exchange rate for the usage of all
facilities at Karaikozovsk property that are owned by Okhtirkaneftegas including
Well #2 and #3. The above flat fee does not depend upon the amount of
hydrocarbons actually produced from Karaikozovsk lease.




Since
2000, Esko Pivnich has been a party to the following joint activity and lease
agreements with regard to Karaikozovsk property.




JAA/
                                Lease
      Agreement
                              
                              Counterparty
                              
                              Status
                              
                              EP
      Capital
                                Contribution*,
                                %
                              
                              
                              EP
      Profit
                                Share*,
                                %JAA
      # 01-SD dated April 26, 2000
                              
                              Poltavaneftegazgeologiya
                              
                              Superceded
      by PSA # 35/970-SD.
                              
                              
                              100
                              %
                              
                              
                              60
                              %JAA
      # 35/970-SD dated August 19, 2004
                              
                              Okhtyrkaneftogaz
                              
                              Terminated
      on July 31, 2007 and superceded by Lease Agreement effective on August 1,
      2007.
                              
                              
                              80
                              %
                              
                              
                              80
                              %Lease
      Agreement # 4/1220-OR dated August 1, 2007
                              
                              Okhtyrkaneftogaz
                              
                              
                              
                              
                              100
                              %
                              
                              
                              100
                              %




* Esko
Pivnich’s capital constribution and profit share were applicable only to Wells
#2 and #3 of Karaikozovsk lease. Well #21 of Karaikozovsk block has been 100%
financed by Esko Pivnich. Accordingly, 100% of profits or losses from Well #21
accrue to Esko Pivnich. The Company is not a party to any joint activity or
other agreements with respect to remaining properties. In the event, the
Company’s subsidiaries do not enter into joint activity agreements, the
Company’s subsidiaries shall be responsible for 100% of the capital expenditures
on such properties and, accordingly, 100% of the profits or losses from wells
drilled on these properties shall accrue to the Company.




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




Sunrise
Energy Resources Inc. currently has its headquarters at the following address:
570 Seventh Avenue, Suite 800, New York, New York 10018.




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




At
December 31, 2008 the company employed 50 people.


30




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 $6,449,398 during the year ended December 31, 2008, and the Company’s current
liabilities exceeded its current assets by $8,945,857.




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 by raising additional
funds in equity markets. At the present time the Company does not believe it
will be able to obtain additional funding. 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.




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 –US dollar is the reporting currency of the
accompanying consolidated financial statements. The Company’s Ukrainian
subsidiaries 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 rate at December 31, 2008 was approximately 1 U.S.
dollar to 7.70 Ukrainian Hrivnas from 1 U.S. dollar to 5.05 Ukrainian
Hrivnas . During the years ended December 31, 2008 and 2007, the foreign
exchange rate was at 5.267 and 5.05 Ukrainian Hryvnas to 1 U.S. dollar
respectively.




While the
UAH/USD exchange rate stayed flat at UAH5.05 to $1 for almost 6 years prior to
2008, during the second half of 2008, the Ukrainian hryvna weakened to UAH7.70
to $1 which is equivalent to 34% devaluation. Due to Ukraine’s political and
economic turmoil, the exchange rate is expected to fluctuate wildly in the near
future while continuing on the devaluation trend.




3.SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES




Basis
of Consolidation –The
consolidated financial statements incorporate the financial statements of
Sunrise Energy Resources Inc. and other enterprises, where the Company, directly
or indirectly exercises control. Control is achieved where the Company has the
power to govern the financial and operating policies of an investee enterprise
so as to obtain benefits from its activities. All significant intercompany
transactions, balances and unrealized gains (losses) on transactions are
eliminated on consolidation.




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




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


31




During
2008 the Company had revenues from the sale of petroleum products produced from
Karaikozovsk lease (Note 4 and Note 23) and from products purchased from third
parties. On March 11, 2009 we received a letter from the Company’s geologists,
Netherland, Sewell & Associates, Inc. stating that based on the prices and
costs used in the evaluation, which was conducted in accordance with the
guidelines of the US Securities and Exchange Commission (SEC), they have
determined that there were no proved reserves in Karaikozovsk field as of
December 31, 2008.




Property, Plant
and Equipment – As of the date of the financial statements, most assets
capitalized are directly related to drilling costs, above ground storage,
distribution and production facilities. The Company has adopted the policy of
accounting for oil and gas properties 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
non-productive. Other exploratory expenditures, including geological and
geophysical costs are expensed as incurred. Depreciation, depletion and
amortization of capitalized costs is calculated based on useful economic life of
the resulting assets. Capitalized Lease/Concession acquisition costs are
depreciated over the life of the related drilling rights.




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




Property
      and Equipment
                
                2  yearsWell
      #21drilling costs, casing and tubing
                
                Over
      the remaining life of the exploration license (expires on June 30,
      2009)Other
      Oil&Gas Equipment
                
                10-12
      yearsStorage
      tanks
                
                10
      yearsAbove
      ground pipelines and flowlines
                
                20
      yearsOffice
      Equipment
                
                5
      yearsComputer
      Equipment
                
                3
      years




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




In
accordance with SFAS 144, we test our long-lived assets for impairment by
comparing the carrying value of the assets with the undiscounted expected
cashflows from the investments. In the event, the aggregate undiscounted
expected cashflows from the investments are below the carrying value of the
above investments, the unamortized costs of such fixed assets will be reduced to
their fair value. Simultaneously, we will recognize the impairment loss as the
amount by which the fair value of the investments exceeds their carrying value.
Based on the geologists’ report stating that the Company had no proved reserves
in Karaikozovsk lease as of December 31, 2008, in accordance with SFAS 144, we
recognized the impairment loss in the amount of $3,519,704. The impairment loss
was computed as the difference between the carrying value of the assets and
their estimated realizable value. According to the management estimates, the net
realizable value of drilling and completion costs as well as capitalized well
workovers and repairs was close to Nil while the value of the above ground
infrastructure and facilities was assumed to be 10% of their carrying value
which approximated the scrap value of these assets. As at December 31, 2008, the
Construction-in-Progress balance of $4,953,041 represented Well #1 of
Peremyshlyansk property in Western Ukraine. At the time of this report, the well
was 95% finished in terms of drilling but was not tested or completed. Because
of the inability to obtain funding, the Company has been unable to complete this
well. No impairment loss was recognized in regard of this well.




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




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


32


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




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




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




Accounts
Receivable –Accounts
receivable are stated at their net realizable value after deducting provisions
for uncollectible amounts.  Because all sales are paid in advance,
there are no trade receivables.




Cash
and Cash Equivalents –Cash include petty cash and cash held in checking 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 December 31, 2008 consisted mainly of the UAH and USD denominated current
accounts.




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




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




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




Value added tax
on purchases and sales –OutputValue Added Tax (VAT)
related to sales is payable to tax authorities upon collection of receivables
from customers. VAT paid on purchases can be offset against VAT collected on
sales and payable to the state. In the event the resulting net amount is a
liability, it is payable to the state. Conversely, in the event the net VAT
balance is an asset it may be carried on the Company’s balance sheet (“Deferred
VAT”) to be offset against VAT liability arising in future periods. In case a
provision for bad and doubtful receivables has been accrued in relation to
accounts deemed to be uncollectible, the resulting bad debt expense is
recognized for the invoice value gross of including VAT. The arising VAT
deferred liability is maintained until the account is settled or until the
account is written off. Ultimate realization of VAT assets is dependent on the
Company’s continuation and future sales against which VAT assets can be
offset.   In addition, realization is dependent on taxing
authorities approving and funding refunds.




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.


33




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




Comprehensive
Income -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 reflected in
Comprehensive gains and losses.




Retirement
Benefit Costs–The operating divisions of the Company
located 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 the Ukraine and include exploration
and production of hydrocarbons. Therefore, the Company’s business activities are
subject to the same risks and returns and are addressed in the consolidated
financial statements of the Company as one segment.




4.JOINT ACTIVITY AND
LEASE AGREEMENTS




JAA
# 01-SD dated April 26, 2000




In August 2000 Esko Pivnich together
with the state owned geological enterprise Poltavaneftegasgeologiya executed a
joint activity agreement (“JAA”) to start exploration and development of
Karaikozovsk field located in Krasnokutsk area of Kharkov region. Under the
terms of JAA Poltavaneftegasgeologiya acted as the holder of the main geological
and exploration licenses to develop Karaikozovsk field and Esko Pivnich acted as
an investor into the JAA. Esko Pivnich’s total contribution into PSA #01-SD
amounted to $596,188.




In November 2000 a subsidiary of JSC
Ukrneft, Okhtirkaneftegas, was admitted into the JAA. Okhtirkaneftegas owned two
wells on Karaikozovsk block, the operational usage of which was contributed into
the JAA. Also, Okhtirkaneftegas made a commitment to render to JAA certain
exploration and capital repair services at market rates.




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




JAA
# 35/970-SD dated August 19, 2004




In 2004
Esko Pivnich filed an application with the Ukrainian State Committee for Mineral
Resources to continue the exploration and development of Karaikozovsk field and
in July 2004 the Esko Pivnich obtained the exploration license for Karikozovsk
block for the period of 5 years.In accordance with the
terms of JAA #35/970 Esko Pivnich was liable to finance 80% of the capital
expenditures while Oktyrkanaftogaz was liable to finance 20% of the capital
expenditures required to maintain and operate Wells #2 and #3. Esko Pivnich and
Okhtyrkanaftogaz participated in the resulting profits(losses) from Wells #2 and
#3 in the same proportions. JAA #35/970 only concerned Wells #2 and #3 of
Karaikozovsk property which were originally owned by Okhtyrkaneftegas and did
not apply to Well #21 or any other facilities such as the gathering, separation
and storage facility and a pipeline both financed solely by Esko Pivnich. JAA
#35/970 was terminated on July 31, 2007 and was superseded by well lease
agreement # 4/1220-OR.




Lease
Agreement # 4/1220-OR dated August 1, 2007




In
accordance with the agreement, the Company’s wholly owned subsidiary Esko
Pivnich shall pay Okhtirkaneftegas an equivalent of $18,945 per month at the
prevailing exchange rate for the usage of all facilities located on Karaikozovsk
block including Wells #2 and #3 that are owned by
Okhtirkaneftegas.


34




5.  ACCOUNTS RECEIVABLE(RELATED PARTY)




Accounts receivable as of December 31,
2008, consisted of the following:




12/31/2008CJSC
      Infox, related party
                  
                  $
                  120,095Total
                  
                  $
                  120,095




Accounts
receivable as of December 31, 2008 consisted of $120,095 receivable from CJSC
Infox, a related party that resulted from several crude oil shipments which took
place in 2004 and 2003. No provision for bad debts has been recorded for these
accounts.  Management of the Company believes that the outstanding
amount will be settled in full during 2009 or offset against $2,751,568 owed to
CJSC Infox (Note 12).




6.OTHER ACCOUNTS RECEIVABLE AND
PREPAYMENTS




Other accounts receivable and
prepayments made as of December 31, 2008 were as follows:




12/31/2008Vixen
      JLM
                  
                  $
                  84,406Naftogasservice
                  
                  
                  19,523SDCH
                  
                  
                  96,400Georesource
                  
                  
                  38,961Ukrfinresource2004
                  
                  
                  55,019Svako
                  
                  
                  38,083Other
                  
                  
                  52,245Other
      accounts receivable and prepayments, net of provision for doubtful
      accounts of $29,870
                  
                  $
                  384,637





The
amount due from SDCH related to excess production tubing sold to the above
company. The advance paid to Vixen JLM relates to a prepayment for well casings.
The amount due from Vixen went down from $128,699 as at 12/31/2007 to $84,406 as
at 12/31/2008.




7.INVENTORIES




Inventories as at December 31, 2008
consisted of the following:




12/31/2008Crude
      oil and condensate – at cost
                  
                  $
                  28,486-Total
                  
                  $
                  28,486





Inventories
as at December 31, 2008 were represented by the balances of crude oil produced
internally in the amount of 283 BBLS and condensate in the amount
368BBLS.


35




8.TAXES
RECEIVABLE




Taxes receivable as of December 31,
2008 consisted of the following:




12/31/2008VAT
      receivable
                  
                  $
                  1,165,064Other
      tax prepaid
                  
                  
                  296,978Total
                  
                  $
                  1,462,042




Taxes
receivable balance as of December 31, 2008 is comprised of VAT receivable and
other advance tax payments. VAT receivable was discounted at 15% annual rate
based on average six months turnover period. Relatively high receivables
balances result from high VAT paid on capital expenditures. The VAT receivable
is recognized as an asset and is netted off against VAT liability to the state
budget. The VAT liability arises when the Company sells its products and
receives payment from its customers together with VAT levied on sales. Due to
limited sales made by the Company there is no assurance that the above asset
will be realized in full. No allowance for the future uncertainty of realization
has been made. The above asset is carried on the balance sheets of the Company’s
subsidiaries Esko Pivnich and Pari. In the event, the Company completes the sale
of its assets to Millington Solutions LLC in lieu of settlement of the
Millington Notes (Note 18) through the transfer of 100% stakes in Esko Pivnich
and Pari, the above asset will be transferred along with other assets and
liabilities held by the subsidiaries and will be classified as discontinued
operations (Note 25).




9.PROPERTY, PLANT AND
EQUIPMENT




Property,
plant and equipment as at December 31, 2008 consisted of the
following:




12/31/2008Gathering,
      separation and storage facilities
                  
                  
                  165,909Other
      above-ground infrastructure
                  
                  
                  45,662Drilling
      in process
                  
                  
                  4,953,041Office
      equipment
                  
                  
                  34,2955,198,907Accumulated
      Depreciation  and Depletion
                  
                  
                  (56,252
                  )Net
      Book Value
                  
                  
                  5,142,655





As at
December 31, 2008, the Construction-in-Progress balance of $4,953,041
represented Well #1 of Peremyshlyansk property in Western Ukraine. At the time
of this report, the Well was 95% finished in terms of drilling but was not
tested or completed.Because of the inability to obtain funding, the Company has
been unable to complete this well.  Upon completion, a determination
of reserves will be made and if reserves are not determined to be sufficient,
these costs will be expensed.   In the event, our assets transfer
to Millington Solutions LLC is completed, the Company believes that the salvage
value of equipment and other assets remaining at Esko Pivnich and Pari will be
sufficient to cover the costs of retiring the assets including any environmental
remediation.





Based on
the geologists’ report stating that the Company had no proved reserves in
Karaikozovsk lease as of December 31, 2008, in accordance with SFAS 144, we
recognized the impairment loss in the amount of $3,519,704. The impairment loss
was computed as the difference between the carrying value of the assets and
their estimated realizable value. According to the management estimates, the net
realizable value of drilling and completion costs as well as capitalized well
workovers and repairs was close to Nil while the value of the above ground
infrastructure and facilities was assumed to be 10% of their carrying value
which approximated the scrap value of these assets.


36


Effect
      of
                
                
                EstimatedCarrying
                
                
                
                
                
                exchange
      rate
                
                
                RealizableKaraikozovsk
      assets as at 12/31/08
                
                Amount
                
                
                Impairment
      Loss
                
                
                Changes
                
                
                ValueDrilling
      and completion costs
                
                $
                605,387
                
                
                $
                (885,034
                )
                
                $
                279,647
                
                
                $
                -Capitalized
      well workovers and repairs
                
                
                175,987
                
                
                
                (257,281
                )
                
                
                81,294
                
                
                
                -Gathering,
      separation and storage facilities
                
                
                1,506,390
                
                
                
                (1,982,017
                )
                
                
                626,266
                
                
                
                150,639Other
      above ground infrastructure
                
                
                300,945
                
                
                
                (395,373
                )
                
                
                124,928
                
                
                
                30,049Total
                
                $
                2,588,258
                
                
                $
                (3,519,704
                )
                
                $
                1,112,135
                
                
                $
                180,689




10.LONG-TERM FINANCIAL
INVESTMENT




As at December 31, 2008, long-term
investments consisted of $2,303 that 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 year ended December 31, 2008 was as follows:




12/31/2008Current
      tax
                        
                        $
                        15,944Deferred
      tax (gain)
                        
                        
                        (21,934
                        )Total
      income tax expense (benefit)
                        
                        $
                        (5,990
                        )




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 year in the
Company’s deferred tax position was as follows:




12/31/2008Net
      asset  at the beginning of the
    period
                          
                          $
                          75,777Charged
      to income for the period
                          
                          
                          (21,934
                          )Net
      asset at the end of the period
                          
                          $
                          53,843




The tax effect of the major temporary
differences that give rise to the deferred tax assets as at December 31, 2008 is
presented below:




12/31/2008Temporary
      differences that give rise to deferred tax assetsProvision
      for doubtful receivables
                      
                      $
                      (29,870
                      )Valuation
      of VAT receivable
                      
                      
                      (84,158
                      )Low
      value items written off
                      
                      
                      (3,035
                      )Difference
      in depreciable value of property, plant and equipment due to expensing in
      prior period allowed by Ukrainian law
                      
                      
                      170,906Total
                      
                      $
                      53,843


37




The deferred tax assets as at December
31, 2008, calculated at effective Ukrainian income tax rate of 25%, consist of
the following:




12/31/2008Deferred
      tax assetsProvision
      for doubtful receivables
                      
                      $
                      (7,468
                      )Valuation
      of VAT receivable
                      
                      
                      (21,040
                      )Low
      value items written off
                      
                      
                      (759
                      )Difference
      in depreciable value of property, plant and equipment due to expensing in
      prior period under Ukrainian law
                      
                      
                      42,728Total
                      
                      $
                      13,461




The taxation charge for the year 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:




12/31/2008(Loss)
      before income tax and minority interest
                      
                      $
                      (2,935,683
                      )Theoretical
      income tax benefit at statutory rate of 25%
                      
                      
                      (733,921
                      )Adjustments
      due to:Tax
      effect of expenses that are not deductible in determining taxable
      profit
                      
                      
                      727,931Income
      tax (benefit)
                      
                      $
                      (5,990
                      )




As of
December 31, 2008 the Company had no loss carry forward for Ukrainian statutory
income tax purposes. For United States income tax purposes, the Company has a
net operating loss carry forward of $2,772,958 which expires in 2028. As a
result, the company has a deferred tax asset of $942,806 which is fully reserved
because of the uncertainty of realization.




12.ACCOUNTS
PAYABLE




Accounts payable as of December 31,
2008 consisted of the following:




12/31/2008Accounts
      payable
                    
                    $
                    137,595CJSC
      Infox, related party
                    
                    
                    2,751,568Total
                    
                    $
                    2,889,163




Third parties accounts payable balances
as of December 31, 2008 were comprised of payable to
Okhtirkaneftegas   for services.




The
amount of $2,751,568 payable to the related party, CJSC Infox, as of December
31, 2008, is related to well drilling and repair services, provided to EP by
third party service companies and paid by CJSC Infox on behalf of the
Company.


38




13.TAXES
PAYABLE




Taxes payable as of December 31, 2008
and consisted of the following:




12/31/2008VAT
                  
                  $
                  237,307Exploration
      tax
                  
                  
                  21,579Profit
      tax
                  
                  
                  254Resource
      Tax
                  
                  
                  10,483Social
      insurance
                  
                  
                  5,472Personal
      Income Tax
                  
                  
                  1,815Other
      taxes payable
                  
                  
                  1,234Total
                  
                  $
                  278,144




All above amounts are
current.




14.      SHORT
TERM NOTES PAYABLE




As of December 31, 2008, short-term
payable balances including capitalized interest consisted of the
following:




Coupon
                      
                      
                      Conv.
                        Price
                      
                      Issue
      date/
                        Effective
                      
                      Due
                        not
      earlierLender/Note
                      
                      Rate
                      
                      
                      $/share
                      
                      Date
                      
                      than
                      
                      12/31/2008Millington
      Solutions Ltd.CD-1001
                      
                      
                      10
                      %
                      
                      $
                      2.20
                      
                      03/30/2006
                      
                      03/30/2009
                      
                      $
                      1,109,812СD-1009
                      
                      
                      10
                      %
                      
                      $
                      2.20
                      
                      06/06/2006
                      
                      06/06/2009
                      
                      
                      2,408,142CD-1011
                      
                      
                      6
                      %
                      
                      $
                      1.40
                      
                      07/25/2006
                      
                      07/25/2009
                      
                      
                      904,905CD-1013
                      
                      
                      7
                      %
                      
                      $
                      3.00
                      
                      02/01/2007
                      
                      02/01/2010
                      
                      
                      905,9695,328,828Fort
      Trade
                      
                      
                      
                      
                      
                      
                      
                      
                      Nov-
      2004
                      
                      Nov-
      2009
                      
                      
                      305,195Gamma
      Vid
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      169,758MI
      SWACO
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      155,880Budcom
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      14,894Astark
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      9,351Sipay
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      3,502Total
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      5,987,408




Millington
Solutions




The
principal under convertible debenture notes CD-1001, CD-1009, CD-1011 and
CD-1013 (Note 19) has been reclassified from Long-term Notes Payable section as
Millington Solutions LLC called for a repayment of CD-1001. Due to the Company’s
cash shortage, the Company agreed on March 30, 2009 to transfer all its assets
to Millington Solutions LLC in exchange for the cancellation of all above
convertible debentures and release of all claims (Notes 20 and 25).




Placement
of Convertible Notes




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


39




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




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





Interest
Capitalization





On March
15, 2007 the Company and Millington Solutions Ltd. agreed that interest accrued
under the Convertible Debenture Note agreements CD-1001, CD-1009, CD-1011 and
CD-1013 (“the Notes”) may be at the Borrower’s election paid when due in
accordance with the Convertible Debenture Note terms; or fully or partially
capitalized. In the event, the Borrower elects to capitalize the accrued
interests under the Notes, the accrued interest shall be added to the
outstanding principal. Following such election, the interest in subsequent
periods shall accrue on the increased principal balance at the rate provided by
each Convertible Debenture Note agreement. The increased outstanding principal
may be converted into the Borrower’s shares of common stock in accordance with
the terms of each Convertible Debenture Note. On March 20, 2007, the Borrower
elected to capitalize the interest payments on CD-1001 and CD-1009 due on the
first annual anniversary of each tranche.  In addition, on July 10,
2007, the Borrower elected to capitalize the interest payments on CD-1011 due on
the first annual anniversary of each tranche. On February 1, 2008, the Borrower
elected to capitalize the interest payments on CD-1013 due on the first annual
anniversary of each tranche. Further, on March 20, 2008, the Borrower elected to
capitalize the interest payments on CD-1001 and CD-1009 due on the second annual
anniversary of each tranche.  In addition, on July 10, 2008, the
Borrower elected to capitalize the interest payments on CD-1011 due on the
second annual anniversary of each tranche.





Millington
Solutions was duly notified of the Borrower’s election and the Lender’s
acknowledgement of the above election is kept on the Company’s
file.





Settlement




Pursuant
to Clause 1 of the Convertible Debenture Agreements CD-1001, CD-1009, CD-1011
and CD-1013, the Company must repay the principal together with the accrued
interest within 3 (three) years of the receipt of funds. The first Convertible
Debenture Agreement CD-1001 for the face value of $917,200 is dated March 30,
2006 and matures on March 30, 2009. On March 13, 2008, Millington Solutions LLC
notified the Company that it did not intend to extend the maturity date of
CD-1001 as well as the maturity dates of CD-1009, CD-1011 and CD-1013 tranches.
Accordingly, in the event, the Company is unable to secure adequate financing to
service the redemption of CD-1001 in the amount of $1,211,621 including interest
accrued to March 30, 2009, the Company shall be in default on
CD-1001.




Furthermore,
pursuant to Clause 3 - “Lender’s Right of Acceleration” of the Convertible
Debenture Agreements CD-1001, CD-1009, CD-1011 and CD-1013, the Lender has the
right, to declare the entire unpaid principal and interest under the Note due
immediately if the Borrower fails to make any payment of principal or interest
within fifteen days after its due date or if one or more judgments which in the
aggregate exceed $100,000 are entered against the Borrower. Accordingly, in the
event, the Company is unable to secure adequate financing to service the
redemption of CD-1001 and/or any other tranche, the Company shall technically be
in default on all tranches CD-1001, CD-1009, CD-1011 and CD-1013 which at that
time become immediately due for repayment in the total amount of $5,684,837
including capitalized interest as of March 31, 2009.




MI
SWACO Note




On July
5, 2007 Pari, the Company’s wholly owned subsidiary issued interest free notes
to MI SWACO Ukraine as payment for services having face value of $155,880. The
notes were due on July 10, 2008. As of the date of this report, the notes have
not been repaid and the Company and the creditor are evaluating opportunities to
restructure the notes.


40




Other
promissory notes




Short
term promissory notes outstanding as of December 31, 2008 and issued in November
2002 at no interest, were payable by November 5, 2005. These notes in
the amounts of $9,351 and $3,502 are payable to Astark and Sipay, respectively.
As of December 31, 2008 the holders of the notes had not called for the
repayment of the respective amounts.  Any valuation adjustment due to
the lack of interest has not been calculated, however, such amounts, if any, are
not considered to have a material effect on these financial statements. In
addition, $14,894 was owed to Budcom and was related to construction services
performed during first quarter of 2008.




15.OTHER CURRENT
LIABILITIES




Other accounts payable and accruals as
of December 31, 2008 consisted of the following:




12/31/2008Naftoservice
                  
                  $
                  410,172Zakhidukrgeology
                  
                  
                  95,482Poltavaneftegasgeology
                  
                  
                  73,079Chernigovneftegasgeology
                  
                  
                  65,465Ukrgeofizika
                  
                  
                  42,725Fort
      Trade PP
                  
                  
                  30,390Other
                  
                  
                  147,565Total
                  
                  
                  864,878Advances
      from shareholders
                  
                  
                  275,091Total
                  
                  $
                  1,139,969




$410,172
due to Naftoservice was related to was related to a supply of casing pipe to the
Company’s Rogan property. The amount of $95,482 due to Zakhidukrgeologiya was
related to drilling services of the exploration Well #1 of Peremyshlyansk
property. Other accounts payable and accruals as of December 31, 2008 mostly
consisted of geological and exploration works, as well as payroll, short term
advances to employees and other prepayments for repair and construction
services. The amount of $275,091 represents advances from shareholders with no
specific terms paid to the Company during 2005 and 2006.




16.
PREPAYMENTS FOR OIL AND GAS




During
2008, the Company sold oil, gas and natural gas liquids to its customers mainly
on prepayment basis. As of December 31, 2008, the prepayments received from
customers in respect of future deliveries of oil, gas and natural gas liquids
consisted of the following:




12/31/2008Ukrnadraresourse
                  
                  $
                  290,631Other
      prepayments
                  
                  
                  8,001Prepayments
      for oil and gas
                  
                  $
                  298,632


41




17.
INTEREST PAYABLE




Interest
payable as of December 31, 2008 consisted of the following:




12/31/2008Millington
      Solutions Limited
                      
                      $
                      239,886239,886Related PartiesZaccam
      Trading, related party
                      
                      
                      117,032Interest
      accrued on advances received from shareholders
                      
                      
                      22,476139,508Total
                      
                      $
                      379,394




As of
December 31, 2008 the amount due to Millington Solutions Limited represented
uncapitalized interest accrued on several tranches of convertible debentures
placed by the Company in 2006 and 2007.




Interest
due to Zaccam Trading relates to credit line facility bearing 3% coupon per
annum (Note 19) obtained in 2005.




18.PROFIT INTEREST
PAYABLE




Profit
interest related to the Company’s production sharing agreements payable as of
December 31, 2008 consisted of the following:




12/31/2008Poltavaneftegasgeologiya
                      
                      $
                      11,802Total
                      
                      $
                      11,802




19.  LONG-TERM PAYABLE






As of December 31, 2008, long term
payable balances including capitalized interest consisted of the
following:




Issue
      date/
                            Effective
                          
                          Due
                            not
      earlierLender
                          
                          Date
                          
                          than
                          
                          12/31/2008Related
      partiesZaccam
      Trading, Ltd.
                          
                          03/5/2005
                          
                          03/5/2015
                          
                          
                          1,205,900Total
                          
                          
                          
                          
                          
                          $
                          1,205,900





Long term
payable to Zaccam Trading, Ltd., related party as of December 31, 2008
represents uncollateralized credit line facility with the limit of $5,000,000
bearing 3% per annum accruing on outstanding principal and payable annually (See
also Note 17).




20.
MILLINGTON CONVERTIBLE DEBENTURE VALUATION




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


42





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




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


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





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





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


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


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


·
              All
      tranches of CD-1001, CD-1009, CD-1011and CD-1013 were originally issued
      with the conversion feature being out of the money. Despite having been in
      the money during July-August of 2007, none of the tranches of CD-1001,
      CD-1009, CD-1011 and CD-1013 have been converted as of the date of this
      filing primarily due to the limited liquidity of the
  stock.





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





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




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





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




For the
period from March 1, 2007 to December 31, 2008 during the periods of relatively
high liquidity the observed daily volatility of stock prices was 1.67%. In
addition, the annualized risk-free rate of 5% was assumed. Using the above base
assumptions, and assuming that the convertibles would be outstanding for 3 years
before they are converted i.e. no early conversion, the fair value at the time
of issuance of the conversion feature of the convertible debentures that were
outstanding on December 31, 2008 would be $199,582.  The fair value of
the conversion feature embedded in the same convertible debentures on December
31, 2008 given the closing price of $0.08 on that date would amount to $0. To
comply with SFAS No. 155, the Company would need to record a profit of $199,582
from change in fair value of convertible debt instrument and a reduction the
carrying value of the convertible debentures in the liabilities’ section of the
Company’s balance sheet by the same amount. The Company believes that recording
imaginary and estimated gains or losses would cause the financial statements to
be misleading.


43




21.SHAREHOLDERS’
EQUITY




No
dividends were declared or paid by the Company during the years ended December
31, 2008 and December 31, 2007.




22.RELATED
PARTIES




Related
parties include shareholders and entities which have substantial amounts of
common ownership but do not qualify for or require consolidation or combination
with the Company. 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 December 31, 2008 see Notes 5, 12, 15, 17 and
19.Our related
parties include CJSC Infox and Zaccam Trading, Ltd.




As of
December 31, 2008, the outstanding amount of $120,095 receivable from CJSC
Infox, related party, was related to several crude oil shipments which took
place in 2004 and 2003.  Amount of $2,751,568 payable to the related
party, CJSC Infox, related to wells’ reconstruction and repair services,
provided by third party service companies and paid by CJSC Infox on behalf of
the Company.




23.COMMITMENTS AND
CONTINGENCIES




Licenses’
commitments




Esko Pivnich -During 2004 EP received geological and exploration license agreements to
develop the Karaikozovsk, Rogan and Rakitnyansk fields. The following amounts of
investments are to be incurred under the terms of those agreements during the
periods indicated in the table below:




Amount
                    
                    
                    Amount
                    
                    
                    RemainingPeriod
                    
                    
                    To
      be invested
                    
                    
                    invested
                    
                    
                    InvestmentRogan
      field
                    
                    
                    2005-2009
                    
                    
                    $
                    1,916,883
                    
                    
                    $
                    935,747
                    
                    
                    $
                    981,136Rakitnyansk
      field
                    
                    
                    2005-2009
                    
                    
                    
                    2,583,117
                    
                    
                    
                    565,357
                    
                    
                    
                    2,017,760Karaikozovsk  field
                    
                    
                    2005-2009
                    
                    
                    
                    2,781,818
                    
                    
                    
                    6,536,988
                    
                    
                    
                    -Total
                    
                    
                    
                    
                    
                    $
                    7,281,818
                    
                    
                    $
                    8,038,092
                    
                    
                    $
                    2,998,896




The
amounts mandatory for investment are denominated in UAH and have been translated
using the prevailing exchange rates as at December 31, 2008.




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




Amount
                    
                    
                    Amount
                    
                    
                    RemainingPeriod
                    
                    
                    To
      be invested
                    
                    
                    Invested
                    
                    
                    InvestmentPeremishlyansk
      field
                    
                    
                    2004-2009
                    
                    
                    $
                    1,532,468
                    
                    
                    $
                    3,130,156
                    
                    
                    $
                    -Chukvinsk
      field
                    
                    
                    2004-2009
                    
                    
                    
                    1,012,987
                    
                    
                    
                    3,788
                    
                    
                    
                    1,009,199Scheremetivsk
      field
                    
                    
                    2004-2009
                    
                    
                    
                    467,533
                    
                    
                    
                    -
                    
                    
                    
                    467,533Niklovitsk
      field
                    
                    
                    2004-2009
                    
                    
                    
                    389,610
                    
                    
                    
                    11,661
                    
                    
                    
                    377,949Pilipivsk
      field
                    
                    
                    2004-2009
                    
                    
                    
                    311,689
                    
                    
                    
                    -
                    
                    
                    
                    311,689Total
                    
                    
                    
                    
                    
                    $
                    3,714,287
                    
                    
                    
                    3,145,605
                    
                    
                    
                    2,166,370




The
amounts mandatory for investment are denominated in UAH and have been translated
using the prevailing exchange rates as at December 31, 2008.




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 on the
basis of a 1 year lease agreement. The Company’s future lease commitments as of
December 31, 2008 were as follows:


44




2009Office
      rent
                  
                  $
                  97,100Total
                  
                  $
                  97,100




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.




24.RISK MANAGEMENT
POLICIES




Management of risk is an essential
element of the Company’s operations. The main risks inherent to the Company’s
operations are those related to credit risk exposures, market movements in
foreign exchange rates and in interest rates. A description of the Company’s
risk management policies in relation to those risks follows.




Credit
risk–The Company is exposed to credit risk
which is the risk that one party to a financial instrument will fail to
discharge an obligation and cause the other party to incur a financial
loss.




The Company structures the levels of
credit risk it undertakes by placing limits on the amount of risk accepted in
relation to one customer, or groups of customers. Limits on the level of credit
risk by customer are approved quarterly by the Credit
Committee.




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




12/31/2008
                  
                  
                  12/31/2007Ukrnedraresource
      (gas produced)
                  
                  $
                  1,500,698
                  
                  
                  $
                  237,862Agrotemp
      (oil produced)
                  
                  
                  
                  
                  
                  
                  217,947Vlad
      Nafta (oil produced)
                  
                  
                  68,967
                  
                  
                  
                  45,116Ukrtatnafta
      (oil produced)
                  
                  
                  
                  
                  
                  
                  189,769Ukrfinresource
      2004 (gas produced)
                  
                  
                  16,755
                  
                  
                  
                  379,377Gaspostacha
      (gas produced)
                  
                  
                  195,209Luxembourgo
      Promyslova Company (gas produced)
                  
                  
                  120,296Luxor
      (gas resold)
                  
                  
                  118,663Naftogasservice
      (oil produced)
                  
                  
                  105,219Vlad
      nafta (condensate produced)
                  
                  
                  82,838
                  
                  
                  
                  190,585Utex
      (condensate produced)
                  
                  
                  55,157Utex
      (oil produced)
                  
                  
                  73,349Angronafta
      (condensate produced)
                  
                  
                  
                  
                  
                  
                  83,081Naftoimpex
      (oil produced)
                  
                  
                  
                  
                  
                  
                  385,542Agronafta
      (oil produced)
                  
                  
                  
                  
                  
                  
                  84,193Azov
      oil company (oil produced)
                  
                  
                  
                  
                  
                  
                  135,215Ukrgasenergo
      (oil produced)
                  
                  
                  
                  
                  
                  
                  263,366Ukrfinresourse
      2004 (gas resold)
                  
                  
                  
                  
                  
                  
                  262,991Azov
      oil company (oil resold)
                  
                  
                  
                  
                  
                  
                  126,799Other
                  
                  
                  35,378
                  
                  
                  
                  165,589Total
                  
                  $
                  2,372,529
                  
                  
                  $
                  2,767,432




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




While the
UAH/USD exchange rate stayed flat at UAH5.05 to $1 for almost 6 years prior to
2008, during the second half of 2008, the Ukrainian hryvna weakened to UAH7.70
to $1 which is equivalent to 34% devaluation. Due to Ukraine’s political and
economic turmoil, the exchange rate is expected to fluctuate wildly in the near
future while continuing on the devaluation trend.


45




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




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




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




24.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.




25.
SUBSEQUENT EVENTS




Millington
Note




Pursuant
to Clause 1 of the Convertible Debenture Agreements CD-1001, CD-1009, CD-1011
and CD-1013, the Company must repay the principal together with the accrued
interest within 3 (three) years of the receipt of funds. The first Convertible
Debenture Agreement CD-1001 for the face value of $917,200 is dated March 30,
2006 and matures on March 30, 2009. On March 13, 2008, Millington Solutions LLC
notified the Company that it did not intend to extend the maturity date of
CD-1001 as well as the maturity dates of CD-1009, CD-1011 and CD-1013 tranches.
Accordingly, in the event, the Company is unable to secure adequate financing to
service the redemption of CD-1001 in the amount of $1,211,621 including interest
accrued to March 30, 2009, the Company shall be in default on
CD-1001.




Furthermore,
pursuant to Clause 3 - “Lender’s Right of Acceleration” of the Convertible
Debenture Agreements CD-1001, CD-1009, CD-1011 and CD-1013, the Lender has the
right, to declare the entire unpaid principal and interest under the Note due
immediately if the Borrower fails to make any payment of principal or interest
within fifteen days after its due date or if one or more judgments which in the
aggregate exceed $100,000 are entered against the Borrower. Accordingly, in the
event, the Company is unable to secure adequate financing to service the
redemption of CD-1011 and/or any other tranche, the Company shall technically be
in default on all tranches CD-1001, CD-1009, CD-1011 and CD-1013 which at that
time become immediately due for repayment in the total amount of $5,684,837
including capitalized interest as of March 31, 2009.




Absence
of proved reserves in Karaikozovsk field




On March
11, 2009 we received a letter from the Company’s geologists, Netherland, Sewell
& Associates, Inc. stating that based on the prices and costs used in the
evaluation, which was conducted in accordance with the guidelines of the US
Securities and Exchange Commission (SEC), they have determined that there were
no proved reserves in Karaikozovsk field as of December 31, 2008. A copy of the
letter from Netherland, Sewell and Associates is filed as Exhibit
hereto.




Disposition
of assets and discontinuance of operations





On March
27, 2009, the Company received a proposal from Millington Solutions LLC to
transfer all Company’s assets to Millington Solutions LLC in exchange for the
total extinguishment of all liability to Millington Solutions LLC including but
not limited to principal and interest accrued under the convertible debenture
notes CD-1001, CD-1009, CD-1011 and CD-1013. Upon deliberation, the management
on March 30, 2009 determined to accept the proposal of Millington Solutions LLC
for the following key reasons:





·
            The
      Company has received a notice from Millington Solutions LLC stating that
      Millington did not intend to extend the maturity date of the Millington
      Notes. The Company’s inability to make the payment of principal and
      interest accrued under CD-1001 in the amount of $1,211,621 will result in
      the Company technically defaulting on all Millington Notes in the total
      amount of $5,684,837 including principal and interest accrued to March 31,
      2008. The Company believed that it exhausted its best efforts to raise
      external financing to redeem CD-1001 in the first instance and other
      Millington Notes;


·
            All
      of the Company’s licenses expire during 2009 and are unlikely to be
      renewed due to the absence of proved reserves, uncertain prospects and a
      significant capital infusion required to renew the licenses and further
      develop them.


46


For the
aforesaid reasons it was determined that the management was justified in
accepting the proposal submitted by Millington Solutions. The transaction is
currently pending the board approval and if the board approval is obtained the
sale of assets will be completed by transferring all of the Company’s interests
in Esko Pivnich and Pari to Millington Solutions LLC. As a result of
transferring all operations to Millington Solutions, the transactions related to
all operations in Ukraine are considered to be discontinued operations for
future reporting.




Results
of discontinued operations




Condensed
Statements of Operations of the Discontinued Operations for the years ended
December 31, 2008 and 2007 are as follows:




Year
      endedDecember
      31,2008
                  
                  
                  2007RevenuesProduced
      Oil&Gas
                  
                  
                  2,253,866
                  
                  
                  
                  2,377,642Purchased
      Oil&Gas
                  
                  
                  118,663
                  
                  
                  
                  389,7902,372,529
                  
                  
                  
                  2,767,432Cost
      of Sales
                  
                  
                  (177,172
                  )
                  
                  
                  (354,524
                  )2,195,357
                  
                  
                  
                  2,412,908Operating
      expense, net
                  
                  
                  (1,564,073
                  )
                  
                  
                  (1,713,658
                  )Depreciation
      expense
                  
                  
                  (1,909,821
                  )
                  
                  
                  (697,173
                  )Other
      operating income
                  
                  
                  97,270
                  
                  
                  
                  587,083Sales,
      general and administrative
                  
                  
                  (682,813
                  )
                  
                  
                  (886,341
                  )(1,864,080
                  )
                  
                  
                  (297,181
                  )Interest
      expense, net
                  
                  
                  (95,117
                  )
                  
                  
                  (409,412
                  )Working
      interest expense
                  
                  
                  
                  
                  
                  
                  (40,109
                  )Foreign
      exchange loss
                  
                  
                  (5,951
                  )
                  
                  
                  (26,011
                  )Other
      expense, net
                  
                  
                  (32,275
                  )
                  
                  
                  (74,875
                  )Loss
      before tax and extraordinary items
                  
                  
                  (1,997,423
                  )
                  
                  
                  (847,588
                  )Income
      tax (expense)/benefit
                  
                  
                  5,990
                  
                  
                  
                  (39,452
                  )Impairment
      loss
                  
                  
                  (3,519,704
                  )Net
      loss
                  
                  
                  (5,511,137
                  )
                  
                  
                  (887,040
                  )Translation
      loss
                  
                  
                  (1,396,661
                  )Total
      comprehensive loss
                  
                  $
                  (6,907,798
                  )
                  
                  $
                  (887,040
                  )


47




Condensed
balance sheets of Discontinued Operations are as follows:




12/312008Current
      AssetsCash
      and cash equivalents
                  
                  $
                  25,968Accounts
      receivable
                  
                  
                  120,095Other
      accounts receivable and advances given
                  
                  
                  384,637Inventories
                  
                  
                  28,486Taxes
      receivable
                  
                  
                  1,462,042Total
      Current Assets
                  
                  
                  2,021,228Non-Current
      AssetsProperty,
      plant and equipment
                  
                  
                  5,142,655Long-term
      financial investments
                  
                  
                  2,303Deferred
      tax asset
                  
                  
                  53,843TOTAL
      ASSETS
                  
                  
                  7,220,029Current
      LiabilitiesAccounts
      payable
                  
                  
                  2,889,163Tax
      liabilities
                  
                  
                  278,144Notes
      payable
                  
                  
                  183,627Other
      current liabilities
                  
                  
                  1,139,968Prepaids
      for oil and gas
                  
                  
                  298,632Interest
      accrued
                  
                  
                  484,696Working
      interest payable
                  
                  
                  11,8025,286,032Long-term
      notes payable
                  
                  
                  474,953Long-term
      loan
                  
                  
                  10,374,662Net
      assets of discontinued operations
                  
                  $
                  (8,915,618
                  )




26.OIL AND GAS
DISCLOSURES (UNAUDITED)




The following information is presented
in accordance with the Statement of Financial Accounting Standards No. 69,
Disclosure about Oil and Gas Producing Activities (SFAS No.
69).




(A)
            Costs Incurred
      in Oil and Gas Exploration and Development Activities. The following costs were
      incurred in oil and gas exploration and development activities during the
      years ended December 31, 2008 and 2007 have been included in cost of
      sales.




12/31/2008
                    
                    
                    12/31/2007Exploration
      and development costs
                    
                    $
                    342,484
                    
                    
                    $
                    285,397Total
                    
                    $
                    342,484
                    
                    
                    $
                    285,397





The above
costs were expensed as incurred.




(B) Results of
operations from Producing Activities. Results of operations from producing
activities for the years ended December 31, 2008 and 2007 are presented
below.


48




For
      the years ended
                    December
      31,2008
                  
                  
                  2007Sales
      of Oil and Gas, condensate produced
                  
                  $
                  2,253,866
                  
                  
                  $
                  2,377,642Production
      expenses (including depreciation expense)
                  
                  
                  (3,131,410
                  )
                  
                  
                  (2,125,434
                  )Exploration
      and development costs
                  
                  
                  (342,484
                  )
                  
                  
                  (285,397
                  )Income
      tax (expense)/benefit
                  
                  
                  5,990
                  
                  
                  
                  (39,452
                  )Total
      expenses
                  
                  
                  (3,467,904
                  )
                  
                  
                  (2,450,283
                  )Total
                  
                  $
                  (1,214,038
                  )
                  
                  $
                  (72,641
                  )





(C) Proved Oil and Gas
Reserves.





On March
11, 2009 we received a letter from the Company’s geologists, Netherland, Sewell
& Associates, Inc. stating that based on the prices and costs used in the
evaluation, which was conducted in accordance with the guidelines of the US
Securities and Exchange Commission (SEC), they have determined that there were
no proved reserves in Karaikozovsk field as of December 31, 2008.




At present, the Company does not have
proved reserves as defined in Rule 4-10(a) of Regulation S-X for the remaining 7
properties.




27.
            DISCONTINUANCE
      OF OPERATIONS AND ASSET DISPOSALS





On March
27, 2009, the Company received a proposal from Millington Solutions LLC to
transfer all Company’s assets to Millington Solutions LLC in exchange for the
total extinguishment of all liability to Millington Solutions LLC including but
not limited to principal and interest accrued under the convertible debenture
notes CD-1001, CD-1009, CD-1011 and CD-1013. Upon deliberation, the management
determined to accept the proposal of Millington Solutions LLC for the following
key reasons:





·
            The
      Company has received a notice from Millington Solutions LLC stating that
      Millington did not intend to extend the maturity date of the Millington
      Notes. The Company’s inability to make the payment of principal and
      interest accrued under CD-1001 in the amount of $1,211,621 will result in
      the Company technically defaulting on all Millington Notes in the total
      amount of $5,684,837 including principal and interest accrued to March 31,
      2009. The Company believed that it exhausted all possible ways to raise
      external financing to redeem CD-1001 in the first instance as well as
      other Millington Notes;


·
            All
      of the Company’s licenses expire during 2009 and are unlikely to be
      renewed due to the absence of proved reserves, uncertain prospects and a
      significant capital infusion required to renew the licenses and further
      develop them.





For the
aforesaid reasons it was determined that the management was justified in
accepting the proposal submitted by Millington Solutions. The transaction is
currently pending the board approval and if the board approval is obtained the
sale of assets will be completed by transferring all of the Company’s interests
in Esko Pivnich and Pari to Millington Solutions LLC.





28.
            IMPAIRMENT
      LOSSES





Based on
the geologists’ report stating that the Company had no proved reserves in
Karaikozovsk lease as of December 31, 2008, in accordance with SFAS 144, we
recognized the impairment loss in the amount of $3,519,704. The impairment loss
was computed as the difference between the carrying value of the assets and
their estimated realizable value. According to the management estimates, the net
realizable value of drilling and completion costs as well as capitalized well
workovers and repairs was close to Nil while the value of the above ground
infrastructure and facilities was assumed to be 10% of their carrying value
which approximated the scrap value of these assets.





Effect
      of
                  
                  
                  EstimatedCarrying
                  
                  
                  
                  
                  
                  exchange
      rate
                  
                  
                  RealizableKaraikozovsk
      assets as at 12/31/08
                  
                  Amount
                  
                  
                  Impairment
      Loss
                  
                  
                  Changes
                  
                  
                  ValueDrilling
      and completion costs
                  
                  $
                  605,387
                  
                  
                  $
                  (885,034
                  )
                  
                  $
                  279,647
                  
                  
                  $
                  -Capitalized
      well workovers and repairs
                  
                  
                  175,987
                  
                  
                  
                  (257,281
                  )
                  
                  
                  81,294
                  
                  
                  
                  -Gathering,
      separation and storage facilities
                  
                  
                  1,506,390
                  
                  
                  
                  (1,982,017
                  )
                  
                  
                  626,266
                  
                  
                  
                  150,639Other
      above ground infrastructure
                  
                  
                  300,945
                  
                  
                  
                  (395,373
                  )
                  
                  
                  124,928
                  
                  
                  
                  30,049Total
                  
                  $
                  2,588,258
                  
                  
                  $
                  (3,519,704
                  )
                  
                  $
                  1,112,135
                  
                  
                  $
                  180,689


49




ITEM 8. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE




On
February 13, 2009, the Board of Directors of Sunrise Energy Resources, Inc. (the
“Company”), based on its Audit Committee’s recommendation, dismissed GLO CPAs,
LLLP (“GLO”) as the Company’s independent registered public accountants and
approved the engagement of John A. Braden & Company, P.C. (“JABCO”) to serve
as the Company’s independent registered public accountants for the fiscal year
2008, subject to shareholder approval.





GLO
issued its auditors’ report on the financial statements for the years ended
December 31, 2007 and 2006 which included an explanatory paragraph as to the
Company’s ability to continue as a going concern.





Other
than the going concern uncertainty described above, GLO’s auditors reports on
the financial statements of the Company for the fiscal years ended December 31,
2007 and 2006 contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting
principle.





During
the fiscal years ended December 31, 2007 and 2006 and through February 13, 2009,
there have been no disagreements with GLO (as defined in Item 304(a)(1)(iv) of
Regulation S-K on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of GLO, would have caused them to make reference
thereto in their report on financial statements for such years.





During
the fiscal year ended December 31, 2007 and through February 13, 2009 there were
no reportable events as defined in Regulation S-K item
304(a)(1)(iv).





The
Company requested GLO to furnish it with a letter addressed to the Securities
and Exchange Commission stating whether or not it agrees with the above
statements. A copy of GLO’s response letter, dated February 3, 2009 is filed as
Exhibit hereto.





During
the fiscal year ended December 1, 2007 and through February 13, 2009, neither we
nor anyone on our behalf has consulted with JABCO regarding either:





1.
            The
      application of accounting principles to specified transaction, either
      completed or proposed; or the type of audit opinion that might be rendered
      on our financial statements, and neither was a written report provided to
      us nor was oral advice provided that JABCO concluded was an important
      factor considered by us in reaching a decision as to an accounting,
      auditing, or financial reporting issue;
or


2.
            Any
      matter that was either the subject of a disagreement or a reportable
      event, as each term is defined in Items 304(a)(1)(iv) or (v) of Regulation
      S-K, respectively.




ITEM 8a. CONTROLS
AND PROCEDURES




Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Section 13a-15(f) of the
Securities Exchange Act of 1934, as amended).  Internal control over
financial reporting is a process designed by, or under the supervision of, the
Company’s CEO and the company’s CFO to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of the Company’s
financial statements for external reporting purposes in conformity with U.S.
generally accepted accounting principles and include those policies and
procedures that (i) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and disposition of the
assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company;  and (iii)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that could
have a material effect on the financial statements.


50





As of
December 31, 2008, management conducted an assessment of the effectiveness of
the Company’s internal control over financial reporting based on the framework
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).  Based on
the criteria established by COSO, management concluded that the Company’s
internal control over financial reporting was not effective as of December 31,
2008, as a result of the identification of the material weakness described
below.





A
material weakness is a deficiency or combination of deficiencies in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the annual or interim financial statements will
not be prevented or detected on a timely basis.





Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will prevent or detect all errors and
all fraud.  A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the control
system’s objectives will be met.  Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their
costs.  Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been
detected.  These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake.  Controls can also be circumvented
by the individual acts of some person, by collusion of two or more people, or by
management override of the controls.  Over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of
compliance with associated policies or procedures.  Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.





The
Company’s management has identified a material weakness in the effectiveness of
internal control over financial reporting related to a shortage of resources in
the accounting department required to convert the accounting records from the
Ukrainian data, consolidate that information, and present it in accordance with
US GAAP including all disclosures on a timely basis.





This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
company’s registered public accounting firm pursuant to temporary rules of the
Securities Exchange Commission that permit the company to provide only
management’s report in this annual report.





Conclusion





The above
identified material weakness did not result in material audit adjustments to our
2008 financial statements.    Based on our current size and
size of operations, we do not believe it is economically feasible to remediate
this weakness.  We cannot assure you that, as circumstances change,
any additional material weakness will not be identified.





Changes in internal control
over financial reporting





The
Company’s principal executive officers and principal financial officer have
concluded that there were no changes in the Company’s internal controls over the
financial reporting or disclosure controls and procedures or in other factors
during the last fiscal year that have materially affected or are reasonably
likely to materially affect these controls as of the end of the period covered
by this report based on such evaluation.


51




PART
III




ITEM  9.
DIRECTORS AND EXECUTIVE OFFICERS OF COMPANY




Directors and
Executive Officers




All directors of our company hold
office until the next annual meeting of the shareholders or until their
successors have been elected and qualified. The officers of our company are
appointed by our board of directors and hold office until their death,
resignation or removal from office.




Name
                        
                        Position
                        
                        Age
                        
                        Date
      elected or
                          appointedKonstantin
      Tsiryulnikov
                        
                        CEO,
      Sunrise Energy Resources, Inc.
                        
                        30
                        
                        December
      – 2004David
      A. Melman
                        
                        Independent
      Director of Sunrise Energy Resources Inc
                        
                        66
                        
                        1997Roman
      Livson
                        
                        CFO,
      Sunrise Energy Resources, Inc.
                        
                        38
                        
                        August
      2005Leon
      Golden
                        
                        Independent
      Director, Sunrise Energy Resources, Inc.
                        
                        46
                        
                        December
      – 2004Vyacheslav
      Chuchminov
                        
                        CEO,
      Esko Pivnich
                        
                        51
                        
                        June
      - 2002Taras
      Burdeniy
                        
                        CFO,
      Esko Pivnich
                        
                        31
                        
                        June
      - 2002Raissa
      Volodarskaya
                        
                        Chief
      Accountant
                        
                        59
                        
                        April
      - 2002





Directors
and Key Personnel




Mr.
Konstantin Tsirulnikov,President,CEO, of Sunrise Energy Resources. Mr.
Tsiryulnikov is president of Odessa Consulting (Canada), and has extensive
experience in international business relating to the former Soviet Union
countries, concentrating in the Oil and Gas industry. Mr. Tsiryulnikov also
serves as the manager of international relations for the L.Z. Group (Canada).
Mr. Tsiryulnikov holds an International Business Certificate from the Kyiv
Financial Institute and a B.S. degree from the University of
Toronto.




Mr. David A.
Melman, Mr. Melman, currently serves as the Chairman of the Board of
Directors of Sunrise Energy Resources. Mr. Melman also currently serves as
President and CEO of British American Natural Gas Corporation, a company engaged
in oil and gas exploration in Mozambique, Africa.  From 1997 until
January 2005 Mr. Melman served as President and sole director of Sunrise Energy
Services, Inc.  Mr. Melman serves as a director of Republic Resources,
Inc. (OTC Pink Sheets) and Swift LNG Inc., a company recently licensed to
commercialize certain patents granted to the Los Alamos National Laboratories to
transform natural gas into Liquefied Natural Gas. Mr. Melman was a director of
Beta Oil and Gas Inc. 2003-2004, predecessor to Petrohawk Energy, Inc. (NYSE)
and of Omni Energy Services, Inc. (NASDAQ) from 2004-2005.  Mr. Melman
holds a B.S. degree in economics and J.D. and LLM law degrees.




Mr. Roman Livson,CFO.Mr.
Livson has served as the managing director of Thor Capital Group, Inc. heading
its investment banking department since its foundation in 2002. Prior to that he
headed the investment banking department of Thor United Corp. He brings to the
company a valuable expertise in the Eastern European energy sector. Mr. Livson
worked for Coopers and Lybrand from 1994-1998 and received a Master's degree in
Mathematics of Finance from Columbia University in 2002.


52




Mr.
Leon Golden,Independent
director of Sunrise Energy Resources. Mr. Golden is a certified public
accountant with over 17 years of experience. For the past two years, Mr. Golden
has had his own CPA practice in New York City, and prior to that he worked as a
public accountant for another New York City CPA firm for fifteen years. Mr.
Golden serves on the board of directors of ABDC (OTCBB—ABDV). Mr. Golden holds a
B.S. degree in Accounting from Brooklyn College.




Mr.
Vyacheslav Chuchminov,CEO, Esko Pivnich. Mr. Chuchminov has been serving as the Chief Executive
Officer of the Company’s wholly owned subsidiary Esko-Pivnich since May 2002.
Prior to that, he held senior management positions of Alchevsk Coking Plant and
Communar Coking Plant. Mr. Chuchminov graduated from Dnepropetrovsk Institute of
Metallurgy in 1979 with a Master's degree in Chemical Engineering. Mr.
Chuchminov brings over 20 years experience in running various Ukrainian
enterprises in the commodities sector.




Mr.
Taras Burdeniy,CFO, Esko
Pivnich. Prior to his nomination as CFO of Esko Pivnich Mr Burdeniy had been
serving as the Cost Accountant of Esko Pivnich since June 2002. Immediately
prior to that he graduated from Kiev National Economics
University.




Mrs.
Raissa Volodarskaya,Principal Accounting Officer, Esko Pivnich. Mrs. Volodarskaya has been serving
as the Principal Accounting Officer of Esko-Pivnich since April 2002. Prior to
that she worked as the Chief Accounting Officer of Bivex Ltd, a Ukrainian fast
moving consumer goods retailer.  Mrs Volodarskaya has in-depth
experience in financial accounting, tax reporting and management reporting in
the Ukraine having worked as Chief Accountant for 20 years with a number of
medium sized Ukrainian companies.




Mr. Leonid
Posokhov,Chief
Geological Officer, Esko Pivnich.Mr. Posokhov has been
serving as the Chief Geological Officer of Esko Pivnich since April 2006. Prior
to that he served as the Chief Geologist with the Ukrainian State Geological
Committee for 30 years. Mr. Posokhov brings an unparalleled expertise of the
Ukrainian oil&gas sector in terms of regional geology and
operations.




Mr.
Anatoliy Dyagterev,Operations Director - Esko Pivnich. Mr. Dyagterev serves as the Operations
Director in Esko Pivnich from June 2002. Prior to than he worked as Chief
Engineer, Technical and Productions Director in a number of Ukrainian oil &
gas companies, including the subsidiary of Ukrnafta, Poltavagasdobicha. Mr.
Dyagterev graduated from Moscow Gubkin Institute of Oil & Gas in 1984 with a
Master's degree of Well - drilling Engineer.




Mr.
Vladimir Moroz, Chief
Engineer, Esko Pivnich. Mr. Moroz joined the Company as Chief Engineer of
Esko-Pivnich in October 2004. In 2002-2004 he worked as Chief Engineer in the
State Emergency Service of Ukraine. Prior to that, in 1995 – 2002 he was the
Deputy Director on Science in the NTP “Burovaya Tekhnika” Mr. Moroz graduated
from Ivano-Frankovsk Institute of the Oil&Gas in 1992 with a Master’s degree
of Well – drilling Engineer. Also, in 2001 he received the Master’s Degree from
Poltava Technical University on the Accounting and Audit
Department.




COMMITTEES OF THE
BOARD OF DIRECTORS




The Board of Directors has a
Compensation Committee and an Audit Committee. The Audit Committee currently
consists of two directors Leon Golden and David Melman. The Compensation
Committee is made up of Mr. Golden.




The purpose of the Compensation
Committee is to review the Company’s compensation of its executives, to make
determinations relative thereto and to submit recommendations to the board of
Directors with respect thereto in order to ensure such officers and directors
receive adequate and fair compensation.




During the fiscal year ending
12/31/2008, the Audit Committee was responsible for the general oversight of
audit, legal compliance and potential conflict of interest matters, including
(a) recommending the engagement and termination of the independent public
accountants to audit the financial statements of the Company, (b) overseeing the
scope of the external audit services, (c) reviewing adjustments recommended by
the independent public accountant and addressing disagreements between the
independent public accountants and management, (d) reviewing the adequacy of
internal controls and management’s handling of identified material inadequacies
and reportable conditions in the internal controls over financial reporting and
compliance with laws and regulations, and (e) supervising the internal audit
function, which may include approving the selection, compensation and
termination of internal auditors.


53




For the fiscal year ended 12/31/2008,
the Board of Directors conducted discussions with management and the independent
auditor regarding the acceptability and the quality of the accounting principles
used in the reports in accordance with Statements on Accounting Standards (SAS)
No. 61. These discussions included the clarity of the disclosures made therein,
the underlying estimates and assumptions used in the financial reporting and the
reasonableness of the significant judgments and management decisions made in
developing the financial statements. The Audit Committee also discussed the
other items with the auditors required by SAS No. 61 as amended. In addition,
the Board of Directors discussed with the independent auditor the matters in the
written disclosures required by Independence Standards Board Standard No.
1.




For the fiscal year ended 12/31/2008,
the Board of Directors have also discussed with management and its independent
auditors issues related to the overall scope and objectives of the audits
conducted, the internal controls used by the Company, and the selection of the
Company’s independent auditor.




Pursuant to the reviews and discussions
described above, the Board of Directors recommended that the audited financial
statements be included in the Annual Report on Form 10-K for the fiscal year
ended December 31, 2008 for filing with the Securities and Exchange
Commission.




Audit Committee Financial
Expert




Our Board of Directors has determined
that Mr. Leon Golden is an “audit committee financial expert”. Members of our
Audit Committee are independent under SEC Rule 10A-3.




Code of Ethics




The Company has adopted its Code of
Ethics and Business Conduct for Officers, Directors and Employees that applies
to all of the officers, directors and employees of the
Company.




Compliance with Section 16(b) of the
Exchange Act




Based solely on our review of Forms 3,
4, and 5, and amendments thereto which have been furnished to us, we believe
that during the year ended December 31, 2008 all of our officers, directors, and
beneficial owners of more than 10% of any class of equity securities, timely
filed, reports required by Section 16(a) of the Exchange Act of 1934, as
amended.




ITEM  10.
EXECUTIVE COMPENSATION




During 2008, the Company paid
subsidiary’s senior management nominal rates which are comparable with the basic
salaries in Ukraine. No salaries were paid for the newly nominated management of
Sunrise Energy Resources Inc. The Company estimates the fair value of the
management compensation for 2008 to be not materially different from these
accrued ones:




Name and principal
      position
                                                            
                                                            Actual
    salaryKonstantin
      Tsirulnikov
                                                            
                                                            $
                                                            85,000CEO
      of Sunrise Energy Resources, Inc.Roman
      Livson
                                                            
                                                            $
                                                            75,000CFO
      of Sunrise Energy Resources, Inc.Leon
      Golden
                                                            
                                                            Currently
      NominalIndependent
      Director, Sunrise Energy Resources, Inc.David
      A. MelmanIndependent
      Director of Sunrise Energy Resources, Inc.
                                                            
                                                            $
                                                            1,000Bobby
      Long
                                                            
                                                            $
                                                            22,290Formerly
      Chief Technical Officer (retired in June 2008)Vyacheslav
      Chuchminov
                                                            
                                                            $
                                                            7,500CEO,
      Esko PivnichTaras
      Burdeniy
                                                            
                                                            $
                                                            7,000CFO,
      Esko PivnichRaisa
      Volodarskaya
                                                            
                                                            $
                                                            7,000Chief
      AccountantTotal
                                                            
                                                            $
                                                            204,790


54




The Company has not entered into any
definitive compensation agreements with its senior management. There were no
stock options outstanding as at December 31, 2008.




ITEM  11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT




The following tables sets forth, as of
March 30, 2009, the number of and percent of our common stock beneficially owned
by (a) all directors and nominees, naming them, (b) our executive officers, (c)
our directors and executive officers as a group, without naming them, and (d)
persons or groups known by us to own beneficially 5% or more of our common
stock. Each person has sole voting and investment power with respect to the
shares of common stock, except as otherwise indicated. Beneficial ownership
consists of a direct interest in the shares of common stock, except as otherwise
indicated.




The following table sets forth for the
fiscal year ended December 31, 2008, the individuals or entities known to the
Company to beneficially own 5% or more of the Company’s outstanding shares of
voting securities.




Name Of Beneficial
      Owner
                                              
                                              Title
                                                of Class
                                              
                                              Number
                                                of
      Shares
                                              
                                              
                                              Percent
      of
                                                ClassBurisma
      Holdings Limited
                                              
                                              Common
                                              
                                              
                                              16,355,767
                                              (1)
                                              
                                              
                                              69.47
                                              %17
      GR XENOPOLOU STREET3106LIMASSOLCyprusMr.
      David A. Melman5353
      Memorial DriveSuite
      4012Houston
      Texas 77007
                                              
                                              Common
                                              
                                              
                                              200,000
                                              (1)
                                              
                                              
                                              0.87
                                              %




(1) Burisma Holdings Limited, a Cypriot
corporation is owned in equal proportions by Messrs. Mykola Lissin and Mykola
Zlochewsky, both residents of the Ukraine.




(2) Does not include the shares held by
Midland Trust Company, Ltd. which owns 0.87% of the total issued and outstanding
shares.  Mr. Melman held an irrevocable proxy to vote the above shares
on certain matters. Mr. Melman disclaims any beneficial ownership of such
shares.




Security Ownership
of Management




The following table sets forth
information concerning the beneficial ownership of the Company’s New Common
Stock for the fiscal year ended December 31, 2008 by Mr. David Melman,
Independent Director.




Name
      and Address of
                    Beneficial
      Owner
                  
                  Amount of Beneficial
                    Interest
                  
                  Percent
      of
                    ClassMr.
      David A. Melman
                  
                  
                  0.87
                  %
                  Common
      stock


55




ITEM  12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS




Except as discussed below and elsewhere
in this Report, there have been no transactions, or proposed transactions, which
have materially affected or will materially affect the Company in which any
director, executive officer or beneficial holder of more than 10% of the
outstanding common stock, or any of their respective relatives, spouses,
associates or affiliates, has had or will have any direct or material indirect
interest.




As at the date of this annual report,
we do not have any policies in place with respect to whether we will enter into
agreements with related parties in the future.




ITEM  13.
PRINCIPAL ACCOUNTANT FEES AND SERVICES




During 2008 professional services were
mostly rendered for the Company by GLO CPAs, LLLP  accounting
firm.




Total professional fees incurred by the
Company for the years ended December 31, 2008 and 2007 consisted of the
following:




2008
                    GLO
      CPAs
                  
                  
                  2007
                    GLO
      CPAsAudit
                  
                  $
                  87,139
                  
                  
                  $
                  66,538Audit
      related
                  
                  
                  —
                  
                  
                  
                  —Tax
                  
                  
                  —
                  
                  
                  
                  —All
      other fees
                  
                  
                  —
                  
                  
                  
                  —Total
                  
                  $
                  87,139
                  
                  
                  $
                  66,538




Audit
Fees




The Audit Fees for 2008 and 2007 were
for services associated with the consolidated U.S. GAAP audits, and registration
statements.




Audit Related
Fees




During 2008 and 2007 we did not pay any
audit related fees.




Tax
Fees




During 2008 and 2007 we did not pay any
tax related fees.




All Other
Fees




During 2008 and 2007 we did not pay any
other fees.




Audit Committee
Pre-Approval Policies and Procedures




The Sarbanes-Oxley Act of 2002 required
us to implement a pre-approval process for all engagements with our independent
public accountants. In compliance with Sarbanes-Oxley requirements pertaining to
auditor independence, our Audit Committee pre-approves the engagement terms and
fees of John A. Braden and Co P.C., and previously, GLO CPAs LLLP and John A.
Braden and Co, P.C. for all audit and non-audit services, including tax
services. Our Audit Committee pre-approved the engagement terms and fees of both
John A. Braden and Co., P.C. and GLO CPAs LLLP for all services performed for
the fiscal year ended December 31, 2008 and 2007.


56




SUBSIDIARIES:





TOV
Energy-Servicing Company Esko Pivnich


Pari,
Ltd.




PART
IV




ITEM  14.
EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES AND REPORTS ON FORM
8-K




Reports
on Form 8-K




Form 8-k
dated February 13, 2009 regarding the change of certifying
accountant.




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




Report of Independent Registered Public
Accounting Firm – John A. Braden and Co., P.C. for the year ended December 31,
2008




Consolidated
Balance Sheet as of December 31, 2008




Consolidated
Statements of Changes in Stockholders’ Equity (Capital Deficit) for the years
ended December 31, 2008 and 2007.




Consolidated
Statement of Operations and Comprehensive Loss for the years ended December 31,
2008 and 2007.




Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and
2007.




Notes to
the Consolidated Financial Statements for the year ended December 31,
2008.




Exhibit
                      Number
                    
                    Description
                    
                    Incorporation by
      Reference3
                    1
                    
                    Amended
      and Restated Certificate of Incorporation of the Company
                    
                    Filed
      as an exhibit to the Form 10-QSB for the quarter ended September 30, 2004;
      is incorporated herein by this reference.3
                    2
                    
                    Bylaws
      of the Company
                    
                    Filed
      as an exhibit to the Form 10-QSB for the quarter ended September 30, 2004;
      is incorporated herein by this reference.10
                    1
                    
                    Shareholders
      Agreement.
                    
                    Filed
      as an exhibit to the Form 10-QSB for the quarter ended September 30, 2004;
      is incorporated herein by this reference.10
                    2
                    
                    Convertible
      Note Agreement #1013
                    
                    Filed
      Herewith10
                    3
                    
                    Agreement
      and General Release and Waiver
                    
                    Filed
      Herewith14
                    
                    
                    Code
      of Ethics
                    
                    Filed
      Herewith21
                    1
                    
                    List
      of Subsidiaries
                    
                    Filed
      Herewith31
                    1
                    
                    Rule
      13a-14(a) Certification of Chief Executive Officer
                    
                    Filed
      Herewith31
                    1
                    
                    Rule
      13a-14(a) Certification of Chief Financial Officer
                    
                    Filed
      Herewith32
                    1
                    
                    Section
      1350 Certification of Chief Executive Officer
                    
                    Filed
      Herewith32
                    2
                    
                    Section
      1350 Certification of Chief Financial Officer
                    
                    Filed
      Herewith


57




SIGNATURES




Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this annual report to be signed on its behalf by the undersigned,
thereunto duly authorized.




Sunrise
      Energy Resources, Inc./s/ Konstantin
  TsiryulnikovKonstantin
      TsiryulnikovPresident
      and Chief Executive Officer




Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.




Date
              
              Signature
              
              TitleMarch
      30, 2009
              
              
              
              CEO


58