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


**Washington,
      D.C. 20549**




**FORM
      10-KSB**




**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,
      2006**




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







**Commission
      File Number 1-11248**






**SUNRISE
      ENERGY 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)





551
                  Fifth Avenue, Suite 2020New
                  York, New York
              
              10017(Address
                  of principal executive office)
              
              (Zip
                  Code)




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




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




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






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






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




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.              Yes x 
  No o






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







1




Indicate
      by  check
      mark  weather  the  registrant  is a
      shell company (as defined in Rule 12b-2 of the Exchange
      Act).   Yes o   No x




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




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates as of March 27, 2007 within past 60 days:
      $15,616,510.





As
      of
      March 27, 2007, the Registrant had 17,179,353 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 o   No x




2




**SUNRISE
        ENERGY RESOURCES, INC.FORM**
 **10-KSB**
 **TABLEOF
        CONTENTS**
 
 **Part
                        I.**Item
                        1.
                    
                    Description
                        of BusinessItem
                        2.
                    
                    Description
                        of PropertiesItem
                        3.
                    
                    Legal
                        ProceedingsItem
                        4.
                    
                    Submission
                        of Matters to a Vote of Security
                        Holders**Part
                        II.**Item
                        5.
                    
                    Market
                        for Common Equity and Related Stockholder
                        MattersItem
                        6.
                    
                    Management’s
                        Discussion and Analysis of Financial Conditionand
                        Results of OperationsItem
                        7.
                    
                    Financial
                        Statements and Supplementary DataItem
                        8.
                    
                    Changes
                        in and Disagreements with Accountants on Accounting and
                        Financial
                        DisclosureItem
                        8a.
                    
                    Controls
                        and Procedures**Part
                        III.**Item
                        9.
                    
                    Directors,
                        Executive Officers, Promoters and Control
                        PersonsItem
                        10.
                    
                    Executive
                        CompensationItem
                        11.
                    
                    Security
                        Ownership of Certain Beneficial Owners and Management
                        and
                        Related Stockholders MattersItem
                        12.
                    
                    Certain
                        Relationships and Related
                        TransactionsItem
                        14.
                    
                    Principal
                        Accountant Fees and Services**Part
                        IV.**Item
                        13.
                    
                    Exhibits,
                        Financial Statement Schedules and Reports on Form
                        8-KSignaturesCertifications


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 subsidiary, unless otherwise
        indicated.
  All
        dollar amounts refer to US dollars
        unless otherwise indicated.
  The
        following discussion should be read in conjunction with our financial statements
        and the related notes that appear elsewhere in this 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 primarily
        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, which is further 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 2006 our production was limited to Karaikozovsk field
        where we also drilled Well #21 in order to ramp up production and delineate
        the
        reservoir.
  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. has 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
        certain EP Shareholders. As a result of the transaction, Esko Pivnich became
        a
        wholly-owned subsidiary of Sunrise.
 
 4
 *Table
            of Contents*
  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.
  As
        of
        December 31, 2005, EP’s proved reserves were not quantified in accordance with
        Rule 4-10(a) of Regulation S-X. During 2007, Sunrise plans to engage an
        internationally recognized petroleum engineering firm to perform an independent
        valuation of the reserves in accordance with the above mentioned SEC
        guidelines.
  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.
  **Availability
        of Reports**
  Sunrise’s
        Annual Report on Form 10-KSB, Quarterly Reports on Form 10-QSB, 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.
  **Strategy**
  We
        intend to increase our reserves,
        production and cash flow through (a) the acquisition and development of oil
        and
        gas properties (b) exploring for new reserves on the existing properties;
        and
        (c) optimizing production and value from the existing reserve
        base.
  To
        meet
        these objectives, we plan to increase production of the Karaikozovsk’s property
        following the completion of Well #21 and possible transfer of Well #3 to
        the gas
        horizon. In addition, we plan to revitalize Well #1 of Rakitnyansk block
        and
        drill an exploration Well #2 of Rakitnyansk block. On the Rogan block we
        plan to
        drill an exploration well. We plan to complete the exploration Well #1 on
        our
        Peremyshlyansk property and commence exploration of our other fields in Western
        Ukraine.
  **Drilling
        Activity**
  During
        2006, we carried out the necessary repairs and workovers on Wells #3 of
        Karaikozovsk’s block and resumed production from the well.  Further,
        in February 2007 the Company сompleted
        drilling Well #21 of Karaikozovsk property. The Company is currently drilling
        an
        exploration Well #1 of Peremyshlyansk block in Western Ukraine. The anticipated
        completion costs of around US$3 million are expected to be financed out of
        the
        operating cashflow, vendor loans and bank loans.
  **Customers**
  During
        2006 and 2005 the Company
        produced approximately 37MBBLS and 39 MBBLS of crude oil net to the Company,
        respectively. In addition, the Company produced 27 MMCF of natural gas in
        2006
        and 59 MMCF in 2005. The produced oil & gas were separated and treated to
        commercial grade at the Company’s on-site separation and storage facility. Our
        sales during 2006 and 2005 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.
  5
 *Table
            of Contents*
  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.  It is not possible for us to
        separately calculate the costs of compliance with environmental and other
        governmental regulation as compliance expense is included in cost of
        operations.
  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**
  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.
  6
 *Table
            of Contents*
  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.
  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 2006 are set out below:
 
 **Name**
                        
                        **%
                            rate charged on net payroll and payable by the
                            Company**
                        
                        
                        **%
                            rate charged on gross payroll and payable by the
                            employee**Statutory
                            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 in 2007.
 
 5. 
        At present, three main taxes are levied on extracted oil and gas in Ukraine.
        While the rates and computation technique underwent certain changes during
        2002-2006, the applicable rates during 2006 were as follows:
 
 **Name**
                    
                    **Rate
                        per 1 Bbl**
                      **accrued
                        on the total produced**
                      **OIL**
                    
                    
                    **Rate
                        per 1 MCF**
                      **accrued
                        on the total produced**
                      **GAS**Exploration
                        Tax
                    
                    $
                    15.0
                    
                    
                    $
                    0.02Mineral
                        Resource Tax
                    
                    $
                    0.67
                    
                    
                    $
                    0.05Mineral
                        Usage Tax
                    
                    $
                    0.27
                    
                    
                    $
                    0.01**Total**
                    
                    **$**
                    **15.94**
                    
                    
                    **$**
                    **0.08**
 
 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 four 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.
  7
 *Table
            of Contents*
  **Offices
        and
        Employees**
  The
        headquarters of Sunrise Energy Resource, Inc. are located in New York City
        at
        551 Fifth Avenue, Suite 2020, New York, NY 10017. EP’s offices in Ukraine are
        located at the following address: 10a Ryleeva St., Kiev, Ukraine. The Company
        currently has 46 full time employees, the majority of which 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’s
        projects. Sunrise may experience a revenue reduction due to overestimation
        of
        reserves and oil or gas production profiles or higher capital costs or operating
        costs. However, the opposite may occur if reserves or production profiles
        are
        underestimated or if the costs are less than forecast. Sunrise may also suffer
        reduced revenues because of product transportation difficulties, or project
        delays, neither of which can be foreseen. The reserve data set forth in this
        Annual Report, including the Statement of Reserves, is believed to represent
        only the most reliable estimates currently available. Estimation of reserves
        is
        inherently inexact and the accuracy of any reserve estimate is a function
        of the
        quality of available data, engineering and geological interpretation, judgment,
        production projections, maintenance and development capital, and other
        uncertainties inherent in estimating quantities of recoverable oil and gas.
        Thus, there can be no guarantee that estimates of the quantities of oil and
        gas
        disclosed in the Statement of Reserves will be produced.
  *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
  We
        may
        require significant time to achieve positive cash flow from operations. Until
        such time we will rely almost exclusively on external equity and debt financing
        to service our working capital and capital expenditure requirements including
        but not limited to approximately $5 million that will need to be raised in
        2007
        to meet the workover costs and new well drilling.The Company raised
        approximately $3 million in convertible note financing in 2006. In addition,
        the
        Company raised approximately $2.5 million against a promissory note issued
        by
        the Company, approximately $550,000 in convertible notes financing and
        approximately $17,000 in private placements of our stock during first quarter
        of
        2007.
  8
 *Table
            of Contents*
  *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,
        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. Sunrise’s existing assets in Ukraine are
        subject to agreements with Ukrnafta such as the Production Sharing Agreement
        for
        the Karaikozovsk field.
  *Well
        Concentration*
  Our
        production comes from its interests
        in a very small number of oil and gas producing wells. In accordance with
        the
        Company’s development plans for the Karaikozovsk field, well concentration is
        expected to reduce significantly in 2007 and thereafter. Because our production
        is confined to a relatively small number of wells, the loss or long-term
        disabling of any single well could have a material adverse affect on Sunrise’s
        overall production.
  *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 and other countries in which Sunrise may operate
        in
        the future, 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.
  *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 control, exploration licensing and
        petroleum export licensing and export duties as well as government control
        over
        domestic oil and gas pricing.
  *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 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.
  9
 *Table
            of Contents*
  *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.
        As
        far as Sunrise is aware, the operations at the currently producing Karaikozovsk
        field have been conducted by Ukrnafta’s subsidiary companies under the PSA, in
        compliance with all applicable Ukrainian environmental rules, regulations
        and
        legislation. Furthermore, 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.
  *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.
  10
 *Table
            of Contents*
  *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.
  *Control
        by our Offices and
        Directors*
  In
        the aggregate, our executive
        officers and directors control approximately 65% of the outstanding shares
        of
        our common stock.  These stockholders, acting together, would be able to
        significantly influence matters requiring stockholder
        approval.
  **Unregistered
        Sales of Equity
        Securities**
  As
        part of the transaction described
        above, in exchange of the EP shares, Registrant has issued 10,479,900 shares
        to
        a purchaser outside the United States who was the holder of the majority
        of the
        outstanding stock of Esko Pivnich. The sale of the shares is exempt from
        registration under Section 4(2) of the Securities Act of 1933, as amended,
        as
        the purchaser had full information concerning the business and affairs of
        Registrant and all certificates issued bear appropriate restrictive legends.
        No
        underwriter was involved in the transaction.
  **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 $0.01,
        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.
  **ITEM 
2.
        DESCRIPTION OF PROPERTY**
  Our
        facilities consist of 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 551
        Fifth
        Avenue, Suite 2020, New York, NY 10017, and consists of office space obtained
        under a sub-lease arrangement with Thor Capital, LLC. We are in the process
        of
        locating a long-term lease to accommodate our offices and personnel in New
        York.
  Company’s
        offices in Ukraine are
        located at 10a Ryleeva Street Kiev, Ukraine. In addition, the Company’s
        subsidiary owns Well #21 drilled on Karaikozovsk property, oil storage bunkers,
        workers accommodation huts, motor vehicles and supporting infrastructure
        and
        rents oil rigs.
  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.
  11
 *Table
            of Contents*
  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 (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
                  
                  20,000
                  
                  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
                  
                  7,900
                  
                  Geological
                      Exploration and development of natural gas, crude oil773076
                    Series
                      AA
                  
                  Dated
                      28
                    October
                  
                  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
                  
                  October
                      28
                    2004
                      –
                    October
                    2009
                  
                  Construction
                      activities#
                      867363
                    Series
                      AA
                  
                  Dated
                      10
                    November
                  
                  November
                    21
                      2004 –
                    November
                    20
                      2009
                  
                  Supplying
                      of natural gas on an unregulated tariff basis
  12
 *Table
            of Contents*
  ***Esko
        Pivnich -***During 2004 EP received geological and exploration
        license agreements to develop the Karaikozovsk, Rogan and Rakitnyansk fields.
        The following amounts of investments are to be incurred under the terms of
        those
        agreements during the periods indicated in the table below:
  **Period**
                    
                    
                    **Amount**Rogan
                        block
                    
                    
                    2005-2009
                    
                    
                    $
                    2,922,772Rakitnyansk
                        block
                    
                    
                    2005-2009
                    
                    
                    
                    3,938,614Karaikozovsk  block
                    
                    
                    2005-2009
                    
                    
                    
                    4,241,584**Total**
                    
                    
                    
                    
                    
                    **$**
                    **11,102,970**
 
 ***Pari
        -***During 2004 Pari received geological and exploration license
        agreements to develop the Peremishlyansk, Chukvinsk, Scheremetivsk, Niklovitsks
        and Pilipivsk fields. The following amounts of investments are to be incurred
        under the terms of those agreements:
  **Period**
                    
                    
                    **Amount**Peremishlyansk
                        block
                    
                    
                    2004-2009
                    
                    
                    $
                    2,336,634Chukvinsk
                        block
                    
                    
                    2004-2009
                    
                    
                    
                    1,544,554Scheremetivsk
                        block
                    
                    
                    2004-2009
                    
                    
                    
                    712,872Niklovitsks
                        block
                    
                    
                    2004-2009
                    
                    
                    
                    594,059Pilipivsk
                        block
                    
                    
                    2004-2009
                    
                    
                    
                    475,248**Total**
                    
                    
                    
                    
                    
                    **$**
                    **5,663,367**
 
 As
        at
        December 31, 2006, the Company invested $4,208,000 into Karaikozovsk
        block,  $279,000 into Rakitanyask block, $36,000 into Rogan license
        and $2,335,000 into Peremyshlyansk block.
 
 Productive
        Wells
 
 As
        at
        December 31, 2006, the Company had the following number of productive wells
        and
        wells in progress.
 
 **Property**
                  
                  **Karaikozovsk**
                  
                  **Rogan**
                  
                  **Rakitnyansk**
                  
                  **Peremysh-**
                  
                  **Total****lyansk****Gross
                      Basis*****Oil***Productive
                      Wells
                  
                  2
                  
                  -
                  
                  -
                  
                  -
                  
                  2Wells
                      in Progress
                  
                  1
                  
                  -
                  
                  -
                  
                  -
                  
                  1***Gas***Productive
                      Wells
                  
                  2
                  
                  -
                  
                  -
                  
                  -
                  
                  2Wells
                      in Progress
                  
                  1
                  
                  -
                  
                  -
                  
                  1
                  
                  2**Net
                      basis*****Oil***Productive
                      Wells
                  
                  1.6
                  
                  -
                  
                  -
                  
                  -
                  
                  1.6Wells
                      in Progress
                  
                  1
                  
                  -
                  
                  -
                  
                  -
                  
                  1***Gas***Productive
                      Wells
                  
                  1.6
                  
                  -
                  
                  -
                  
                  -
                  
                  1.6Wells
                      in Progress
                  
                  1
                  
                  -
                  
                  -
                  
                  1
                  
                  2Note:        
                    In accordance with the production sharing agreementPSA # 35/970-SD
                    dated
                    August 19, 2004 Esko-Pivnich has 80% working interest in Karaikozovsk
                    property.
  13
 *Table
            of Contents*
  Overview
        of Regional
        Geology
  The
        Company’s most explored and
        developed reserves are currently located in the Karaikozovsk block. All of
        Sunrise’s activities during 2003 were conducted under Production Sharing
        Agreement #1 covering the development and exploration of Karaikozovsk block
        and
        under the license granted to EP for the above property. The Karaikozovsk
        field
        is located along the northern border of the Dnieper-Donetsk depression. The
        uplift 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 registered 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 the property
        into two blocks: Karaikozovsk and Lubivsk block.
  Proved
        reserves
  The
        Company does not currently have any proved reserves that can be quantified
        within the meaning of Regulation S-X of the Securites and Exchange Commission.
        The Company plans to estimate its proved reserves of Karaikozovsk block
        following the completion of Well #21 that is scheduled for completion in
        early
        2007.
  **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.
  JSC
        Ukrneft, Okhtyrkaneftegaz
  In
        2003 the Company initiated legal
        proceedings against JSC Ukrneft, Okhtyrkaneftegaz, with respect to certain
        advance payments made by EP in 2002, which totaled $198,880. The payments
        were
        made in order to complete certain construction work under the terms of the
        PSA #
        01-SD, dated April 26, 2000 (see: Notes 4 and 6 of the Consolidated Financial
        Statements). In April 2004 after the conclusion of legal proceedings in courts
        of first and appellate levels, the Supreme Court of Ukraine ordered
        Okhtyrkaneftegaz to pay the outstanding balance without further delays. As
        of
        March 27, 2007 the balance had not been paid.Upon termination of
        PSA # 01-SD the
        Company plans to offset this amount against amounts payable to JSC Ukrneft
        and
        its subsidiary Okhtirkaneftegas in 2006.
  Taxes
  During
        2004 the Company was examined by the State Tax Authority of Podolsk region,
        Kiev, and was assessed additional VAT and Profit tax fines and penalties
        in the
        aggregate amount of $598,324 related to 2003 and 2002 years. The amounts
        were
        accrued in the respective consolidated financial statements in full (See
        Notes
        13 and 22 of the Consolidated Financial Statements). “Esko-Pivnich” appealed
        against the decision and won the appellate hearing, however, the tax
        administration filed a counter appeal with the Supreme Civil Court of Kiev.
        The
        Supreme Civil Court had referred the matter back to Civil Court of Kiev and
        appointed a committee to conduct an accounting investigation. To date the
        Company has not received any further correspondence on this matter. In addition,
        a legal precedent was established in early 2007 where another Ukrainian
        oil&gas producer prevailed in a similar case.
  14
 *Table
            of Contents*
  Since
        the
        initial appeal was ruled in favor of the Company, no correspondence from
        the
        Supreme court of Kiev has been received and a favorable legal precedent has
        been
        established, the Company believes that it has excellent chances of prevailing
        in
        this case.  However, we intend not to reverse the above provision
        until such time when we receive the final ruling that cannot be
        appealed.
  We
        are not aware of any other material,
        active or pending legal proceedings against us, nor are we involved as a
        plaintiff in any material proceedings or pending litigation. There are no
        proceedings in which any of our directors, officers or affiliates, or, to
        the
        best of our knowledge, any registered or beneficial shareholders are involved
        or
        have a material interest against us in a matter concerning Sunrise or our
        operations.
  **ITEM 4.
        SUBMISSIONOF MATTERS TO A VOTE OF SECURITY
        HOLDERS**
  No
        matters were submitted to a vote of
        security holders during the year ended December 31, 2006. 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.
        MARKETFOR 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 bids for our common stock based
        on
        inter-dealer prices, without retail mark-up, mark-down or commission and
        may not
        represent actual transactions. The high and low bid prices of our common
        stock
        (obtained from Bloomberg) for the periods indicated below are as
        follows:
  OTC
        Bulletin Board
  Quarter
                      ended
                  
                  High
                  
                  LowMarch
                      31, 2006
                  
                  $1.02
                  
                  $0.75June
                      30, 2006
                  
                  $1.01
                  
                  $0.55September
                      30, 2006
                  
                  $1.01
                  
                  $0.55December
                      31, 2006
                  
                  $0.90
                  
                  $0.60
  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 27, 2007, we had 17,179,353
        shares of common stock outstanding or committed for issuance, and approximately
        1,400 stockholders of record. This number of stockholders does not include
        stockholders who hold our securities in street name.
  15
 *Table
            of Contents*
  *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
 *Table
            of Contents*
  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.
  We
        are
        currently in the process of engaging an independent petroleum engineering
        firm
        to review our estimates of proved reserves.
  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 currently
        do not have a direct access to a gas pipeline.  Our gas is currently sold
        to Kachanovskiy GPZ who subsequently sells it to end users. We store the
        oil
        that we produce in the field storage facility from where it is collected
        by
        buyers. The majority of our customers buy the oil from us at wellsite by
        collecting it from our storage facility in tank-trucks. During 2006 and 2005
        we
        also shipped small amounts of oil and gas mixture that we produced by pipe
        to
        Kachanovskiy oil refinery for separation and treatment to pipeline
        grade.
  Our
        longer-term plans include shipping
        produced gas by pipeline.  We would expect the implementation of these
        plans to result in higher netback prices than our current arrangements, however,
        no assurance can be given as to the timing and the success of implementing
        these
        plans.
  The
        prices we have received thus far
        for the sale of our gas are significantly below world market price for gas.
        The
        Company believes the primary reason we have not received the full market
        price
        is because we have not yet been able to produce gas in commercial quantities
        and
        were forced to either sell the untreated gas to Kachanovskiy refinery which
        on-sold it after appropriate treatment for prices closer to the market, use
        the
        produced gas for our internal heating purposes or burn it in flares. 
Unless and until such time as we are able to produce gas in sufficient
        quantities to justify the construction of our own separation and treatment
        facilities our gas prices may be significantly lower than the market price,
        and
        the Company will be at a competitive disadvantage compared to other exploration
        and production companies receive the market price for their
        gas.
  In
        addition, prices of oil and gas are
        subject to significant volatility in response to changes in supply, market
        uncertainty and a variety of other factors beyond our control.  There are
        currently no economic markets for our natural gas production and no value
        can be
        attached to our existing gas reserves until such time as we can effectively
        separate it, treat and deliver to the pipeline.
  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.
  17
 *Table
            of Contents*
  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.
  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 offerings to the same extent as the laws of the United
        States. The Company has taken steps to mitigate these risks through profit
        sharing agreements with domestic Ukrainian companies, but there can be no
        assurance in the adequacy of these protection measures.
  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, the majority of our revenues and expenses are
        denominated in Ukrainian hrivnas. Some of our revenues in 2006 have also
        been
        denominated in Euro and the US dollars. 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.
  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.
  18
 *Table
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  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.
  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.
  Reports
        to Security
        Holders
  Under
        the securities laws of Delaware,
        we are not required to deliver an annual audited report to our shareholders
        but
        we intend to send an annual report to our shareholders.
  **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, 2006 and 2005.
  There
        is limited or no comparability
        for revenue and operating expense to the comparable periods in 2003 and 2004,
        as
        sales and production were suspended in spring 2003 and were resumed only
        in
        January 2005.
  Management’s
        key objectives for 2006
        were:
 o
          Complete the workovers on Well #2 and
          Well#3 on the Karaikozovsk field and stabilize production from these
          wells;
 o
            Complete the construction of the
            separation and storage unit for Karaikozovsk field;
 o
          Approach completion of Well #21 of Karaikozovsk field;


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




We
      believe that these key objectives were achieved in 2006. Our 2007 strategy
      for
      Karaikozovsk’s field includes achieve the final completion of Well #21, build
      the related infrastructure and launch the above well. We plan to transfer Well
      #3 of Karaikozovsk property to produce from the gas horizon.




In
      addition, we will continue the exploration activities on Rogan, Rakitnyansk
      and
      Peremyshlyansk properties aiming to establish the optimal reservoir development
      scenarios.




**Current
      Activities**




During
      2006, our production was limited to Well #2 and Well#3 of Karaikozovsk
      block.  During the year we produced 33,530 MBBLS of oil from Well #2 and
      3,774 MBBLS of oil from Well #3. The reduced production from Well #3 was caused
      by continued reservoir pressure maintenance difficulties which were partially
      resolved during the third quarter of 2006. However, during the fourth quarter
      of
      2006 and first quarter of 2007 we suspended production from Well #3 of
      Karaikozovsk block to allow completion of the offset Well #21 which is located
      in the vicinity of Well #3. We plan to transfer Well #3 of Karaikozovsk property
      to produce from the gas horizon.




19
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On
      or
      around May 31, 2005 Esko-Pivnich, the Company's wholly-owned operating
      subsidiary completed the construction of a new storage and separation facility
      with a total storage capacity of approximately 200 tons (1,460 bbls). The new
      facility commenced operations on July 15, 2005. The new facility was designed
      to
      decrease the Company's operating expenses, resulting from reduced fees that
      were
      previously paid to Okhtirkaneftegaz, the state-owned Oil &Gas Company for
      similar services. In addition, the launch of the new facilities will enable
      the
      Company to reduce crude losses during extraction, separation and
      storage.




As
      at
      December 31, 2006, the Company сompleted
      drilling approximately 80% of Well #21, a third well of Karaikozovsk property.
      Well #21 was subsequently successfully completed in February 2007.




On
      January 20, 2006, Sunrise Energy Resources, Inc. executed a share purchase
      agreement with the shareholders of Pari, Ltd that is a holder of 5 exploration
      licenses in Western Ukraine for the following exploration blocks:
      Peremyshlyansk, Chukvinsk, Niklovitsk, Shereremetyevsk and Pilipivsk. The board
      of directors of Sunrise Energy Resources, Inc. approved the transaction on
      February 9, 2006.




**Results
      of Operations**




Oil
      and gas production and
      revenue




During
      the year ended December 31, 2006, Esko Pivnich had gross production of 36,867
      barrels (“BBLS”) of crude oil and 26,722 thousands of cubic feet (“MCFs”) of
      natural gas, respectively. Crude oil and gas production during the first and
      second quarters 2006 was limited to Well#2 of Karaikozovsk field. As at December
      31, 2005 the Company carried oil inventory of 568 BBLS while as at December
      31,
      2006 the Company carried 6,252 BBLS in inventory.




We
      recognize revenue from the sale of oil when the purchaser takes delivery of
      the
      oil at the field.  During the year ended December 31, 2006 Esko
      Pivnich sold on the gross basis 31,148 Bbls of its internally produced crude
      oil
      at the average prices of $55.14 per BBL translating into net revenues from
      sales
      of internally produced oil of $1,717,504.




Also
      during 2006 the Company had gross sales of 26,722 MCF of internally produced
      gas
      at average prices of $1.36 per MCF translating into revenues of
      $36,342.




In
      accordance with the licensing terms and the current joint activity agreement
      for
      Karaikozovsk field, the Company has 80% working interest in production resulting
      from Well #2 and #3 of the field. The Company will have 100% working interest
      in
      the production resulting from 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 is 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
      2004-2006 period presented on the net basis.




For
                        the years
                    
                    12/31/2006
                    
                    
                    12/31/2005
                    
                    
                    12/31/2004EndedProduction1,2Oil,
                        BBLS
                    
                    
                    29,494
                    
                    
                    
                    31,411
                    
                    
                    
                    n/aNatural
                        Gas, MCF
                    
                    
                    21,377
                    
                    
                    
                    41,815
                    
                    
                    
                    n/aBarrels
                        of Oil Equivalent, BOE4
                    
                    
                    33,057
                    
                    
                    
                    38,380
                    
                    
                    
                    n/aAverage
                        sales priceOil,
                        $/BBL
                    
                    
                    55.14
                    
                    
                    
                    42.00
                    
                    
                    
                    22.42Natural
                        Gas, $/MCF
                    
                    
                    1.36
                    
                    
                    
                    0.89
                    
                    
                    
                    n/aAverage
                        oil and natural gas cost of production, $/BOE3
                    
                    
                    24.03
                    
                    
                    
                    27.68
                    
                    
                    
                    n/a




20
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1The
      Company did not
      have any production in 2004 while the sales in that year resulted from
      12/31/2003 inventory.





2Calculated
      on the
      net production basis (net to the Company) based on 80% working interest in
      Karaikozovsk property.





3Includes
      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.





4Natural
      gas is
      converted to oil equivalent at the rate of 6MCF of gas equaling 1
      BOE.




Operating
      income




The
      reduction in the production costs was mainly due to the increasing usage of
      the
      Company’s Karaikozovsk storage and separation facility in 2006 as opposed to
      predominantly using third-party services during 2005. In addition, during 2006
      the Company increasingly used its own employees to operate Wells #2 and #3
      of
      Karaikozovsk block as opposed to predominantly using the operating services
      of
      Okhtyrkanaftogaz, the Company’s PSA partner during 2005. Also, the depreciation
      expense reduced by $104,566 from $318,109 in 2005 to $213,543 while other
      operating income increased by $90,078 in 2006. The above factors increased
      the
      operating income by $495,082 in 2006 compared to 2005 despite a $37,519 growth
      in  the Company’s Sales, General and Administrative
      expenses.




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 2006 and 2005, we
      incurred $174,551and $265,253 in exploration and development expenses,
      respectively.




The
      Company expects a significant
      increase in exploration expenses during 2007-2009 period due to the continued
      exploration of Karaikozovsk field, commencement of exploration work on Rogan
      and
      Rakitnyansk fields in Eastern Ukraine as well as continuation of exploration
      work on Peremyshlyansk property and the remaining 5 fields in Western Ukraine.
      The Company may have to invest significantly greater amounts in each of the
      above properties than provided under the respective licensing agreements with
      the Ministry of Resources of Ukraine (see above).




During
      2006 and 2005, the ad-valorem taxes, levied per BBL or produced oil and MCF
      of
      produced gas amounted $406,961 and $450,650, respectively.




Depreciation,
      depletion and
      amortization




Depreciation,
      depletion and
      amortization (“DD&A”) of oil and gas properties is calculated under units of
      production method, following the successful efforts method of accounting, as
      described in Note 1 of the Notes to Consolidated Financial
      Statements.




Oil
      and
      gas production equipment and work over costs contributed the most into the
      depreciation expense for the year ended December 31, 2006 and 2005 in total
      amounts of $213,543 and $318,109.




Sales,
      general and administrative expenses




Sales,
      general and administrative expenses in 2006 increased to $748,404 from $715,885
      in 2005.




Interest
      expenses




Interest
      expense grew from $142,527 in
      2005 to $294,883 in 2006 as a result of the higher amount of debt in the
      Company’s capital structure. During 2006, the Companyadded $4,815,800 of
      debt (including
      convertible debentures) to its capital structure.




21
 *Table
          of Contents*




**Liquidity
      and Capital
      Resources**




Since
      inception, we have financed our
      operations from private sources. We anticipate continuing losses in the near
      future while Esko Pivnich establishes steady production of oil and gas in
      Ukraine. As at December 31, 2006 the Company had total current assets of
      $2,754,065 and total current liabilities of $4,357,918. As at December 31,
      2006,
      the Company had cash balances of $203,146 and a working capital deficit of
      $1,603,853.




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.




Cash
      flow




Cash
      provided by operating activities for the years ended December 31, 2006 and
      2005
      amounted to $546,541 and $439,327, respectively. The higher cash inflow in
      2006
      as compared to 2005 was primarily caused by the significantly higher reduction
      in accounts receivable of $575,656 (2005: increase of (70,892)), lower increase
      in other receivables and prepayments made of ($125,358) as compared to
      ($242,679) in 2005, a larger increase in trade accounts payable of $191,345
      (2005: decrease of $204,466), a larger increase in other accounts payable and
      accruals of $664,600 (2005: $384,742).




During
      2006 and 2005, the Company invested in workovers a total amount of $174,551
      and
      $747,599, respectively, which were financed by shareholder loans, long term
      loans and convertible debentures.




Cash
      Requirements




The
      Company anticipates it will require
      around $5 million to implement its capital expenditure program for 2007. The
      Company raised approximately $3.1 million during the first quarter of 2007
      and
      believes that it will be able to raise the remaining funds through equity and
      debt financing; however, there is no guarantee that such funds will be raised
      and no certainty as to when such funds may be raised.




**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, 2006 was approximately 1 U.S. dollar to 5.050 Ukrainian
      Hrivnas. For the years ended December 31, 2006 and 2005, the average exchange
      rate to 1 U.S. dollar were approximately 5.0500 and 5.1116 Ukrainian Hrivnas,
      respectively.




22
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Principles
        of
        Consolidation


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




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




Use
      of
      Estimates




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




Oil
      and Gas Reserve
      Information




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




Successful
      Efforts Method of
      Accounting




We
      will follow the successful efforts
      method of accounting for our investments in oil and gas properties, as more
      fully described in Note 1 of the Notes to Consolidated Financial Statements
      following the completion of construction works on well #21 and launching it
      into
      commercial production.  This accounting method has a pervasive effect on
      our reported financial position and results of operations.




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 $339,042 during the year ended December
      31,
      2006, and, as of December 31, 2006, the Company’s current liabilities exceeded
      its current assets by $1,603,853. Additionally, to fully develop the area
      covered by the Licenses, the Company needs substantial additional
      funding.




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




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




23
 *Table
          of Contents*




·
            The
                Company plans to continue to
                raise additional capital in the equity markets as significant source
                of
                funding the development of the
                Licenses.





·
            Based
                on its expected production
                capabilities from the expenditures that will be made as a result
                of equity
                and debt financing, the Company believes that it could generate adequate
                cash flow. Additional funding requirements may also be necessary
                before
                the Company is able to rely solely on the production from the licensed
                properties for the cash flow of the
                Company.




Accordingly,
      our independent auditors
      included an explanatory paragraph in their report on the December 31, 2006
      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, GLO CPAs, LLP on the consolidated financial
      statements of Sunrise Energy Resources, Inc., and its subsidiaries (the
“Company”) for the year ended December 31, 2006 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, 2005 AND 2004**







IndexReport
                                of Independent Registered Public Accounting Firm
–GLO CPAs,
                                LLC
                            
                            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
 *Table
            of Contents*





**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, 2006, and the related consolidated statements
      of operations and comprehensive loss, changes in stockholders’ equity and cash
      flows for the years ended December 31, 2006 and  2005. 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, 2006, and the related consolidated results of their operations and cash
      flows for the years ended December 31, 2006 and  2005, 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 $339,042 during the year ended December 31, 2006, and, as of December 31,
      2006, the Company’s current liabilities exceeded its current assets by
      $1,603,853. 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.








GLO
      CPAs
      LLP






Houston,
      Texas


March
      27,
      2007


25
 *Table
            of Contents*










**SUNRISE
      ENERGY RESOURCES INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**(Expressed
      in US Dollars)**




**December 31,**
                  **2006**ASSETSCURRENT
                    ASSETSCash
                    and cash equivalents
                
                $
                203,146Accounts
                    receivable – related party
                
                
                165,492Other
                    accounts receivable and prepayments
                
                
                1,014,849Inventories
                
                
                341,013Taxes
                    receivable
                
                
                1,029,565Total
                    current assets
                
                
                2,754,065NONCURRENT
                    ASSETSProperty,
                    plant and equipment, net
                
                
                5,472,450Lease/concession
                    acquisition cost of Pari
                
                
                161,570Long-term
                    financial investments
                
                
                3,512Deferred
                    tax asset
                
                
                72,417**TOTAL
                    ASSETS**
                
                **$**
                **8,464,015**LIABILITIES
                    AND STOCKHOLDERS' EQUITYCURRENT
                    LIABILITIESAccounts
                    payable
                
                $
                237,358Accounts
                    payable – related party
                
                
                764,645Taxes
                    payable
                
                
                944,670Short
                    term notes payable
                
                
                19,598Other
                    accounts payable and accruals
                
                
                1,275,416Other
                    accounts payable -  related party
                
                
                275,091Prepayments
                    for oil and gas
                
                
                572,974Interest  payable
                
                
                152,354Interest
                    payable – related party
                
                
                56,866Profit
                    interest payable
                
                
                58,946Total
                    current liabilities
                
                
                4,357,918Long-term
                    payable
                
                
                4,169,147Long-term
                    payable – related party
                
                
                1,391,900STOCKHOLDERS’
                    EQUITYCommon
                    Stock, $.001 par value, 75,000,000 authorized, 17,000,000 issued
                    and
                    outstanding
                
                
                17,161Additional
                    Paid-in-Capital
                
                
                80,824Retained
                    earnings (Accumulated deficit)
                
                
                (1,520,742
                )Accumulated
                    other comprehensive income - foreign currency
                
                
                (32,192
                )Total
                    stockholders' equity (deficit)
                
                
                (1,454,949
                )**TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY**
                
                **$**
                **8,464,015**








26
 *Table
          of Contents*




**SUNRISE
      ENERGY RESOURCES INC. CONSOLIDATED STATEMENTS OF OPERATIONS
      AND**


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




**For
                    the years ended December 31****2006**
                
                
                **2005**REVENUESProduced
                    oil & gas
                
                $
                1,754,033
                
                
                $
                1,762,631Purchased
                    oil & gas
                
                
                120,174
                
                
                
                127,8491,874,207
                
                
                
                1,890,480COST
                    OF SALES
                
                
                (116,637
                )
                
                
                (127,561
                )1,757,570
                
                
                
                1,762,919Operating
                    expenses
                
                
                (666,702
                )
                
                
                (1,010,008
                )Depreciation
                    expense
                
                
                (213,543
                )
                
                
                (318,109
                )Other
                    operating income (expense)
                
                
                6,145
                
                
                
                (83,933
                )Sales,
                    general and administrative expenses
                
                
                (753,404
                )
                
                
                (715,885
                )OPERATING
                    INCOME (LOSS)
                
                
                130,066
                
                
                
                (365,016
                )OTHER
                    INCOME (EXPENSE)Interest
                    income
                
                
                1,008
                
                
                
                (484
                )Interest
                    expense
                
                
                (294,883
                )
                
                
                (142,527
                )Production
                    sharing agreement working interest expense
                
                
                (99,190
                )Foreign
                    exchange (loss) gain
                
                
                (16,987
                )
                
                
                (1,254
                )Other  expenses
                
                
                (3,971
                )
                
                
                (16,018
                )(LOSS)
                    INCOME BEFORE TAX
                
                
                (283,957
                )
                
                
                (524,331
                )INCOME
                    TAX
                
                
                (55,085
                )
                
                
                (62,264
                )NET
                    LOSS
                
                $
                (339,042
                )
                
                $
                (586,795
                )Other
                    comprehensive lossForeign
                    currency translation loss
                
                
                -
                
                
                
                -COMPREHENSIVE
                    LOSS
                
                $
                (339,042
                )
                
                $
                (618,987
                )BASIC
                    LOSS (EARNINGS) PER SHARE
                
                $
                (0.02
                )
                
                $
                (0.04
                )WEIGHTED
                    AVERAGE COMMON SHARES OUTSTANDING
                
                
                17,144,251
                
                
                
                17,000,000







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





27
 *Table
          of Contents*







**SUNRISE
      ENERGY RESOURCES INC.**


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


**(CAPITAL
      DEFICIT)**


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




**Common**
                  
                  
                  **Accumulated**
                  
                  
                  **Retained**
                  
                  
                  **Additional**
                  
                  
                  **Total****Stock**
                  
                  
                  **Other**
                  
                  
                  **Earnings**
                  
                  
                  **Paid-in**
                  
                  
                  **Stockholder's****Comprehensive**
                  
                  
                  
                  
                  
                  **Capital**
                  
                  
                  **Equity****Shares**
                  
                  
                  **Amount**
                  
                  
                  **(Loss)**
                  
                  
                  **(Accumulated
                      Deficit)**
                  
                  
                  
                  
                  
                  **(Capital
                      Deficit)****BALANCE,
                      DECEMBER 31, 2004**
                  
                  ****
                  **17,000,000**
                  
                  
                  **$**
                  **17,000**
                  
                  
                  **$**
                  **-**
                  
                  
                  **$**
                  **(594,905**
                  **)**
                  
                  **$**
                  **(15,623**
                  **)**
                  
                  **$**
                  **(593,528**
                  **)**Net
                      loss for the year
                  
                  ****
                  **-**
                  
                  
                  ****
                  **-**
                  
                  
                  
                  -
                  
                  
                  
                  (586,795
                  )
                  
                  
                  -
                  
                  
                  
                  (586,795
                  )Comprehensive
                      loss for the year
                  
                  ****
                  **-**
                  
                  
                  ****
                  **-**
                  
                  
                  
                  (32,192
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (32,192
                  )**BALANCE,
                      DECEMBER 31, 2005**
                  
                  ****
                  **17,000,000**
                  
                  
                  **$**
                  **17,000**
                  
                  
                  **$**
                  **(32,192**
                  **)**
                  
                  **$**
                  **(1,181,700**
                  **)**
                  
                  **$**
                  **(15,623**
                  **)**
                  
                  **$**
                  **(1,212,515**
                  **)**Common
                      stock issued upon Pari acquisition
                  
                  
                  161,014
                  
                  
                  
                  161
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  161Additional
                      paid-in capital on Pari acquisition
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  96,447
                  
                  
                  
                  96,447Net
                      income (loss) for the year
                  
                  ****
                  **-**
                  
                  
                  ****
                  **-**
                  
                  
                  
                  
                  
                  
                  
                  (339,042
                  )
                  
                  
                  
                  
                  
                  
                  (339,042
                  )Comprehensive
                      loss for the year**BALANCE,
                      DECEMBER 31, 2006**
                  
                  ****
                  **17,161,014**
                  
                  
                  **$**
                  **17,161**
                  
                  
                  **$**
                  **(32,192**
                  **)**
                  
                  **$**
                  **(1,520,742**
                  **)**
                  
                  **$**
                  **80,824**
                  
                  
                  **$**
                  **(1,454,949**
                  **)**




The
        accompanying notes are an integral part of the
        consolidated financial statements.
 
 28
 *Table
            of Contents*
 **SUNRISE
        ENERGY RESOURCES INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS (RESTATED)**


**(Expressed
      in US Dollars)**




**For
                    the years ended December 31****2006**
                
                
                **2005****CASH
                    PROVIDED BY (USED IN) OPERATING ACTIVITIES:**Net
                    loss
                
                $
                (339,042
                )
                
                $
                (586,795
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Depreciation
                    expense
                
                
                213,543
                
                
                
                318,109Loss
                    on disposal of fixed assets
                
                
                -
                
                
                
                27,199Provision
                    for doubtful accounts
                
                
                (20,154
                )
                
                
                58,542Deferred
                    tax (gain)
                
                
                (9,667
                )
                
                
                (56,101
                )Net
                    accrued interest
                
                
                60,559
                
                
                
                3,964Changes
                    in assets and liabilities:(Increase)
                    decrease in accounts receivable
                
                
                575,656
                
                
                
                (70,892
                )(Increase)
                    in other accounts receivable and  prepayments
                
                
                (125,358
                )
                
                
                (242,679
                )(Increase)
                    decrease in inventories
                
                
                (181,742
                )
                
                
                (123,235
                )(Increase)
                    decrease in taxes receivable
                
                
                (825,291
                )
                
                
                (61,700
                )Increase
                    (decrease) in accounts payable
                
                
                191,345
                
                
                
                204,466Increase
                    in taxes payable
                
                
                37,527
                
                
                
                149,947Increase
                    in other accounts payable and accruals
                
                
                664,600
                
                
                
                384,742Increase
                    in prepayments for oil and gas
                
                
                72,107
                
                
                
                416,049Increase in
                    profit interest payable
                
                
                191,508
                
                
                
                17,711Increase
                    in dividend payable
                
                
                40,949
                
                
                
                -$
                546,541
                
                
                $
                439,327**CASH
                    PROVIDED BY FINANCING ACTIVITIES:**Long
                    term loans received
                
                $
                1,112,000
                
                
                $
                279,900Short
                    terms loans paid
                
                
                (514,851
                )Promissory
                    notes issued
                
                
                3,703,799
                
                
                
                -$
                4,300,948
                
                
                $
                279,900**CASH
                    USED IN INVESTING ACTIVITES:**Purchase
                    of property, plant and equipment
                
                $
                (4,650,778
                )
                
                $
                (747,599
                )Long
                    term investment purchased
                
                
                (1,532
                )
                
                
                -Cash
                    inflow on the acquisition
                
                
                4,549
                
                
                
                -$
                (4,647,761
                )
                
                $
                (747,599
                )**EFFECT
                    OF EXCHANGE RATE CHANGES**
                
                $
                -
                
                
                $
                16,709**INCREASE
                    (DECREASE) IN CASH:**
                
                $
                199,727
                
                
                $
                (11,663
                )**CASH,
                    at the beginning of the period**
                
                
                3,419
                
                
                
                15,082**CASH,
                    at the end of the period**
                
                **$**
                **203,146**
                
                
                **$**
                **3,419**




29
 *Table
          of Contents*





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






All
      operating activities of Sunrise Energy Resources Inc. are conducted through
      its
      wholly owned Ukrainian subsidiaries, TOV Energy-Servicing Company Esko Pivnich
      (“Esko Pivnich” or “EP”) and Pari, Ltd. (“Pari”) both formed as Ukrainian Closed
      Joint Stock Companies (CJSC). Esko Pivnich and Pari are engaged in oil and
      gas
      exploration and production in the country of Ukraine.During 2006 the Company
      revenues were derived exclusively from Esko Pivnich’s activities on Karaikozovsk
      block in Eastern Ukraine where the Company was producing from 2 wells internally
      labeled #2 and #3. In February 2007, the Company completed a third well on
      Karaikozovsk block, the internally labeled #21.




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




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




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




EP
      has
      not entered into any production sharing agreements with respect to Rogan and
      Rakitanynsk properties. EP shall be responsible for 100% of the capital
      expenditures on Rogan and Rakitnyansk properties and, accordingly, 100% of
      the
      profits or losses from new wells drilled on these properties shall accrue to
      Esko Pivnich. Furthermore, Pari has not entered into any production sharing
      agreements with respect to its 5 properties: Peremyshlyansk, Chukvinsk,
      Niklovitsk, Sheremetyevsk and Pilipivsk.




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




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




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




As
      at December 31, 2006 and 2005 the
      Company had 50 and 46 employees respectively.




**2.****PRESENTATION
      OF CONSOLIDATED
      FINANCIAL STATEMENTS**




***Basis
      of
      Presentation******–***These consolidated financial
      statements have been prepared by the Company in accordance with accounting
      principles generally accepted in the United States of America (“US
      GAAP”).




***Going
      concern —***The
      Company’s consolidated financial statements have been presented on the basis
      that it is a going concern, which contemplates the realization of assets and
      satisfaction of liabilities in the normal course of business. As shown in the
      consolidated financial statements, the Company incurred a net loss of $339,042
      during the year ended December 31, 2006, and, as of December 31, 2006, the
      Company’s current liabilities exceeded its current assets by $1,603,854.
      Additionally, to fully develop the area covered by its licenses, the Company
      needs to raise 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 by raising additional
      funds in equity markets. 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.




30
 *Table
          of Contents*




***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, 2006 was approximately 1 U.S.
      dollar to 5.0500 Ukrainian Hrivnas. During the years ended December 31, 2006
      and
      2005, the foreign exchange rate was unchanged at 1 U.S. dollar was 5.0500 and
      5.1116 Ukrainian Hryvnas.




**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.




The
      Company has revenues from the sale of petroleum products produced from the
      properties for which the Company has production sharing agreements (Note 4
      and
      Note 22) and from products purchased from third parties. At present, the Company
      has been unable to estimate the quantity of its proved reserves. We plan to
      estimate our proved reserves for Karaikozovsk block once we complete and test
      Well #21 of Karaikozovsk block in 2007.




***Property,
      Plant and Equipment***– As of the dates of the financial statements
      most assets capitalized are directly related to in-process 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
      aortization 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.




31
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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  yearsOffice
                  Improvements
              4
–
                  5 yearsComputer
                  Equipment
              3
                  years




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




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




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




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




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




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




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




***Accounts
      Receivable
–***Accounts
      receivable are stated at their net realizable value after deducting provisions
      for uncollectible amounts.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, 2006 consisted mainly of the UAH and USD denominated current
      accounts.




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




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




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




***Value
      added tax on purchases and sales –***Output****Value 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.




32
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***Income
      Taxes******–***Income tax has been computed based on
      the results for the year as adjusted for items that are non-assessable or
      non-tax deductible.




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




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




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




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




***Comprehensive
      Income -***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 hydrocaronds.
      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 reportable segment.




***Reclassifications
      –***Certain
      reclassifications were performed in 2003 consolidated financial statements
      in
      order to present comparative figures in line with 2006, 2005 and 2004
      consolidated financial statements.




**4.****PRODUCTION
      SHARING
      AGREEMENTS**




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




In
      August 2000 Esko Pivnich together
      with the state owned geological enterprise Poltavaneftegasgeologiya executed
      a
      production sharing agreement (“PSA”) to start exploration and development of
      Karaikozovsk field located in Krasnokutsk area of Kharkov region. Under the
      terms of PSA Poltavaneftegasgeologiya acted as the holder of the main geological
      and exploration licenses to develop Karaikozovsk field and Esko Pivnich acted
      as
      an investor into the PSA. 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 PSA. Okhtirkaneftegas owned
      two
      wells on Karaikozovsk block, the operational usage of which was contributed
      into
      the PSA. Also, Okhtirkaneftegas made a commitment to render to PSA certain
      exploration and capital repair services at market rates.




33
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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.




***PSA
      # 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 PSA #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.




**5.****ACCOUNTS
      RECEIVABLE****(RELATED
      PARTY)**




Accounts
      receivable as of December 31,
      2006, consisted of the following:




**12/31/2006**CJSC
                      Infox, related party
                  
                  $
                  165,492**Total**
                  
                  **$**
                  **165,492**




No
      provision for bad debts has been recorded for these
      accounts.  Management of the Company believes that the outstanding
      amount will settled in full during 2007.




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




Other
      accounts receivable and
      prepayments made as of December 31, 2006 were as follows:




**12/31/2006**Vixen
                      JLM
                  
                  $
                  495,030Okhtyrkanaftogaz
                  
                  
                  198,880Chernihivneftegasgeologiya
                  
                  
                  146,268SDCH
                  
                  
                  39,604NDIKB
                      Burovogo Instrumenta
                  
                  
                  25,921Aeroshlyakhbud
                      TOV
                  
                  
                  27,129Other
                  
                  
                  82,017**Other
                      accounts receivable and prepayments, net of provision for doubtful
                      accounts**
                  
                  **$**
                  **1,014,849**




34
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The
      advance paid to Vixen JLM relates to well casings for construction workovers.
      The amount paid to Okhtirkanaftogaz is currently pending litigation (Note 22),
      though no provision was accrued on it based on the management estimates of
      the
      possibility to offset such amount against amounts payable to Oktyrkanaftogaz.
      This matter will be resolved upon termination of PSA# 01-SD that is expected
      to
      happen during 2007.  The amount prepaid to Chernihivneftegasgeologiya
      related to sales of spare parts and consumables to Сhernihivneftegasgeologiya.
      The above spare parts were used by Chernihivneftegasgeologiya in drilling Well
      #21 of Karaikozovsk property.




**7.****INVENTORIES**




Inventories
      as of December 31, 2006
      consisted of the following:




**12/31/2006**Crude
                      oil – at cost
                  
                  $
                  341,013-**Total**
                  
                  **$**
                  **341,013**





Inventories
      as of December 31, 2006 were represented by the balances of crude oil produced
      internally in the amount of 6,252 BBLS.




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




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




**12/31/2006**VAT
                      receivable
                  
                  $
                  1,000,715Other
                      tax prepaid
                  
                  
                  28,850**Total**
                  
                  **$**
                  **1,029,565**




Taxes
      receivable balance as of December 31, 2006 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.




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




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




**12/31/2006**Oil
                      & gas facilities improvements and work over costs
                  
                  $
                  1,660,103Office
                      equipment
                  
                  
                  39,572Construction
                      in progress
                  
                  
                  4,933,429$
                  6,633,104Accumulated
                      Depreciation
                  
                  $
                  (1,160,653
                  )**Net
                      Book Value**
                  
                  **$**
                  **5,472,450**




As
      at
      December 31, 2006 Oil&Gas improvements and workover costs of $1,660,103
      consisted mainly of the following: $707,623 representing oil production
      infrastructure, $500,130 representing capital repairs of Wells #2 and #3 of
      Karaikozovsk block, $248,941 representing metering and separation facility,
      $51,823 representing electric power line between Wells #3 and #21 of
      Karaikozovsk block, $76,996 representing supporting infrastructure of Wells
      #2
      and #3 of Karaikozovsk block and $36,546 representing control and measurement
      equipment. In addition, the Company had $39,772 of office equipment at cost.
      As
      at December 31, 2006 the above fixed assets had a net book value of
      $539,112.




Also
      as
      at December 31, 2006, the Construction in Progress Costs related to Well #
      21 of
      Karaikozovsk block amounted to $2,598,558 and Peremyshlyansk
      $2,334,871.




35
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**10.****LONG-TERM
      FINANCIAL
      INVESTMENT**




Long-term
      investment as of December 31,
      2006 represents 10 common shares of JSC “Ukrneft” at par value of 0.25 UAH
      accounted for at cost, which approximates their fair market
      value.




**11.****INCOME
      TAX**




The
      Company’s provision for income tax
      for the year ended December 31, 2006 was as follows:




**12/31/2006**Current
                    tax
                
                $
                64,753Deferred
                    tax (gain)
                
                
                (9,668
                )**Total
                    income tax expense (benefit)**
                
                **$**
                **55,085**




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




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




**12/31/2006**Net
                    asset  at the beginning of the period
                
                $
                62,750Charged
                    to income for the period
                
                
                9,668**Net
                    asset at the end of the period**
                
                **$**
                **72,417**




The
      tax effect of the major temporary
      differences that give rise to the deferred tax assets as at December 31, 2006
      is
      presented below:




**12/31/2006****Temporary
                    differences that give rise to deferred tax assets**Provision
                    for doubtful receivables
                
                $
                85,938Valuation
                    of VAT receivable
                
                
                75,343Low
                    value items written off
                
                
                1,755Difference
                    in depreciable value of property, plant and equipment due to
                    expensing in
                    prior period allowed by Ukrainian law
                
                
                126,633**Total**
                
                **$**
                **289,669**




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




**12/31/2006****Deferred
                    tax assets**Provision
                    for doubtful receivables
                
                $
                21,485Valuation
                    of VAT receivable
                
                
                18,836Low
                    value items written off
                
                
                439Difference
                    in depreciable value of property, plant and equipment due to
                    expensing in
                    prior period under Ukrainian law
                
                
                31,657**Total**
                
                **$**
                **72,417**




36
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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:




**12/31/2006**(Loss)
                    before income tax and minority interest
                
                $
                (283,957
                )Theoretical
                    income tax benefit at statutory rate of 25%
                
                
                70,989Adjustments
                    due to:Tax
                    effect of expenses that are not deductible in determining taxable
                    profit
                
                
                (121,074
                )**Income
                    tax (benefit)**
                
                **$**
                **(55,085**
                **)**




As
      of
      December 31, 2006 the Company had no loss carry forward for Ukrainian statutory
      income tax purposes. For United States income tax purposes, the Company has
      a
      net operating loss carry forward of $1,413,852 which expires in 2024. As a
      result, the company has a deferred tax asset of $480,710 which is fully reserved
      because of the uncertainty of realization.




**12.****ACCOUNTS
      PAYABLE**




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




**12/31/2006****Accounts
                    payable**
                
                $
                237,358CJSC
                    Infox, related party
                
                
                764,645**Total**
                
                **$**
                **1,002,003**




Third
      parties accounts payable balances
      as of December 31, 2006 were comprised of payable to Okhtirkaneftegas and
      Kachanovskiy GPZ for services in amounts of $204,476 and $32,882,
      respectively.




The
      amount of $764,645 payable to the related party, CJSC Infox, as of December
      31,
      2006, 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.




37
 *Table
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**13.****TAXES
      PAYABLE**




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




**12/31/2006**Fines
                    and penalties
                
                $
                598,682VAT
                
                
                290,983Exploration
                    tax
                
                
                29,898Profit
                    tax
                
                
                302Resource
                    Tax
                
                
                18,658Social
                    insurance
                
                
                3,799Personal
                    Income Tax
                
                
                1,424Other
                    taxes payable
                
                
                924**Total**
                
                **$**
                **944,670**




Taxes
      payable as of December 31, 2006
      represent fines and penalties accrued in connection with litigation described
      in
      Note 22, and VAT payable relates mostly to sales made in 2006. As discussed
      in
      Note 22 with respect to the accrued fines and penalties of $598,682, although
      the Company has prevailed in the appellate hearing on this matter, the tax
      authorities filed a counter-appeal and the Company will not reverse the accrued
      liability until there is a final court decision that cannot be
      appealed.




**14.
      SHORT TERM NOTES PAYABLE**




Notes
      payable as of December 31, 2006 consisted of the following:




**12/31/2006**Astark
                
                $
                14,258Sipay
                
                
                5,340**Total**
                
                **$**
                **19,598**




Promissory
      notes issued in November 2002 at no interest and payable not earlier than
      November 5, 2005 represent amounts payable to Astark and Sipay. As of
      December 31, 2006, Astark and Sipay, the issuers of the notes had not called
      for
      the repayment of the respective amounts.  Any valuation adjustment due
      to the lack of interest has not been calculated, but it is not considered to
      have a material effect on the financial statements.




**15.****OTHER
      CURRENT
      LIABILITIES**




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




**12/31/2006**Chernigovneftegazgeologiya
                
                $
                325,660Zakhidukrgeologiya
                
                
                297,204M-I
                    SWACO
                
                
                189,750Rostochcha
                
                
                49,424Fort
                    Trade PP
                
                
                46,337Naftoservice
                
                
                40,143Poltavneftegasgeology
                
                
                38,776Other
                    accounts payable
                
                
                288,122**Total**
                
                **$**
                **1,275,416**Advances
                    from shareholders
                
                $
                275,091**Total**
                
                **$**
                **1,550,507**




The
      amount of $325,660 due to Chernigovneftegazgeologiya was related to drilling
      services in respect of Well #21 of Karaikozovsk block. The amount of $297,204
      due to Zakhidukrgeologiya was related to drilling services of the exploration
      Well #1 of Peremyshlyansk property. The amount due to M-I Swaco of $189,750
      was
      related to drillbits and other drilling equipment used in drilling the
      exploration Well #1 on the Company’s Peremyshalyansk block.




38
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Other
      accounts payable and accruals as of December 31, 2005 mostly consisted of
      non-recurring research and development, geological and exploration works, as
      well as payroll, short term advances to employees and other prepayments for
      repair and constructions services.




Amount
      of
      $275,091 represents advances from shareholders with no specific terms paid
      to
      the Company during 2005 and 2006 (See also Note 15).




**16.
      PREPAYMENTS FOR OIL AND GAS**




During
      2006, the Company sold oil and gas to its customers mainly on prepayment basis.
      As of December 31, 2006, the prepayments received from customers in respect
      of
      future deliveries of oil and gas consisted of the following:




**12/31/2006**Ukrgazenergo
                
                $
                316,040Angronafta
                
                
                191,010Atlantis
                    Techno
                
                
                49,805Other
                    prepayments
                
                
                16,119**Prepayments
                    for oil and gas**
                
                **$**
                **572,974**




**17.
      INTEREST PAYABLE**




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




**12/31/2006**Millington
                      Solutions Limited
                  
                  $
                  152,354$
                  152,354**Related
                      Parties**Zaccam
                      Trading, related party
                  
                  
                  38,120Interest
                      accrued on advances received from shareholders
                  
                  $
                  18,746$
                  56,866**Total**
                  
                  **$**
                  **209,220**




As
      of
      December 31, 2006, the amount due to Millington Solutions Limited represented
      interest accrued on 2 tranches of convertible debentures placed by the Company
      in 2006.




Interest
      due to Zaccam Trading relates to credit line facility at bearing 3% coupon
      per
      annum (Note 19) obtained in 2005, respectively. Interest accrued on amounts
      payable to former shareholders represents weighted average LIBOR rate for the
      year ended 2005.




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




Profit
      interest related to the Company’s production sharing agreements payable as of
      December 31, 2006 consisted of the following:




**12/31/2006**Poltavaneftegasgeologiya
                
                $
                17,997Okhtirkaneftegas
                
                
                40,949Total
                
                **$**
                **58,946**




39
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Profit
      interest was accrued during 2006
      in the total amount of $99,910 in respect to profits earned for 2002 year in
      accordance with PSA # 01-SD dated April 26, 2000 (Note 22) and PSA # 35/970-SD
      dated August 19, 2004.The
      accrued interest was partially paid by the Company during 2006 while $58,946
      was
      outstanding at period end.




**19.** 
      **LONG-TERM PAYABLE**




Long
      term payable balances as of
      December 31, 2006, consisted of the following:




**Agreement**
                    **Date**
                  **Due**
                    **not
                      before**
                  
                  **12/31/2006**Fort
                      Trade
                  Nov,
                      2004
                  Nov-
                      2009
                  
                  $
                  465,347Millington
                      Solutions Ltd., 10%
                  March
                      30, 2006
                  March
                      30, 2009
                  
                  
                  917,200Millington
                      Solutions Ltd., 10%
                  June
                      6, 2006
                  June
                      6, 2009
                  
                  
                  1,990,200Millington
                      Solutions Ltd., 6%
                  July
                      25, 2006
                  July
                      25, 2009
                  
                  
                  796,400**$**
                  **4,169,147****Related
                      Parties**Zaccam
                      Trading, Ltd.
                  March
                      5,  2005 and  2006
                  March
                      5, 2015
                  
                  $
                  1,391,900**$**
                  **1,391,900****Total**
                  
                  
                  
                  **$**
                  **5,561,047**




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 interest is accrued at the rate of 10% per annum on the unconverted
      amount and is payable annually on each 12 month anniversary of each tranche
      until conversion or maturity (Note 19). The Notes can be converted into Common
      shares of the Company at a conversion price of $2.20 at the holder's option
      at
      any time before the maturity date of each tranche. For Notes converted between
      interest due dates, the interest would accrue pro-rata and would be paid in
      the
      form of additional shares of the Company's Common stock. The number of such
      additional shares shall be calculated at the same conversion price.




On
      July
      25, 2006 the Company executed a new Convertible Note Subscription Agreement
      with
      Millington Solutions Limited for the total amount of $1.0 million with 6%
      current interest 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.




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




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




**20.****SHAREHOLDERS’
      EQUITY**




On
      or
      about January 20, 2006, the Company executed a share purchase agreement with
      the
      shareholders of Pari, Ltd. The board of directors of Sunrise Energy Resources,
      Inc. approved the transaction on February 9, 2006. The shareholders of Pari
      sold
      100% of their holdings to Sunrise Energy Resources, Inc. for a consideration
      for
      161,014 newly issued Common shares of the Company, which at the time had an
      approximate market value of $96,608.




The
      current consolidated financial statements account for the transaction in
      accordance with SFAS 141 “Business Combinations” under the “acquisition”
treatment, whereby Sunrise Energy Resources, Inc. is considered to be the actual
      acquirer, and Pari, Ltd. is the acquired entity. Based on the market value
      of
      the stock issued, the excess of the value of the stock over the book value
      of
      the assets has been allocated to the drilling/production concessions owned
      by
      Pari.   No goodwill was recognized on the
      acquisition.




40
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Net
      assets of the acquired entity, Pari, Ltd. before the allocation of the balance
      to the drilling/production concessions as of December 31, 2005, were as
      follows:




**12/31/2005**Cash
                  
                  $
                  4,549Accounts
                      receivable and other current assets
                  
                  
                  24,860Property,
                      Plant and Equipment, net
                  
                  
                  43,797Accounts
                      Payable
                  
                  
                  (166,580
                  )Tax
                      liabilities
                  
                  
                  (11,981
                  )**100%
                      of  Net Assets (Deficit)**
                  
                  **$**
                  **(105,355**
                  **)**





No
      dividends were declared or paid by the Company during the periods ended December
      31, 2006 and December 31, 2005.




**21.****RELATED
      PARTIES**




Related
      parties include shareholders and entities under common ownership. Transactions
      with related parties are performed on terms that are comparable to those
      available to unrelated parties. For details of related party balances
      outstanding as of December 31, 2006 see Notes 5, 12, 15, 17 and 19.Our related parties
      include CJSC Infox and Zaccam Trading, Ltd.




During
      the year ended December 31, 2006, we have received a long term loan of
      $1,391,900 from Zaccam Trading, Ltd. The proceeds received were used mainly
      for
      construction of well #21.




As
      of
      December 31, 2006, the outstanding amount of $165,492 receivable from CJSC
      Infox, related party, was related to several crude oil shipments which took
      place in 2004 and 2003.  Amount of $592,554 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.




**22.****COMMITMENTS
      AND
      CONTINGENCIES**




***Licenses’
      commitments***




During
      2005 the Company received
      geological and exploration license agreements to develop Karaikozovsk’s, Rogan
      and Rakitnyansk fields. The following amounts of investments are to be incurred
      under the terms of those agreements during the periods indicated in the table
      below:




**Period**
                    
                    
                    **Amount**
                    
                    
                    **Amount**
                    
                    
                    **Remaining****To
                        be invested**
                    
                    
                    **invested**
                    
                    
                    **Investment**Rogan
                        field
                    
                    2005-2009
                    
                    
                    $
                    2,922,772
                    
                    
                    $
                    36,000
                    
                    
                    $
                    2,886,772Rakitnyansk
                        field
                    
                    2005-2009
                    
                    
                    
                    3,938,614
                    
                    
                    
                    279,000
                    
                    
                    
                    3,659,614Karaikozovsk  field
                    
                    2005-2009
                    
                    
                    
                    4,241,584
                    
                    
                    
                    4,208,000
                    
                    
                    
                    33,584**Total**
                    
                    
                    
                    
                    
                    **$**
                    **11,102,970**
                    
                    
                    **$**
                    **4,523,000**
                    
                    
                    **$**
                    **6,579,970**





***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:


41
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**Period**
                    
                    
                    **Amount**
                    
                    
                    **Amount**
                    
                    
                    **Remaining****To
                        be invested**
                    
                    
                    **Invested**
                    
                    
                    **Investment**Peremishlyansk
                        field
                    
                    2004-2009
                    
                    
                    $
                    2,336,634
                    
                    
                    $
                    2,335,000
                    
                    
                    $
                    1,634Chukvinsk
                        field
                    
                    2004-2009
                    
                    
                    
                    1,544,554
                    
                    
                    
                    -
                    
                    
                    
                    1,554,554Scheremetivsk
                        field
                    
                    2004-2009
                    
                    
                    
                    712,872
                    
                    
                    
                    -
                    
                    
                    
                    712,872Niklovitsk
                        field
                    
                    2004-2009
                    
                    
                    
                    594,059
                    
                    
                    
                    -
                    
                    
                    
                    594,059Pilipivsk
                        field
                    
                    2004-2009
                    
                    
                    
                    475,248
                    
                    
                    
                    -
                    
                    
                    
                    475,248**Total**
                    
                    
                    
                    
                    
                    **$**
                    **5,663,367**
                    
                    
                    **$**
                    **2,335,000**
                    
                    
                    **$**
                    **3,338,367**




***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, 2006 are as
      follows:




**2007**Office
                      rent
                  
                  $
                  60,002**Total**
                  
                  **$**
                  **60,002**







***Litigation******–***The Company has been and continues to
      be the subject of legal proceedings and adjudications from time to time.
      Management believes that the resolution of all business matters which will
      have
      a material impact on the Company’s financial position or operating results have
      been recorded.




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




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




Taxes




During
      2004 the Company was audited by the State Tax Authority of Podolsk region,
      Kiev,
      and was assessed additional VAT and Profit tax fines and penalties in the
      aggregate amount of $598,682 related to 2003 and 2002 years. The amounts were
      accrued in the respective consolidated financial statements in full (See Note
      13
      of the Consolidated Financial Statements). “Esko-Pivnich” appealed against the
      decision and won the appellate hearing, however, the tax administration filed
      a
      counter appeal with the Supreme Civil Court of Kiev. The Supreme Civil Court
      had
      referred the matter back to Civil Court of Kiev and appointed a committee to
      conduct an accounting investigation. To date the Company has not received any
      further correspondence on this matter. In addition, a legal precedent was
      established in early 2007 where another Ukrainian Oil&gas producer prevailed
      in a similar case.




Since
      the
      initial appeal was ruled in favor of the Company, no correspondence from the
      Supreme court of Kiev has been received and a favorable legal precedent has
      been
      established, the Company believes that it has excellent chances of prevailing
      in
      this case.  However, we intend not to reverse the above provision
      until such time when we receive the final ruling that cannot be
      appealed.




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




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




**12/31/2006**
                  
                  
                  **12/31/2005**Agrotemp
                      (oil produced)
                  
                  $
                  892,921
                  
                  
                  $
                  415,440Ukrtatnafta
                      (oil produced)
                  
                  
                  -
                  
                  
                  
                  278,997Bogodukhovsky
                      zavod
                  
                  
                  25,808
                  
                  
                  
                  -Nafto
                      Soiuz
                  
                  
                  337,169
                  
                  
                  
                  -Spago
                  
                  
                  51,396Soiuz
                      NPK TOV
                  
                  
                  42,410Ukrgasenergo
                      ZAT
                  
                  
                  302,574Varadero
                      (oil produced)
                  
                  
                  -
                  
                  
                  
                  254,765Torpeda
                      PP (oil produced)
                  
                  
                  65,076
                  
                  
                  
                  215,131Agronafta
                      (oil produced)
                  
                  
                  -
                  
                  
                  
                  214,324AlphaNafta
                      (oil produced)
                  
                  
                  -
                  
                  
                  
                  163,937Torpeda
                      PP (oil resold)
                  
                  
                  120,174
                  
                  
                  
                  73,067CJSC
                      Ukrnafta (oil produced)
                  
                  
                  12,990Other
                  
                  
                  23,689
                  
                  
                  
                  275,095**Total**
                  
                  **$**
                  **1,874,207**
                  
                  
                  **$**
                  **1,890,480**





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




The
      Credit Committee sets limits on the
      level of exposure 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**




On
      March
      13, 2007 the Compny issued convertible debentures in the aggregate principal
      amount of $550,000 net of fees and commissions. The Notes shall bear interest
      at
      the rate of 7% per annum, payable on March 13 of 2008, 2009 and 2010. The
      initial conversion price was set at $3 per share subject to adjustment for
      certain issuances, transactions and events resulting in dilution to the
      holders.




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In
      addition, on March 26, 2007, Sunrise Energy Resources, Inc. ("Sunrise" or the
      "Company") issued to Dutchess Private Equities Fund, Ltd. ("Dutchess") a
      promissory note in the face amount of $2,553,125 for gross proceeds of
      $2,375,000 (the "Note"). The Note bears interest at 7% per annum and matures
      on
      December 26, 2007 ("Maturity Date"). Pursuant to the Note, the Company is
      required to make payments to Dutchess of $20,000 on each monthly anniversary
      from the date of issuance through July 26, 2007. Thereafter the Company is
      required to pay Dutchess $515,170.57 on each monthly anniversary until paid
      in
      full. The Company may prepay the Note in full within six (6) months of issuance
      by paying ninety-seven and one-half percent (97.5%) of the balance due on the
      face amount, without penalty.




**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, 2006 and 2005 have been included in cost
                of
                sales.




**12/31/2006**
                  
                  
                  **12/31/2005**Exploration
                      and development costs
                  
                  $
                  174,551
                  
                  
                  $
                  265,253**Total**
                  
                  **$**
                  **174,551**
                  
                  
                  **$**
                  **265,253**





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, 2006 and 2005 are presented
      below.




**For
                      the years ended**
                    **December
                      31,****2006**
                  
                  
                  **2005**Sales
                      of Oil and Gas produced
                  
                  $
                  1,754,033
                  
                  
                  $
                  1,762,631Production
                      expenses (including depreciation expense)
                  
                  
                  (815,081
                  )
                  
                  
                  (1,049,461
                  )Exploration
                      and development costs
                  
                  
                  (174,551
                  )
                  
                  
                  (265,253
                  )Income
                      tax expense
                  
                  
                  (191,100
                  )
                  
                  
                  (117,224
                  )Total
                      expenses
                  
                  
                  (1,180,732
                  )
                  
                  
                  (1,431,938
                  )**Total**
                  
                  **$**
                  **573,301**
                  
                  
                  **$**
                  **330,693**





**(C)
      Proved Oil and Gas Reserves**.





As
      of
      December 31, 2006, we have not been able to estimate the quantity of proved
      reserves within the meaning of Rule 4-10(a) of Regulation S-X. We plan to
      estimate our proved reserves for Karaikozovsk block in 2007 once we complete
      Well #21 of Karaikozovsk block.




44
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**ITEM 8.
      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**




Our
      Board of Directors approved the
      engagement of Independent Registered Public Accounting Firm - John A. Braden
      & Company, PC, of Houston, Texas (“John A. Braden & Co., P.C.”) as our
      independent accountants. The Company Corporation has appointed John A. Braden
      & Co., P.C.. on November 1, 2004 to audit the Company's financial statements
      for the years ending December 31, 2005 and 2006.   Effective
      January 1, 2007 John A. Braden & Co., P. C. merged with GLO CPAs, LLP(GLO)
      and therefore GLO  became our auditors for
      2006.   .




GLO  ‘s
      report on the
      financial statements of the Company for the year ended December 31, 2006 did
      not
      contain an adverse opinion or disclaimer of opinion, and was not qualified
      or
      modified as to uncertainty, audit scope, or accounting principles, except in
      respect to an explanatory paragraph concerning the Company’s ability to continue
      as a going concern.




During
      the most recent fiscal year and
      any subsequent interim periods preceding the date of this report there were
      no:




(a)
                disagreements between the Company and GLO. on any matter of accounting
                principles or practices, financial statement disclosure, or auditing
                scope
                or procedure which, if not resolved to the satisfaction of GLO. would
                have
                caused them to make reference to the subject matter of the disagreement
                or
                disagreements in their report on the financial statements for such
                year;





(b)
                reportable events involving GLO. that would have required disclosure
                under
                Item 304(a)(iv)(A) of Regulation S-B;
                or





(c)
                written or oral consultations between the Company and GLO. regarding
                either the specific application of accounting principles or the type
                of
                audit opinion that might be rendered on the Company 's financial
                statements that was considered an important factor by the Company
                in
                reaching a decision as to an accounting, auditing or financial reporting
                issue, or any matter that was the subject of a disagreement or a
                reportable event, that would have required disclosure under Item
                304
                (a)(2) of Regulation S-B.





45
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**ITEM
      8a.
      CONTROLS AND PROCEDURES**




The
      Company’s Principal executive
      officers and principal financial officer, based on their evaluation of the
      Company’s disclosure controls and procedures (as defined in Rules 13a-14 ( c )
      of the Securities Exchange Act of 1934) as of December 31, 2006 have concluded
      that the Company’s disclosure controls and procedures are adequate and effective
      to ensure that material information relating to the Company’s and their
      consolidated subsidiary is recorded, processed , summarized and reported within
      the time periods specified by the SEC’ s rules and forms, particularly during
      the period in which this annual report has been prepared.




The
      Company’s principal executive
      officers and principal financial officer have concluded that there were no
      changes in the Company’s internal controls over the financial reporting 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, and that there was
      no
      significant deficiencies or material weaknesses in the Company’s internal
      controls.




**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**
                  **appointed**Konstantin
                    Tsiryulnikov
                
                CEO,
                    Sunrise Energy Resources, Inc.
                
                28
                
                December
                    – 2004David
                    A. Melman
                
                Independent
                    Director of Sunrise Energy Resources Inc
                
                64
                
                1997Roman
                    Livson
                
                CFO,
                    Sunrise Energy Resources, Inc.
                
                36
                
                August
                    2005Leon
                    Golden
                
                Independent
                    Director, Sunrise Energy Resources, Inc.
                
                45
                
                December
                    – 2004Abraham
                    Bennun
                
                Independent
                    Director of Sunrise Energy Resources Inc
                
                35
                
                December
                    – 2004Vyacheslav
                    Chuchminov
                
                CEO,
                    Esko Pivnich
                
                48
                
                June
                    - 2002Taras
                    Burdeniy
                
                CFO,
                    Esko Pivnich
                
                28
                
                June
                    - 2002Mrs.
                    Raissa Volodarskaya
                
                Chief
                    Accountant
                
                58
                
                April
                    - 2002





***Directors
      and Key
      Personnel***




***Mr.
      Konstantin Tsirulnikov,***President,******CEO,
      of Sunrise Energy Resources (Age
      27). 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.




46
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Mr.
      Tsiryulnikov is the son of Eduard Tsiryulnikov, Halton Impex Corp.‘s sole
      shareholder. As provided below, Halton Impex is a privately owned company,
      which
      owns 65% of the issued shares of the Company.




***Mr.
      David A. Melman,*** Mr. Melman, (Age 64) 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. Mr. Livson will
      continue to serve as the managing director of Thor Capital Group,
      Inc.




***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.
      Abraham
      Bennun,***Independent director - of Sunrise Energy Resources Inc. Mr. Bennun has financial
      and legal background relating to several industries, one of which is the Oil
      and
      Gas industry. Earlier this year Mr. Bennun joined Thor Capital Group, Inc.
      (Moscow Office) and serves as a Senior Vice President of the firm. Prior to
      joining Thor Capital, Mr. Bennun worked as an associate at Kronish Lieb Weiner
      & Hellman, LLP (New York). From February 1997 to March 1999, Mr. Bennun
      worked as an advisor with the Official Receiver, Justice Department of
      Israel.




Mr.
      Bennun holds a LLB degree from
      Cardiff University School of Law (UK), and a LLM degree in Banking, Finance
      and
      Corporate Law from Fordham University (N.Y.).




***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.




47
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***Mr.
      Anatoliy
      Dyagterev,***Operations Director - Esko Pivnich (Age 38). 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 (Age 38). 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 got the Master’s Degree in Poltava
      Technical University on the Accounting and Audit Department.




***Mr.
      Viktor Dvornichenko,***Chief
      Technologist, Esko Pivnich - (Age 52). Mr. Dvornichenko has been serving as
      the
      Chief Technologist of Esko-Pivnich since June 2002. Prior to that, since 1998
      he
      served as Technical and Commercial Director in a number of medium size oil
&
gas production companies in Ukraine, including ZAO “Ukrainian neftepromislovaya
      company” and OOO “Ukragroneft”. In 1995-1998 he served as Deputy Manager of the
      Export-Import department of Ukrnafta. Mr. Dvornichenko graduated from
      Ivano-Frankovsk Institute of the Oil & Gas in 1978 with a Master's degree of
      Well - drilling Engineer.




***Mr.
      I.V. Ivanets***(Age 46)
      joined the Company in December 2002 as an Oil & Gas extraction engineer.
      Prior to that he worked as a geology engineer for
      Khantymansiyskneftegazgeologiya, a geological survey and drilling contractor
      in
      the oil rich Khanty-Mansiysk region of neighbouring Russian
      Federation.




**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 and Mr. Bennun.




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 2006, 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.




For
      the fiscal year ended 2006, 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 2006, 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-KSB for the fiscal year
      ended December 31, 2006 for filing with the Securities and Exchange
      Commission.




48
 *Table
          of Contents*




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, 2006 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
      2005, 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 2005 to be not materially different from these
      accrued ones:




**Name
                    and principal
                    position**
                
                **Actual
                    salary**Konstantin
                    Tsirulnikov
                
                $
                40,500CEO
                    of Sunrise Energy Resources, Inc.Roman
                    Livson
                
                $
                75,000CFO
                    of Sunrise Energy Resources, Inc.Leon
                    Golden
                
                Nominal
                    subject to reviewIndependent
                    Director, Sunrise Energy Resources, Inc.Abraham
                    Bennun
                
                Nominal
                    subject to reviewIndependent
                    Director, Sunrise Energy Resources, Inc.David
                    A. MelmanIndependent
                    Director of Sunrise Energy Resources.Inc
                
                $
                25,000Vyacheslav
                    Chuchminov
                
                $
                2,000CEO,
                    Esko PivnichTaras
                    Burdeniy
                
                $
                2,000CFO,
                    Esko PivnichRaisa
                    Volodarskaya
                
                $
                3,000Chief
                    Accountant**Total**
                
                **$**
                **147,500**





The
      Company has not entered into any
      definitive compensation agreements with its senior management. There were no
      stock options outstanding as at December 31, 2006.




49
 *Table
          of Contents*




**ITEM 
11.
      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT**




The
      following tables sets forth, as of
      March 27, 2007, 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, 2007, 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**
                                    **Class**Halton
                                      Impex Corp.
                                  
                                  Common
                                  
                                  
                                  11,143,235
                                  (1)
                                  
                                  
                                  65
                                  %627
                                      Lyons Lane,Oakville,Ontario
                                      L6J 5Z7CanadaMr.
                                      David A. Melman5353
                                      Memorial DriveSuite
                                      4012Houston
                                      Texas 77007
                                  
                                  Common
                                  
                                  
                                  200,184
                                  (2)
                                  
                                  
                                  1.17
                                  %




(1)
      Includes 10,479,900 shares
      transferred to Halton Impex Corp. under the terms of the Merger Agreement,
      in
      consideration of Halton Impex Corp.‘s shares in Esko Pivnich. The sale of the
      shares was exempt from registration under Section 4(2) of the Securities Act
      of
      1933, as amended, as the purchasers had full information concerning the business
      and affairs of Company and all certificates issued bear appropriate restrictive
      legends. No underwriter is involved in the transaction.




(2)
      Does not include the shares held by
      Midland Trust Company, Ltd. which owns 1.17% 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, 2006 by Mr. Konstantin Tsirulnikov,
      CEO of the Company, and Mr. David Melman, Independent
      Director.




**Name
                  and Address of**
                **Beneficial
                  Owner**
              
              **Amount
                  of Beneficial
                  Interest**
              
              **Percent
                  of**
                **Class**Mr.
                  Konstantin Tsirulnikov
              
              65.00%
                  (1)
              
              Common
                  stockMr.
                  David A. Melman
              
              1.17%
              
              Common
                  stock





(1)
            
            Mr.
                Konstantin Tsirulnikov is the son of Mr. Eduard Tsirulnikov the sole
                shareholder of Halton Impex Corp.





**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.




50
 *Table
          of Contents*




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
      2006 professional services were
      mostly rendered for the Company by John A. Braden and Co., P.C. (now GLO)
      accounting firm.




Total
      professional fees incurred by the
      Company for the years ended December 31, 2006 and 2005 consisted of the
      following:




**2006**
                    **John
                      A. Braden**
                    **and
                      Co. ,
                      P.C.**
                  
                  
                  **2005**
                    **John
                      A. Braden**
                    **and
                      Co., P.
                      C.**Audit
                  
                  $
                  60,000
                  
                  
                  $
                  50,000Audit
                      related
                  
                  
                  --
                  
                  
                  
                  --Tax
                  
                  
                  --
                  
                  
                  
                  --All
                      other fees
                  
                  
                  --
                  
                  
                  
                  --Total
                  
                  $
                  60,000
                  
                  
                  $
                  50,000





**Audit
      Fees**




The
      Audit Fees for 2006 and 2005 were
      for services associated with the consolidated U.S. GAAP audits, and registration
      statements.




**Audit
      Related
      Fees**




During
      2006 and 2005 we did not pay any
      audit related fees.




**Tax
      Fees**




During
      2006 and 2005 we did not pay any
      tax related fees.




**All
      Other
      Fees**




During
      2006 and 2005 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. for all audit and non-audit services,
      including tax services. Our Audit Committee pre-approved the engagement terms
      and fees of John A. Braden and Co., P.C. for all services performed for the
      fiscal year ended December 31, 2006.




**PART
      IV**




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




51
 *Table
          of Contents*




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




A
      Current Report on Form 8-K filed by
      the Company on June 28, 2005, and Schedule 14F-1 filed by the Company on January
      6, 2005.




Amended
      10-KSB/A filing of the Company dated February 8, 2007.




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 –GLO CPAs LLP for the year ended December 31,
      2006




Consolidated
      Balance Sheet as of December 31, 2006




Consolidated
      Statements of Changes in Stockholders’ Equity (Capital Deficit) for the years
      ended December 31, 2006 and 2005.




Consolidated
      Statement of Operations and Comprehensive Loss for the years ended December
      31,
      2006 and 2005




Consolidated
      Statements of Cash Flows for the years ended December 31, 2006 and
      2005




Notes
      to
      the Consolidated Financial Statements for the year ended December 31,
      2006




**Exhibit**
                **Number**
              **Description**
              
              **Incorporation
                  by
                  Reference**3
              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 #1001
              
              *Filed
                  Herewith*10
              3
              Convertible
                  Note Agreement #1009
              
              *Filed
                  Herewith*10
              4
              Convertible
                  Note Agreement #1001
              
              *Filed
                  Herewith*14
              
              Code
                  of Ethics
              
              *Filed
                  Herewith*21
              1
              List
                  of Subsidiaries
              
              *Filed
                  Herewith*31
              1
              Rule
                  13a-14(a) Certification of Chief Executive
                  Officer
              
              *Filed
                  Herewith*31
              1
              Rule
                  13a-14(a) Certification of Chief Financial
                  Officer
              
              *Filed
                  Herewith*32
              1
              Section
                  1350 Certification of Chief Executive
                  Officer
              
              *Filed
                  Herewith*32
              2
              Section
                  1350 Certification of Chief Financial
                  Officer
              
              *Filed
                  Herewith*





**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 TsirulnikovKonstantin
                Tsirulnikov
              President
                and Cheif 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**
            
            **Title**






52