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


**Washington,
      D.C. 20549**




**FORM
      10-KSB/A**




**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, 2007**




 ̈
            **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)





950
                Third Avenue, Suite 501New
                York, New York
            
            10022(Address
                of principal executive office)
            
            (Zip
                Code)




**Registrant’s
      telephone number, including area code: (917) 4630000**




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




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




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




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




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




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




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




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




State
      issuer’s revenues for its most recent fiscal year: $2,767,432




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates as of March 27, 2008 within past 60 days:
      $7,896,515.





As
      of
      March 27, 2008, the Registrant had 21,704,682 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  ̈ No x





**EXPLANATORY
      NOTE**




In
      response to a letter from the SEC in connection with the evaluation of internal
      controls on Form 10-KSB for Fiscal Year Ended December 31, 2007, the management
      has completed an assessment of the internal controls. As a result of this
      assessment Item 8 of this filing has been amended to include the appropriate
      disclosures.


2




**SUNRISE
      ENERGY RESOURCES, INC.FORM**


**10-KSB**


**TABLE
      OF CONTENTS**




**Part
                I.**Item
                1.
            Description
                of Business
            4Item
                2.
            Description
                of Properties
            12Item
                3.
            Legal
                Proceedings
            15Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            15**Part
                II.**Item
                5.
            Market
                for Common Equity and Related Stockholder Matters
            15Item
                6.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            16Item
                7.
            Financial
                Statements and Supplementary Data
            24Item
                8.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            47Item
                8a.
            Controls
                and Procedures
            47**Part
                III.**Item
                9.
            Directors,
                Executive Officers, Promoters and Control Persons
            51Item
                10.
            Executive
                Compensation
            53Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and
                Related Stockholders Matters
            54Item
                12.
            Certain
                Relationships and Related Transactions
            55Item
                13
            Principal
                Accountant Fees and Services
            55**Part
                IV.**Item
                14
            Exhibits,
                Financial Statement Schedules and Reports on Form 8-K
            56Signatures
            57Certifications


3




**PART
      I.**




**ITEM 
      1. DESCRIPTION OF BUSINESS**




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




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




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




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




All
      dollar amounts refer to US dollars unless otherwise indicated.




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




**COMPANY
      OVERVIEW**




Sunrise
      Energy Resources, Inc. (“Sunrise” or the “Company”) was incorporated in the
      State of Delaware on April 1 1991. We are engaged in the development and
      production of oil and gas properties. Our business activities are presently
      conducted in Ukraine and we have 8 properties including 3 in Eastern Ukraine
      and
      5 in Western Ukraine. One property out of eight is currently producing. The
      producing Karaikozovsk block is located in Kharkov Region, Eastern Urkaine.
      Our
      activities on the Karaikozovsk block are governed by License number 2489 issued
      by the Ukrainian State Licensing Agency, on July 2, 2004 for a period of 5
      years. The above license is subject to the fulfillment of the license agreement
      investment terms. In addition to the above mentioned license, in 2004 we were
      granted License Number 2581 and License Number 2507 for the
      exploration and development of the Rogan and Rakitnyansk blocks for a period
      of
      5 years. During 2007 our production was limited to Karaikozovsk
      field.




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


4


Pivnich
      (“EP Shareholders”), and the Company also issued 10,479,900 shares to EP
      Shareholders. As a result of the transaction, Esko Pivnich became a wholly-owned
      subsidiary of Sunrise.





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, 2007, EP’s proved reserves were not quantified in accordance with
      Rule 4-10(a) of Regulation S-X. During 2007, Sunrise has engaged 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.gov  and
      at
      the Company’s website www.sunriseenergy.us .




**Company
      Properties**




**Areas**




The
      Company’s lease areas are listed below:




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




**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.  Karaikozovsk
      lease structure has a salt dome in the center of the lease area. The outlines
      of
      the salt dome have been determined using a 2-D seismic acquired in early 1980s.
      The company plans to acquire a 3-D seismic of the lease in 2008 in order to
      determine future well locations more accurately. To meet these objectives,
      we
      put Well #21 of Karaikozovsk license into production in September 2007. In
      addition, in we plan to transfer Well #3 of this property from an oil bearing
      horizon at the depth of to Visean-14 gas horizon.


5


**Drilling
      Activity**




The
      Company is currently drilling an exploration Well #1 of Peremyshlyansk block
      in
      Western Ukraine. The anticipated completion costs of around US$500,000 are
      expected to be financed out of the operating cashflow and proceeds of new share
      issuance.




**Customers**




During
      2007 and 2006 the Company produced approximately 17MBBLS and 37 MBBLS of crude
      oil net to the Company, respectively. In addition, the Company produced 201
      MMCF
      of natural gas in 2007 and 27MMCF in 2006, and 7.1MBBLS of condensate in 2007.
      The produced oil & gas and condensate were separated and treated to
      commercial grade at the Company’s on-site separation and storage facility. Our
      sales during 2007 and 2006 were mostly to independent oil & gas
      traders.




**Competition**




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




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




**Government
      Regulation**




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




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.


6


**Regulations
      Governing Ukrainian Production Sharing Agreements**  **(Joint
      Activity Agreement)**




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




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




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




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




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




**Taxation
      in Ukraine**




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




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




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**
            **%**


7


The
      same
      rates are projected for 2008.





5. 
      At present, three main production and ad-valorem taxes are levied on extracted
      oil and gas in Ukraine. While the rates and computation technique underwent
      certain changes during 2002-2007, the applicable rates during 2007 were as
      follows:





**Name**
            
            **OIL**
              **$/BBL**
            
            **Condensate**
              **$/BBL**
            
            **GAS**
              **$/MCF**State
                Royalty
            
            
            15.00
            
            
            29.57
            
            
            0.28Subsoil
                Use Duty
            
            
            0.35
            
            
            0.35
            
            
            0.02Geological
                Survey Fee
            
            
            1.62
            
            
            
            
            
            0.13**Total**
            
            
            **16.97**
            
            
            **29.92**
            
            
            **0.43**





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




**Offices
      and Employees**




The
      headquarters of Sunrise Energy Resource, Inc. are located in New York City
      at
      950 Third Avenue, Suite 501, New York, NY 10022. The Ukrainian offices of Esko
      Pivnich and Pari are located at the following address: 10a Ryleeva St., Kiev,
      Ukraine. The Company currently has 50 full time employees, all of which but
      3
      are located in Ukraine.




**Risk
      Factors**




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




*Risks
      and Issues Associated with Sunrise*




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




*Technical
      Risk*




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




8




*Market
      risk*




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




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
      2008
      to meet the workover costs and new well drilling.  The
      Company raised approximately $4.4 million in private equity placements and
      approximately $1.0 million in convertible note financing in 2007. In addition,
      the Company raised approximately $2.5 million against a promissory note issued
      by the Company.




*Reliance
      on strategic relationships*




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




*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
      2008 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, 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.




9


*Economic
      and political risk*




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




*Legal
      systems*




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




*Drilling
      and operating risks*




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




*Environmental
      Regulation*




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




*Uninsured
      Risks*




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


10


*Dependence
      on Key Personnel*




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




*Risks
      Associated with International Operations*




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




*Transferability
      of our common shares*




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




*Control
      by our Offices and Directors*




In
      the
      aggregate, our executive officers and directors control approximately 52% 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**




During
      the year ended December 31, 2007, the Company issued 4,493,668 shares to
      purchasers outside the United States in consideration of the net proceeds of
      $4,439,573. 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.




In
      addition, during the year ended December 31, 2007, the Company issued 50,000
      restricted shares to Dutchess Private Equities Fund as payment for their
      services related to the Dutchess Note.




**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.




11


**ITEM 
      2. DESCRIPTION OF PROPERTY**




Our
      facilities consist of leased offices in New York City and Kiev, Ukraine, as
      well
      as some production properties on the territory of Ukraine. Our executive office
      in New York is located at 950 Third Avenue, Suite 501, New York, NY 10022,
      and
      consists of office space obtained under a sub-lease arrangement with Cedarpoint
      Capital Management. 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 Esko Pivnich owns the production Well #21 of
      Karaikozovsk lease, exploration Well #1 of Peremyshlyansk lease, oil, gas and
      condensate separation and treatment facility, workers accommodation huts, motor
      vehicles and supporting infrastructure.




Petroleum
      industry in Ukraine




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




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




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




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




12




Exploration
      and Producing Licenses




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




**No.**
            
            **Date**
              **Issued**
            
            **Period**
            
            **Block**
            
            **Location**
            
            **Acreage**
              **(acres)**
            
            **Activities**#
                2489
            
            Dated
                2
              July
                2004
            
            Valid
                for:
              5
                (five)years
            
            Karaikozovsk
                Field Geographical coordinates:
              Northern
                latitude:
              1.50000'50"
              2.50002'10"
              3.49057'10"
              4.49057'00"
              Eastern
                longitude: 35001'40"
              35010'30"
              35013'00"
              35006'20"
            
            Administrative
                district: Kharkiv Administrative region: Krasnokutsk Reference
                location:
              10
                km south of Krasnokutsk
            
            32,373
            
            Geological
                Exploration and development of natural gas, crude oil#
                2581
            
            Dated
                18
              October
                2004
            
            Valid
                for:
              5
                (five) years
            
            Rogan
                Field Geographical coordinates:
              Northern
                latitude:
              1.
                49054’50”
              2.
                49053’30”
              3.
                49051’20”
              4.
                49053’30”.
              Eastern
                longitude: 36030’40”
              36042’10”
              36039’50”
              36029’00”
            
            Administrative
                district: Kharkiv Administrative region: Kharkiv, Chuguev reference
                location: 2 km west of Krasnokutsk
            
            12,850
            
            Geological
                Exploration and development of natural gas, crude oil#
                2507
            
            Dated
                22
              October
                2004
            
            Valid
                for:
              5
                (five) years
            
            Rakitnyansk
                Field
              Geographical
                coordinates: Northern latitude:
              1. 49054’20”
              2. 49052’50”
              3. 49051’00”
              4. 49053’10
              Eastern
                longitude:
              35048’50”
              25056’00”
              35056’00”
              35047’00”
            
            Administrative
                district: Kharkiv Administrative region: Novodolazk,
                Valkiv
            
            7,908
            
            Geological
                Exploration and development of natural gas, crude oil773076
              Series
                AA
            
            Dated
                28
              October,
                2004
            
            November
                5 2004 –
              November
                5 2009
            
            Type
                of activity: prospecting (exploring) for natural resources geological
                support of geo-exploration works.
              Drilling
                of wells for prospecting (exploration) purposes of oil and natural
                gas.
                Assembly and disassembly of drilling equipment for purposes of prospecting
                (exploring) of oil and gas.
              Exploration
                and commercial development of oil and gas deposits cementing of
                stabilizing columns, major repairs, conservation and plugging of
                oil and
                gas wells.#775113
              Series
                AA
            
            Dated
                28
              October,
                2004
            
            October
                28 2004 –
              October
                2009
            
            Construction
                activities#
                867363
              Series
                AA
            
            Dated
                10
              November,
                2004
            
            November
                21 2004 –
              November
                20 2009
            
            Supplying
                of natural gas on an unregulated tariff basis




***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, 2007, the Company made qualifying investments of $7,942,817 into
      Karaikozovsk lease, $575,107 into Rakitanyask lease, $147,926 into Rogan lease
      and $3,583,826 into Peremyshlyansk block.





13




Productive
      Wells





As
      at
      December 31, 2007, the Company had the following number of productive wells
      and
      wells in progress.




**Peremysh-****Property**
            
            **Karaikozovsk**
            
            **Rogan**
            
            **Rakitnyansk**
            
            **lyansk**
            
            **Total****Gross
                Basis*****Oil***Productive
                Wells
            
            
            3
            
            
            -
            
            
            -
            
            
            -
            
            
            3Wells
                in Progress
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -***Gas***Productive
                Wells
            
            
            3
            
            
            -
            
            
            -
            
            
            -
            
            
            3Wells
                in Progress
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -***Natural
                Gas Liquids***Productive
                Wells
            
            
            1
            
            
            -
            
            
            -
            
            
            -
            
            
            1Wells
                in Progress
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Net
                basis*****Oil***Productive
                Wells
            
            
            3
            
            
            -
            
            
            -
            
            
            -
            
            
            3Wells
                in Progress
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -***Gas***Productive
                Wells
            
            
            3
            
            
            -
            
            
            -
            
            
            -
            
            
            3Wells
                in Progress
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -***Natural
                Gas Liquids***Productive
                Wells
            
            
            1
            
            
            -
            
            
            -
            
            
            -
            
            
            1Wells
                in Progress
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -





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




Overview
      of Regional Geology




*Karaikozovsk
      field*




The
      Company’s most explored and developed reserves are currently located in the
      Karaikozovsk lease. All of Sunrise’s production activities during 2007 were
      conducted on the above lease. The Karaikozovsk lease is located close to the
      northern border of the Dnieper-Donetsk depression. The structure was discovered
      in 1957-1958 when the exploration drilling and mapping of the area was
      conducted. Additional geophysical studies of the area were conducted in 1963
      which covered Mesozoic, Permian and Upper Carboniferous horizons while in 1971
      Middle and Lower Carboniferous horizons were explored. As a result of the
      detailed seismic studies conducted in 1972-1973, the area was prepared for
      exploration drilling, which began in 1976. In 1981 Well #2 was drilled and
      tested on the Serpukhovian deposits at the producing horizons of S-5, S-5a
      at
      the depth interval of 4981-5196 m (approximately 16,400 ft). These tests
      resulted in a flow rate of 75 cu.m/day (approximately 430 barrels per day),
      using 10mm choke. In 1982 the field was recorded on the state
      balance.




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


14




The
      tectonic fault divides Karaikozovsk lease 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 has retained Netherland, Sewell and Associates to review the
      reserves of Karaikozovsk block and expects to complete the reserve report in
      early second quarter of 2008.




**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.




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. Following the
      completion of the accounting investigation, the Administrative Court of Appeals
      on February 21, 2008 ruled the matter in favor of the Company. Based on the
      above ruling the tax payable provision of $598,324 has been reversed in full.
      This total is reflected in the financial statements as other income in
      2007.




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.
      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**




No
      matters were submitted to a vote of security holders during the year ended
      December 31, 2007. The only matter submitted to a vote of our security holders
      during the year ended December 31, 2004, was a proposal for the Amendment and
      Restatement of the Company’s Certificate of Incorporation, which was approved by
      a written consent of holders holding a total of more than 90% of the outstanding
      shares. The Amended and Restated Certificate of Incorporations became effective
      September 30, 2004.




**PART
      II:**




**ITEM 5.
      MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS**




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




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


15




OTC
      Bulletin Board




Quarter
                ended
            
            
            High
            
            
            LowMarch
                31, 2007
            
            $
            2.50
            
            $
            0.85June
                30, 2007
            
            $
            2.71
            
            $
            2.45September
                30, 2007
            
            $
            2.60
            
            $
            1.55December
                31, 2007
            
            $
            2.18
            
            $
            1.15




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, 2008, we had 21,704,682 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.




*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”.


16




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.




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
      have
      engaged Netherland, Sewell and Associates 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 have
      connected the gas and condensate separation facility at Karaikozovsk lease
      to
      Bogodukhov-Stepove regional gas pipeline.  There is no gas pipeline
      connection at the Company’s other properties as they are not presently
      producing. The majority of our customers buy the oil and condensate from us
      at
      wellsite by collecting it from our storage facility in tank-trucks. Prior to
      the
      completion and launch of the Company’s oil, gas and condensate separation and
      gathering facility at Karaikozovsk property in September 2007, we also shipped
      certain amounts of oil and gas mixture that we produced by pipe to Kachanovskiy
      oil refinery for separation and treatment to pipeline grade.




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




Limited
      operating history; anticipated losses; uncertainly of future
      results




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




17




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 operations to the same extent as
      the laws of the United States.




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




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




Regulation




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




Exposure
      to foreign exchange rate fluctuations




With
      the
      majority of our operations being located in Ukraine, all of our revenues and
      the
      majority of our expenses are denominated in Ukrainian hrivnas. 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




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.




**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, 2007 and
      2006.




Management’s
      key objectives for 2007 were:




o
                Complete the construction Well #21 of Karaikozovk lease and place
                it into
                production;


o
                Complete the construction of the separation and storage unit for
                Karaikozovsk field;o
                Approach completion of Well #1 of Peremyshlyank
                field;


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




We
      believe that these key objectives were achieved in 2007. Our 2008 strategy
      for
      Karaikozovsk’s field includes transferring Well #3 of Karaikozovsk lease to a
      gas horizon, acquiring 3-D seismic of the Karaikozovsk lease, re-entering a
      previously abandoned Well #14 of Karaikozovsk field and completing a side bore
      away from the salt dome.




In
      addition, we will continue the exploration activities on Rogan, Rakitnyansk
      and
      Peremyshlyansk properties aiming to establish the optimal reservoir development
      scenarios. In 2008, we will commence exploration activities on the Company’s
      Pilipivsk, Niklovitsk, Sheremetyevsk and Chukvinsk leases in Western Ukraine.




**Current
      Activities**




During
      2007, our production was limited to Wells #2, #3 and #21 of Karaikozovsk
      lease.  During the year we produced 19.2 MBBLS of oil from Well #2 and 2.1
      MBBLS of oil from Well #3. In addition, we produced 202 MMCF of natural gas
      and
      7 MBBLS of condensate from Well #21 since the beginning of production from
      that
      well in September 2007.




Well
      #3
      has been plugged since July 2007 due to the depletion of the oil horizon from
      which it had been producing since the commencement of production. At the end
      of
      2007 the Company cemented the above horizon and commenced workovers of the
      well
      aiming to recomplete it at the gas horizon Visean-14. The gas horizon tests
      will
      be performed throughout March 2008.




19




On
      or
      around August 1, 2007 Esko-Pivnich, the Company's wholly-owned operating
      subsidiary completed the construction of a new gas, oil and condensate storage
      and separation facility. In addition, the Company built a pipeline from the
      above separation and storage facility to a regional Bogodukhov-Stepove regional
      gas pipeline. The new facility commenced operations on September 1, 2007
      simultaneously with the commencement of gas and condensate production from
      Well
      #21 of the Company’s Karaikozovsk lease.




As
      at
      December 31, 2007, the Company c ompleted
      drilling approximately 95% of exploration Well #1 of Peremyshlyank lease in
      Western Ukraine.




**Results
      of Operations**




Oil
      and gas production and revenue




During
      the year ended December 31, 2007, Esko Pivnich had gross production of 21,321
      barrels (“BBLS”) of crude oil, 201,414 thousands of cubic feet (“MCF”) of
      natural gas, and 7,068 barrels (“BBLS”) of condensate respectively. As at
      December 31, 2007 the Company carried inventory of oil of 104 BBLS and 635
      BBLS
      of condensate while as at December 31, 2006 the Company carried 6,252 BBLS
      of
      oil in inventory.




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




During
      the year ended December 31, 2007 the Company sold on the gross basis 27,229
      BBLS
      of its internally produced crude oil at an average price of $51.78 per BBL
      translating into net revenues from sales of internally produced oil of
      $1,409,783. In addition, the Company sold on a gross basis 201,414 MCF of gas
      at
      an average price of $3.06/MCF translating into net revenues from sales of
      produced gas of $617,239. Also, the Company generated $350,621 from the sales
      of
      produced condensate at an average price of $54.70.




Prior
      to
      August 1, 2007, in accordance with the joint activity agreement for Karaikozovsk
      property, the Company had 80% working interest in production resulting from
      Well
      #2 and #3 of the field. Efffective from August 1, 2007, the Company had 100%
      working interest in the field but had to pay Okhtyrkanaftogaz a monthly rental
      fee equivalent to $18,495 for the usage of Wells #2 and #3 of Karaikozovsk
      property.




The
      Company has 100% working interest an does not have to pay any rental fees with
      respect to Well #21 of Karaikozovsk field since the Company financed 100% of
      Well #21 drilling costs.




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




Production
      Costs




Provided
      below is the analysis of the average selling prices and production costs during
      2004-2007 period presented on the net basis.




For
                the years
              Ended
            
            12/31/2007
            
            12/31/2006
            
            12/31/2005Production1Oil,
                BBLS
            
            
            17,577
            
            
            29,494
            
            
            31,411Natural
                Gas Liquids, BBLS
            
            
            7,068
            
            
            -
            
            
            -Natural
                Gas, MCF
            
            
            201,414
            
            
            21,377
            
            
            41,815Barrels
                of Oil Equivalent, BOE3
            
            
            58,213
            
            
            33,057
            
            
            38,380Average
                sales priceOil,
                $/BBL
            
            
            51.78
            
            
            55.14
            
            
            42.00Natural
                Gas Liquids, BBLS
            
            
            54.70Natural
                Gas, $/MCF
            
            
            3.06
            
            
            1.36
            
            
            0.89Average
                oil and natural gas cost of production, $/BOE2
            
            
            26.36
            
            
            24.03
            
            
            27.68




20







1 Calculated
      on the net production basis (net to the Company) based on 80% working interest
      in Karaikozovsk property prior to August 1, 2007.





2 Includes
      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.





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




Operating
      income




The
      increase in the production costs was mainly due to the increase in reservoir
      stimulation costs of Well #2 of Karaikozosk property. This increase was
      partially compensated by a higher absorption of fixed production overheads
      resulting from the commencement of gas production.




Exploration
      and development




Exploration
      expense, which includes geological and geophysical expense and the cost of
      unsuccessful exploratory wells, is recorded as an expense in the period incurred
      under the successful efforts method of accounting. During 2007 and 2006, we
      incurred $ 285,397 and
      $174,551 in exploration and development expenses, respectively.




The
      Company expects a significant increase in exploration expenses during 2008-2009
      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).




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.




The
      depreciation of Well #21 drilling and in-ground infrastructure costs in the
      amount of $551,690 was the largest contributor into the total depreciation
      charge for 2007 in the amount of $697,173. The depreciation related to the
      gathering, separation and storage facility also contributed to the increase
      from
      $213,543 charged to expense in 2006.




Sales,
      general and administrative expenses




Sales,
      general and administrative expenses in 2007 increased to $1,492,790 from
      $753,404 in 2006. The increase was mainly contributed by access road current
      maintenance and repair services at the Company’s Rakitnyansk property of
      $220,912, amortization of success fees paid in respect of promissory note
      financing obtained by the Company during first quarter of 2007 in the amount
      of
      $127,500, and increase in payroll and related taxes of $156,081.




Interest
      expenses




Interest
      expense grew from $294,883 in 2006 to $919,498 in 2007 as a result of the higher
      amount of debt in the Company’s capital structure. During 2007, the
      Company  added
      $3,379,303 of debt (including convertible debentures and promissory notes –
Note 19) to its capital structure while $2,326,683 was repaid during the
      year.




**Liquidity
      and Capital Resources**




Since
      inception, we have financed our operations from private sources. We anticipate
      continuing losses in the near future while Esko Pivnich and Pari establish
      steady production of hydrocarbons in Ukraine. As at December 31, 2007 the
      Company had total current assets of $2,942,614 and total current liabilities
      of
      $5,114,837. As at December 31, 2007, the Company had cash balances of $11,915
      and a working capital deficit of $2,172,224.




21




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
      (used)/provided by operating activities for the years ended December 31, 2007
      and 2006 amounted to $(848,262) and $546,541, respectively. The reduction in
      operating cashflow by $1,394,803 was primarily caused by the decrease in other
      accounts payable of $509,718 (2006: increase of $664,600), no change in accounts
      receivable compared to a decrease of $575,656 in 2006, and a higher decrease
      in
      taxes payable of $513,839 (2006: increase of $37,527).




During
      2007 and 2006, the Company invested in fixed assets a total amount of $4,761,141
      and $4,650,778, respectively, which were financed by private equity placements,
      convertible debentures placements and promissory notes.




Cash
      Requirements




The
      Company anticipates it will require around $10 million to implement its capital
      expenditure program for 2008. The Company believes that it will be able to
      raise
      the 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, 2007 was approximately 1 U.S.
      dollar to 5.050 Ukrainian Hrivnas. For the years ended December 31, 2007 and
      2006, the average exchange rates to 1 U.S. dollar were approximately 5.05 and
      5.05 Ukrainian Hrivnas, respectively.




Principles
      of Consolidation




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




22




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




Use
      of
      Estimates




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




Oil
      and Gas Reserve Information




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.  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 $2,002,817
      during the year ended December 31, 2007, and, as of December 31, 2007, the
      Company’s current liabilities exceeded its current assets by $2,172,224.
      Additionally, to fully develop the area covered by the Company’s licenses, the
      Company needs substantial additional funding.




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




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




23




·
            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, 2007 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, LLLP on the consolidated financial statements of Sunrise Energy Resources,
      Inc., and its subsidiaries (the “Company”) for the year ended December 31, 2007
      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, 2007 AND 2006**




IndexReport
                of Independent Registered Public Accounting Firm –GLO CPAs,
                LLLP
            
            F-1Consolidated
                Balance Sheet
            
            F-2Consolidated
                Statement of Operations and Comprehensive Loss
            
            F-3Consolidated
                Statements of Changes in Stockholders’ Equity (Capital
                Deficit)
            
            F-4Consolidated
                Statements of Cash Flows
            
            F-5Notes
                to the Consolidated Financial Statements
            
            F-5-F-27


24




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




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




We
      have
      audited the accompanying consolidated balance sheet of Sunrise Energy Resources,
      Inc. and Subsidiaries (“the Company”) as of December 31, 2007, and the related
      consolidated statements of operations and comprehensive loss, changes in
      stockholders’ equity and cash flows for the years ended December 31, 2007 and
      2006. 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, 2007, and the related consolidated results of
      their
      operations and cash flows for the years ended December 31, 2007 and 2006, 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 $2,002,817 during the year ended
      December 31, 2007, and, as of December 31, 2007, the Company’s current
      liabilities exceeded its current assets by $2,172,224. 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
      LLLP




Houston,
      Texas


March
      27,
      2008




25




**SUNRISE
      ENERGY RESOURCES INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**(Expressed
      in US Dollars)**




**December
                31,**
              **2007**ASSETSCURRENT
                ASSETSCash
                and cash equivalents
            
            $
            11,915Accounts
                receivable – related party
            
            
            165,492Other
                accounts receivable and prepayments
            
            
            991,538Inventories
            
            
            38,550Taxes
                receivable
            
            
            1,735,119Total
                current assets
            
            
            2,942,614NONCURRENT
                ASSETSProperty,
                plant and equipment, net
            
            
            9,590,275Lease/concession
                acquisition cost of Pari
            
            
            107,714Long-term
                financial investments
            
            
            77,534Deferred
                tax asset
            
            
            75,777**TOTAL
                ASSETS**
            
            **$**
            **12,793,914**LIABILITIES
                AND STOCKHOLDERS' EQUITYCURRENT
                LIABILITIESAccounts
                payable
            
            $
            180,584Accounts
                payable – related party
            
            
            1,898,070Taxes
                payable
            
            
            430,831Short
                term notes payable
            
            
            815,533Other
                accounts payable and accruals
            
            
            765,695Other
                accounts payable - related party
            
            
            275,091Prepayments
                for oil and gas
            
            
            412,228Interest
                payable
            
            
            219,710Interest
                payable – related party
            
            
            99,095Profit
                interest payable
            
            
            17,998Total
                current liabilities
            
            
            5,114,835Long-term
                payable
            
            
            5,363,872Long-term
                payable – related party
            
            
            1,205,900STOCKHOLDERS’
                EQUITYCommon
                Stock, $.001 par value, 75,000,000 authorized, 21,704,682 issued
                and
                outstanding
            
            
            21,705Additional
                Paid-in-Capital
            
            
            4,643,353Retained
                earnings (Accumulated deficit)
            
            
            (3,523,559
            )Accumulated
                other comprehensive income - foreign currency
            
            
            (32,192
            )Total
                stockholders' equity (deficit)
            
            
            1,109,307**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            **$**
            **12,793,914**





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




26




**SUNRISE
      ENERGY RESOURCES INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS AND** **COMPREHENSIVE
      LOSS**


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




**For the years ended December 31****2007**
            
            **2006**REVENUESProduced
                oil & gas
            
            $
            2,377,642
            
            $
            1,754,033Purchased
                oil & gas
            
            
            389,790
            
            
            120,1742,767,432
            
            
            1,874,207COST
                OF SALES
            
            
            (354,524
            )
            
            (116,637
            )2,412,908
            
            
            1,757,570Operating
                expenses
            
            
            (1,713,658
            )
            
            (666,702
            )Depreciation
                and depletion expenses
            
            
            (697,173
            )
            
            (213,543
            )Other
                operating income (expense)
            
            
            (11,241
            )
            
            6,145Sales,
                general and administrative expenses
            
            
            (1,492,790
            )
            
            (753,404
            )OPERATING
                INCOME (LOSS)
            
            
            (1,501,954
            )
            
            130,066OTHER
                INCOME (EXPENSE)Interest
                income
            
            
            758
            
            
            1,008Interest
                expense
            
            
            (919,498
            )
            
            (294,883
            )Production
                sharing agreement working interest expense
            
            
            (40,109
            )
            
            (99,190
            )Foreign
                exchange (loss) gain
            
            
            (26,011
            )
            
            (16,987
            )Loss
                on disposal of fixed assets
            
            
            (74,875
            )
            
            (3,971
            )Gain
                from reversal of accrued VAT liability
            
            
            598,324(LOSS)
                INCOME BEFORE TAX
            
            
            (1,963,365
            )
            
            (283,957
            )INCOME
                TAX
            
            
            (39,452
            )
            
            (55,085
            )NET
                LOSS
            
            
            (2,002,817
            )
            
            (339,042
            )Other
                comprehensive lossForeign
                currency translation loss
            
            
            -
            
            
            -COMPREHENSIVE
                LOSS
            
            $
            (2,002,817
            )
            $
            (339,042
            )BASIC
                LOSS (EARNINGS) PER SHARE
            
            $
            (0.11
            )
            $
            (0.02
            )WEIGHTED
                AVERAGE COMMON SHARES OUTSTANDING
            
            
            18,894,350
            
            
            17,144,251





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


27




**SUNRISE
      ENERGY RESOURCES INC.**


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


**(CAPITAL
      DEFICIT)**


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




**Total****Retained**
            
            **Accumulated**
            
            **Stockholder's****Common**
            
            **Additional**
            
            ******Earnings******
            
            **Other**
            
            **Equity****Stock**
            
            **Paid-in**
            
            **(Accumulated**
            
            **Comprehensive**
            
            **(Capital****Shares**
            
            **Amount**
            
            **Capital**
            
            **Deficit)**
            
            **(Loss)**
            
            **Deficit)****BALANCE,
                DECEMBER 31, 2005**
            
            
            **17,000,000**
            
            **$**
            **17,000**
            
            **$**
            **(15,623**
            **)**
            **$**
            **(1,181,700**
            **)**
            **$**
            **(32,192**
            **)**
            **$**
            **(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**
            
            
            **80,824**
            
            
            **(1,520,742**
            **)**
            
            **(32,192**
            **)**
            
            **(1,454,949**
            **)**Private
                placement of shares
            
            
            4,493,668
            
            
            4,494
            
            
            4,435,079
            
            
            
            
            
            
            
            
            4,439,573Shares
                issued for services
            
            
            50,000
            
            
            50
            
            
            127,450
            
            
            
            
            
            
            
            
            127,500Net
                income (loss) for the year
            
            
            
            
            
            
            
            
            
            
            
            (2,002,817
            )
            
            
            
            
            (2,002,817
            )**BALANCE,
                DECEMBER 31, 2007**
            
            
            **21,704,682**
            
            **$**
            **21,705**
            
            **$**
            **4,643,353**
            
            **$**
            **(3,523,559**
            **)**
            **$**
            **(
                32,192**
            **)**
            **$**
            **1,109,307**





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


28




**SUNRISE
      ENERGY RESOURCES INC.**


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


**(Expressed
      in US Dollars)**




**For the years ended December 31****2007**
              
              **2006****CASH
                  PROVIDED BY (USED IN) OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (2,002,817
              )
              $
              (339,042
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and depletion expense
              
              
              697,173
              
              
              213,543Provision
                  for doubtful accounts
              
              
              -
              
              
              (20,154
              )Deferred
                  tax (gain)
              
              
              (3,360
              )
              
              (9,667
              )Net
                  accrued interest
              
              
              413,515
              
              
              60,559Ammortization
                  of shares issued for services
              
              
              127,500
              
              
              -Changes
                  in assets and liabilities:(Increase)
                  decrease in accounts receivable
              
              
              -
              
              
              575,656(Increase)
                  in other accounts receivable and  prepayments
              
              
              23,311
              
              
              (125,358
              )(Increase)
                  decrease in inventories
              
              
              302,465
              
              
              (181,742
              )(Increase)
                  decrease in taxes receivable
              
              
              (705,554
              )
              
              (825,291
              )Increase
                  (decrease) in accounts payable
              
              
              1,076,650
              
              
              191,345Increase
                  (decrease) in taxes payable
              
              
              (513,839
              )
              
              37,527Increase
                  (decrease) in other accounts payable and accruals
              
              
              (509,718
              )
              
              664,600Increase
                  (decrease) in prepayments for oil and gas
              
              
              (160,746
              )
              
              72,107Increase in
                  interest payable
              
              
              448,108
              
              
              191,509Increase
                  (decrease) in profit interest payable
              
              
              (40,949
              )
              
              40,949(848,261
              )
              
              546,541**CASH
                  PROVIDED BY FINANCING ACTIVITIES:**Short
                  term notes issued
              
              
              2,523,103
              
              
              -Short
                  term notes repaid
              
              
              (2,140,683
              )Long
                  term loans received
              
              
              -
              
              
              1,112,000Proceeds
                  from share issuance
              
              
              4,439,573Short
                  terms loans paid
              
              
              -
              
              
              (514,851
              )Long
                  term notes issued
              
              
              856,200
              
              
              3,703,799Long
                  term notes repaid
              
              
              (186,000
              )5,492,193
              
              
              4,300,948**CASH
                  USED IN INVESTING ACTIVITES:**Purchase
                  of property, plant and equipment
              
              
              (4,761,141
              )
              
              (4,650,778
              )Long
                  term investment purchased
              
              
              (74,022
              )
              
              (1,532
              )Cash
                  inflow on the acquisition
              
              
              -
              
              
              4,549(4,835,163
              )
              
              (4,647,761
              )**INCREASE
                  (DECREASE) IN CASH:**
              
              
              (191,231
              )
              
              199,727**CASH,
                  at the beginning of the period**
              
              
              203,146
              
              
              3,419**CASH,
                  at the end of the period**
              
              **$**
              **11,915**
              
              **$**
              **203,146****INCOME
                  TAX PAID**
              
              $
              45,945
              
              $
              75,450**INTEREST
                  PAID IN CASH**
              
              $
              316,798
              
              $
              —Non-cash
                  investing and financing transactions:****Issuance
                  of common stock for acquisition of Pari, Ltd.
              
              $
              -
              
              $
              96,608****Issuance
                  of common stock to Dutchess Private Equity Fund for placement agency
                  services
              
              $
              127,500
              
              $
              -****Issuance
                  of promissory Note as payment for services to MI SWACO
              
              $
              237,677





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


29






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




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




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




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




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




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




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




Sunrise
      Energy Resources Inc. currently has its headquarters at the following address:
      950 Third Avenue, Suite 501, New York, New York 10022.




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




At
      December 31, 2007 the company employed 50 people.




30




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




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




***Going
      concern —*** The
      Company’s consolidated financial statements have been presented on the basis
      that it is a going concern, which contemplates the realization of assets and
      satisfaction of liabilities in the normal course of business. As shown in the
      consolidated financial statements, the Company incurred a net loss of $2,002,817
      during the year ended December 31, 2007, and the Company’s current liabilities
      exceeded its current assets by $2,172,224. 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.




***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, 2007 was approximately 1 U.S.
      dollar to 5.0500 Ukrainian Hrivnas. During the years ended December 31, 2007
      and
      2006, the foreign exchange rate was unchanged at 1 U.S. dollar was 5.05
      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.




31




The
      Company has revenues from the sale of petroleum products produced from the
      properties for which the Company has production activities (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 2008.




***Property,
      Plant and Equipment*** –
As
      of
      the date of the financial statements with the exception of Well #21 of
      Karaikozovsk property, 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 amortization of capitalized costs is
      calculated based on useful economic life of the resulting assets. Capitalized
      Lease/Concession acquisition costs are depreciated over the life of the related
      drilling rights.




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




Property
                and Equipment
            2
                yearsWell
                #21drilling costs, casing and tubing
            Over the remaining life of the exploration
              license (6 quarters as at 12/31/2007)Other
                Oil&Gas Equipment
            10-12
                yearsStorage
                tanks
            10
                yearsAbove
                ground pipelines and flowlines
            20
                yearsOffice
                Equipment
            5
                yearsComputer
                Equipment
            3
                years




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




Well
      #21
      of Karaikozovsk property was placed into production on September 1, 2007 from
      the gas producing horizon Visean-15. Since the commencement of production,
      a
      total of approximately 202MMCF of natural gas and 7 MBBLS of condensate were
      produced. The well has been producing on a 5mm choke. At present, Well #21
      is
      producing at the rate of approximately 1 MMCF per day and 15 BBLS of condensate
      per day. All produced gas is being sold to the Company’s customers through the
      regional pipeline connection secured by the Company. While the well was being
      logged, 2 other commercially viable producing horizons were discovered in
      addition to the currently producing Visean-15 producing horizon. The Company’s
      geologists estimate the useful economic life of the well as 3-5 years. Since
      the
      well is currently undergoing testing, the Company’s geologists have not yet been
      able to obtain a more accurate estimate of the reserves of Well #21 which are
      required in order to apply the units of production method. Once the extensive
      testing of the well is completed and the Company’s geologists are able to
      accurately estimate the remaining producible reserves the Company will start
      applying the units of production mehod. Until that time, the Company determined
      the most appropriate procedure to deplete the drilling costs, as well as the
      costs of casing and tubing over the remaining life of the exploration license
      for Karaikozovsk property which expires in July 2, 2009. Consequently, the
      above
      well costs will be expensed over approximately 1.5 years. When reserve data
      has
      been obtained, we will adjust this calculation to comply with actual production
      and reserves.




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.




32




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




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




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




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




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




***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.




33




***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.**  **JOINT
      ACTIVITY AND LEASE AGREEMENTS**




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




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




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




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




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




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




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




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




34




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




Accounts
      receivable as of December 31, 2007, consisted of the following:




**12/31/2007**CJSC
                Infox, related party
            
            $
            165,492**Total**
            
            **$**
            **165,492**




Accounts
      receivable as of December 31, 2007 consisted of $165,492 receivable from CJSC
      Infox, a related party that resulted from several crude oil shipments which
      took
      place in 2004 and 2003. No provision for bad debts has been recorded for these
      accounts. Management of the Company believes that the outstanding amount will
      be
      settled in full during 2008 or offset against $1,898,070 owed to CJSC Infox
      (Note 12).




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




Other
      accounts receivable and prepayments made as of December 31, 2007 were as
      follows:




**12/31/2007**Ukrzaccordonneftegasabudinvest
            
            $
            178,218Vixen
                JLM
            
            
            128,699Zond
            
            
            144,554SDCH
            
            
            139,066Ukrnadraservice
            
            
            110,950Poltavaneftegasgeologia
            
            
            79,678Ukrfinresource2004
            
            
            62,919Svako
            
            
            44,146Other
            
            
            103,308Other
                accounts receivable and prepayments, net of provision for doubtful
                accounts of $45,000
            
            **$**
            **991,538**




35




The
      amounts $144,554 due from Zond and $110,950 due from Ukrnadraservice were
      related to the prepayment for capital repair work of Well #3 of Karaikozovsk
      property. $178,218 due from Ukrzaccordonneftegasbudinvest was related to the
      prepayment for construction work on Well #1 of Peremyshlyansk property. The
      amount due from SDCH related to excess production tubing sold to the above
      company.





The
      advance paid to Vixen JLM relates to a prepayment for well casings. The amount
      due from Vixen went down from $495,030 as at 12/31/2006 to $128,699 as at
      12/31/2007. The amount of $79,678 due from Poltavaneftegasgeologia represented
      a
      prepayment for the workovers of Well #1 of Rakitnyansk property. The Company
      was
      dissatisfied with the quality of the above services and has filed a lawsuit
      against Poltavaneftegasgeologia to recover the prepayment. The company estimates
      its chances to recover the above amount as good. No provision has been set
      up in
      respect of the above amount.





After
      a
      series of appellate hearings that took place during 2004-2007, the matter
      regarding the amount paid to Okhtirkanaftogaz was ruled against the Company
      during fourth quarter 2007 and, accordingly, the amount of $198,880 due to
      the
      Company was expensed accordingly in 2007 (Note 22).




**7.**  **INVENTORIES**




Inventories
      as at December 31, 2007 consisted of the following:




**12/31/2007**Crude
                oil and condensate – at cost
            
            $
            38,550-**Total**
            
            **$**
            **38,550**





Inventories
      as at December 31, 2007 were represented by the balances of crude oil produced
      internally in the amount of 103 BBLS and condensate in the amount
      635BBLS.




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




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




**12/31/2007**VAT
                receivable
            
            $
            1,733,991Other
                tax prepaid
            
            
            1,128**Total**
            
            **$**
            **1,735,119**




Taxes
      receivable balance as of December 31, 2007 is comprised of VAT receivable and
      other advance tax payments. VAT receivable was discounted at 15% annual rate
      based on average six months turnover period. Relatively high receivables
      balances result from high VAT paid on capital expenditures.




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




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




**12/31/2007**Well
                capital repair costs and capitalized work-over costs
            
            $
            415,414Owned
                producing wells (drilling costs and below ground
                infrastructure)
            
            
            3,045,691Separation
                facilities and other above-ground infrastructure
            
            
            3,406,434Construction
                in progress
            
            
            4,327,825Office
                equipment
            
            
            47,95611,243,320Accumulated
                Depreciation and Depletion
            
            
            (1,653,045
            )**Net
                Book Value**
            
            **$**
            **9,590,275**




36




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




As
      at
      December 31, 2007, long-term investments consisted of $77,534 investment into
      a
      joint activity agreement with Galateya Ltd. on Chukvinsk block located in
      Western Ukraine. The investment was made by Pari, a wholly owned subsidiary
      of
      the Company in the form of pipes for future wells to be drilled on the property.
      Since the investment was made, no activity has taken place in the Joint Activity
      Agreement and the pipes were carried at cost. Although, Pari has a 51% interest
      in the JAA, Pari does not have an operating control of the field and does not
      exercise any significant influence.




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




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




The
      Company’s provision for income tax for the year ended December 31, 2007 was as
      follows:




**12/31/2007**Current
                tax
            
            $
            42,812Deferred
                tax (gain)
            
            
            (3,360
            )**Total
                income tax expense (benefit)**
            
            **$**
            **39,452**




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:




**12/31/2007**Net
                asset at the beginning of the period
            
            $
            72,417Charged
                to income for the period
            
            
            3,360**Net
                asset at the end of the period**
            
            **$**
            **75,777**




The
      tax
      effect of the major temporary differences that give rise to the deferred tax
      assets as at December 31, 2007 is presented below:




**12/31/2007****Temporary
                differences that give rise to deferred tax assets**Provision
                for doubtful receivables
            
            $
            46,931Valuation
                of VAT receivable
            
            
            125,770Low
                value items written off
            
            
            663Difference
                in depreciable value of property, plant and equipment due to expensing
                in
                prior period allowed by Ukrainian law
            
            
            129,379**Total**
            
            **$**
            **302,743**




37




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




**12/31/2007****Deferred
                tax assets**Provision
                for doubtful receivables
            
            $
            11,733Valuation
                of VAT receivable
            
            
            31,533Low
                value items written off
            
            
            166Difference
                in depreciable value of property, plant and equipment due to expensing
                in
                prior period under Ukrainian law
            
            
            32,345**Total**
            
            **$**
            **75,777**




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:




**12/31/2007**(Loss)
                before income tax and minority interest
            
            $
            (2,002,817
            )Theoretical
                income tax benefit at statutory rate of 25%
            
            
            500,704Adjustments
                due to:Tax
                effect of expenses that are not deductible in determining taxable
                profit
            
            
            (540,156
            )**Income
                tax (benefit)**
            
            **$**
            **(39,452**
            **)**




As
      of
      December 31, 2007 the Company had no loss carry forward for Ukrainian statutory
      income tax purposes. For United States income tax purposes, the Company has
      a
      net operating loss carry forward of $2,020,301which expires in 2028. As a
      result, the company has a deferred tax asset of $686,902 which is fully reserved
      because of the uncertainty of realization.




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




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




**12/31/2007****Accounts
                payable**
            
            $
            180,584CJSC
                Infox, related party
            
            
            1,898,070**Total**
            
            **$**
            **2,078,654**




Third
      parties accounts payable balances as of December 31, 2007 were comprised of
      payable to Okhtirkaneftegas for services in amount of $180,584
      respectively.




The
      amount of $1,898,070 payable to the related party, CJSC Infox, as of December
      31, 2007, is related to well drilling and repair services, provided to EP by
      third party service companies and paid by CJSC Infox on behalf of the
      Company.




38




**13.**  **TAXES
      PAYABLE**




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




**12/31/2007**VAT
            
            $
            376,690Exploration
                tax
            
            
            22,469Profit
                tax
            
            
            -Resource
                Tax
            
            
            21,966Social
                insurance
            
            
            6,147Personal
                Income Tax
            
            
            2,375Other
                taxes payable
            
            
            1,184**Total**
            
            **$**
            **430,831**




All
      above
      amounts are current.




**14. 
       SHORT TERM NOTES PAYABLE**




**Dutchess
      Note**




On
      March
      26, 2007, the Company issued to Dutchess Private Equities Fund, Ltd.
      ("Dutchess") a senior promissory note in the face amount of $2,553,125 for
      gross
      proceeds of $2,375,000 (the "Dutchess Note"). The Note bore interest at 7%
      per
      annum and matured on December 26, 2007 ("Dutchess Note Maturity Date"). Pursuant
      to the Dutchess Note, the Company was 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 was required to pay Dutchess $515,170.57 on each
      monthly anniversary until paid in full.




In
      connection with the issuance of the Dutchess Note, the Company executed and
      delivered to Dutchess a Security Agreement ("Security Agreement"), and its
      subsidiaries, Esko Pivnich and Pari, executed and delivered a Secured Continuing
      Unconditional Guaranty ("Guaranty") and Negative Pledge ("Pledge"). Dutchess
      Note is senior to all other debt obligations of the Company. The Company has
      also agreed to provide to Dutchess an additional collateral for the Dutchess
      Note in the form of forty (40) Put Notices which was held in
      escrow;




Due
      to
      the temporary cash shortage, the Company was late on November and December
      payments. The November payment together with accrued interest was subsequently
      paid to Dutchess in early December while the December payment was paid in late
      January 2008. On February 21, 2008 (the “Release Date”), the Company and
      Dutchess executed Agreement and General Release and Waiver (the “Release
      Agreement”) pursuant to which Dutchess acknowledged that the Dutchess Note had
      been repaid in full, became null and void and was thereby cancelled.
      Furthermore, according to the Release Agreement, the Company was deemed to
      have
      fulfilled any and all provisions of the following agreements which also
      terminated: Promissory Note, Security Agreement, Secured Continuing
      Unconditional Guarantee, and Negative Pledge. Also, the collateral Put Notices
      none of which had been triggered were specifically voided. Dutchess also
      released and discharged the Company, the Company’s subsidiaries, the Company’s
      employees, officers, directors, shareholders, principals, partners, members,
      attorneys, legal representatives, successors and assigns from all liabilities,
      undertakings, actions, causes of action, suits, debts, dues, sums of money,
      accounts, bonds, bills, covenants, contracts, controversies, agreements,
      promises, variances, trespasses, damages, liquidated damages, judgments,
      executions, claims and demands whatsoever, in law, admiralty or equity, against
      the Company.




**MI
      SWACO Note**




On
      July
      5, 2007 Pari, the Company’s wholly owned subsidiary issued interest free notes
      to MI SWACO Ukraine as payment for services having face value of $237,678.
      The
      notes are due on July 10, 2008.




**Other
      promissory notes**




Short
      term promissory notes outstanding as of December 31, 2007 and December 31,
      2006,
      issued in November 2002 at no interest, were payable by
      November 5, 2005. These notes in the amounts of $14,257 and $5,340,
      are payable to Astark and Sipay, respectively. As of December 31, 2007 the
      holders of the notes had not called for the repayment of the respective amounts.
      Any valuation adjustment due to the lack of interest has not been calculated,
      however, such amounts, if any, are not considered to have a material effect
      on
      these financial statements.




39




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




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




**12/31/2007**Montazhtransgas
            
            $
            203,982Zakhidukrgeologiya
            
            
            101,126M-I
                SWACO
            
            
            9,096Vector
                NDI
            
            
            30,120Fort
                Trade PP
            
            
            46,337Ukrgeofizika
            
            
            62,917Poltavneftegasgeologia
            
            
            9,008Other
                accounts payable
            
            
            303,109**Total**
            
            
            **765,695**Advances
                from shareholders
            
            
            275,091**Total**
            
            **$**
            **1,040,786**




The
      amount of $203,982 due to Montazhtransgas is related to the construction of
      gathering, separation and storage facility built at the Company’s Karaikozovsk
      property. The amount of $101,126 due to Zakhidukrgeologiya was related to
      drilling services of the exploration Well #1 of Peremyshlyansk property. Other
      accounts payable and accruals as of December 31, 2007 mostly consisted of
      geological and exploration works, as well as payroll, short term advances to
      employees and other prepayments for repair and construction services. The amount
      of $275,091 represents advances from shareholders with no specific terms paid
      to
      the Company during 2005 and 2006.




**16.
      PREPAYMENTS FOR OIL AND GAS**




During
      2007, the Company sold oil, gas and natural gas liquids to its customers mainly
      on prepayment basis. As of December 31, 2007, the prepayments received from
      customers in respect of future deliveries of oil, gas and natural gas liquids
      consisted of the following:




**12/31/2007**Ukrnadraresourse
            
            $
            229,417Angronafta
            
            
            19,802Luksor
            
            
            148,515Other
                prepayments
            
            
            14,494**Prepayments
                for oil and gas**
            
            **$**
            **412,228**




40




**17.
      INTEREST PAYABLE**




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




**12/31/2007**Millington
                Solutions Limited
            
            $
            219,710219,710**Related
                Parties**Zaccam
                Trading, related party
            
            
            76,619Interest
                accrued on advances received from shareholders
            
            
            22,47699,095**Total**
            
            **$**
            **318,805**




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




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




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




Profit
      interest related to the Company’s production sharing agreements payable as of
      December 31, 2007 consisted of the following:




**12/31/2007**Poltavaneftegasgeologiya
            
            $
            17,998Total
            
            **$**
            **17,998**




Profit
      interest was accrued during 2007 in the total amount of $40,910 in respect
      to
      profits earned for 2002 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 2007 while $17,998
      remained outstanding at period end.




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




As
      of
      December 31, 2007, long term payable balances including capitalized interest
      consisted of the following:




**Lender/Note**
            
            **Coupon**
              **Rate**
            
            **Conv.**
              **Price**
              **$/share**
            
            **Issue date/**
              **Effective**
              **Date**
            
            **Due**
              **not earlier**
              **than**
            
            **12/31/2007**Fort
                Trade
            
            
            
            
            
            
            
            
            Nov-
                2004
            
            
            Nov-
                2009
            
            $
            465,347465,347**Millington
                Solutions Ltd.**CD-1001
            
            
            10
            %
            $
            2.20
            
            
            03/30/2006
            
            
            03/30/2009
            
            
            1,008,920CD-1009
            
            
            10
            %
            $
            2.20
            
            
            06/06/2006
            
            
            06/06/2009
            
            
            2,189,222CD-1011
            
            
            6
            %
            $
            1.40
            
            
            07/25/2006
            
            
            07/25/2009
            
            
            853,683CD-1013
            
            
            7
            %
            $
            3.00
            
            
            02/01/2007
            
            
            02/01/2010
            
            
            846,7004,898,525Fort
                Trade and Millington Solutions Ltd.
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            5,363,872**Related
                parties**Zaccam
                Trading, Ltd.
            
            
            
            
            
            
            
            
            03/5/2005
            
            
            03/5/2015
            
            
            1,205,9001,205,900**Total**
            
            
            
            
            
            
            
            
            
            
            
            
            
            **$**
            **6,569,772**




41




**Millington
      Solutions**




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




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




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




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





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




**Zaccam
      - Related party**




Long
      term
      payable to Zaccam Trading, Ltd., related party as of December 31, 2007
      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**




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




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




Related
      parties include shareholders and entities which have substantial amounts of
      common ownership but do not qualify for or require consolidation or combination
      with the Company.. Transactions with related parties are performed on terms
      that
      are comparable to those available to unrelated parties. For details of related
      party balances outstanding as of December 31, 2007 see Notes 5, 12, 15, 17
      and
      19.  Our
      related parties include CJSC Infox and Zaccam Trading, Ltd.




As
      of
      December 31, 2007, 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 $1,898,070 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.




42




**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:




****
            
            **Amount**
            
            **Amount**
            
            **Remaining****Period**
            
            **To be invested**
            
            **invested**
            
            **Investment**Rogan
                field
            
            
            2005-2009
            
            $
            2,922,772
            
            $
            147,926
            
            $
            2,774,846Rakitnyansk
                field
            
            
            2005-2009
            
            
            3,938,614
            
            
            575,107
            
            
            3,363,507Karaikozovsk
                field
            
            
            2005-2009
            
            
            4,241,584
            
            
            7,942,817**Total**
            
            
            
            
            **$**
            **11,102,970**
            
            **$**
            **8,665,850**
            
            **$**
            **6,138,353**





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




****
            
            **Amount**
            
            **Amount**
            
            **Remaining****Period**
            
            **To be invested**
            
            **Invested**
            
            **Investment**Peremishlyansk
                field
            
            
            2004-2009
            
            $
            2,336,634
            
            $
            3,583,826
            
            $
            -Chukvinsk
                field
            
            
            2004-2009
            
            
            1,544,554
            
            
            5,776
            
            
            1,538,778Scheremetivsk
                field
            
            
            2004-2009
            
            
            712,872
            
            
            -
            
            
            712,872Niklovitsk
                field
            
            
            2004-2009
            
            
            594,059
            
            
            17,780
            
            
            576,279Pilipivsk
                field
            
            
            2004-2009
            
            
            475,248
            
            
            -
            
            
            475,248**Total**
            
            
            
            
            **$**
            **5,663,367**
            
            **$**
            **3,607,382**
            
            **$**
            **3,303,177**




***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, 2007 are as
      follows:




**2008**Office
                rent
            
            $
            74,600**Total**
            
            **$**
            **74,600**




***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. After a series of appellate
      hearing tha took place between 2004 and 2007, the matter regarding the amount
      paid to Okhtirkanaftogaz was finally ruled against the Company during fourth
      quarter 2007 and, the amount of $198,880 due to the Company was expensed
      accordingly in 2007.




43




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. Following the
      completion of the accounting investigation, the Administrative Court of Appeals
      on February 21, 2008 ruled the matter in favor of the Company. Based on the
      above ruling the tax payable provision of $598,324 has been reversed in full.
      This total is reflected in the financial statements as other income during
      2007.




***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.




**23.
      MILLINGTON CONVERTIBLE DEBENTURE VALUATION**




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




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




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


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





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





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


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


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


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





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




44




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




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




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





For
      the
      period from March 1, 2007 to December 31, 2007 during the periods of relative
      liquidity the observed daily volatility of stock prices was 1.67%. In addition,
      the annualized risk-free rate of 5% was assumed. Using the above base
      assumptions, and assuming that the convertibles would be outstanding for 3
      years
      before they are converted i.e. no early conversion, the fair value of the
      conversion feature of the convertible debentures outstanding on December 31,
      2007 at the time of issuance would be $199,582. The fair value of the same
      convertible debentures on December 31, 2007 given the closing price of $1.15
      on
      that date would amount to $114,949. To comply with SFAS No. 155, the Company
      would need to record a profit of $84,633 from change in fair value of
      convertible debt instrument and a reduction the carrying value of the
      convertible debentures in the liabilities’ section of the Company’s balance
      sheet by the same amount. The Company believes that recording imaginary and
      estimated gains or losses would cause the financial statements to be
      misleading.




**24.**  **RISK
      MANAGEMENT POLICIES**




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




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




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




45




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




**12/31/2007**
            
            **12/31/2006**Agrotemp
                (oil produced)
            
            $
            217,947
            
            $
            892,921Vlad
                Nafta (oil produced)
            
            
            45,116
            
            
            -Ukrtatnafta
                (oil produced)
            
            
            189,769
            
            
            -Ukrnedraresource
                (gas produced)
            
            
            237,862Ukrfinresource
                2004 (gas produced)
            
            
            379,377Vlad
                nafta (condensate produced)
            
            
            190,585Angronafta
                (condensate produced)
            
            
            83,081Nafto
                Soiuz
            
            
            
            
            
            337,169Spago
            
            
            
            
            
            51,396Soiuz
                NPK TOV
            
            
            
            
            
            42,410Ukrgasenergo
                ZAT
            
            
            
            
            
            302,574Naftoimpex
                (oil produced)
            
            
            385,542Torpeda
                PP (oil produced)
            
            
            
            
            
            65,076Agronafta
                (oil produced)
            
            
            84,193Azov
                oil company (oil produced)
            
            
            135,215Torpeda
                PP (oil resold)
            
            
            
            
            
            120,174Ukrgasenergo
                (oil produced)
            
            
            263,366
            
            
            -Ukrfinresourse
                2004 (gas resold)
            
            
            262,991
            
            
            -Azov
                oil company (oil resold)
            
            
            126,799Other
            
            
            165,589
            
            
            62,487**Total**
            
            **$**
            **2,767,432**
            
            **$**
            **1,874,207**







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




The
      Credit Committee sets limits on the level of exposure 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.




46




**25.
      SUBSEQUENT EVENTS**




On
      February 20 2008 (the “Release Date”), the Company and Dutchess executed
      Agreement and General Release and Waiver (the “Release Agreement”) pursuant to
      which Dutchess acknowledged that the Dutchess Note had been repaid in full,
      became null and void and was thereby cancelled. Furthermore, according to the
      Release Agreement, the Company was deemed to have fulfilled any and all
      provisions of the following agreements which also terminated: Promissory Note,
      Security Agreement, Secured Continuing Unconditional Guarantee, and Negative
      Pledge. Also, the collateral Put Notices none of which had been triggered were
      specifically voided. Dutchess also released and discharged the Company, the
      Company’s subsidiaries, the Company’s employees, officers, directors,
      shareholders, principals, partners, members, attorneys, legal representatives,
      successors and assigns from all liabilities, undertakings, actions, causes
      of
      action, suits, debts, dues, sums of money, accounts, bonds, bills, covenants,
      contracts, controversies, agreements, promises, variances, trespasses, damages,
      liquidated damages, judgments, executions, claims and demands whatsoever, in
      law, admiralty or equity, against the Company.




**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, 2007 and
                2006
                have been included in cost of sales.




**12/31/2007**
            
            **12/31/2006**Exploration
                and development costs
            
            $
            285,397
            
            $
            174,551**Total**
            
            **$**
            **285,397**
            
            **$**
            **174,551**





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, 2007
      and 2006 are presented below.




**For the years ended**
              **December 31,****2007**
            
            **2006**Sales
                of Oil and Gas, condensate produced
            
            $
            2,377,642
            
            $
            1,754,033Production
                expenses (including depreciation expense)
            
            
            (2,125,434
            )
            
            (815,081
            )Exploration
                and development costs
            
            
            (285,397
            )
            
            (174,551
            )Income
                tax expense
            
            
            (39,452
            )
            
            (191,100
            )Total
                expenses
            
            
            (2,450,283
            )
            
            (1,180,732
            )**Total**
            
            **$**
            **(72,641**
            **)**
            **$**
            **573,301**





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





As
      of
      December 31, 2007, we have not been able to estimate the quantity of proved
      reserves within the meaning of Rule 4-10(a) of Regulation S-X. The data to
      calculate our proved reserves for Karaikozovsk block is being accumulated and
      the Company has hired a consulting firm to complete this process. However,
      it
      has not been completed at this time.




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




None


47




**ITEM
      8a. CONTROLS AND PROCEDURES**




**Evaluation
      of Disclosure Controls and Procedures**





Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed in our reports filed or
      submitted under the Exchange Act is recorded, processed, summarized and
      reported, within the time periods specified in the Securities and Exchange
      Commission’s rules and forms. Disclosure controls and procedures include,
      without limitation, controls and procedures designed to ensure that information
      required to be disclosed in our reports filed under the Exchange Act is
      accumulated and communicated to management, including our Chief Executive
      Officer and Chief Financial Officer, to allow timely decisions regarding
      required disclosure.





We
      carried out an evaluation of the effectiveness of the design and operation
      of
      our disclosure controls and procedures (as defined in Exchange Act Rules
      13a-15(e) and 15d-15(e)) as of December 31, 2007. Based upon that evaluation,
      our Directors, Chief Executive and Chief Financial Officer, concluded that
      our
      disclosure controls and procedures were not effective. That conclusion was
      reached because of our failure to file the required Management’s Annual Report
      on Internal Control over Financial Reporting in our Annual Report on Form 10-KSB
      when it was filed on March 31, 2008. Management has made changes to our
      disclosure controls and procedures in an effort to ensure that all requirements
      of the Exchange Act are met in future disclosure documents.




48




**Management’s
      Report on Internal Controls and Procedures**




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





As
      of December 31, 2007, management conducted an assessment of the effectiveness
      of
      the Company’s internal control over financial reporting based on the framework
      established in Internal Control—Integrated Framework issued by the Committee of
      Sponsoring Organizations of the Treadway Commission (COSO). Based on the
      criteria established by COSO, management concluded that the Company’s internal
      control over financial reporting was not effective as of December 31, 2007,
      as a
      result of the identification of the material weakness described
      below.





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





The
      Company’s management has identified a material weakness in the effectiveness of
      internal control over financial reporting arising from a shortage of adequately
      qualified staff in the accounting department. As a result, the
      reported US GAAP accounts included small clerical errors which were not timely
      discovered. The above errors were subsequently discovered and corrected in
      Form
      10-KSB/A filings. No particular disclosure has been materially affected by
      the
      above weakness.





We
      intend
      to continue providing a US GAAP training to our staff and to streamline
      processes and procedures of preparing the US GAAP accounts. These steps would
      enable us to prepare the accounts in advance and ensure that more time is
      available for review and amendments. This would also help us improve the
      completeness and accuracy of the financial statements. We are also reviewing
      the
      possibility of hiring more qualified staff in our accounting department.
      However, due to budget constraints it may be unfeasible to recruit sufficient
      resources to completely correct the deficiency at this time.





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




49




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





**Conclusion**




The
      above
      identified material weakness did not result in material audit adjustments to
      our
      2007 financial statements. We intend to continue training our staff in US GAAP
      to reduce the likelihood of an error and to afford us more time for review
      and
      amendment of financial reports. However, based on our current size and size
      of
      operations, we do not believe it is economically feasible to fully remediate
      this weakness. We cannot assure you that, as circumstances change, any
      additional material weakness will not be identified.





**Changes
      in internal control over financial reporting**





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





50




**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.
            
            29
            
            December –
                2004David
                A. Melman
            
            Independent
                Director of Sunrise Energy Resources Inc
            
            65
            
            1997Bobby
                Long
            
            Chief
                Technical Officer
            
            70
            
            July
                2007Roman
                Livson
            
            CFO,
                Sunrise Energy Resources, Inc.
            
            37
            
            August
                2005Leon
                Golden
            
            Independent
                Director, Sunrise Energy Resources, Inc.
            
            45
            
            December –
                2004Vyacheslav
                Chuchminov
            
            CEO,
                Esko Pivnich
            
            50
            
            June
                - 2002Taras
                Burdeniy
            
            CFO,
                Esko Pivnich
            
            30
            
            June
                - 2002Raissa
                Volodarskaya
            
            Chief
                Accountant
            
            58
            
            April
                - 2002




***Directors
      and Key Personnel***




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




Mr.
      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 51% of the issued shares of the Company.




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




51




***Mr.
      Bobby Long*** ,
      Chief
      Technical Officer. Mr. Long joined Sunrise in July 2007 as the Chief Technical
      Officer. Since 2003 until joining Sunrise, Bobby worked as a consultant for
      Access Exploration, a geological consulting firm, where he focused on the
      analysis of onshore and offshore projects along Texas-Louisiana Gulf Coast.
      Before that from
      1992
      through 2003 Bobby managed the Ukrainian operations of Epic Energy, a Canadian
      exploration and production company. Prior to that from 1983 to 1992 he served
      as
      the Chief Geophysicist at Challenger Minerals, a subsidiary of Global Marine
      Drilling, an offshore drilling contractor that operates worldwide. Prior to
      that
      from 1981 to 1983 he worked as Chief Geophysicist for Kirby Exploration, a
      medium-sized independent oil and gas producer operating in the Gulf of Mexico,
      Oklahoma and the Rocky Mountains. After graduating in 1965 from Texas A&M
      University with a Master's degree in mechanical engineering Bobby joined the
      exploration division of Shell Oil Company where he worked until 1981 holding
      a
      number of senior geophysical positions finally becoming Senior Staff
      Geophysicist in 1978. Bobby  is
      a
      member of Society of Exploration Geophysicists, American Association of
      Petroleum Geologists and Society and Petroleum Engineers.




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




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




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




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




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




***Mr.
      Anatoliy Dyagterev,*** Operations Director - Esko Pivnich (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 received the Master’s Degree from
      Poltava Technical University on the Accounting and Audit Department.




52




**COMMITTEES
      OF THE BOARD OF DIRECTORS**




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




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




During
      the fiscal year ending 12/31/2007, 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 12/31/2007, the Board of Directors conducted discussions
      with
      management and the independent auditor regarding the acceptability and the
      quality of the accounting principles used in the reports in accordance with
      Statements on Accounting Standards (SAS) No. 61. These discussions included
      the
      clarity of the disclosures made therein, the underlying estimates and
      assumptions used in the financial reporting and the reasonableness of the
      significant judgments and management decisions made in developing the financial
      statements. The Audit Committee also discussed the other items with the auditors
      required by SAS No. 61 as amended. In addition, the Board of Directors discussed
      with the independent auditor the matters in the written disclosures required
      by
      Independence Standards Board Standard No. 1.




For
      the
      fiscal year ended 12/31/2007, 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, 2007 for filing
      with the Securities and Exchange Commission.




Audit
      Committee Financial Expert




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




Code
      of
      Ethics




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




Compliance
      with Section 16(b) of the Exchange Act




Based
      solely on our review of Forms 3, 4, and 5, and amendments thereto which have
      been furnished to us, we believe that during the year ended December 31, 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
      2007, 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 2007 to be not
      materially different from these accrued ones:




53




**Name and principal position**
            
            **Actual salary**Konstantin
                Tsirulnikov
            
            $
            67,200CEO
                of Sunrise Energy Resources, Inc.Roman
                Livson
            
            $
            75,000CFO
                of Sunrise Energy Resources, Inc.Leon
                Golden
            
            
            Currently
                NominalIndependent
                Director, Sunrise Energy Resources, Inc.David
                A. MelmanIndependent
                Director of Sunrise Energy Resources.Inc
            
            $
            15,000Bobby
                Long
            
            $
            43,233Chief
                Technical OfficerVyacheslav
                Chuchminov
            
            $
            7,500CEO,
                Esko PivnichTaras
                Burdeniy
            
            $
            7,000CFO,
                Esko PivnichRaisa
                Volodarskaya
            
            $
            7,000Chief
                Accountant**Total**
            
            **$**
            **221,933**




The
      Company has not entered into any definitive compensation agreements with its
      senior management. There were no stock options outstanding as at December 31,
      2007.




**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)
            
            51.34
            %627
                Lyons Lane,Oakville,Ontario
                L6J 5Z7CanadaMr.
                David A. Melman5353
                Memorial DriveSuite
                4012Houston
                Texas 77007
            
            
            Common
            
            
            250,000
            (2)
            
            1.15
            %




54




(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 0.92%
      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, 2007 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
            
            
            51.34
            %(1)
            
            Common
                stockMr.
                David A. Melman
            
            
            1.15
            %
            
            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.




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
      2007 professional services were mostly rendered for the Company by GLO CPAs,
      LLLP (formerly John A. Braden and Co., P.C.) accounting firm.




Total
      professional fees incurred by the Company for the years ended December 31,
      2007
      and 2006 consisted of the following:




**2007**
              **GLO CPAs**
            
            **2006**
              **John A. Braden**
              **and Co., P. C.**Audit
            
            $
            66,538
            
            $
            60,000Audit
                related
            
            
            —
            
            
            —Tax
            
            
            —
            
            
            —All
                other fees
            
            
            —
            
            
            —Total
            
            $
            66,538
            
            $
            60,000




55




**Audit
      Fees**




The
      Audit
      Fees for 2007 and 2006 were for services associated with the consolidated U.S.
      GAAP audits, and registration statements.




**Audit
      Related Fees**




During
      2007 and 2006 we did not pay any audit related fees.




**Tax
      Fees**




During
      2007 and 2006 we did not pay any tax related fees.




**All
      Other Fees**




During
      2007 and 2006 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 GLO CPAs LLLP and
      previously for John A. Braden and Co, P.C. for all audit and non-audit services,
      including tax services. Our Audit Committee pre-approved the engagement terms
      and fees of both GLO CPAs LLLP and John A. Braden and Co., P.C. for all services
      performed for the fiscal year ended December 31, 2006  and
      2007.




**SUBSIDIARIES:**





TOV
      Energy-Servicing Company Esko Pivnich


Pari,
      Ltd.




**PART
      IV**




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




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




None




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, 2007




Consolidated
      Balance Sheet as of December 31, 2007




Consolidated
      Statements of Changes in Stockholders’ Equity (Capital Deficit) for the years
      ended December 31, 2007 and 2006.




Consolidated
      Statement of Operations and Comprehensive Loss for the years ended December
      31,
      2007 and 2006.




Consolidated
      Statements of Cash Flows for the years ended December 31, 2007 and
      2006.




Notes
      to
      the Consolidated Financial Statements for the year ended December 31,
      2007.




56




**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 #1013
            
            *Filed
                Herewith*10
            3
            
            Agreement
                and General Release and Waiver
            
            *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.




Date:
            Sunrise
                Energy Resources, Inc.October
                30, 2008
            /s/
                Konstantin
                TsirulnikovKonstantin
                TsirulnikovChief
                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**





57