**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-Q**





x
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





For
      the
      quarterly period ended June 30, 2008





**OR**





o
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**


For
      the
      transition period from ________________ to ______________-__.








**Commission
      File Number: 000-29463**








**SONTERRA
      RESOURCES, INC.**


(Exact
      Name of Small Business Issuer as Specified in Its Charter)




**Delaware**
              
              **51-0392750**(State
                  or Other Jurisdiction of
              
              (IR.
                  Employer Identification
                  No.)Incorporation
                  or Organization)**300
                  East Sonterra Blvd., Suite 1220**
                **San
                  Antonio, Texas 78258**
                (Address
                  of Principal Executive Offices)




Registrant’s
      telephone number, including area code: **(210)
      545-5994**





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





YES x   NO o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of "large accelerated filer” and "smaller reporting company” in
      Rule 12b-2 of the Exchange Act. (Check one):




Large accelerated filer  o
            Accelerated filer oNon-accelerated filer o
            Smaller reporting company x




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





YES o   NO x





As
      of
      August 14, 2008 the Registrant had 26,347,359 shares of its common stock, par
      value $0.001 per share, issued and outstanding.







**PART
        I**
 **FINANCIAL
        INFORMATION**
  Item
        1. Financial Statements
 **SONTERRA
        RESOURCES, INC.**
 **Consolidated
        Balance Sheets**


**June
                  30,**
                **2008**
              
              **December
                  31,**
                **2007****(Unaudited)**
              
              **(Audited)****ASSETS**Current
                AssetsCash
                  and equivalents
              
              $
              379,173
              
              $
              2,195,899Accounts
                  receivable
              
              
              352,468
              
              
              2,901,502Prepaid
                  expenses
              
              
              76,415
              
              
              151,998Total
                  current assets
              
              
              808,056
              
              
              5,249,399Property
                  and EquipmentOil
                  and gas propertiesUnproved
                  properties
              
              
              703,960
              
              
              848,894Proved
                  properties
              
              
              4,548,470
              
              
              4,547,578Pipelines
                  and facilities
              
              
              778,418
              
              
              778,418Total
                  oil and gas properties
              
              
              6,030,848
              
              
              6,174,890Less
                    accumulated depreciation, depletion and
                    amortization
              
              
              (472,766
              )
              
              (348,198
              )5,558,082
              
              
              5,826,692Other
                  property and equipment, net
              
              
              1,846
              
              
              30,000Total
                  property and equipment, net
              
              
              5,559,928
              
              
              5,856,692Other
                  AssetsDebt
                  issuance costs, net of amortization
              
              
              149,295
              
              
              285,353Total
                  other assets
              
              
              149,295
              
              
              285,353**Total
                  Assets**
              
              $
              6,517,279
              
              $
              11,391,444**LIABILITIES
                  AND SHAREHOLDERS' EQUITY**Current
                  LiabilitiesAccounts
                  payable, trade
              
              $
              92,457
              
              $
              2,378,342Other
                  payables and accrued liabilities
              
              
              579,782
              
              
              890,496Participant
                  advances received
              
              
              966
              
              
              948,494Interest
                  payable
              
              
              68,682
              
              
              268,527Total
                  current liabilities
              
              
              741,887
              
              
              4,485,859Noncurrent
                  LiabilitiesLong-term
                  debt
              
              
              3,000,000
              
              
              7,990,010Asset
                  retirement obligation
              
              
              123,345
              
              
              116,751Total
                  noncurrent liabilities
              
              
              3,123,345
              
              
              8,106,761Shareholders'
                  EquityCommon
                  stock, par value $0.001 per share, authorized 50,000,000
                  shares,issued
                  and outstanding 26,347,359 and 38,552,749 shares
              
              
              26,347
              
              
              38,552Additional
                  paid-in capital
              
              
              5,158,046
              
              
              (28,562
              )Retained
                  earnings (deficit)
              
              
              (2,532,346
              )
              
              (1,211,166
              )Total
                  shareholders' equity (deficit)
              
              
              2,652,047
              
              
              (1,201,176
              )**Total
                  Liabilities and Shareholders' Equity**
              
              $
              6,517,279
              
              $
              11,391,444
  ***See
          notes to consolidated financial statements.***
  2
 
 **SONTERRA
              RESOURCES, INC.**
 **Consolidated
                Statements of Operations**
 **Three
                        Months**
                    
                    **Six
                        Months****Ended**
                    
                    **Ended****June
                        30, 2008**
                    
                    **June
                        30, 2008****(Unaudited)**
                    
                    **(Unaudited)****Revenues**Oil
                        and gas sales
                    
                    $
                    122,390
                    
                    $
                    238,146Contract
                        operating income
                    
                    
                    206,507
                    
                    
                    261,234Operating
                        overhead income
                    
                    
                    4,305
                    
                    
                    14,424Gas
                        gathering operations
                    
                    
                    (7,836
                    )
                    
                    10,625Total
                        revenues
                    
                    
                    325,366
                    
                    
                    524,429**Costs
                        and Expenses**Lease
                        operating expenses
                    
                    
                    158,024
                    
                    
                    458,982Production
                        taxes
                    
                    
                    10,271
                    
                    
                    18,418Depreciation,
                        depletion and amortization
                    
                    
                    58,784
                    
                    
                    124,568Accretion
                        on asset retirement obligation
                    
                    
                    2,854
                    
                    
                    6,594General
                        and administrative
                    
                    
                    87,325
                    
                    
                    1,069,480Total
                        costs and expenses
                    
                    
                    317,258
                    
                    
                    1,678,042**Income
                        (Loss) from Operations**
                    
                    
                    8,108
                    
                    
                    (1,153,613
                    )**Other
                        (Expense)**Interest
                        expense
                    
                    
                    (69,648
                    )
                    
                    (140,241
                    )Debt
                        issuance costs amortization
                    
                    
                    (10,326
                    )
                    
                    (27,327
                    )Other
                        (expense)
                    
                    
                    (79,974
                    )
                    
                    (167,568
                    )**Net
                        Loss Before Tax**
                    
                    
                    (71,866
                    )
                    
                    (1,321,181
                    )Income
                        tax expense (benefit)
                    
                    
                    -
                    
                    
                    -**Net
                        Loss**
                    
                    $
                    (71,866
                    )
                    $
                    (1,321,181
                    )Earnings
                        (Loss) Per Common Share:Basic
                    
                    $
                    (0.003
                    )
                    $
                    (0.05
                    )Diluted
                    
                    $
                    (0.003
                    )
                    $
                    (0.05
                    )Weighted
                        average number of commonshares
                        outstanding:Basic
                    
                    
                    26,347,359
                    
                    
                    26,347,359Diluted
                    
                    
                    26,347,359
                    
                    
                    26,347,359
  ***See
                notes to consolidated financial statements.***
 3
 SONTERRA
              RESOURCES, INC.
 **Consolidated
                Statements of Cash Flows**
  **Six
                        Months****Ended****June
                        30, 2008****(Unaudited)****Operating
                        Activities**Net
                        loss
                    
                    $
                    (1,321,181
                    )Adjustments
                        to reconcile net loss to net cash used by operating
                        activities:Depreciation,
                        depletion and amortization
                    
                    
                    124,568Accretion
                        on asset retirement obligation
                    
                    
                    6,594Non-cash
                        compensation expense
                    
                    
                    30,433Debt
                        issuance costs amortization
                    
                    
                    27,327Changes
                        in operating assets and liabilities:Accounts
                        receivable
                    
                    
                    2,549,034Prepaid
                        expenses
                    
                    
                    75,583Debt
                        issuance costs
                    
                    
                    (95,000
                    )Accounts
                        payable and accrued liabilities
                    
                    
                    (2,596,599
                    )Accounts
                        payable acquired in acquisition of Sonterra
                        Resources, Inc., net
                    
                    
                    (642,308
                    )Participant
                        advances received
                    
                    
                    (947,528
                    )Interest
                        payable
                    
                    
                    (199,845
                    )Net
                        cash (used) by operating activities
                    
                    
                    (2,988,922
                    )**Investing
                        Activities**Purchases
                        and development of oil and gas properties
                    
                    
                    (17,958
                    )Proceeds
                        from sale of oil and gas properties
                    
                    
                    162,000Change
                        in other property and equipment
                    
                    
                    28,154Net
                        cash provided by investing activities
                    
                    
                    172,196**Financing
                        Activities**Proceeds
                        from issuance of long term debt
                    
                    
                    1,000,000Net
                        cash provided by financing activities
                    
                    
                    1,000,000**Net
                        Decrease in Cash and Equivalents**
                    
                    
                    (1,816,726
                    )Cash
                        and equivalents at beginning of period
                    
                    
                    2,195,899**Cash
                        and Equivalents at End of Period**
                    
                    $
                    379,173
 ***See
                notes to consolidated financial
                statements.***
  4




**SONTERRA
      RESOURCES, INC.**


**Notes
      to Consolidated Financial Statements**


**Period
      Ended June 30, 2008 (Unaudited)**





**1.**
            **Basis
                of Presentation**





The
      accompanying unaudited consolidated financial statements report interim
      financial information for Sonterra Resources, Inc., a Delaware corporation
      ("Sonterra Resources"), and its wholly owned subsidiaries Sonterra Oil &
Gas, Inc., a Delaware corporation ("Sonterra
      Oil & Gas"), and Sonterra Operating, Inc., a Delaware corporation ("Sonterra
      Operating," and together with Sonterra Oil and Gas, the
      "Subsidiaries"). References to "the Company" refer to Sonterra
      Resources or Sonterra Resources and its Subsidiaries as of June 30,
      2008.





Sonterra
      Resources was originally incorporated in Florida on June 17, 1997, as
      Permastoprust International, Inc. The name was changed to Greystone Credit
      Inc.
      in June 1999. On August 4, 1999, Greystone Credit Inc. acquired whOOdoo.com,
      Inc., a Florida corporation, in a share exchange. In connection with the share
      exchange, the state of incorporation was changed to Delaware and the name to
      whOOdoo.com, Inc. On July 17, 2000, the name was changed to Ballistic Ventures,
      Inc. and on June 5, 2004, the name was changed to River Capital Group, Inc.
      ("River Capital"). River Capital intended to establish and grow a core
      reinsurance business, but was unable to raise equity or debt capital and
      abandoned the efforts to establish a reinsurance business. Following the closing
      of the Securities Exchange discussed below, the name of the corporation was
      changed to Sonterra Resources, Inc.





On
      February 14, 2008, Sonterra Resources consummated the transactions (the
      "Securities Exchange") contemplated by a Securities Exchange and Additional
      Note
      Purchase Agreement entered into on August 3, 2007 with The Longview Fund, L.P.
      ("Longview"), the then beneficial owner, together with an affiliated fund,
      of
      approximately 66.6% of the Company’s common stock. The Securities Exchange was
      comprised of a series of transactions that occurred as part of the closing
      including (i) Sonterra Resources’ 38,552,749 issued and outstanding shares of
      common stock being combined into 3,855,275 shares of common stock in a 1-for-10
      reverse stock split; (ii) the Company’s name being changed from River Capital
      Group, Inc. to Sonterra Resources, Inc.; and (iii) Longview exchanging (a)
      all
      of its shares of common stock of Sonterra Oil & Gas, Inc., (b) a $5,990,010
      equity note from Sonterra Oil & Gas, and (c) a warrant to purchase 50 shares
      of Sonterra Oil & Gas common stock for (x) 21,846,558 shares of Sonterra
      Resources’ common stock and (y) a warrant to purchase 4,958,678 shares of
      Sonterra Resources’ common stock. Longview also exchanged its $2,000,000
      non-equity note from Sonterra Oil & Gas for a senior secured note from
      Sonterra Resources in an equal principal amount.





As
      a
      result of the Securities Exchange, (i) 100% of the issued and outstanding
      capital stock of Sonterra Oil & Gas, which was formerly known as Sonterra
      Resources, Inc. prior to the Securities Exchange, is owned by Sonterra
      Resources; (ii) Sonterra Resources is engaged, through the Subsidiaries, in
      the operation and development of oil and gas properties and related assets;
      and
      (iii) the former stockholders of Sonterra Oil & Gas hold approximately 95%
      of the common stock of Sonterra Resources.





Although
      Sonterra Resources was the legal acquirer of Sonterra Oil & Gas and
      continues as a publicly traded entity, Sonterra Oil & Gas is the acquirer
      for financial reporting purposes. Accordingly, concurrent with the Securities
      Exchange Sonterra Resources adopted the accounting methods of Sonterra Oil
&
Gas. For SEC reporting purposes, Sonterra Resources presents the consolidated
      historical financial statements of Sonterra Resources and the Subsidiaries
      through the effective date of the Securities Exchange, and combined financial
      results thereafter. The consolidated financial statements for the interim period
      ended June 30, 2008 include the financial results of Sonterra Resources from
      the
      effective date of the Securities
      Exchange through June 30, 2008, the financial results of Sonterra Oil
& Gas for the three and six month periods ended June 30, 2008, and the
      financial results of Sonterra Operating for the three month period ended June
      30, 2008. Because Sonterra Oil & Gas was not formed until April 2007,
      Sonterra Operating was not formed until March 2008, and operations did not
      commence until August 2007 and April 2008, respectively, there is no meaningful
      comparative financial information available to present for the three and six
      month periods ended June 30, 2007. The consolidated balance sheet as of December
      31, 2007, presents the accounts of Sonterra Oil & Gas.




These
      financial statements have been prepared in accordance with U.S. generally
      accepted accounting principles ("GAAP") for interim financial information and
      with the instructions to Form 10-Q and Article 10 of Regulation S-X.
      Accordingly, they do not include all of the information and footnotes required
      by GAAP for complete financial statements. The accounting policies followed
      by
      the Company are described in Note A to the audited consolidated financial
      statements for the period ended December 31, 2007 and reported on a Form 8/K-A
      filed May 13, 2008.





In
      the
      opinion of management, all normal recurring adjustments considered necessary
      for
      the fair statement of the results for the interim period presented have been
      included.




5




**SONTERRA
      RESOURCES, INC.**


**Notes
      to Consolidated Financial Statements**


**Period
      Ended June 30, 2008 (Unaudited)**





**2.**
            **Earnings
                (Loss) Per Share**





Basic
      earnings (loss) per common share is calculated by dividing net income (loss)
      by
      the weighted average number of shares of common stock outstanding during the
      period. Diluted earnings per common share considers the dilutive effect of
      the
      average number of common stock equivalents, consisting of the Company’s common
      stock options and warrants, that were outstanding during the period. **** For
      the **** three
      month interim period presented, a net loss was incurred. Therefore,
      consideration of common stock equivalents in the calculation of the weighted
      average number of shares outstanding was not applicable because the effect
      would
      have been anti-dilutive.





For
      purposes of calculating the weighted average number of shares of common stock
      outstanding and earnings (loss) per share data, the number of common shares
      issued by Sonterra Resources in the Securities Exchange transaction is deemed
      to
      be included in the number of common shares of the Company outstanding during
      the
      interim period.





**3.**
            **Stock
                Based Compensation**





Concurrent
      with the consummation of the Securities Exchange, the Company adopted the 2007
      Non-Qualified Stock Option Plan to provide for the issuance of stock options
      as
      compensation to key employees, officers and non-employee directors. Immediately
      upon adoption, common stock options were issued to management employees of
      the
      Company pursuant to the 2007
      Non-Qualified Stock Option Plan.





In
      accordance with Statement of Financial Accounting Standard No. 123, the Company
      determines the value of the stock based compensation granted to its employees
      by
      use of a Black-Scholes valuation model. That value is recognized as stock
      compensation expense over the expected life of the underlying options. Total
      stock-based compensation expense recognized for the three months ended June
      30,
      2008 was $30,433. Additionally, prior options granted to previous management
      were forfeited and the prior cumulative stock compensation expense of $554,483
      was reversed.





*Stock
      Options:*  ****** Stock
      options issued to employees under the 2007 Non-Qualified Stock Option Plan
      vest
      incrementally over a period of three years and have a ten-year life. On February
      14, 2008, a total of 5,140,359 common stock options were issued. These options
      had exercise prices that ranged from $.332 to $.453 per share, and were
      scheduled to expire in February 2018. None of these options had vested as of
      June 30, 2008. These options were forfeited on June 23, 2008, when the then
      management team resigned from Sonterra Resources. A new management team was
      employed on June 23, 2008, and a total of 2,459,087 new common stock options
      were issued. These options have exercise prices that range from $1.35 to $2.025
      per share and will expire in June 2018.





**Number
                Outstanding**
            
            **Weighted
                Average Exercise Price**
            
            **Weighted
                Average Contractual Term in Years**
            
            **Aggregate
                Intrinsic Value**Outstanding
                at December 31,2007
            
            
            5,140,359
            
            $
            0.393
            
            
            10.0Issued
            
            
            2,459,087
            
            $
            1.710
            
            
            10.0Forfeited
            
            
            (5,140,359
            )
            $
            0.393
            
            
            9.9Exercised
            
            
            -
            
            
            -
            
            
            -Outstanding
                and exercisable at June 30, 2008
            
            
            2,459,087
            
            $
            1.710
            
            
            10.0
            
            $
            959,044





*Warrants:* As of
      June 30, 2008, the Company had outstanding warrants for the purchase of
      4,958,678 shares of common stock at $.302 per share. The warrants expire in
      February 2013.




6




**SONTERRA
      RESOURCES, INC.**


**Notes
      to Consolidated Financial Statements**


**Period
      Ended June 30, 2008 (Unaudited)**





**4.**  **Long-Term
      Debt**




On
      August
      3, 2007, in connection with the closing of an oil and gas property acquisition
      and pursuant to a securities purchase agreement with Longview, Sonterra Oil
      & Gas received an advance of $5,990,010 in exchange for a senior secured
      note (the "Equity Note") payable to Longview. The Equity Note was issued with
      a
      maturity date of August 31, 2010, with the principal balance being due in full
      at maturity. Interest payments under the Equity Note were due quarterly at
      a
      rate equal to a three-month LIBOR plus 8.25%, redetermined for each calendar
      quarter. Concurrent with the issuance of the Equity Note, Sonterra issued
      Longview a warrant to purchase 50 shares of the Sonterra Oil & Gas common
      stock. As part of the Securities Exchange, on February 14, 2008, Longview
      exchanged all its shares of Sonterra Oil & Gas common stock and the Equity
      Note for common shares of Sonterra Resources. Also as part of the Securities
      Exchange, Longview exchanged the warrant to purchase 50 shares of the Sonterra
      Oil & Gas common stock for a warrant to purchase 4,958,678 common shares of
      Sonterra Resources.




On
      August
      29, 2007, Sonterra Oil & Gas received $2,000,000 in exchange for a senior
      secured note (the "Non-Equity Note") payable to Longview. A portion of these
      proceeds were used to provide funds for the acquisition of certain oil and
      gas
      properties. The Non-Equity note was issued with a maturity date of August 31,
      2010, with the principal balance being due in full at maturity. Interest
      payments are due quarterly at a rate equal to a three-month LIBOR plus 8.25%,
      redetermined for each calendar quarter. As part of the Securities Exchange,
      on
      February 14, 2008, Longview exchanged the Non-Equity Note for a $2,000,000
      senior secured note of Sonterra Resources (the "Initial Sonterra Note") with
      the
      same terms as the Non-Equity Note.





Subject
      to certain terms and conditions through December 31, 2008, the Company has
      the
      option to obtain additional debt financing from Longview by issuing additional
      senior secured notes with a maturity date of August 31, 2010. The principal
      amounts of these additional notes, if the Company chooses to issue them, may
      not
      exceed $2 million in any fiscal quarter. Interest payments on these notes,
      if
      issued, are due quarterly at a rate equal to a three-month LIBOR plus 8.25%,
      redetermined for each calendar quarter. Pursuant to the option, the Company
      obtained $1 million in additional debt financing from Longview on May 22,
      2008.




The
      following is a schedule of principal maturities of debt as of June 30, 2008,
      after giving consideration to the exchange of the $5,990,010 senior secured
      note
      for common stock of the Company as described above:




Due
                in calendar year:2008
            
            $
            -2009
            
            
            -2010
            
            
            3,000,000Total
            
            $
            3,000,000




The
      Non-Equity Note and the Initial Sonterra Note (collectively, the "Notes")
      contain certain restrictive covenants which, among other things, limit the
      incurrence of additional debt, investments, liens, dividends, prepayments of
      indebtedness, asset dispositions, mergers and consolidations, and other matters
      customarily restricted in such agreements. The Notes require the Company to
      comply with certain financial covenants including a minimum quarterly revenue
      amount, a minimum oil and gas reserves quantity amount, and a minimum
      proved reserve value ratio. The Notes also include customary events of default.
      The financial covenants are measured as of each calendar quarter. Upon the
      occurrence and continuation of an event of default, the holder of the Notes
      may
      declare all or any portion of the Notes to be due and payable immediately.
      The
      Company was not in compliance with all covenants of the outstanding Non-Equity
      Note at December 31, 2007. A waiver of requirement for compliance with the
      debt
      covenants at December 31, 2007 was received from Longview, and the financial
      covenants of the Initial Sonterra Note were amended through December 31,
      2008.




**5.**  **Securities
      Exchange**




As
      described in Note 1, on February 14, 2008, Sonterra Resources, Inc. completed
      the Securities Exchange with Sonterra Oil & Gas, Inc., effecting a change in
      control of Sonterra Resources. In exchange for all of their Sonterra Oil &
Gas common stock and the $5,990,010 Equity Note from Sonterra Oil & Gas, the
      Sonterra Oil & Gas shareholders received shares of the common stock of
      Sonterra Resources. The former shareholders of Sonterra Oil & Gas held 95.8%
      of the common stock of Sonterra Resources immediately following the Securities
      Exchange.




7




**SONTERRA
      RESOURCES, INC.**


**Notes
      to Consolidated Financial Statements**


**Period
      Ended June 30, 2008 (Unaudited)**




5.Securities
        Exchange(continued)




Prior
      to
      the Securities Exchange, Sonterra Resources was a "shell" company with no
      operations. Sonterra Oil & Gas is engaged in the exploration, development
      and operation of oil and gas properties in the United States. The Securities
      Exchange was consummated because management believes the combined public company
      will be better positioned to access capital markets and to acquire and develop
      oil and gas properties in the future, both of which are necessary for the
      long-term growth of the Company and its value.




For
      financial reporting purposes, Sonterra Oil & Gas acquired Sonterra
      Resources, though Sonterra Resources is the legal acquirer in the transaction.
      Sonterra Resources has conformed to the accounting methods of Sonterra Oil
&
Gas. The purchase price of the transaction was determined using the net asset
      value method. The following table summarizes the estimated fair values of the
      assets acquired and liabilities assumed at the date of the Securities
      Exchange:




**As
                of February 14, 2008**Current
                Assets:Cash
            
            $
            9,115Current
                Liabilities:Accounts
                Payable
            
            
            (651,423
            )Net
                Liabilities Acquired
            
            $
            (642,308
            )




The
      pro
      forma results of the combined operations of Sonterra Resources and Sonterra
      Oil
& Gas for the three and six months ended June 30, 2008 and 2007 are
      presented below. The pro forma results include the limited operations of
      Sonterra Oil & Gas from the date of its incorporation, April 17,
      2007.




**Three
                Months Ended June 30,****2008**
            
            **2007**Revenues
            
            $
            325,366
            
            $
            -Costs
                and Expenses
            
            
            317,258
            
            
            109,677Income
                (Loss) from Operations
            
            
            8,108
            
            
            (109,677
            )Other
                Income (Expense)
            
            
            (79,974
            )
            
            1,718Net
                (Loss)
            
            $
            (71,866
            )
            $
            (107,959
            )Basic
                Earnings (Loss) Per Share
            
            $
            (0.003
            )
            $
            (0.003
            )Weighted
                Average Common Shares Outstanding
            
            
            26,347,359
            
            
            38,499,305




**Six
                Months Ended June 30,****2008**
            
            **2007**Revenues
            
            $
            524,429
            
            $
            -Costs
                and Expenses
            
            
            1,678,042
            
            
            222,177Income
                (Loss) from Operations
            
            
            (1,153,613
            )
            
            (222,177
            )Other
                Income (Expense)
            
            
            (167,568
            )
            
            1,816Net
                (Loss)
            
            $
            (1,321,181
            )
            $
            (220,361
            )Basic
                Earnings
                (Loss) Per Share
            
            $
            (0.05
            )
            $
            (0.01
            )Weighted
                Average Common Shares Outstanding
            
            
            26,347,359
            
            
            38,499,305




8




**SONTERRA
      RESOURCES, INC.**


**Notes
      to Consolidated Financial Statements**


**Period
      Ended June 30, 2008 (Unaudited)**




**6.
      Income Taxes**




FASB
      Interpretation No. 48 (FIN 48) "Accounting for Uncertainty in Income Taxes,
      an
      interpretation of FASB Statement No. 109" prescribes a comprehensive model
      for
      how companies should recognize, measure, present and disclose in their financial
      statements uncertain tax position taken or expected to be taken on a tax return.
      Under FIN 48, tax positions are recognized in the Company’s financial statements
      as the largest amount of tax benefit that has a greater than 50% likelihood
      of
      being realized upon ultimate settlement with tax authorities assuming full
      knowledge of the position and all relevant facts. These amounts are subsequently
      reevaluated and changes are recognized as adjustments to current period tax
      expense. FIN 48 also revised disclosure requirement to include an annual tabular
      roll forward of unrecognized tax benefits.




The
      Company adopted the provisions of FIN 48 at its inception in April 2007. If
      applicable, the Company would recognize interest and penalties related to
      uncertain tax positions in interest expense. As of June 30, 2008, the Company
      had no accrued interest and penalties.




The
      Company has incurred net operating losses since its inception, resulting in
      a
      deferred tax asset. In assessing the realizability of deferred tax assets,
      management considers whether it is more likely than not that some portion or
      all
      of the deferred income tax assets will not be realized. The ultimate realization
      of deferred income tax assets is dependent upon the generation of future taxable
      income during the periods in which those temporary differences become
      deductible. Management considers the scheduled reversal of deferred income
      tax
      liabilities, projected future taxable income, and tax planning strategies in
      making this assessment. Based on consideration of these items, management has
      determined that enough uncertainty exists relative to the realization of the
      deferred income tax asset balances to warrant the application of a full
      valuation allowance as of June 30, 2008 and December 31, 2007.




**7.**  **Recent
      Accounting Pronouncements**




*FASB
      Statement of Accounting Standard No. 157, "Fair Value Measurement"("SFAS
      157"):* SFAS
      157, issued in September 2006, defines fair value, establishes a framework
      for
      measuring fair value, and expands disclosures about fair value measurements.
      The
      standard applies whenever other standards require (or permit) assets or
      liabilities to be measured at fair value, but does not expand the use of fair
      value in any new circumstances. In February 2008, the FASB granted a one-year
      deferral of the effective date of this statement as it applies to non-financial
      assets and liabilities that are recognized or disclosed at fair value on a
      nonrecurring basis (e.g. those measured at fair value in a business combination
      and goodwill impairment). SFAS No. 157 is effective for all recurring measures
      of financial assets and liabilities (e.g. derivatives and investment securities)
      for financial statements issued for fiscal years beginning after November 15,
      2007, and interim periods within those years. The adoption of SFAS No. 157
      did
      not have a material impact on the Company’s consolidated financial statements.




*FASB
      Statement of Accounting Standards No. 159, "The Fair Value Option for Financial
      Assets and Financial Liabilities" ("SFAS 159"):* SFAS
      159,
      issued in February 2007, allows entities the option to measure the eligible
      financial instruments at fair value as of specified dates. Such election, which
      may be applied on an instrument by instrument basis, is typically irrevocable
      once elected. SFAS No. 159 is effective fiscal years beginning after November
      15, 2007, and early application is allowed under certain circumstances. The
      Company did not elect the fair value option for any of its existing financial
      instruments.




*FASB
      Statement of Accounting Standards No. 141 (R), "Business Combinations" ("SFAS
      141 (R)"):* SFAS
      No.
      141(R) was issued in December 2007 to replace SFAS 141. SFAS 141 (R) establishes
      principles and requirements for how an acquirer recognizes and measures in
      its
      financial statements the identifiable assets acquired, the liabilities assumed,
      any non-controlling interest in the acquire and the goodwill acquired. The
      Statement also establishes disclosure requirements, which will enable users
      to
      evaluate the nature and financial effects of the business combination. SFAS
      141
      (R) is effective for fiscal years beginning after December 15, 2008. The
      adoption of SFAS 141 (R) will have an impact on accounting for business
      combinations once adopted, but the effect is dependent upon acquisitions at
      that
      time.




*FASB
      Statement of Accounting Standards No. 160, "Noncontrolling Interests in
      Consolidated Financial Statements - an amendment of Accounting Research Bulletin
      No. 51" ("SFAS 160"):* SFAS
      160,
      issued in December 2007, establishes accounting and reporting standards for
      ownership interests in subsidiaries held by parties other than the parent,
      the
      amount of consolidated net income attributable to the parent and to the
      non-controlling interest, changes in a parent’s ownership interest and the
      valuation of retained noncontrolling equity investments when a subsidiary is
      deconsolidated. The Statement also establishes reporting requirements that
      provide sufficient disclosures that clearly identify and distinguish between
      the
      interests of the parent and the interests of the non-controlling owners. SFAS
      160 is effective for fiscal years beginning after December 15, 2008. The Company
      does not currently have any non-controlling interests in its subsidiaries and
      thus does not expect the adoption of SFAS 160 to impact its consolidated
      financial statements.




*FASB
      Statement of Accounting Standards No. 161, "Disclosures about Derivative
      Instruments and Hedging Activities - an amendment of FASB Statement No. 133"
      ("SFAS 161"):* SFAS
      161,
      issued in March 2008, requires new and expanded disclosures regarding hedging
      activities. These disclosures include, but are not limited to, a tabular
      presentation of derivative data; financial statement presentation of fair values
      on a gross basis, including those that currently qualify for netting under
      FASB
      Interpretation No. 39; and specific footnote narrative regarding how and
      why derivatives are used. The disclosures are required in all interim and annual
      reports. SFAS 161 is effective for fiscal and interim periods beginning after
      November 15, 2008. The Company is not currently engaged in any hedging
      activities and thus does not expect the application of SFAS 161 to impact its
      consolidated financial statements.




9




**Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of
      Operations**





**Forward-Looking
      Information**





This
      Form
      10-Q quarterly report of Sonterra Resources, Inc. (the "Company") for the three
      and six months ended June 30, 2008, may contain certain forward-looking
      statements within the meaning of Section 27A of the Securities Act of 1933,
      as
      amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
      which are intended to be covered by the safe harbors created thereby.  To
      the extent that there are statements that are not recitations of historical
      fact, such statements constitute forward-looking statements that, by definition,
      involve risks and uncertainties.  In any forward-looking statement, where
      the Company expresses an expectation or belief as to future results or events,
      such expectation or belief is expressed in good faith and believed to have
      a
      reasonable basis, but there can be no assurance that the statement of
      expectation or belief will be achieved or accomplished.





The
      following are factors that could cause actual results or events to differ
      materially from those anticipated, and include, but are not limited to: general
      economic, financial and business conditions; the Company’s ability to minimize
      expenses; the Company’s ability to attract and retain key personnel to support
      its present and planned operations; the Company’s ability to acquire additional
      oil and gas properties and/or operations on acceptable terms, or at all; the
      Company’s ability to obtain additional necessary financing from outside
      investors and/or bank and mezzanine lenders; and the ability of the Company
      to
      generate sufficient revenues to cover operating expenses and position it to
      achieve positive cash flow.





Readers
      are cautioned not to place undue reliance on the forward-looking statements
      contained herein, which speak only as of the date hereof.  The Company
      believes the information contained in this Form 10-Q to be accurate as of the
      date hereof.  Changes may occur after that date, and the Company will not
      update that information except as required by law in the normal course of its
      public disclosure practices.





Additionally,
      the following discussion regarding the Company’s financial condition and results
      of operations should be read in conjunction with the financial statements and
      related notes contained in Item 1 of Part 1 of this Form 10-Q, as well as the
      financial statements for the fiscal year ended December 31, 2007, as set forth
      in the Company’s Form 8-K/A filed with the U.S. Securities and Exchange
      Commission on May 13, 2008.





**Significant
      Accounting Policies**





The
      Company’s discussion and analysis of its financial condition and results of
      operations are based upon its financial statements, which have been prepared
      in
      accordance with accounting principles generally accepted in the United States
      of
      America.  The Company believes certain significant accounting policies
      affect its more significant judgments and estimates used in the preparation
      of
      its financial statements.  A description of the Company’s significant
      accounting policies is set forth in the Company’s Form 8-K/A filed on May 13,
      2008, which contains the Company’s financial statements for the year ended
      December 31, 2007.  There have been no material changes or update to the
      Company’s significant accounting policies since December 31, 2007.





**General
      Overview of Operations and Current Year Developments**





Sonterra
      Resources, Inc., formerly
      known as River Capital Group, Inc., is an
      oil and gas exploration and production company. On
      February 14, 2008, we consummated the transactions (the "Securities Exchange")
      contemplated by the Securities Exchange and Additional Note Purchase Agreement
      entered into on August 3, 2007 with The Longview Fund, L.P. Longview, together
      with an affiliated fund, owns approximately 95.8% of our common stock.





The
      following events occurred prior to or at the closing of the Securities
      Exchange:




l
              our
                  38,552,749 issued and outstanding shares of common stock were combined
                  into 3,855,275 shares of common stock in a 1-for-10 reverse stock
                  split;
 l
              our
                  name was changed to “Sonterra Resources,
                  Inc.”; l
              Longview exchanged all of its shares
                of common
                stock of our now wholly owned subsidiary, Sonterra Oil & Gas, Inc.,
                formerly known as Sonterra Resources, Inc. (“Sonterra Oil & Gas”), a
                $5,990,010 equity note from Sonterra Oil & Gas and a warrant to
                purchase 50 shares of Sonterra Oil & Gas common stock for 21,846,558
                shares of our common stock and a warrant to purchase 4,958,678 shares
                of
                our common stock; and l
              Longview exchanged its $2,000,000
                non-equity
                note from Sonterra Oil & Gas for a senior secured note made by us in
                an equal principal amount.


10





As
      a
      result of the Securities Exchange:




l
            we
                own 100% of the issued and outstanding capital stock of Sonterra
                Oil &
                Gas; l
            we
                are engaged, through Sonterra Oil & Gas, in the operation and
                development of the oil and gas properties and related assets;
                and l
            although
                we were the legal acquirer of Sonterra Oil & Gas and continue as a
                publicly traded entity, Sonterra Oil & Gas was the accounting acquirer
                for financial reporting purposes, and, accordingly, we have adopted
                the
                accounting methods of Sonterra Oil & Gas and, for SEC reporting
                purposes, our historical financial statements are those of Sonterra
                Oil
                & Gas through the effective date of the Securities Exchange on
                February 14, 2008 and our combined financial results
                thereafter.





On
      June
      23, 2008, our management team resigned and was replaced by a new management
      team, consisting of Donald E. Vandenberg, Chief Executive Officer, and Gary
      L.
      Lancaster, VP and Chief Legal Officer, both of whom were also named as
      directors. Doyle Valdez resigned as a director on the same date. Donald J.
      Sebastian, VP and Chief Financial Officer joined Sonterra effective as of July
      1, 2008.





Our
      oil
      and gas assets consist of certain
      oil and gas properties and related assets that we acquired in August 2007 from
      Cinco Natural Resources Corporation ("Cinco") and Flash Gas & Oil Southwest,
      Inc. ("Flash") in two separate transactions for an aggregate amount of
      approximately $5.9 million. Our wholly owned subsidiary, Sonterra Operating,
      Inc., is the named operator of our oil and gas properties, which are located
      in
      Matagorda Bay offshore the Texas coast. In the Cinco acquisition, for
      approximately $5.0 million, we purchased 60% of the interests held by Cinco
      in
      the Texas State Tract 150 Wells No. 1 and No. 2 located in Matagorda Bay, Texas,
      as well as a 320-acre oil and gas lease related to those wells and certain
      other
      leases covering approximately 3,200 additional acres located in Matagorda Bay.
      In the Flash acquisition, for approximately $1.2 million cash, we purchased
      all
      of the interests held by Flash in the Texas State Tract 150 Wells No. 1 and
      No.
      2 as well as a seven-mile pipeline connecting the wells to the Keller Bay
      onshore facility located in Calhoun County, Texas. As discussed below, the
      Texas
      State Tract 150 Well No. 2 has been shut-in as a result of sand
      production.





In
      December 2007, we acquired an additional 1,920 gross (960 net) offset acres
      for
      one of the undrilled Matagorda Bay prospects, giving us combined total acreage
      of approximately 5,500 gross (2,100 net) acres. On December 18, 2007, the Texas
      State Tract 150 Well No. 2 was shut-in because it was producing sand. During
      the
      first quarter of 2008, we worked over this well in an attempt to clean the
      sand
      out of the wellbore. Following the workover, sand production again caused the
      well to shut-in, and the well remains shut-in pending evaluation for future
      utility. We have identified four additional drilling locations on our acquired
      acreage and commenced drilling the first well location during the second quarter
      of 2008.





On
      April
      8, 2008, Sonterra Operating, Inc. entered into a definitive contract operating
      agreement with South Texas Oil Company, to be effective as of April 1, 2008,
      pursuant to which Sonterra Operating began overseeing daily operations of both
      operating services and accounting services for the operated and non-operated
      properties of South Texas Oil Company as an independent contractor acting
      in the role of contract operator for a fee of $75,000 per month. Michael J.
      Pawelek, one of our current directors and who also was our Chairman and Chief
      Executive Officer at the time we entered into the contract operating agreement
      with South Texas Oil Company, was also and is currently the Chairman of
      South Texas Oil Company. Our board of directors, with Mr. Pawelek recused from
      voting as a potentially interested party, reviewed and evaluated the terms
      of
      the contract operating agreement and determined that the terms were commercially
      reasonable prior to authorizing our entry into and performance of the contract
      operating agreement. The contract operating agreement was terminated in July
      2008 as a result of the management team changes at both Sonterra Operating
      and South Texas Oil Company.





Immediately
      after terminating the prior contract operating agreement, Sonterra Resources
      entered into another contract operating agreement with South Texas Oil
      Company effective June 23, 2008, pursuant to which South Texas began overseeing
      the daily operations of the Matagorda Bay 150 field and commenced the drilling
      of the Matagorda Bay ST 127-1 Unit Well. Pursuant to the contract operating
      agreement, South Texas will be entitled to receive the applicable Council of
      Petroleum Accountants Society (COPAS) fees for the daily operations and drilling
      as well as be entitled to participate in up to 50% in all of the Matagorda
      Bay exploratory prospects.




**Results
      of Operations for the Three Months and Six Months Ended June 30,
      2008**





*Revenues.* During
      the three months and six months ended June 30, 2008, we reported total
      revenues of $325,366 and $524,429, respectively, primarily from oil and gas
      sales and contract operating income. As described above, only one of the two
      productive wells was producing in the three months and six months ending
      June 30, 2008. Contract operating income for the period consists of the fees
      earned under the operating agreement with South Texas Oil Company. The initial
      contract operating agreement whereby we acted as contract operator of the
      South Texas Oil Company assets was terminated June 23, 2008, contemporaneously
      with the resignation of our former management team who were simultaneously
      appointed as officers of South Texas Oil Company.




11




*Lease
      Operating Expenses.* During
      the three months and six months ended June 30, 2008, our lease operating
      expenses were $158,024 and $458,982, respectively. No unusual operating expenses
      were incurred during the period.





*Other
      Income (Expense)* .
       During the three months ended June 30, 2008, we had other expenses of
      $79,974 consisting of interest expense in the amount of $69,648 and debt
      issuance costs amortization of $10,326. During the six months ended June
      30, 2008, we had other expenses of $167,568 consisting of interest expense
      in
      the amount of $140,241 and debt issuance costs amortization of $27,327. The
      interest expense relates to the $3,000,000 senior secured notes described in
      Note 4 to the financial statements.





*General
      and Administrative Expense.* General
      and administrative expense for the three months and six months ended June
      30, 2008 was $84,375 and $1,069,480, respectively. Due to the restructuring
      of
      the management team, prior expenses of $554,483 attributable to non-cash stock
      compensation was reversed when the options were forfeited and non-cash stock
      compensation expense of $30,433 was recognized with the issuance of new options
      to our successor management team. Legal fees of $177,350 were incurred as a
      result of the restructuring the Sonterra Resources management team, and the
      issuance of an additional $1.0 million in secured notes. Under the employment
      agreements we entered into with our new management, Donald Vandenberg and Gary
      Lancaster each received $70,000 as a signing bonus.




**Financial
      Condition**





*Liquidity
      and Capital Resources.*  ****





Our
      primary source of liquidity is cash flow from operations. As part of the
      Securities Exchange, we issued a senior secured note in the principal amount
      of
      $2,000,000 in exchange for a note in an equal amount that had been issued by
      Sonterra Oil & Gas to Longview. We also have the right, subject to
      satisfaction of various conditions, in our discretion to require Longview to
      purchase additional secured notes in the principal amount of up to $2,000,000
      per fiscal quarter, up to an aggregate principal amount that may not exceed
      an
      aggregate of $10,000,000. The Securities Exchange agreement significantly
      restricts our ability to incur indebtedness other than by issuing additional
      notes to Longview. Accordingly, if we are unable to satisfy the conditions
      precedent to Longview’s obligation to purchase additional notes and Longview is
      unwilling to waive or modify such conditions or subordinate the notes to allow
      us to obtain project financing for future acquisitions, we would likely be
      unable to raise the funds required to make acquisitions in the
      future.





We
      believe that we have sufficient sources of capital, including access to the
      proceeds of additional notes issued by us (subject to various conditions),
      to
      fund our operations for the next 12 months, and our future funding requirements
      will depend on numerous factors, including ongoing costs associated with
      investigating and acquiring potential oil and gas prospects, exploration and
      other development costs of acquired oil and gas leases, and costs to recruit
      and
      train qualified personnel.




We
      are
      the named operator of the wells acquired in the Cinco and Flash acquisitions,
      which are currently operated by South Texas Oil Company under a contract
      operating agreement, and intend to drill wells in the exploratory prospects
      that
      we acquired through those acquisitions. In addition to drilling the exploratory
      prospects, we intend to make at least one acquisition of producing properties
      within the next six months, which would require additional funds to be raised.
      We do not presently have any agreements or commitments to make any such
      additional acquisitions, and there is no assurance that we will have available
      the funds necessary to complete any acquisition, that Longview will agree to
      subordinate their notes to allow us to obtain financing for future acquisitions,
      or that we will be able to reach an agreement to acquire additional prospects
      on
      acceptable terms, if at all.




Our
      business model is based on growing the company by completing one or more
      acquisitions of producing properties with upside proven locations to be drilled
      and by participating in drilling prospects generated in-house and by third
      parties. Acquisitions will have associated production equipment. We have three
      employees. The number of acquisitions we complete and number of prospects in
      which we participate, if any, will determine whether we will hire additional
      employees. There is the potential for a significant increase in the number
      of
      employees in the event that we acquire or develop additional oil and gas
      properties and related assets.





*Senior
      Secured Notes*





At
      June
      30, 2008, we had senior secured notes outstanding in an amount of $3,000,000
      to
      the Company’s principal shareholder, Longview. The loans bear interest at the
      sum the 3-month London Interbank Offered Rate (LIBOR) then in effect plus 8.25%,
      recalculated each quarter.





*Capital
      Expenditures and Commitments*





Our
      commitment to drill an additional well in one of our Matagorda Bay prospects
      by
      July 1, 2008 was met by the commencement of drilling operations of the Matagorda
      Bay ST 127 No. 1 Unit Well in late June 2008.




12




*Off-Balance
      Sheet Arrangements*





We
      have
      no off-balance sheet arrangements or guarantees of third party obligations
      at
      June 30, 2008.




**Inflation**




We
      believe that inflation has not had a significant impact on our operations since
      inception.




**Item
      3. Quantitative and Qualitative Disclosures about Market
      Risk.**





*Interest
      Rate Risk*




We
      are
      exposed to changes in interest rates. Changes in interest rates affect the
      interest earned on our cash and equivalents and the amount of interest that
      accrues on our outstanding senior secured notes.  Under our current
      policies, we do not use interest rate derivative instruments to manage exposure
      to interest rate changes.




*Commodity
      Price Risk*




Our
      revenues, profitability and future growth depend substantially on prevailing
      prices for oil and natural gas. Prices also affect the amount of cash flow
      available for capital expenditures and our ability to borrow and raise
      additional capital, as, if and when needed. Lower prices may also reduce the
      amount of oil and natural gas that we can economically produce. We may
      periodically use derivative instruments to hedge our commodity price risk,
      although we do not currently have any derivative instruments in
      place.





**Item
      4T. Controls and Procedures.**





*Disclosure
      Controls and Procedures*





Our
      management, with the participation of our Chief Executive Officer and Chief
      Financial Officer, has evaluated the effectiveness of the Company’s disclosure
      controls and procedures (as such term is defined in Rules 13a-15(e) and
      15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
      Act")) as of the end of the period covered by this report. Based on such
      evaluation, our Chief Executive Officer and Chief Financial Officer have
      concluded that, as of the end of such period, the Company’s disclosure controls
      and procedures are effective.





*Changes
      in Internal Control Over Financial Reporting*





There
      have been no significant changes in our internal control over financial
      reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under
      the Exchange Act) during the fiscal quarter to which this report relates that
      have materially affected, or are reasonably likely to materially affect, the
      Company’s internal control over financial reporting.




13




**PART
      II**


**OTHER
      INFORMATION**





**Item
      1. Legal Proceedings**





We
      currently are not aware of, or a party to, any legal proceedings. Additionally,
      our officers and directors, in their capacity as such, are not a part to any
      legal proceedings.




**Item
      1A. Risk Factors**





Because
      we are a smaller reporting company, this Item is not applicable to
      us.




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




Not
        Applicable.


**Item
      3. Default upon Senior Securities**





Not
      Applicable.





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





Not
      Applicable.





**Item
      5. Other Information**





Not
      Applicable.





**Item
      6. Exhibits**




Exhibit
            Description10.1
            Contract
                Operating Agreement, dated April 8, 2008 to be effective as of April
                1,
                2008, among South Texas Oil Company and its subsidiaries and Sonterra
                Operating, Inc. (Incorporated
                by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q
                filed on
                May 15, 2008.)10.2
            Contract
                Operating Agreement, dated July 21, 2008 to be effective as of June
                23,
                3008, among Sonterra Resources and South Texas Oil Company. (Incorporated
                by reference to Exhibit 99.2 of our Current Report on Form 8-K filed
                on
                July 23, 2008.)31.1
            Certification
                of Chief Executive Officer pursuant to Securities Exchange Act of
                1934
                Rule 13a-14(a) or 15d-14(a).31.2
            Certification
                of Chief Financial Officer pursuant to Securities Exchange Act of
                1934
                Rule 13a-14(a) or 15d-14(a).32.1
            Joint
                Certification of Chief Executive Officer and Chief Financial Officer
                pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b)
                and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
                the
                Sarbanes-Oxley Act of 2002.




14




**SIGNATURES**




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






Dated:  August
      15, 2008




SONTERRA
              RESOURCES, INC.By:
            /s/
              Donald E. VandenbergDonald
              E. VandenbergChief
                Executive Officer
              (Principal
                Executive Officer)


By:
            /s/
                Donald J.
                SebastianDonald
              J. SebastianChief
                Financial Officer(Principal
                Financial and Accounting Officer)