**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 March 31, 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 May
      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.**


**ITEM
        1. FINANCIAL STATEMENTS**
  **SONTERRA
                  RESOURCES, INC.****Consolidated
                  Balance Sheets**
  **March
                  31, 2008**
              
              **December
                  31, 2007****(Unaudited)**
              
              **(Audited)****ASSETS**Current
                  AssetsCash
                  and equivalents
              
              $
              1,147,782
              
              $
              2,195,899Accounts
                  receivable
              
              
              590,291
              
              
              2,901,502Prepaid
                  expenses
              
              
              194,311
              
              
              151,998Total
                  current assets
              
              
              1,932,384
              
              
              5,249,399Property
                  and Equipment, netOil
                  and gas properties (full cost method of accounting)Unproved
                  properties
              
              
              851,736
              
              
              848,894Proved
                  properties
              
              
              4,571,866
              
              
              4,547,578Pipelines
                  and facilities
              
              
              778,418
              
              
              778,418Total
                  oil and gas properties
              
              
              6,202,020
              
              
              6,174,890Less
                  accumulated depreciation, depletionand
                  amortization
              
              
              (413,982
              )
              
              (348,198
              )5,788,038
              
              
              5,826,692Other
                  property and equipment, net
              
              
              31,846
              
              
              30,000Total
                  property and equipment, net
              
              
              5,819,884
              
              
              5,856,692Other
                  AssetsDebt
                  issuance costs, net of amortization
              
              
              64,621
              
              
              285,353Total
                  other assets
              
              
              64,621
              
              
              285,353**Total
                  Assets**
              
              $
              7,816,889
              
              $
              11,391,444**LIABILITIES
                  AND SHAREHOLDER'S EQUITY (DEFICIT)**Current
                  LiabilitiesAccounts
                  payable, trade
              
              $
              894,362
              
              $
              2,378,342Other
                  payables and accrued liabilities
              
              
              512,563
              
              
              890,496Participant
                  advances received
              
              
              977,743
              
              
              948,494Interest
                  payable
              
              
              63,767
              
              
              268,527Total
                  current liabilities
              
              
              2,448,435
              
              
              4,485,859Noncurrent
                  LiabilitiesLong-term
                  debt
              
              
              2,000,000
              
              
              7,990,010Asset
                  retirement obligation
              
              
              120,491
              
              
              116,751Total
                  noncurrent liabilities
              
              
              2,120,491
              
              
              8,106,761Shareholders'
                  Equity (Deficit)Common
                  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
              
              
              5,682,096
              
              
              (28,562
              )Retained
                  earnings (deficit)
              
              
              (2,460,480
              )
              
              (1,211,166
              )Total
                  shareholders' equity (deficit)
              
              
              3,247,963
              
              
              (1,201,176
              )**Total
                  Liabilities and Shareholders' Equity (Deficit)**
              
              $
              7,816,889
              
              $
              11,391,444


***See
        notes to consolidated financial statements.***


2


**SONTERRA
                  RESOURCES, INC.****Consolidated
                  Statements of Operations****(Unaudited)**
  **Three
                  Months****Ended****March
                  31, 2008****Revenues**Oil
                  and gas sales
              
              $
              115,756Contract
                  operating income
              
              
              54,727Operating
                  overhead income
              
              
              10,119Gas
                  gathering operations
              
              
              18,461Total
                  revenues
              
              
              199,063**Costs
                  and Expenses**Lease
                  operating expenses
              
              
              300,958Production
                  taxes
              
              
              8,147Depreciation,
                  depletion and amortization
              
              
              65,784Accretion
                  on asset retirement obligation
              
              
              3,740General
                  and administrative
              
              
              982,155Total
                  costs and expenses
              
              
              1,360,784**Income
                  (Loss) from Operations**
              
              
              (1,161,721
              )**Other
                  Income (Expense)**Interest
                  expense
              
              
              (70,593
              )Debt
                  issuance costs amortization
              
              
              (17,001
              )Net
                  other income (expense)
              
              
              (87,594
              )**Net
                  Income (Loss) Before Tax**
              
              
              (1,249,315
              )Deferred
                  income tax expense (benefit)
              
              
              -**Net
                  Income (Loss)**
              
              $
              (1,249,315
              )Earnings
                  (Loss) Per Common Share:Basic
              
              $
              (0.05
              )Diluted
              
              $
              (0.05
              )Weighted
                  average number of commonshares
                  outstanding:Basic
              
              
              26,028,323Diluted
              
              
              26,028,323


***See
        notes to consolidated financial statements.***


3


**SONTERRA
                  OIL & GAS, INC.****Consolidated
                  Statements of Cash Flows****(Unaudited)**


**Three
                  Months****Ended****March
                  31, 2008****Operating
                  Activities**Net
                  income (loss)
              
              $
              (1,249,315
              )Adjustments
                  to reconcile net income (loss) tonet
                  cash provided by operating activities:Depreciation,
                  depletion and amortization
              
              
              65,784Accretion
                  on asset retirement obligation
              
              
              3,740Stock
                  compensation expense
              
              
              554,483Debt
                  issuance costs amortization
              
              
              17,001Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              2,311,211Prepaid
                  expenses
              
              
              (42,313
              )Accounts
                  payable and accrued liabilities
              
              
              (1,861,913
              )Net
                    accounts payable acquired in acquisition ofSonterra
                    Resources, Inc.
              
              
              (642,308
              )Participant
                  advances received
              
              
              29,249Interest
                  payable
              
              
              (204,760
              )Net
                  cash used by operating activities
              
              
              (1,019,141
              )**Investing
                  Activities**Purchases
                    and development of oil and gas  properties
              
              
              (27,130
              )Purchase
                  of other property and equipment
              
              
              (1,846
              )Net
                  cash used by investing activities
              
              
              (28,976
              )**Financing
                  Activities**Net
                  cash provided (used) by financing activities
              
              
              -**Net
                  Decrease in Cash and Equivalents**
              
              
              (1,048,117
              )Cash
                  and equivalents at beginning of period
              
              
              2,195,899**Cash
                  and Equivalents at End of Period**
              
              $
              1,147,782
 ***See
          notes to consolidated financial
          statements.***


4


**SONTERRA
        RESOURCES, INC.**
 **Notes
        to Consolidated Financial Statements**
 **Period
        Ended March 31, 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 & Gas, the “Subsidiaries”). References to “the Company” refer
        to Sonterra Resources or Sonterra Resources and its Subsidiaries as of March
        31,
        2008.
 
 The
        Company 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 Company’s state of incorporation was changed to Delaware
        and its name to was changed whOOdoo.com, Inc. On July 17, 2000, the
        Company’s
        name was changed to Ballistic Ventures, Inc., and on June 5, 2004, the name
        was
        changed to River Capital Group, Inc. The Company at that time
        had 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.
 
 On
        February 14, 2008, the Company consummated the transactions (the
“Securities Exchange”) set forth in the 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 by a series of transactions that occurred
        as
        part of the closing that included the following: (i) the Company’s
        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; (ii)
        the
        Company’s name was changed from River Capital Group, Inc. to Sonterra Resources,
        Inc.; and (iii) Longview exchanged (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 issued
        by Sonterra Oil & Gas for a senior secured note issued
        by 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 is now owned by Sonterra Resources; (ii)
        Sonterra Resources is engaged, through its Subsidiaries, in the operation
        and
        development of oil and gas properties and related assets; (iii) Sonterra
        Oil
& Gas’s management also became the management of Sonterra
        Resources; and (iv) the former shareholders of Sonterra Oil & Gas now
        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, Sonterra Resources has
        prospectively adopted the accounting methods of Sonterra Oil & Gas. For SEC
        reporting purposes, Sonterra Resources presents Sonterra Oil & Gas’s
        historical financial statements through the effective date of the Securities
        Exchange, and combined financial results thereafter. The consolidated financial
        statements for the interim period ended March 31, 2008 include the financial
        results of Sonterra Resources from the effective date of the Securities
        Exchange through March 31, 2008, and the financial results of Sonterra Oil
& Gas for the entire three month period ended March 31, 2008. Because
        Sonterra Oil & Gas was not formed until April 17, 2007, there is no
        comparative financial information available to present for the three month
        period ended March 31, 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 our
        Current Report on Form 8/K-A filed with the SEC 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 March 31, 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 common shares outstanding
        and earnings (loss) per share data, the number of Sonterra Resources common
        shares outstanding immediately following 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 Plan.
 
 In
        accordance with Statement of Financial Accounting Standard 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 March
        31,
        2008 was $554,483.
 
 *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 to management.
        These options have exercise prices that range from $0.332 to $0.453 per share,
        and expire in February 2018. None of these options had vested as of March
        31,
        2008.
 
 **NumberOutstanding**
              
              **Weighted
                  Average Exercise Price**
              
              **Weighted
                  Average Contractual Term in Years**
              
              **Aggregate
                  Intrinsic Value**Outstanding
                  at December 31, 2007
              
              
              -
              
              
              -
              
              
              -
              
              
              -Issued
              
              
              5,140,359
              
              $
              0.393
              
              
              10.0
              
              $
              7,276,200Exercised
              
              
              -Outstanding,
                  unvested at March 31, 2008
              
              
              5,140,359
              
              $
              0.393
              
              
              10.0
              
              $
              7,276,200
 
 *Warrants:* As of
        March 31, 2008, the Company had outstanding warrants to purchase 4,958,678
        shares of common stock at $0.302 per share, which expire in February
        2013.
  6
  **SONTERRA
        RESOURCES, INC.**
 **Notes
        to Consolidated Financial Statements**
 **Period
        Ended March 31, 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 the 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 on August 3, 2007, Sonterra also issued to 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 21,846,558 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 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 issued by Sonterra Resources (the “Initial
        Sonterra Note”) that has the same terms as the Non-Equity
        Note.
 
 Subject
        to certain terms and conditions, and during the period from February 14,
        2008
        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.
  The
        following is a schedule of principal maturities of debt as of March 31,
        2008, after giving consideration to the exchange of the $5,990,010 senior
        secured note for common stock of the Company as described above:
  
 As
                  of March 31, 2008,2008
              
              $
              —2009
              
              
              —2010
              
              
              2,000,000Total
              
              $
              2,000,000
  Each
        of
        the Equity Note, Non-Equity Note and Initial Sonterra Note contain or contained
        certain restrictive covenants that, 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 Equity and Non-Equity Note were retired
        on
        February 14, 2008 upon consummation of the Securities Exchange. The Initial
        Sonterra Note requires the Company to comply with certain financial covenants,
        including a minimum quarterly revenue amount, a minimum oil and gas reserve
        quantity amount, and a minimum proved reserve value ratio. The Initial Sonterra
        Note also includes certain 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 Initial Sonterra Note may declare all
        or any
        portion of the Initial Sonterra Note to be due and payable immediately. The
        Company was not in compliance with all covenants of the outstanding Initial
        Sonterra 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 Among Sonterra Resources, Inc. and Sonterra Oil & Gas,
        Inc.**
  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 issued by Sonterra Oil
& Gas, the Sonterra Oil & Gas shareholders received 21,846,558 shares of
        the common stock of Sonterra Resources. The former shareholders of Sonterra
        Oil
& Gas held approximately 95% of the common stock of Sonterra Resources
        immediately following the Securities Exchange.
  7
  **SONTERRA
        RESOURCES, INC.**
 **Notes
        to Consolidated Financial Statements**
 **Period
        Ended March 31, 2008 (Unaudited)**
  **5.**  **Securities
        Exchange Among Sonterra Resources, Inc. and Sonterra Oil & Gas, Inc.,
        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
              
              $
              9,113Current
                  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 months ended March 31, 2008 and 2007 are presented
        below. Note that the pro forma results presented for the three months ended
        March 31, 2007 include only results related to Sonterra Resources, as Sonterra
        Oil & Gas was not formed until April 2007, and thus had no operations during
        the three month period ended March 31, 2007.
  **March
                  31,2008**
              
              **March
                  31,2007**Revenues
              
              $
              199,063
              
              $
              -Costs
                  and Expenses
              
              
              3,206,928
              
              
              112,500Income
                  (Loss) from Operations
              
              
              (3,007,865
              )
              
              (112,500
              )Other
                  Income (Expense)
              
              
              (88,169
              )
              
              98Net
                  Income (Loss)
              
              $
              (3,096,034
              )
              $
              (112,402
              )Basic
                  EPS
              
              $
              (0.12
              )
              $
              (0.00
              )Weighted
                  Average Common Shares Outstanding
              
              
              26,028,353
              
              
              38,444,659
  8
  **SONTERRA
        RESOURCES, INC.**
 **Notes
        to Consolidated Financial Statements**
 **Period
        Ended March 31, 2008 (Unaudited)**
  **6.**  **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. The Company has not determined whether or not it will elect
        this
        option for financial instruments it may acquire in future periods.
  *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 proscribed
        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
      months ended March 31, 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 the Company’s 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, which contains the Company’s financial statements for the year ended
      December 31, 2007.  As of, and for the three months ended March 31, 2008,
      there have been no material changes or updates to the Company’s significant
      accounting policies.





**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:





·
            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;


·
            our
                name was changed to “Sonterra Resources, Inc.”;
                and




10




·
            Longview
                exchanged all of its shares of common stock of Sonterra Oil & Gas,
                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 Longview also
                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.





As
      a
      result of the Securities Exchange:





·
            we
                own 100% of the issued and outstanding capital stock of Sonterra
                Oil &
                Gas;


·
            we
                are engaged, through Sonterra Oil & Gas and Sonterra Operating, Inc.,
                in the operation and development of the oil and gas properties and
                related
                assets;


·
            our
                management is comprised of the management of Sonterra Oil & Gas;
                and


·
            although
                we were the legal acquirer of Sonterra Oil & Gas and continue as a
                publicly traded entity, Sonterra Oil & Gas was the acquirer for
                financial reporting purposes, and, accordingly, we have adopted to
                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.





Our
      oil
      and gas assets primarily consist 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, we purchased
      for approximately $5.0 million 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 the 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, we purchased for approximately $1.2 million cash
      all
      of the interests held by Flash in the Texas State Tract 150 Wells No. 1 and
      No.
      2 and a seven-mile pipeline that connects 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 with 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 three months ended March 31, 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 expect to drill a well on the
      first 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, our Chairman and Chief Executive Officer, is also 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.




**Results
      of Operations**





*Revenues.* During
      the three months ended March 31, 2008, we reported oil and gas revenues of
      $199,063, primarily from oil and gas sales and contract operating income. As
      described above, one of our two productive wells was shut in for the interim
      three months. Accordingly, reported oil and gas sales relate to the production
      from the remaining well. Contract operating income for the period consists
      primarily of fees we earned for providing contract operating services for Cinco
      Natural Resources for the month of January 2008. The contract with Cinco was
      terminated January 31, 2008 .





*Lease
      Operating Expenses.* During
      the three months ended March 31, 2008, our lease operating expenses were
      $300,958. This
      total includes approximately $65,000 for workover expenditures made in an
      unsuccessful effort to restore the Texas State Tract 150 Well No. 2 to
      production, as well as the normal and recurring lease operating costs associated
      with the producing Texas State Tract 150 Well No. 1.


11


*Other
      Income (Expense)* .
       During the three months ended March 31, 2008, we had other expenses of
      $87,594, consisting of interest expense in the amount of $70,593 and debt
      issuance costs amortization of $17,001. The
      interest expense relates to the $2,000,000 senior secured note described in
      Note
      4 to the financial statements .





*General
      and Administrative Expense.* General
      and administrative expense for the three months ended March 31, 2008 was
      $924,155, attributable primarily to non-cash
      stock compensation expense of $555,000 related to outstanding stock options;
      salaries and related employee benefit costs for our employees; office rent
      and
      related location expenses; and legal, accounting and other professional fees
      incurred related to the financial reporting, closing and related processes
      associated with the Securities Exchange .





**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, we would likely be unable to
      raise
      the funds required to make acquisitions or make significant capital expenditures
      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 operator of the wells acquired in the Cinco and Flash acquisitions 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 production acquisition within the next six months, which
      will 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 or that it 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 production
      acquisitions 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 six 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
      March
      31, 2008, we had senior secured notes outstanding in an amount, including
      accrued interest, equal to approximately $2.1 million, which notes are issued
      to
      the Company’s principal shareholder, Longview. Loans from the Company’s
      principal shareholder bear interest at the sum of 8.25% and the 3-month London
      Interbank Offered Rate (LIBOR) in effect at
      each
      of the quarterly rate re-determination dates during a calendar
      year .





*Capital
      Expenditures and Commitments*


We
        have a
        commitment to drill an additional well in one of our Matagorda Bay prospects
        by
        July 1, 2008. The amount of our commitment for our interest in the prospect
        is
        $4.0 million. In the event we do not meet our drilling commitment, we will
        lose
        leasehold acreage in that Matagorda Bay prospect.





*Off-Balance
      Sheet Arrangements*




We
      have no off-balance sheet arrangements or guarantees
      of third party obligations at March 31, 2008.





12





**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 cash 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 3.
      Unregistered Sales of Equity Securities and Use of Proceeds**





The
      following information relates to all securities issued or sold by us during
      the
      period covered by this report and not registered under the Securities Act of
      1933, as amended (the “Securities Act”). Each of the transactions described
      below was conducted in reliance upon the available exemptions from registration
      under Regulation D promulgated under the
      Securities Act. There were no underwriters employed in connection with any
      of
      the transactions set forth herein.





As
      previously disclosed, 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., our majority stockholder. As a result of the Securities Exchange, we
      issued Longview 21,846,558 shares of our common stock and a warrant to purchase
      4,958,678 shares of our common stock in exchange for all of its shares of common
      stock of Sonterra Oil & Gas, Inc. (formerly known as Sonterra Resources,
      Inc. and now our wholly owned subsidiary as a result of the Securities
      Exchange), a $5,990,010 equity note issued by Sonterra Oil & Gas, and a
      warrant to purchase 50 shares of Sonterra Oil & Gas common stock for. As
      part of the Securities Exchange, we also issued to Longview a senior secured
      note in the principal amount of $2,000,000, in exchange for a $2,000,000
      non-equity note issued by Sonterra Oil & Gas.





**Item
      6. Exhibits.**





The
      information required by this Item 6 is set forth in the Index to Exhibits
      accompanying this quarterly report on Form 10-Q.





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:  May
      15,
      2008


SONTERRA RESOURCES, INC.By:
            /s/ Michael J. PawelekMichael
                J. Pawelek
              Chief
                Executive Officer
              (Principal
                Executive Officer)




By:
            /s/ Sherry L. SpurlockSherry
                L. Spurlock
              Chief
                Financial Officer
              (Principal
                Financial and Accounting Officer)


15




**INDEX
      TO EXHIBITS**





Exhibit
            
            Description10.1
            
            Contract
                Operating Agreement, dated April 8, 2008, among South Texas Oil Company
                and its subsidiaries and Sonterra Operating, Inc.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
            
            JointCertification
                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.





16