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EX-32 - CERTIFICATION - EFLO ENERGY, INC.eflo_ex32.htm
EX-31.1 - CERTIFICATION - EFLO ENERGY, INC.eflo_ex311.htm
EX-31.2 - CERTIFICATION - EFLO ENERGY, INC.eflo_ex312.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
           
FORM 10-Q
           
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
For the quarterly period ended: May 31, 2011
           
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:  000-54328
           
EFL OVERSEAS, INC.
(Exact name of registrant as specified in its charter)

Nevada
 
26-3062721
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

333 N. Sam Houston Parkway East, Suite 600, Houston, Texas  77060
(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code:  (281) 260-1034
 
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 þ  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  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.
 
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
þ
(Do not check if a smaller reporting company)
   
 
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes o  No þ

As of July 10, 2011, the registrant had 7,196,870 outstanding shares of common stock.
 


 
 

 
 
FORWARD LOOKING STATEMENTS
 
The information contained in this Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties. Any statement which does not contain an historical fact may be deemed to be a forward-looking statement. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. In evaluating forward looking statements, you should consider various factors outlined in our latest Form 10-K filed with U.S. Securities Exchange Commission (“SEC”) on December 13, 2010 and, from time to time, in other reports we file with the SEC. These factors may cause our actual results to differ materially from any forward-looking statement. We disclaim any obligation to publicly update these statements, or disclose any difference between our actual results and those reflected in these statements.
 
 
2

 

 
PART 1 – FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS
 
EFL OVERSEAS, INC.
(An Exploration Stage Company)
BALANCE SHEETS
 
   
May 31,
   
August 31,
 
   
2011
   
2010
 
ASSETS
 
(Audited)
 
             
CURRENT ASSETS
           
  Cash
  $ 791,435     $ 4,758  
  Prepaids
    12,755       -  
     Total current assets
    804,190       4,758  
                 
Oil and gas property, full cost method, unproven
    690,676       -  
                 
      Total assets
  $ 1,494,866     $ 4,758  
                 
                 
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
       
                 
CURRENT LIABILITIES
               
  Accounts payable and accrued liabilities
  $ 105,126     $ 34,343  
  Notes payable
    37,500       20,000  
  Due to related parties
    -       15,000  
     Total current liabilities
    142,626       69,343  
                 
Asset retirement obligation
    80,000       -  
  Total liabilities
    222,626       69,343  
                 
STOCKHOLDERS' EQUITY (DEFICIT)
               
  Capital Stock
               
     Authorized:
               
    75,000,000 common shares, par value $0.001 per share
               
     Issued and outstanding:
               
    7,196,870 common shares (6,600,000 at August 31, 2010)
    7,197       6,600  
  Additional paid-in capital
    1,683,890       12,587  
  Deficit accumulated during the exploration stage
    (418,847 )     (83,772 )
     Total stockholders' equity (deficit)
    1,272,240       (64,585 )
                 
      Total liabilities and stockholders' equity (deficit)
  $ 1,494,866     $ 4,758  
 
The accompanying notes are an integral part of these financial statements
 
 
3

 

 
EFL OVERSEAS, INC.
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
 
                           
Cumulative
 
                           
from Inception
 
   
Three Months Ended
   
Nine Months Ended
   
(July 22, 2008) to
 
   
May 31, 2011
   
May 31, 2010
   
May 31, 2011
   
May 31, 2010
   
May 31, 2011
 
GENERAL AND ADMINISTRATIVE EXPENSES
                             
 Office, travel and general
  $ 20,283     $ 23,393     $ 36,190     $ 24,478     $ 45,201  
Management fees
    68,595       -       98,595       -       123,595  
Consulting
    65,405       -       174,455       -       189,455  
Professional fees
    10,930       (82 )     25,835       8,582       66,596  
      (165,213 )     (23,311 )     (335,075 )     (33,060 )     (424,847 )
OTHER INCOME (EXPENSE)
                                       
Gain on forgiveness of accounts payable
    -       -       -       -       6,000  
NET LOSS
  $ (165,213 )   $ (23,311 )   $ (335,075 )   $ (33,060 )   $ (418,847 )
                                         
                                         
                                         
BASIC NET LOSS PER COMMON SHARE
  $ (0.02 )   $ (0.00 )   $ (0.05 )   $ (0.00 )        
                                         
WEIGHTED AVERAGE NUMBER OF BASIC
                                       
  COMMON SHARES OUTSTANDING
    6,959,587       73,263,370       6,740,908       73,263,370          
 
The accompanying notes are an integral part of these financial statements
 
 
4

 
EFL OVERSEAS, INC.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
 
               
Cumulative
 
               
from Inception
 
   
Nine Months Ended
   
(July 22, 2008) to
 
   
May 31, 2011
   
May 31, 2010
   
May 31, 2011
 
                   
CASH FLOWS FROM OPERATING ACTIVITIES
                 
  Net loss
 
$
(335,075
)
 
$
(33,060
)
 
$
(418,847
)
  Adjustments to reconcile net loss to net cash
                       
  used in operating activities:
                       
   Gain on forgiveness of accounts payable
   
-
     
-
     
(6,000
)
  Changes in working capital items -
   
-
     
-
         
  Prepaids
   
(12,755
)
   
-
     
(12,755
)
   Accounts payable and accrued liabilities
   
70,783
     
8,916
     
111,127
 
  Net cash used in operating activities
   
(277,047
)
   
(24,144
)
   
(326,475
)
                         
CASH FLOWS FROM INVESTING ACTIVITIES
                       
  Petroleum and natural gas expenditures
   
(610,676
)
   
-
     
(610,676
)
  Cash used by investing activities
   
(610,676
)
   
-
     
(610,676
)
                         
CASH FLOWS FROM FINANCING ACTIVITIES
                       
  Common stock issued for cash, net of fees
   
1,646,900
     
-
     
1,656,849
 
  Common stock redeemed for cash
   
-
     
(100
)
   
(100
)
  Proceeds from notes payable
   
499,500
     
-
     
519,500
 
  Repayments of notes payable
   
(482,000
)
   
-
     
(482,000
)
  Due to related parties
   
10,000
     
33,954
     
34,337
 
  Net cash provided by financing activities
   
1,674,400
     
33,854
     
1,728,586
 
                         
INCREASE IN CASH
   
786,677
     
9,710
     
791,435
 
                         
CASH, BEGINNING OF PERIOD
   
4,758
     
230
     
-
 
                         
CASH, END OF PERIOD
 
$
791,435
   
$
9,940
   
$
791,435
 
                         
SUPPLEMENTAL DISCLOSURE:
                       
  Cash paid for interest
 
$
-
   
$
-
   
$
-
 
  Cash paid for income taxes
 
$
-
   
$
-
   
$
-
 
  Forgiveness of debt
 
$
-
   
$
9,337
   
$
9,337
 
                         
NON-CASH INVESTING AND FINANCING ACTIVITIES:
                       
  Common stock issued as repayment of note payable
 
$
25,000
   
$
-
   
$
25,000
 
  Asset retirement obligation
 
$
80,000
   
$
-
   
$
80,000
 
 
The accompanying notes are an integral part of these financial statements
 
 
5

 
 
EFL OVERSEAS, INC.
(An Exploration Stage Company)
 
NOTES TO THE FINANCIAL STATEMENTS
May 31, 2011

1.   BASIS OF PRESENTATION
 
Unaudited Interim Financial Statements
 
The unaudited interim financial statements of EFL Overseas, Inc. (the “Company”) have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). They do not include all information and footnotes required by GAAP for complete financial statements. However, except as disclosed herein, there has been no material changes in the information disclosed in the notes to the financial statements for the year ended August 31, 2010 included in the Company’s Annual Report on Form 10-K filed with the SEC. The interim unaudited financial statements should be read in conjunction with those financial statements included in the10-K  report. In the opinion of management, all adjustments considered necessary for fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three and nine month periods ended May 31, 2011 are not necessarily indicative of the results that may be expected for the year ending August 31, 2011.
 
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As of May 31, 2011, the Company has not yet achieved profitable operations and has accumulated net losses of $418,847. Its ability to continue as a going concern is dependent upon the ability of the Company to obtain the necessary financing to meet its obligations and pay its liabilities when they come due. To date, the Company has funded operations through the issuance of capital stock and debt. Management’s plan is to continue raising additional funds through equity or debt financings. There is no certainty that further funding will be available as needed. These factors raise substantial doubt about the ability of the Company to continue operating as a going concern. The ability of the Company to continue its operations as a going concern is dependent upon its ability to raise sufficient new capital to fund its operating commitments and ongoing losses, and ultimately, on generating profitable operations.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
 
Summary of Significant Accounting Policies
 
Use of Estimates
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
 
 
6

 
 
Oil and Gas Properties
 
The Company utilizes the full cost method to account for its investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs, capitalized interest costs relating to unproved properties, geological expenditures, tangible and intangible development costs including direct internal costs are capitalized to the full cost pool. When the Company commences production from established proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves. Costs of unproved properties are not amortized until the proved reserves associated with the projects can be determined or until impairment occurs. If an assessment of such properties indicates that properties are impaired, the amount of impairment is added to the capitalized cost base to be amortized.
 
The capitalized costs included in the full cost pool are subject to a "ceiling test", which limits such costs to the aggregate of the (i) estimated present value, using a ten percent discount rate, of the future net revenues from proved reserves, based on current economic and operating conditions, (ii) the lower of cost or estimated fair value of unproven properties included in the costs being amortized, (iii) the cost of properties not being amortized, less (iv) income tax effects related to differences between the book and tax basis of the cost of properties not being amortized and the cost or estimated fair value of unproved properties included in the costs being amortized. At May 31, 2011, all of the Company’s oil and gas interests were classified as unproven properties and were not being amortized.
 
Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations.
 
Asset retirement obligations
 
The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs an obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The estimated fair value of the asset retirement obligation is based on the current cost escalated at an inflation rate and discounted at a credit adjusted risk-free rate. This liability is capitalized as part of the cost of the related asset and amortized over its useful life.

Environmental

Oil and gas activities are subject to extensive federal and provincial environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites.
 
Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a non-capital nature are recorded when an environmental assessment and/or remediation is probable, and the costs can be reasonably estimated.

Net loss per share
 
The Company presents both basic and diluted earnings per share (“EPS”) on the face of the statements of operations. Basic EPS is computed by dividing net earnings (loss) available to common shareholders by the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including convertible debt, stock options, and warrants, using the treasury stock method. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. Because the Company is in a net loss position, the inclusion of potential shares would be anti-dilutive. Accordingly, the accompanying presentation is only of basic loss per share.
 
 
7

 
 
Recent Accounting Pronouncements
 
The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements will have a material impact on the Company’s financial position, results of operations or cash flows.
 
2.  OIL AND GAS PROPERTIES
 
San Miguel Oil Project
 
On March 31, 2011, the Company entered into a Farmout and Participation Agreement (the “Agreement”) which provided for its acquisition of a net working interest ranging from 21.25% to 42.5%, in a 2,629 acre oil and gas lease known as the Matthews Lease, insofar as that lease covers from the surface to the base of the San Miguel formation (the “Lease”). The Lease is located in Zavala County, Texas, and has no proven reserves or current production. There were no preexisting relationships between the parties to the Agreement.

Under the Agreement, the Company may spend up to $1,050,000 on the exploration and development of oil and/or gas production from the San Miguel formation on the lands covered by Lease. To earn its initial 21.25% working interest (net revenue interest 15.94%), the Company is obligated to drill and complete a vertical test well to a target depth of 3,500 feet (the “Test Well”) in the San Miguel shale formation. It is also obligated to perform an injection operation on the Test Well. If the Test Well is prospective for production in commercial quantities, the Company is required to equip the Test Well and place it on production in a timely manner. If the Company determines the Test Well is not prospective for production in commercial quantities, it will be responsible for the abandonment of the Test Well.

The Company may increase its working interest in the Lease from 21.25% to 42.5% (net revenue interest from 15.94% to 31.875%) by spending its entire funding commitment of $1,050,000 in the performance of obligations pertaining to the Test Well. To the extent it has not expended its funding commitment on the Test Well, it may increase its working and revenue interests by undertaking additional operations on the Lease.

The working and revenue interests acquired by the Company under the Agreement are also subject to payout provisions. Under those provisions, the Company’s net working interest and net revenue interest percentages may decrease by approximately one-fifth after the total net production revenues earned, to its joint interests with its farmout partner, reach certain threshold amounts.

In connection with the Agreement, the Company obtained $400,000 in temporary financing from its largest shareholder. This financing was subject to a non-interest bearing demand note payable. The entire $400,000 note balance was repaid by the Company from proceeds of a private placement of investment units within five (5) business days.

As a result of the Agreement, the Company has  initiated oil and gas operations.

During April and May 2011, the Company drilled, completed and performed acid injection operations on the Test Well in the San Miguel shale formation. Expenditures related to those operations totaled $610,676. The Test Well has been stimulated and placed on production. Various subsurface and surface operations will be implemented during the production test period to maximize rates. The Company is monitoring and analyzing results on an on-going basis.
 
 
8

 
 
Kotaneelee Gas Project

Effective April 1, 2011, the Company terminated, and replaced its prior non-binding Memorandum of Understanding with Nahanni Energy (”Nahanni”). The memorandum related to the Company’s acquisition of Nahanni’s 30.67% working interests in the Kotaneelee gas field and gas processing plant located in the Yukon Territory in Canada (the “NKGP”). Under the new understanding, the Company will acquire Nahanni’s working interest in exchange for a combination of cash, restricted common stock, the assumption of certain operating commitments and liabilities associated with the NKGP. Completion of the transaction with Nahanni is contingent upon a number of conditions, including the execution of definitive agreements.

On January 17, 2011 the Company also made a contingent offer to purchase an additional 22.989% working interest in the NKGP. Although the contingent offer has been accepted, the completion of the transaction is dependent, among other things, upon the execution of a definitive agreement between the parties. The Company offered to absorb certain operating commitments and liabilities associated with the NKGP in exchange for the working interest.

 3.   NOTES PAYABLE
 
Non-interest bearing notes, unsecured and payable upon demand to unrelated parties:
 
   
May 31,
2011
   
August 31,
2010
 
Notes payable
 
$
37,500
   
$
20,000
 
   
$
37,500
   
$
20,000
 

During the nine months ended May 31, 2011, the Company borrowed $99,500, and repaid $82,000 in notes payable to unrelated parties.

Non-interest bearing notes and advances, unsecured and payable upon demand to a shareholder consist of the following:
 
   
May 31,
2011
   
August 31,
2010
 
Notes payable to shareholder
 
$
––
   
$
15,000
 
   
$
––
   
$
15,000
 

During December 2010, the Company converted $25,000 in notes payable to its largest shareholder into shares of its common stock and stock purchase warrants   (see Note 4).
 
4.   CAPITAL STOCK
 
During December 2010, the Company sold 86,870 shares of common stock in a private placement of investment units. The investment units were priced at $2.30 each and consisted of one share of the Company’s common stock, and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of the Company’s common stock at a price of $3.50 per share until December 29, 2012. Proceeds from the private placement totaled $199,800 of which $174,800 was paid in cash and $25,000 was issued as repayment of indebtedness to the Company’s largest shareholder. Finder’s fees in the amount of $8,700 were paid in connection with the sale of the units and were recorded as a reduction of additional paid-in capital.

During March 2011, the Company sold 390,000 shares of common stock in a private placement of investment units. The investment units were priced at $3.00 each and consisted of one share of the Company’s common stock, and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of the Company’s common stock at a price of $4.50 per share until April 1, 2013. Proceeds from the private placement totaled $1,170,000, all of which was paid in cash. The Company paid $46,800 in finder’s fees in connection with the sale of the units.

During May 2011, the Company sold 120,000 shares of common stock in a private placement of investment units. The investment units were priced at $3.00 each and consisted of one share of the Company’s common stock, and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of the Company’s common stock at a price of $4.50 per share until April 15, 2013. Proceeds from the private placement totaled $360,000, all of which was paid in cash. The Company paid $2,400 in finder’s fees in connection with the sale of the units. The Company’s Chief Executive Officer acquired 50,000 investment units in the private placement.

 
9

 
 
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General
 
EFL Overseas, Inc. is an exploration stage company. We were incorporated in the State of Nevada on July 22, 2008, and from inception through February 2011, we were relatively inactive. We originally intended to recruit amateur instructors to teach English in Japan and Brazil. We were unable, however, to identify a sufficient number of instructors to fulfill our business plan. Accordingly, we determined to refocus our business efforts on the acquisition, exploration, and development of natural resource properties.
 
On March 31, 2011, we entered into a Farmout and Participation Agreement (the “Agreement”) with Dyami Energy LLC and Eagleford Energy Inc. (jointly the “Farmor”). The Agreement provided for our acquisition of a net working interest ranging from 21.25% to 42.5%, in a 2,629 acre oil and gas lease known as the Matthews Lease, insofar as that lease covers from the surface to the base of the San Miguel formation (the “Lease”). The Lease is located in Zavala County, Texas, and has no proven reserves or current production. There were no preexisting relationships between the parties to the Agreement.
 
As a result of the Agreement, we have initiated oil and gas operations. As of July 10, 2011, we did not have any proven reserves, and we have not generated any revenue.
 
On April 20, 2010, a former officer and director sold 4,835,000 shares of common stock to us for $100. The shares were cancelled following their purchase.
 
On April 28, 2010, shareholders owning a majority of our outstanding shares approved a 20 for 1 forward split of our common stock. The stock split was based on market conditions and upon a determination by our Board of Directors that the stock split was in our best interests and in the best interests of our shareholders. The amendment to our Articles of Incorporation pertaining to the forward stock split was filed with the Nevada Secretary of State on May 3, 2010. The forward stock split became effective on the OTC Bulletin Board on June 30, 2010. Prior to the forward stock split, we had 330,000 shares of common stock outstanding.  Subsequent to the forward stock split we had 6,600,000 outstanding shares of common stock.
 
Oil and Gas Operations - Zavala County, Texas
 
Under our Agreement with Dyami Energy LLC and Eagleford Energy Inc. we may spend up to $1,050,000 on the exploration and development of oil and/or gas production from the San Miguel formation on the lands covered by Lease. To earn our initial 21.25% working interest (net revenue interest 15.94%), we are obligated to drill and complete a vertical test well to a target depth of 3,500 feet (the Test Well”) in the San Miguel shale formation. We are also obligated to perform an injection operation on the Test Well. If the Test Well is prospective for production in commercial quantities, we are required to equip the Test Well and place it on production in a timely manner. If we determine the Test Well is not prospective for production in commercial quantities, we will be responsible for the abandonment of the Test Well. We currently estimate the cost of the abandonment of the well could range from $75,000 to $85,000.

During April and May 2011, we drilled, completed and performed acid injection operations on the Test Well in the San Miguel shale formation. Expenditures related to those operations totaled $610,676 through May 31, 2011. The Test Well has been stimulated and placed on production. Various subsurface and surface operations will be implemented during the production test period to maximize rates. The Company is monitoring and analyzing results on an on-going basis.

We may increase our working interest in the Lease from 21.25% to 42.5% (net revenue interest from 15.94% to 31.875%) by spending our entire funding commitment of $1,050,000 in the performance of obligations pertaining to the Test Well. To the extent we have not expended our funding commitment on the Test Well, we may increase our working and revenue interests by undertaking additional operations on the Lease.

The working and revenue interests we acquire under the Agreement are also subject to payout provisions. Under those provisions, our net working interest and net revenue interest percentages may decrease by approximately one-fifth after the total net production revenues earned, net to our joint interests with the Farmor, reach from $12,500,000 to $15,000,000.

We are currently working on acquiring additional working interests in the Matthews Lease and other oil and gas leases in the Eagle Ford Shale Formation.
 
 
10

 

Kotaneelee Gas Project

Effective April 1, 2011, we terminated, and replaced our prior non-binding Memorandum of Understanding with Nahanni Energy (”Nahanni”). The memorandum related to our acquisition of Nahanni’s 30.67% working interests in the Kotaneelee gas field and gas processing plant located in the Yukon Territory in Canada (the “NKGP”). Under the new understanding, we will acquire Nahanni’s working interest in exchange for a combination of cash, restricted common stock and the assumption of certain operating commitments and liabilities associated with the NKGP. Completion of the transaction with Nahanni is contingent upon a number of conditions, including the execution of definitive agreements.
 
On January 17, 2011 we also made a contingent offer to purchase an additional 22.989% working interest in the NKGP. Although the contingent offer has been accepted, the completion of the transaction is dependent, among other things, upon the execution of a definitive agreement between the parties. We plan to make offers on additional working interest in the NKGP. If we obtain all of the interests on which we are negotiating, early estimates indicate that we will require from $80,000,000 to $120,000,000 to fund production enhancement, development and exploration over the first 2-3 years of our exploration plan.
 
The NKGP covers 31,731 gross acres. As of June 30, 2011 the NKGP had two (2) producing gas wells, three (3) gas wells are suspended, one (1) disposal well, and a gas processing facility.
 
During the remainder of fiscal 2011 we plan to identify, investigate and complete asset acquisition(s) and pursue joint venture agreements with third parties to explore for natural resources in Canada, the United States or other parts of the world.
 
Financial Condition and Results of Operations
 
As of May 31, 2011 we had not generated any revenues.
 
At May 31, 2011, our current assets exceeded current liabilities by $661,564 and we have capitalized $690,676 in exploration expenditures related to our unproven oil and gas property. Our current liabilities have grown since August 31, 2010, and include accounts payable of $105,126 and non-interest bearing notes of $37,500. Likewise, our general and administrative expense for the three and nine month periods ended May 31, 2011 increased by $141,902 (609%) and $302,015 (914%), respectively, when compared to the same periods during the prior fiscal year. Our general and administrative expenses for the three months ended May 31, 2011 have also increased substantially when compared to the prior three month period. These increases in our liabilities and administrative expense result from an expansion of our executive team and technical resources required to support field operations, the pursuit of oil and gas opportunities, and the expansion of our accounting and administrative infrastructure.
 
We expect our expenses will continue to increase as we expand operations. We are actively seeking additional capital to fund those expenditures.  During fiscal 2011 to date, we have raised $1,646,900 in cash (net of fees) in private placements of our equity securities.
 
Liquidity and Capital Resources
 
We plan to generate profits by drilling productive oil or gas wells or improving the production of existing wells. We will, however, need to raise the funds we require through the sale of our securities, from loans from third parties or by joint venturing operations with third parties which will pay a portion of the costs required to explore for oil and gas in the area covered by our leases. We may not be successful in raising the capital we will need.
 
Any wells which we may drill may not produce oil or gas in commercial quantities. We plan to report losses from our operations until such time, if ever, we begin to generate significant revenue from oil and gas sales.
 
 
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Other than the obligations associated with our oil and gas leases, our material future contractual obligations as of May 31, 2011 are shown below.
 
   
Payments due by period
 
Contractual Obligations
 
Total
 
Less than
1 Year
 
1-3 Years
 
3-5 Years
 
More than
5 Years
 
                                 
Loans and Advances
    $ 37,500     $ 37,500                    

During December 2010, we sold 86,870 investment units at a price of $2.30 per unit. Each unit consisted of one share of our common stock and one warrant. Each warrant entitles the holder to purchase one share of our common stock at a price of $3.50 per share until December 29, 2012. Proceeds from the private placement totaled $191,100 (net of $8,700 in fees) of which $166,100 was paid in cash and $25,000 was a repayment of a loan.

During March 2011, we sold 390,000 investment units at a price of $3.00 per unit. Each unit consisted of one share of our common stock and one warrant. Each warrant entitles the holder to purchase one share of our common stock at a price of $4.50 per share until April 1, 2013. Proceeds from the private placement totaled $1,170,000, all of which was paid in cash. We paid $46,800 in finder's fees in connection with the sale of the units.
 
During May 2011, we sold 120,000 investment units. The investment units were priced at $3.00 each and consisted of one share of our common stock and one stock purchase warrant. Each stock purchase warrant entitles the holder to purchase one share of our common stock at a price of $4.50 per share until April 15, 2013. Proceeds from the private placement totaled $360,000, all of which was paid in cash. We paid $2,400 in finder’s fees in connection with the sale of the units. Our Chief Executive Officer acquired 50,000 investment units in this private placement.

The trends and factors that will most significantly affect our results of operations include; (i) our ability to satisfy our capital requirements, (ii) our ability to effectively acquire oil and gas properties, (iii) our exploration success and the marketability of future production, if any, (iv) increasing competition from larger companies, and (vi) future fluctuations in the prices of oil and gas. Our revenues will also be significantly impacted by our ability to maintain or increase oil and gas production through exploration and development activities.
 
During the nine months ended May 31, 2011, we borrowed $99,500, and repaid $82,000 in notes payable to unrelated parties. During October 2010, notes payable to our largest shareholder increased by $10,000 and during December 2010, we issued common stock and stock purchase warrants as repayment of $25,000 in notes payable to that shareholder.

In connection with the Agreement with Dyami Energy LLC and Eagleford Energy Inc., we obtained $400,000 in temporary financing from our largest shareholder. This financing was subject to a non-interest bearing demand note payable. The entire $400,000 note balance was repaid from proceeds of a private placement of investment units within five (5) business days.

We may acquire an interest in the NKGP. If we proceed with the transaction, we will have significant capital commitments which we will need to fund with capital from third parties.  We do not have any commitments or arrangements from any person to provide us with the amount of capital we require. We are attempting to raise the capital needed to implement our business plan.
 
We believe our plan of operations, exclusive of costs associated with additional acquired assets, will require from $5,500,000 to $6,500,000 in financing over the twelve-month period ending June 30, 2012.
 
If we are unable to raise the financing we need, our business plan may fail and our stockholders could lose their investment. There can be no assurance that we will be successful in raising the capital we require, or that if the capital is offered, it will be subject to terms we consider acceptable. Investors should be aware that even if we are able to raise the funds we require, there can be no assurance that we will succeed in our acquisition, exploration or production plans and we may never be profitable.
 
As of June 30, 2011 we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, results of operations, liquidity or capital resources.
 
 
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ITEM 4.   CONTROLS AND PROCEDURES

An evaluation was carried out under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q. Disclosure controls and procedures are procedures designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Form 10-Q, is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and is communicated to our management, including our Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our management concluded that, as of May 31, 2011, our disclosure controls and procedures were effective.
 
Change in Internal Control over Financial Reporting
 
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
 
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
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PART II - OTHER INFORMATION

ITEM 2.   UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS.

See Part I, Item 2 of this report for information concerning securities we sold during the three months ended May 31, 2011.

We relied upon the exemption provided by Section 4(2) of the Securities Act of 1933 with respect to the sale of these securities. The persons who acquired these securities were sophisticated investors and were provided full information regarding our business and operations. There was no general solicitation in connection with the offer or sale of these securities. The persons who acquired these securities acquired them for their own accounts. The certificates representing the shares of common stock and warrants bear a restricted legend providing that they cannot be sold unless pursuant to an effective registration statement or an exemption from registration.

ITEM 6.   EXHIBITS
 
Exhibit Number
 
Exhibit Name
3.1.1
 
Articles of Incorporation(1)
3.1.2
 
Amendment to Articles of Incorporation(2)
3.2
 
Bylaws(3)
10.1
 
Farmout and Participation Agreement dated March 31, 2011(4)
31.1
 
Rule 13a-14(a) Certifications
31.2
 
Rule 13a-14(a) Certifications
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Section 1350 Certifications
 
———————
(1)
 
Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 dated November 12, 2008.
(2)
 
Incorporated by reference to Exhibit 3.1 to the Company’s 8-K report dated April 28, 2010.
(3)
 
Incorporated by reference to Exhibit 3.2 to the Company’s 8-K report dated April 28, 2010.
(4)
 
Incorporated by reference to Exhibit 10.1 to the Company’s 8-K report dated April 6, 2011.

 
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SIGNATURES
 
Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Dated:  July 14, 2011
EFL OVERSEAS, INC.
 
       
       
 
BY:
/s/ Keith Macdonald
 
   
Keith Macdonald,
 
   
Principal Executive Officer
 
       
       
 
BY:
/s/ Herbert Schmidt
 
   
Herbert Schmidt,
 
   
Principal Financial and Accounting Officer
 
 
 
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