eflo_10q.htm

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

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.

	February 28,			August 31,
	2011			2010
				(Audited)
ASSETS

CURRENT ASSETS
Cash	$	37,317		$	4,758
Prepaids		3,500			-
Total current assets		40,817			4,758

Total assets		40,817		$	4,758


LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	46,664		$	34,343
Notes payable		37,500			20,000
Due to related parties		-			15,000
Total current liabilities		84,164			69,343

Total liabilities		84,164			69,343

STOCKHOLDERS' DEFICIT
Capital Stock
Authorized:
75,000,000 common shares, par value $0.001 per share
Issued and outstanding:
6,686,870 common shares (6,600,000 at August 31, 2010)		6,687			6,600
Additional paid-in capital		203,600			12,587
Deficit accumulated during the exploration stage		(253,634	)		(83,772	)
Total stockholders' deficit		(43,347	)		(64,585	)

Total liabilities and stockholders' deficit	$	40,817		$	4,758

The accompanying notes are an integral part of these financial statements

EFL OVERSEAS, INC.

(An Exploration Stage Company)

STATEMENTS OF OPERATIONS

													Cumulative from Inception (July 22, 2008) to February 28, 2011

	Three Months Ended						Six Months Ended
	February 28, 2011			February 28, 2010			February 28, 2011			February 28, 2010
GENERAL AND ADMINISTRATIVE EXPENSES
Office, travel and general	$	12,419		$	594		$	15,907		$	1,248		$	24,918
Management fees		15,000			-			30,000			-			55,000
Consulting		24,550			-			109,050			-			124,050
Professional fees		4,700			3,000			14,905			8,500			55,666
		(56,669	)		(3,594	)		(169,862	)		(9,748	)		(259,634	)
OTHER INCOME (EXPENSE)
Gain on forgiveness of accounts payable		-			-			-			-			6,000
NET LOSS	$	(56,669	)	$	(3,594	)	$	(169,862	)	$	(9,748	)	$	(253,634	)



BASIC NET LOSS PER COMMON SHARE	$	(0.01	)	$	(0.00	)	$	(0.03	)	$	(0.00	)

WEIGHTED AVERAGE NUMBER OF BASIC
COMMON SHARES OUTSTANDING		6,659,844			6,600,000			6,629,757			6,600,000

							Cumulative from Inception (July 22, 2008) to February 28, 2011

	Six Months Ended
	February 28, 2011			February 28, 2010

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(169,862	)	$	(9,748	)	$	(253,634	)
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		(3,500	)		-			(3,500	)
Accounts payable and accrued liabilities		12,321			3,466			52,664
Net cash used in operating activities		(161,041	)		(6,282	)		(210,470	)

CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued for cash, net of fees		166,100			-			176,050
Common stock redeemed for cash		-			-			(100	)
Proceeds from notes payable		99,500			-			119,500
Repayments of notes payable		(82,000	)		-			(82,000	)
Due to related parties		10,000			6,954			34,337
Net cash provided by financing activities		193,600			6,954			247,787

INCREASE IN CASH		32,559			672			37,317

CASH, BEGINNING OF PERIOD		4,758			230			-

CASH, END OF PERIOD	$	37,317		$	902		$	37,317


SUPPLEMENTAL DISCLOSURE:
Cash paid for interest	$	-		$	-		$	-
Cash paid for income taxes	$	-		$	-		$	-
Forgiveness of debt	$	-		$	-		$	9,337

NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued as repayment of note payable	$	25,000		$	-		$	25,000

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 six month periods ended February 28, 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 February 28, 2011, the Company has not yet achieved profitable operations and has accumulated net losses of $253,634. 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.

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.

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 does not have any potentially dilutive securities, the accompanying presentation is only of basic loss per share.

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.

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.

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.

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.

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.

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.

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 estimate our costs related to the Test Well will range from $500,000 to $600,000 excluding any abandonment liabilities.

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.

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 our exploration plan.

At February 28 2011, our current liabilities exceeded current assets by approximately $43,000. Our current liabilities have grown since August 31, 2010, and include accounts payable of $46,664 and non-interest bearing notes of $37,500. Likewise, our general and administrative expense for the three and six month periods ended February 28, 2011 increased substantially when compared to the same periods during the prior fiscal year. Our general and administrative expenses for the three months ended February 28, 2011 have also increased substantially when compared to the prior three month period. These increases in our liabilities and administrative expense result from a growth in activity undertaken to pursue 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 December 2010 and March 2011, we raised $191,100 and $1,123,200, respectively, in private placements of our equity securities. During the six months ended February 28, 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.

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.

During December 2010, we sold 86,870 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 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.

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.

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.

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.

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 February 28, 2011, our disclosure controls and procedures were effective.

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.

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.

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
32		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.

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

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company þ
(Do not check if a smaller reporting company)

	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		—		—		—

Dated: April 13, 2011	EFL OVERSEAS, INC.


	BY:	/s/ Keith Macdonald
		Keith Macdonald,
		Principal Executive Officer




	BY:	/s/ Herbert Schmidt
		Herbert Schmidt,
		Principal Financial and Accounting Officer


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

	February 28, 2011		August 31, 2010
Notes payable	$	37,500	$	20,000
	$	37,500	$	20,000

	February 28, 2011		August 31, 2010
Note payable from shareholder	$	––	$	15,000
	$	––	$	15,000