Everflow Eastern Partners, L.P. 10-Q

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 March 31, 2008


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 0-19279

EVERFLOW EASTERN PARTNERS, L.P.

(Exact name of registrant as specified in its charter)


Delaware		34-1659910

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

585 West Main Street
P.O. Box 629
Canfield, Ohio		44406

(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 330-533-2692

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


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

There were 5,643,268 Units of limited partnership interest of the Registrant as of May 5, 2008. The Units generally do not have any voting rights, but, in certain circumstances, the Units are entitled to one vote per Unit.

Except as otherwise indicated, the information contained in this Report is as of March 31, 2008.

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

March 31, 2008 and December 31, 2007


	March 31,		December 31,
	2008		2007
	(Unaudited)		(Audited)
ASSETS

CURRENT ASSETS
Cash and equivalents	$	13,939,473	$	6,014,105
Investments		—		6,074,433
Accounts receivable:
Production		7,786,201		7,805,148
Employees		654,601		607,230
Joint venture partners		93,362		42,771
Other		18,691		11,230

Total current assets		22,492,328		20,554,917

PROPERTY AND EQUIPMENT
Proved properties (successful efforts accounting method)		153,617,531		151,057,527
Pipeline and support equipment		542,746		527,227
Corporate and other		1,908,097		1,816,106

		156,068,374		153,400,860

Less accumulated depreciation, depletion, amortization and write down		100,290,092		98,909,416

		55,778,282		54,491,444

OTHER ASSETS		77,546		77,546


	$	78,348,156	$	75,123,907

See notes to unaudited consolidated financial statements.

F-1

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

March 31, 2008 and December 31, 2007


	March 31,		December 31,
	2008		2007
	(Unaudited)		(Audited)
LIABILITIES AND PARTNERS’ EQUITY

CURRENT LIABILITIES
Accounts payable	$	3,224,804	$	2,579,389
Accrued expenses		658,279		1,160,354

Total current liabilities		3,883,083		3,739,743

DEFERRED INCOME TAXES		400,000		400,000

ASSET RETIREMENT OBLIGATIONS		2,000,404		1,933,704

COMMITMENTS AND CONTINGENCIES		—		—

LIMITED PARTNERS’ EQUITY, SUBJECT TO REPURCHASE RIGHT
Authorized - 8,000,000 Units Issued and outstanding - 5,643,268		71,217,894		68,239,103

GENERAL PARTNER’S EQUITY		846,775		811,357

Total partners’ equity		72,064,669		69,050,460


	$	78,348,156	$	75,123,907

See notes to unaudited consolidated financial statements.

F-2

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31, 2008 and 2007
(Unaudited)


	2008		2007
REVENUES
Oil and gas sales	$	10,286,957	$	9,021,389
Well management and operating		147,713		143,061
Other		198		411

		10,434,868		9,164,861

DIRECT COST OF REVENUES
Production costs		1,127,855		1,073,980
Well management and operating		55,990		54,602
Depreciation, depletion and amortization		1,376,328		1,386,303
Accretion expense		54,200		57,800

Total direct cost of revenues		2,614,373		2,572,685

GENERAL AND ADMINISTRATIVE EXPENSE		541,344		506,923

Total cost of revenues		3,155,717		3,079,608


INCOME FROM OPERATIONS		7,279,151		6,085,253

INTEREST INCOME		117,833		196,962


INCOME BEFORE INCOME TAXES		7,396,984		6,282,215

CURRENT INCOME TAXES		100,000		150,000


NET INCOME	$	7,296,984	$	6,132,215


Allocation of Partnership Net Income
Limited Partners	$	7,211,243	$	6,060,171
General Partner		85,741		72,044

	$	7,296,984	$	6,132,215


Net income per unit	$	1.28	$	1.07

See notes to unaudited consolidated financial statements.

F-3

EVERFLOW EASTERN PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2008 and 2007
(Unaudited)


	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	7,296,984		$	6,132,215
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		1,397,940			1,404,282
Accretion expense		54,200			57,800
Investment earnings		(1,567	)		(63,200	)
Changes in assets and liabilities:
Accounts receivable		(31,644	)		559,686
Other current assets		(7,461	)		15,203
Accounts payable		1,687			389,803
Accrued expenses		(502,075	)		(460,585	)

Total adjustments		911,080			1,902,989

Net cash provided by operating activities		8,208,064			8,035,204

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds received on receivables from employees		44,552			14,907
Advances disbursed to employees		(91,923	)		(17,764	)
Purchase of investments		—			(4,999,817	)
Proceeds on sale of investments		6,076,000			5,537,041
Purchase of property and equipment		(2,028,550	)		(672,944	)

Net cash provided (used) by investing activities		4,000,079			(138,577	)

CASH FLOWS FROM FINANCING ACTIVITIES
Distributions		(4,282,775	)		(5,711,192	)

Net cash used by financing activities		(4,282,775	)		(5,711,192	)


NET INCREASE IN CASH AND EQUIVALENTS		7,925,368			2,185,435

CASH AND EQUIVALENTS AT BEGINNING OF YEAR		6,014,105			7,424,183


CASH AND EQUIVALENTS AT END OF FIRST QUARTER	$	13,939,473		$	9,609,618


Supplemental disclosures of cash flow information and non-cash activities:
Cash paid during the period for:
Income taxes	$	121,588		$	153,229

Additions to proved properties include amounts offset by accounts payable (see Note 2) and asset retirement obligations (see Note 1.E).

See notes to unaudited consolidated financial statements.

F-5

EVERFLOW EASTERN PARTNERS, L.P.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Summary of Significant Accounting Policies

	A.		Interim Financial Statements — The interim consolidated financial statements included herein have been prepared by the management of Everflow Eastern Partners, L.P., without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations have been made.

			The accompanying condensed consolidated financial statements are presented in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America, or those normally made in an Annual Report on Form 10-K. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto which are incorporated in Everflow Eastern Partners, L.P.’s annual report on Form 10-K filed with the Securities and Exchange Commission on March 18, 2008.

			The results of operations for the interim periods may not necessarily be indicative of the results to be expected for the full year.

	B.		Use of Estimates — The preparation of financial statements in conformity with generally accepted accounting principles 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 reporting period. Actual results could differ from those estimates. The Company’s financial statements are based on a number of significant estimates, including oil and gas reserve quantities which are the basis for the calculation of depreciation, depletion and impairment of oil and gas properties, and timing and costs associated with its retirement obligations.

	C.		Organization — Everflow Eastern Partners, L.P. (“Everflow”) is a Delaware limited partnership which was organized in September 1990 to engage in the business of oil and gas acquisition, exploration, development and production. Everflow was formed to consolidate the business and oil and gas properties of Everflow Eastern, Inc. (“EEI”) and subsidiaries and the oil and gas properties owned by certain limited partnership and working interest programs managed or sponsored by EEI (“EEI Programs” or “the Programs”).

F-6

EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Note 1. Organization and Summary of Significant Accounting Policies (Continued)

	C.		Organization (Continued)

			Everflow Management Limited, LLC, an Ohio limited liability company, is the general partner of Everflow, and, as such, is authorized to perform all acts necessary or desirable to carry out the purposes and conduct of the business of Everflow. The members of Everflow Management Limited, LLC are Everflow Management Corporation (“EMC”), two individuals who are Officers and Directors of EEI, and Sykes Associates, LLC, a limited liability company owned by four adult children of Robert F. Sykes, the Chairman of the Board of EEI. EMC is an Ohio corporation formed in September 1990 and is the managing member of Everflow Management Limited, LLC.

	D.		Principles of Consolidation — The consolidated financial statements include the accounts of Everflow, its wholly-owned subsidiaries, including EEI and EEI’s wholly owned subsidiaries, and investments in oil and gas drilling and income partnerships (collectively, “the Company”) which are accounted for under the proportional consolidation method. All significant accounts and transactions between the consolidated entities have been eliminated.

	E.		Asset Retirement Obligations — The Company follows SFAS No. 143, “Accounting for Asset Retirement Obligations,” which requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. For the Company, these obligations include dismantlement, plugging and abandonment of oil and gas wells and associated pipelines and equipment. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The liability is accreted to its then present value each period, and the capitalized cost is depleted over the estimated useful life of the related asset.

F-7

EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Note 1. Organization and Summary of Significant Accounting Policies (Continued)

	E.		Asset Retirement Obligations (Continued)

			The schedule below is a reconciliation of the Company’s liability for the three months ended March 31, 2008 and 2007:


	Asset Retirement Obligations
	Three Months Ended March 31,
	2008		2007
Beginning of period	$	2,313,704	$	2,103,707
Liabilities incurred		12,500		5,750
Accretion expense		54,200		57,800


End of period	$	2,380,404	$	2,167,257

			At March 31, 2008 and December 31, 2007, asset retirement obligations of $2,380,404 and $2,313,704 are included in accrued expenses (current portion) and asset retirement obligations (non-current portion) in the Company’s consolidated balance sheets. The current portion of the asset retirement obligations was $380,000 at March 31, 2008 and December 31, 2007.

	F.		Allocation of Income and Per Unit Data — Under the terms of the limited partnership agreement, initially, 99% of revenues and costs were allocated to the Unitholders (the limited partners) and 1% of revenues and costs were allocated to the General Partner. Such allocation has changed and will change in the future due to Unitholders electing to exercise the Repurchase Right (see Note 4).

			Earnings per limited partner Unit have been computed based on the weighted average number of Units outstanding, during the period for each period presented. Average outstanding Units for earnings per Unit calculations amounted to 5,643,268 and 5,644,094 for the three months ended March 31, 2008 and 2007, respectively.

	G.		Income Taxes — In June 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109.” FIN 48 clarifies the accounting

F-8

EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Note 1. Organization and Summary of Significant Accounting Policies (Continued)

	G.		Income Taxes (Continued)

			for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

			The Company adopted the provisions of FIN 48 on January 1, 2007. The implementation of FIN 48 did not have a material impact on the Company’s financial statements. There were no unrecognized tax benefits as of the date of adoption of FIN 48 and therefore, there is no anticipated effect upon the Company’s effective tax rate. Interest, if any, under FIN 48 will be classified in the financial statements as a component of interest expense and statutory penalties, if any, will be classified as a component of general and administrative expense.

			As of March 31, 2008, the Company’s income tax years from 2004 and thereafter remain subject to examination by the Internal Revenue Service, as well as the Ohio Department of Taxation.

	H.		New Accounting Standards — In September 2006, the FASB issued SFAS No. 157. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, where fair value has been determined to be the relevant measurement attribute. In February 2008, the FASB issued Staff Position No. FAS 157-2 (“FSP No. 157-2”), which delays the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The effect of FSP No. 157-2 delays the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of FSP No. 157-2. The Company adopted SFAS No. 157 on January 1, 2008 for items recognized or disclosed at fair value in the financial statements on a recurring basis, and the implementation did not have an impact on the Company’s financial statements. The Company has deferred the application of SFAS No. 157 related to non-financial assets and liabilities in accordance with FSP No. 157-2. Adoption of SFAS No. 157 as it relates to

F-9

EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Note 1. Organization and Summary of Significant Accounting Policies (Continued)

	H.		New Accounting Standards (Continued)

			non-financial assets and liabilities is not expected to materially impact the Company’s financial statements.

			In February 2007, the FASB issued SFAS No. 159. This Statement permits the option to choose to measure selected financial assets and liabilities at fair value. If the fair value option is elected, reporting of unrealized gains and losses on those assets and liabilities occurs in each subsequent reporting date. The Company adopted SFAS No. 159 on January 1, 2008. The implementation of this standard did not have an impact on the Company’s financial statements.

	I.		Reclassification — Certain prior period amounts have been reclassified to conform with the current period’s presentation.

Note 2. Current Liabilities

The Company’s current liabilities consist of the following at March 31, 2008 and December 31, 2007:


	March 31,		December 31,
	2008		2007
Accounts Payable:
Drilling	$	1,734,228	$	1,090,500
Production and related other		914,995		737,284
Joint venture partners		158,019		384,686
Other		417,562		366,919


	$	3,224,804	$	2,579,389


Accrued Expenses:
Payroll and retirement contributions	$	85,127	$	610,229
Current portion of asset retirement obligations		380,000		380,000
Federal, state and local taxes		193,152		170,125


	$	658,279	$	1,160,354

F-10

EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Note 3. Credit Facilities and Long-Term Debt

			The Company had a revolving line of credit that expired in May 2003. The Company anticipates entering into a commitment for a new line of credit agreement in the event funds are needed for the purpose of funding future annual repurchase rights (see Note 4). The new line of credit would be utilized in the event the Company receives tenders pursuant to the repurchase right in excess of cash on hand.

			There were no borrowings outstanding during 2008 and 2007. The Company would be exposed to market risk from changes in interest rates if it funds its future operations through long-term or short-term borrowings.

Note 4. Partners’ Equity

			Units represent limited partnership interests in Everflow. The Units are transferable subject only to the approval of any transfer by Everflow Management Limited, LLC and to the laws governing the transfer of securities. The Units are not listed for trading on any securities exchange nor are they quoted in the automated quotation system of a registered securities association. However, Unitholders have an opportunity to require Everflow to repurchase their Units pursuant to the Repurchase Right.

			Under the terms of the limited partnership agreement, initially, 99% of revenues and costs were allocated to the Unitholders (the limited partners) and 1% of revenues and costs were allocated to the General Partner. Such allocation has changed and will change in the future due to Unitholders electing to exercise the Repurchase Right.

			The partnership agreement provides that Everflow will repurchase for cash up to 10% of the then outstanding Units, to the extent Unitholders offer Units to Everflow for repurchase pursuant to the Repurchase Right. The Repurchase Right entitles any Unitholder, between May 1 and June 30 of each year, to notify Everflow that the Unitholder elects to exercise the Repurchase Right and have Everflow acquire certain or all Units. The price to be paid for any such Units is calculated based upon the audited financial statements of the Company as of December 31 of the year prior to the year in which the Repurchase Right is to be effective and independently prepared reserve reports. The price per Unit equals 66% of the adjusted book value of the Company allocable to the Units, divided by the number of Units outstanding at the beginning of the year in which the applicable Repurchase Right is to be effective less all Interim Cash Distributions received by a Unitholder. The adjusted book value is calculated by adding partners’ equity, the Standardized Measure of Discounted Future Net Cash Flows and the tax effect included in

F-11

EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Note 4. Partners’ Equity (Continued)

			the Standardized Measure and subtracting from that sum the carrying value of oil and gas properties (net of undeveloped lease costs). If more than 10% of the then outstanding Units are tendered during any period during which the Repurchase Right is to be effective, the Investors’ Units tendered shall be prorated for purposes of calculating the actual number of Units to be acquired during any such period. The price associated with the Repurchase Right, based upon the December 31, 2007 calculation, is $16.25 per Unit, net of the distributions ($1.50 per Unit in total) made in January and April 2008.

			Units repurchased pursuant to the Repurchase Right for each of the last four years are as follows:


	Calculated								Units Out-
	Price for		Less				# of		standing
	Repurchase		Interim		Net		Units		Following
Year	Right		Distributions		Price Paid		Repurchased		Repurchase
2004	$	13.44	$	1.00	$	12.44		23,865		5,690,874
2005	$	15.46	$	1.00	$	14.46		16,196		5,674,678
2006	$	24.37	$	1.50	$	22.87		30,584		5,644,094
2007	$	14.88	$	2.00	$	12.88		826		5,643,268

Note 5. Gas Purchase Agreements

The Company has numerous annual contracts with Dominion Field Services, Inc. and its affiliates (“Dominion”), to sell and deliver certain quantities of natural gas production on a monthly basis through October 2010. The agreements with Dominion provide for fixed pricing with current monthly weighted average pricing provisions ranging from $9.07 to $9.80 per MCF. The Company also has three annual contracts with Interstate Gas Supply, Inc. (“IGS”), which obligates IGS to purchase, and the Company to sell and deliver certain quantities of natural gas production on a monthly basis through October 2010. The agreement with IGS provides for fixed pricing with current monthly weighted average pricing provisions ranging from $9.00 to $9.80 per MCF. Fixed pricing with both Dominion and IGS applies to certain fixed quantities on a monthly basis with excess monthly quantities being priced based on the current spot market price. The impact on the Company cannot fully be measured until actual production volumes and prices are determined.

F-12

EVERFLOW EASTERN PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)

Note 6. Commitments and Contingencies

			Everflow paid a quarterly dividend in April 2008 of $0.75 per Unit to Unitholders of record on March 31, 2008. The distribution amounted to approximately $4,283,000.

			The Company operates exclusively in the United States, almost entirely in Ohio and Pennsylvania, in the business of oil and gas acquisition, exploration, development and production. The Company operates in an environment with many financial risks, including, but not limited to, the ability to acquire additional economically recoverable oil and gas reserves, the inherent risks of the search for, development of and production of oil and gas, the ability to sell oil and gas at prices which will provide attractive rates of return, the volatility and seasonality of oil and gas production and prices, and the highly competitive and, at times, seasonal nature of the industry and worldwide economic conditions. The Company’s ability to expand its reserve base and diversify its operations is also dependent upon the Company’s ability to obtain the necessary capital through operating cash flow, borrowings or equity offerings. Various federal, state and governmental agencies are considering, and some have adopted, laws and regulations regarding environmental protection which could adversely affect the proposed business activities of the Company. The Company cannot predict what effect, if any, current and future regulations may have on the operations of the Company.

			The Company has significant natural gas delivery commitments to Dominion and IGS, its major customers. Management believes the Company can meet its delivery commitments based on estimated production. If, however, the Company cannot meet its delivery commitments, it will purchase gas at market prices to meet such commitments which will result in a gain or loss for the difference between the delivery commitment price and the price the Company is able to purchase the gas for redelivery (resale) to its customers.

F-13

Part I: Financial Information


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

Liquidity and Capital Resources

The following table summarizes the Company’s financial position at March 31, 2008 and December 31, 2007:


	March 31, 2008					December 31, 2007
	Amount		%			Amount		%
	(Amounts in Thousands)					(Amounts in Thousands)
Working capital	$	18,609		25	%	$	16,815		24	%
Property and equipment (net)		55,778		75			54,491		76
Other		78		—			78		—

Total	$	74,465		100	%	$	71,384		100	%


Deferred income taxes	$	400		—	%	$	400		—	%
Long-term liabilities		2,000		3			1,934		3
Partners’ equity		72,065		97			69,050		97

Total	$	74,465		100	%	$	71,384		100	%

Working capital of $18.6 million as of March 31, 2008 represented an increase of $1.8 million from December 31, 2007 due primarily to an increase in cash and equivalents and a decrease in accrued expenses. These changes were partially offset by a decrease in investments and an increase in accounts payable.

The Company funds its operation with cash generated by operations and existing cash and equivalent balances and investments. The Company had no borrowings in 2007 or 2008 and no principal indebtedness was outstanding as of May 5, 2008. The Company anticipates, although there is no assurance it will be able to, entering into a new credit agreement for the purpose, if necessary, of funding future annual repurchase rights. The Company has no current alternate financing plan, nor does it anticipate that one will be necessary. The Company used cash on hand to fund the payment of a quarterly distribution amounting to approximately $4.3 million in April 2008.

The Company’s cash flow from operations before the change in working capital increased $1.2 million, or 15%, during the three months ended March 31, 2008 as compared to the same period in 2007. Changes in working capital from operations other than cash and cash equivalents decreased cash by $539,000 during the three months ended March 31, 2008.

Cash flows provided by operating activities was $8.2 million for the three months ended March 31, 2008. Cash was primarily used in investing and financing activities to purchase property and equipment and pay a quarterly distribution, respectively.

Management of the Company believes existing cash flows should be sufficient to meet the funding requirements of ongoing operations, capital investments to develop oil and gas properties, the repurchase of Units pursuant to the Repurchase Right and the payment of quarterly distributions.

Results of Operations

The following table and discussion is a review of the results of operations of the Company for the three months ended March 31, 2008 and 2007. All items in the table are calculated as a percentage of total revenues. This table should be read in conjunction with the discussions of each item below:


	Three Months
	Ended March 31,
	2008			2007
Revenues:
Oil and gas sales		99	%		98	%
Well management and operating		1			2

Total Revenues		100			100

Expenses:
Production costs		11			12
Well management and operating		1			1
Depreciation, depletion and amortization		13			15
Accretion expense		—			1
General and administrative		5			5
Interest		(1	)		(2	)
Current income taxes		1			1

Total Expenses		30			33


Net income		70	%		67	%

Revenues for the three months ended March 31, 2008 increased $1.3 million, or 14%, compared to the same period in 2007. This increase was due to an increase in oil and gas sales during the first three months of 2008, as compared to the same period in 2007.

Oil and gas sales increased $1.3 million, or 14%, during the three months ended March 31, 2008 compared to the same period in 2007. Higher natural gas and crude oil prices during the first quarter of 2008 were responsible for this increase compared to this same period in 2007.

Production costs increased $54,000, or 5%, during the three months ended March 31, 2008 compared to the same period in 2007. This increase was due to inflationary increases in the costs to operate and manage the Company’s producing oil and gas properties and an increase in the number of producing oil and gas properties.

Depreciation, depletion and amortization decreased $10,000, or 1%, during the three months ended March 31, 2008 compared to the same period in 2007. The primary reason for the decrease in depreciation, depletion and amortization is the result of an increase in oil and gas reserves that resulted from higher year-end pricing for estimated future production.

Accretion expense decreased $4,000, or 6%, during the three months ended March 31, 2008 compared to the same period in 2007. This decrease was due to a number of properties having been fully accreted previously. Many of these properties have not been retired, although their asset retirement obligation remains fully recognized in current liabilities on the balance sheet.

General and administrative expenses increased $34,000, or 7%, during the three months ended March 31, 2008 compared to the same period in 2007. The primary reason for this increase is due to higher overhead expenses associated with ongoing administration. In particular, administrative overhead increased as a result of the Company’s efforts to develop formalized finance and accounting policies and formalized written policies and procedures governing the financial reporting process as required under Section 404 of the Sarbanes-Oxley Act of 2002.

Interest income decreased $79,000, or 40%, during the three months ended March 31, 2008 compared to the same period in 2007. This decrease is primarily the result of a decrease in interest income earned on cash and equivalent balances and investments.

The Company reported net income of $7.3 million, an increase of $1.2 million, or 19%, during the three months ended March 31, 2008 compared to the same period in 2007. The increase in oil and gas sales was primarily responsible for this increase in net income. Net income represented 70% and 67% of total revenue during the three months ended March 31, 2008 and 2007, respectively.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles 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 reporting period. The critical accounting policies that affect the Company’s more complex judgments and estimates are described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

Forward-Looking Statements

Except for historical financial information contained in this Form 10-Q, the statements made in this report are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). In addition, words such as “expects,” “anticipate,” “intends,” “plans,” “believes,” “estimates,” variations of such words and similar expressions are intended to identify forward-looking statements. Factors that may cause actual results to differ materially from those in the forward looking statements include price fluctuations in the gas market in the Appalachian Basin, actual oil and gas production and the weather in the Northeast Ohio area and the ability to locate economically productive oil and gas prospects for development by the Company. In addition, any forward-looking statements speak only as of the date on which such statement is made and the Company does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.


Item 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information has been omitted, as the Company qualifies as a smaller reporting company.

Item 4T. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures. The Company’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”) have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15) as of March 31, 2008 (the “Evaluation Date”), and have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were not effective. As reported in our annual report on Form 10-K for the year ended December 31, 2007, we have identified material weaknesses in our internal control over financial reporting, which we view as an integral part of our disclosure controls and procedures. See Item 9A.(T) Controls and Procedures of our annual report on Form 10-K for the year ended December 31, 2007, which was filed on March 18, 2008, and which is incorporated by reference into this Item 4T. for a more detailed explanation of these material weaknesses and remedial actions taken and planned which we expect will materially affect such controls.

The certifications of the Company’s CEO and CFO are attached as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q and include, in paragraph 4 of such certifications, information concerning the Company’s disclosure controls and procedures and internal control over financial reporting. Such certifications should be read in conjunction with the information contained in this Item 4T., including the information incorporated by reference to our filing on Form 10-K for the year ended December 31, 2007, for a more complete understanding of the matters covered by such certifications.

(b) Changes in internal control over financial reporting. While we are continuing to develop and implement remediation plans with respect to the identified material weaknesses, there have been no changes in our internal control over financial reporting other than those discussed below that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting beyond those identified in our Form 10-K for the year ended December 31, 2007.

Development of formalized finance and accounting policies and formalized written policies and procedures governing the financial reporting process are continuing. The development of these policies and procedures are key to the remediation of our material weaknesses regarding establishing and maintaining an effective control environment and maintaining sufficient, formalized written policies and procedures over financial reporting as disclosed in Item 9A.(T) Controls and Procedures of our annual report on our Form 10-K for the year ended December 31, 2007.

As noted in Item 1A. Risk Factors in our annual report on Form 10-K for the year ended December 31, 2007, failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material effect on our business and our failure to maintain sustained improvements in our controls or successfully implement compensating controls and procedures as part of our disclosure controls and procedures may further adversely impact our existing internal control structure.


DESCRIPTION			PAGE NO.
Part I.	Financial Information

	Item 1.	Financial Statements

		Consolidated Balance Sheets March 31, 2008 and December 31, 2007		F-1

		Consolidated Statements of Income Three Months Ended March 31, 2008 and 2007		F-3

		Consolidated Statements of Partners' Equity Three Months Ended March 31, 2008 and 2007		F-4

		Consolidated Statements of Cash Flows Three Months Ended March 31, 2008 and 2007		F-5

		Notes to Unaudited Consolidated Financial Statements		F-6

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		3

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		7

	Item 4T.	Controls and Procedures		7

Part II.	Other Information

	Item 6.	Exhibits		9

		Signature		10
EX-31.1
EX-31.2
EX-32.1


Exhibit 31.1		Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2		Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


	EVERFLOW EASTERN PARTNERS, L.P.

	By:	everflow management limited, llc
		General Partner

	By:	everflow management corporation
		Managing Member

May 9, 2008	By:	/s/ William A. Siskovic
		William A. Siskovic
		Vice President and Principal Financial and
		Accounting Officer
		(Duly Authorized Officer)

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	2008			2007
PARTNERS’ EQUITY — JANUARY 1	$	69,050,460		$	68,398,967

Net income		7,296,984			6,132,215

Cash distributions ($0.75 per unit in 2008 and $1.00 per unit in 2007)		(4,282,775	)		(5,711,192	)


PARTNERS’ EQUITY — MARCH 31	$	72,064,669		$	68,819,990