##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 For the Fiscal Year Ended December 31, 2006
 OR
 o
    
    Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 Commission File No. 0-19279
 EVERFLOW EASTERN PARTNERS, L.P.
 (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    34-1659910
(I.R.S. Employer
Identification No.)585 West Main Street 
P.O. Box 629
Canfield, Ohio
(Address of principal executive offices)
    
    44406
(Zip Code)
 Registrants telephone number, including area code: 330-533-2692
  Title of each class
    
    Name of each exchange
on which registered
   Units of Limited Partnership Interest
 o þ
 o þ
 þ o
 o
  o þ o
 o þ




---



##### 



PART I
 ITEM 1. BUSINESS
 Introduction
  Exchange Offer
   The Company
 Description of the Business
 General
 Subsidiaries
 -1-




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##### 









Current Operations






Business Plan


Acquisition of Prospects


-2-




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##### 







Acquisition of Producing Properties




Funding for Activities




Registrants Common Equity and
Related Stockholder Matters


-3-




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##### 







Marketing


Oil






Natural Gas


-4-




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##### 



Jan
    
    Feb
    
    Mar
    
    Apr
    
    May
    
    Jun2007
    
    2007
    
    2007
    
    2007
    
    2007
    
    2007MCF
    
    
    130,000
    
    
    
    130,000
    
    
    
    130,000
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    150,000Price
    
    $
    9.93
    
    
    $
    9.93
    
    
    $
    9.93
    
    
    $
    9.74
    
    
    $
    9.74
    
    
    $
    9.55
 Jul
    
    Aug
    
    Sep
    
    Oct
    
    Nov
    
    Dec2007
    
    2007
    
    2007
    
    2007
    
    2007
    
    2007MCF
    
    
    100,000
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    140,000
    
    
    
    120,000Price
    
    $
    9.74
    
    
    $
    9.74
    
    
    $
    9.74
    
    
    $
    9.74
    
    
    $
    9.80
    
    
    $
    9.86
 Jan
    
    Feb
    
    Mar
    
    Apr
    
    May
    
    Jun2008
    
    2008
    
    2008
    
    2008
    
    2008
    
    2008MCF
    
    
    120,000
    
    
    
    120,000
    
    
    
    120,000
    
    
    
    90,000
    
    
    
    90,000
    
    
    
    90,000Price
    
    $
    9.86
    
    
    $
    9.86
    
    
    $
    9.86
    
    
    $
    9.16
    
    
    $
    9.16
    
    
    $
    9.16
 Jul
    
    Aug
    
    Sep
    
    Oct2008
    
    2008
    
    2008
    
    2008MCF
    
    
    90,000
    
    
    
    90,000
    
    
    
    90,000
    
    
    
    90,000Price
    
    $
    9.16
    
    
    $
    9.16
    
    
    $
    9.16
    
    
    $
    9.16
 -5-




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##### 



Jan
    
    Feb
    
    Mar
    
    Apr
    
    May
    
    Jun2007
    
    2007
    
    2007
    
    2007
    
    2007
    
    2007MCF
    
    
    70,000
    
    
    
    70,000
    
    
    
    70,000
    
    
    
    50,000
    
    
    
    50,000
    
    
    
    90,000Price
    
    $
    10.40
    
    
    $
    10.40
    
    
    $
    10.40
    
    
    $
    9.38
    
    
    $
    9.38
    
    
    $
    9.32
 Jul
    
    Aug
    
    Sep
    
    Oct
    
    Nov
    
    Dec2007
    
    2007
    
    2007
    
    2007
    
    2007
    
    2007MCF
    
    
    50,000
    
    
    
    50,000
    
    
    
    50,000
    
    
    
    50,000
    
    
    
    80,000
    
    
    
    60,000Price
    
    $
    9.38
    
    
    $
    9.38
    
    
    $
    9.38
    
    
    $
    9.38
    
    
    $
    9.55
    
    
    $
    9.46
 Jan
    
    Feb
    
    Mar
    
    Apr
    
    May
    
    Jun2008
    
    2008
    
    2008
    
    2008
    
    2008
    
    2008MCF
    
    
    60,000
    
    
    
    60,000
    
    
    
    60,000
    
    
    
    40,000
    
    
    
    40,000
    
    
    
    40,000Price
    
    $
    9.46
    
    
    $
    9.46
    
    
    $
    9.46
    
    
    $
    9.12
    
    
    $
    9.12
    
    
    $
    9.12
 Jul
    
    Aug
    
    Sep
    
    Oct2008
    
    2008
    
    2008
    
    2008MCF
    
    
    40,000
    
    
    
    40,000
    
    
    
    40,000
    
    
    
    40,000Price
    
    $
    9.12
    
    
    $
    9.12
    
    
    $
    9.12
    
    
    $
    9.12
   Seasonality
 -6-
        Title to Properties
  Competition
   -7-
         Regulation of Oil and Gas Industry
   -8-
         Environmental Regulation
    Operating Hazards and Uninsured Risks
  -9-




---



##### 



Conflicts of Interest
   Employees
  ITEM 1A. RISK FACTORS
  -10-




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##### 



Natural gas and crude oil prices fluctuate widely, and low prices for an extended period of time
are likely to have a material adverse impact on our business.
   
    
    the level of consumer product demand;
    
    weather conditions;
    
    political conditions in natural gas and crude oil producing regions,
including the Middle East;
    
    the ability of the members of the Organization of Petroleum Exporting
Countries to agree to and maintain oil price and production controls;
    
    the price of foreign imports;
 -11-




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##### 




    
    actions of governmental authorities;
    
    pipeline capacity constraints;
    
    inventory storage levels;
    
    domestic and foreign governmental regulations;
    
    the price, availability and acceptance of alternative fuels; and
    
    overall economic conditions.
  We have identified numerous material weaknesses in our internal control over financial reporting.
     -12-




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##### 



Drilling natural gas and crude oil wells is a high-risk activity.
  
    
    unexpected drilling conditions, pressure or irregularities in formations;
    
    equipment failures or accidents;
    
    adverse weather conditions;
    
    compliance with governmental requirements; and
    
    shortages or delays in the availability of drilling rigs or crews and
the delivery of equipment.
  
    
    the availability of sufficient capital resources to us and the other
participants for the drilling of the prospects;
    
    economic and industry conditions at the time of drilling, including
prevailing and anticipated prices for natural gas and crude oil and
the availability of drilling rigs and crews;
    
    our financial resources and results; and
    
    the availability of leases and permits on reasonable terms for the prospects.
 -13-




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##### 



Reserve estimates depend on many assumptions that may prove to be inaccurate. Any material
inaccuracies in our reserve estimates or underlying assumptions could cause the quantities and net
present value of our reserves to be overstated.
  
    
    the quality and quantity of available data;
    
    the interpretation of that data;
    
    the accuracy of various mandated economic assumptions; and
    
    the judgment of the persons preparing the estimate.
   -14-




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##### 



Our future performance depends on our ability to find or acquire additional natural gas and crude
oil reserves that are economically recoverable.
    We may incur substantial impairment write-downs.
   -15-




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##### 



We face a variety of hazards and risks that could cause substantial financial losses.
  
    
    blowouts, surface cratering and explosions;
    
    mechanical problems;
    
    uncontrolled flows of natural gas, crude oil or well fluids;
    
    fires;
    
    formations with abnormal pressures;
    
    pollution and other environmental risks; and
    
    natural disasters.
   We have limited control over the activities on properties we do not operate.
  Terrorist activities and the potential for military and other actions could adversely affect our
business.
  -16-




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##### 



Our ability to sell our natural gas and crude oil production could be materially harmed if we fail
to obtain adequate services such as transportation and processing.
  Competition in our industry is intense, and many of our competitors have substantially greater
financial and technological resources than we do, which could adversely affect our competitive
position.
  The loss of key personnel could adversely affect our ability to operate.
  We are subject to complex laws and regulations, including environmental regulations, which can
adversely affect the cost, manner or feasibility of doing business.
 -17-
        Members of our management team own a significant number of partnership units, giving them
influence or control, and the interests of these individuals could differ from those of other
unitholders .
  ITEM 1B.UNRESOLVED STAFF COMMENTS
  ITEM 2. PROPERTIES
   -18-




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##### 



Proved Reserves (1)
 Oil (BBLS)
    
    Gas (MCF)Proved Developed
    
    
    718,000
    
    
    
    43,006,000Proved Undeveloped
    
    
    
    
    
    
    Total
    
    
    718,000
    
    
    
    43,006,000
 
 (1)
    
    The Company has not determined proved reserves associated
with its proved undeveloped acreage which are not deemed
significant at December 31, 2006. A reconciliation of the
Companys proved reserves is included in the Notes to the
Financial Statements. Standardized Measure of Discounted Future Net Cash Flows (1)
 (Thousands)Future cash inflows from sales of oil and gas
    
    $
    313,397Future production and development costs
    
    
    107,322Future asset retirement obligations, net of salvage
    
    
    9,220Future income tax expense
    
    
    4,294Future net cash flows
    
    
    192,561Effect of discounting future net cash flows
at 10% per annum
    
    
    87,846Standardized measure of discounted future
net cash flows
    
    $
    104,715
 
 (1)
    
    See the Notes to the Financial Statements for additional information. Production
 AverageProduction
    
    Sales PriceAverage Lifting CostOil (BBLS)
    
    Gas (MCF)
    
    per BBL
    
    per MCF
    
    per Equivalent MCF(1)2006
    
    
    72,000
    
    
    
    3,500,000
    
    
    $
    62.60
    
    
    $
    8.51
    
    
    $
    .962005
    
    
    72,000
    
    
    
    3,878,000
    
    
    
    52.40
    
    
    
    7.42
    
    
    
    .832004
    
    
    72,000
    
    
    
    3,932,000
    
    
    
    37.98
    
    
    
    5.68
    
    
    
    .69
 
 (1)
    
    Oil production is converted to MCF equivalents at the rate of 6 MCF per BBL (barrel). -19-




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##### 



Productive Wells
 Gross Wells
    
    Net WellsOil(1)
    
    Gas(1)
    
    Total
    
    Oil(1)
    
    Gas(1)
    
    Total84
    
    
    1,170
    
    
    
    1,254
    
    
    
    55
    
    
    
    762
    
    
    
    817
 
 (1)
    
    Oil wells are those wells which generate the majority of
their revenues from oil production; gas wells are those wells
which generate the majority of their revenues from gas
production. Acreage
 Drilling Activity
 Development Wells(1)Productive
    
    DryGross
    
    Net
    
    Gross
    
    Net2006
    
    
    36
    
    
    
    11.44
    
    
    
    1
    
    
    
    .202005
    
    
    54
    
    
    
    18.16
    
    
    
    2
    
    
    
    .462004
    
    
    75
    
    
    
    33.20
    
    
    
    2
    
    
    
    .70
 
 (1)
    
    All wells are located in the United States. All wells are
development wells; no exploratory wells were drilled. Present Activities
 Delivery Commitments
 -20-




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##### 



Company Headquarters
 ITEM 3. LEGAL PROCEEDINGS
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  -21-




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##### 



PART II
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
 Market
  Distribution History
  Repurchase Right
  -22-




---



##### 



ITEM 6. SELECTED FINANCIAL DATA
  Year Ended December 31,2006
    
    2005
    
    2004
    
    2003(1)
    
    2002Revenue
    
    $
    34,847,915
    
    
    $
    33,114,351
    
    
    $
    25,670,760
    
    
    $
    21,834,446
    
    
    $
    16,757,418Net Income
    
    
    23,142,714
    
    
    
    22,968,275
    
    
    
    16,403,297
    
    
    
    11,951,300
    
    
    
    8,004,090Net Income Per Unit
    
    
    4.04
    
    
    
    3.99
    
    
    
    2.84
    
    
    
    2.06
    
    
    
    1.37Total Assets
    
    
    72,562,307
    
    
    
    71,329,497
    
    
    
    61,481,489
    
    
    
    58,136,578
    
    
    
    52,579,304Debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash Distributions Per Unit
    
    
    3.75
    
    
    
    2.50
    
    
    
    2.25
    
    
    
    1.25
    
    
    
    1.25
 
 (1)
    
    See Note 1G to the 2003 consolidated financial statements. The cumulative effect of
change in accounting principle was $471,545. ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 General
    -23-




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##### 



Liquidity and Capital Resources
 Financial Position
    December 31, 2006
    
    
    December 31, 2005Amount
    
    
    %
    
    
    Amount
    
    
    %(Amounts in Thousands)
    
    
    (Amounts in Thousands)Working capital
    
    $
    22,048
    
    
    
    31
    %
    
    $
    19,459
    
    
    
    28
    %Property and equipment (net)
    
    
    48,347
    
    
    
    69
    
    
    
    49,503
    
    
    
    72Other
    
    
    183
    
    
    
    
    
    
    
    111
    
    
    
    Total
    
    $
    70,588
    
    
    
    100
    %
    
    $
    69,073
    
    
    
    100
    %Deferred income taxes
    
    $
    435
    
    
    
    1
    %
    
    $
    
    
    
    
    
    %Long-term liabilities
    
    
    1,744
    
    
    
    2
    
    
    
    1,655
    
    
    
    2Partners equity
    
    
    68,399
    
    
    
    97
    
    
    
    67,418
    
    
    
    98Total
    
    $
    70,588
    
    
    
    100
    %
    
    $
    69,073
    
    
    
    100
    %
 Cash Flows from Operating, Investing and Financing Activities
  -24-




---



##### 



2006
    
    
    2005Dollars
    
    
    %
    
    
    Dollars
    
    
    %(Amounts in Thousands)Operating Activities:Net income before adjustments
    
    $
    23,143
    
    
    
    65
    %
    
    $
    22,968
    
    
    
    82
    %Adjustments
    
    
    6,330
    
    
    
    18
    
    
    
    5,075
    
    
    
    18Cash flow from operations
before working capital
changes
    
    
    29,473
    
    
    
    83
    
    
    
    28,043
    
    
    
    100Changes in working capital
    
    
    (171
    )
    
    
    
    
    
    
    (1,614
    )
    
    
    (6
    )Net cash provided by
operating activities
    
    
    29,302
    
    
    
    83
    
    
    
    26,429
    
    
    
    94Investing Activities:Proceeds received on receivables
from employees
    
    
    53
    
    
    
    
    
    
    
    41
    
    
    
    Advances disbursed to employees
    
    
    (89
    )
    
    
    
    
    
    
    (124
    )
    
    
    Purchase of investments
    
    
    (8,581
    )
    
    
    (24
    )
    
    
    
    
    
    
    Purchase of property and
equipment
    
    
    (4,471
    )
    
    
    (13
    )
    
    
    (6,401
    )
    
    
    (23
    )Proceeds on disposal of property
and equipment
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    Net cash used by investing
activities
    
    
    (13,088
    )
    
    
    (37
    )
    
    
    (6,473
    )
    
    
    (23
    )Financing Activities:Distributions
    
    
    (21,463
    )
    
    
    (61
    )
    
    
    (14,371
    )
    
    
    (51
    )Repurchase and retirement
of Units
    
    
    (699
    )
    
    
    (2
    )
    
    
    (234
    )
    
    
    (1
    )Net cash used by financing
activities
    
    
    (22,162
    )
    
    
    (63
    )
    
    
    (14,605
    )
    
    
    (52
    )Net (decrease) increase in cash
and equivalents
    
    $
    (5,948
    )
    
    
    17
    
    
    $
    5,351
    
    
    
    19
 Note:
    
    All items in the previous table are calculated as a percentage of total cash sources. Total
cash sources include the following items, if positive: cash flow from operations before
working capital changes, changes in working capital, net cash provided by investing activities
and net cash provided by financing activities, plus any decrease in cash and equivalents.
 -25-




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##### 



-26-
         Results of Operations
  -27-




---



##### 



Year Ended December 31,2006
    
    2005
    
    2004Revenues:Oil and gas sales
    
    
    98
    %
    
    
    98
    %
    
    
    98
    %Well management and operating
    
    
    2
    
    
    
    2
    
    
    
    2Total Revenues
    
    
    100
    
    
    
    100
    
    
    
    100Expenses:Production costs
    
    
    11
    
    
    
    11
    
    
    
    12Well management and operating
    
    
    
    
    
    
    1
    
    
    
    1Depreciation, depletion and amortization
    
    
    16
    
    
    
    15
    
    
    
    18Accretion expense
    
    
    1
    
    
    
    
    
    
    
    Abandonment of oil and gas properties
    
    
    
    
    
    
    
    
    
    
    General and administrative
    
    
    6
    
    
    
    5
    
    
    
    6Other expense (income)
    
    
    (2
    )
    
    
    (1
    )
    
    
    (1
    )Income taxes
    
    
    2
    
    
    
    
    
    
    
    Total Expenses
    
    
    34
    
    
    
    31
    
    
    
    36Net income
    
    
    66
    %
    
    
    69
    %
    
    
    64
    %
    -28-




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##### 



Application of Critical Accounting Policies
 Property and Equipment
 -29-




---



##### 



Asset Retirement Obligations
  -30-
         Revenue Recognition
  Inflation and Changes in Prices
   -31-




---



##### 



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  -32-




---



##### 



EVERFLOW EASTERN PARTNERS, L. P.
 2006 CONSOLIDATED FINANCIAL REPORT
 F-1




---



##### 



PageREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    F-3FINANCIAL STATEMENTSConsolidated balance sheets
    
    F-4 - F-5Consolidated statements of income
    
    F-6Consolidated statements of partners equity
    
    F-7Consolidated statements of cash flows
    
    F-8Notes to consolidated financial statements
    
    F-9 - F-25
 F-2




---



##### 



Report of Independent Registered Public Accounting Firm
 
      
 F-3




---



##### 



2006
    
    
    2005ASSETSCURRENT ASSETSCash and equivalents
    
    $
    7,424,183
    
    
    $
    13,371,923Investments
    
    
    8,580,618
    
    
    
    Accounts receivable:Production
    
    
    7,833,519
    
    
    
    8,168,703Employees
    
    
    157,093
    
    
    
    120,801Joint venture partners
    
    
    6,035
    
    
    
    13,531Other
    
    
    31,308
    
    
    
    40,400Total current assets
    
    
    24,032,756
    
    
    
    21,715,358PROPERTY AND EQUIPMENTProved properties (successful efforts accounting method)
    
    
    140,443,938
    
    
    
    136,388,136Pipeline and support equipment
    
    
    528,193
    
    
    
    532,229Corporate and other
    
    
    1,776,217
    
    
    
    1,817,384142,748,348
    
    
    
    138,737,749Less accumulated depreciation, depletion, amortization
and write down
    
    
    94,401,699
    
    
    
    89,235,01148,346,649
    
    
    
    49,502,738OTHER ASSETS
    
    
    182,902
    
    
    
    111,401$
    72,562,307
    
    
    $
    71,329,497
  F-4




---



##### 



2006
    
    
    2005LIABILITIES AND PARTNERS EQUITYCURRENT LIABILITIESAccounts payable:Production and other
    
    $
    838,539
    
    
    $
    1,166,449Joint venture partners
    
    
    90,834
    
    
    
    457,926Accrued expenses
    
    
    1,055,260
    
    
    
    631,571Total current liabilities
    
    
    1,984,633
    
    
    
    2,255,946DEFERRED INCOME TAXES
    
    
    435,000
    
    
    
    ASSET RETIREMENT OBLIGATIONS
    
    
    1,743,707
    
    
    
    1,654,996COMMITMENTS AND CONTINGENCIESLIMITED PARTNERS EQUITY, SUBJECT TO REPURCHASE
RIGHTAuthorized  8,000,000 units
Issued and outstanding  5,644,094 and 5,674,678 units,
respectively
    
    
    67,595,381
    
    
    
    66,630,706GENERAL PARTNERS EQUITY
    
    
    803,586
    
    
    
    787,849Total partners equity
    
    
    68,398,967
    
    
    
    67,418,555$
    72,562,307
    
    
    $
    71,329,497
  F-5




---



##### 



2006
    
    
    2005
    
    
    2004REVENUESOil and gas sales
    
    $
    34,282,448
    
    
    $
    32,557,169
    
    
    $
    25,108,890Well management and operating
    
    
    559,962
    
    
    
    555,093
    
    
    
    560,340Other
    
    
    5,505
    
    
    
    2,089
    
    
    
    1,53034,847,915
    
    
    
    33,114,351
    
    
    
    25,670,760DIRECT COST OF REVENUESProduction costs
    
    
    3,760,391
    
    
    
    3,563,389
    
    
    
    2,996,361Well management and operating
    
    
    209,289
    
    
    
    227,249
    
    
    
    185,097Depreciation, depletion and amortization
    
    
    5,473,789
    
    
    
    4,805,380
    
    
    
    4,559,746Accretion expense
    
    
    237,147
    
    
    
    131,554
    
    
    
    99,181Abandonment of oil and gas properties
    
    
    78,752
    
    
    
    97,983
    
    
    
    40,000Total direct cost of revenues
    
    
    9,759,368
    
    
    
    8,825,555
    
    
    
    7,880,385GENERAL AND ADMINISTRATIVE EXPENSE
    
    
    2,000,493
    
    
    
    1,511,487
    
    
    
    1,452,586Total cost of revenues
    
    
    11,759,861
    
    
    
    10,337,042
    
    
    
    9,332,971INCOME FROM OPERATIONS
    
    
    23,088,054
    
    
    
    22,777,309
    
    
    
    16,337,789OTHER INCOMEInterest income
    
    
    725,231
    
    
    
    271,520
    
    
    
    105,084(Loss) gain on disposal of property and equipment
    
    
    (34,526
    )
    
    
    4,086
    
    
    
    690,705
    
    
    
    275,606
    
    
    
    105,084INCOME BEFORE INCOME TAXES
    
    
    23,778,759
    
    
    
    23,052,915
    
    
    
    16,442,873INCOME TAXES
Current
    
    
    201,045
    
    
    
    84,640
    
    
    
    39,576Deferred
    
    
    435,000
    
    
    
    
    
    
    
    636,045
    
    
    
    84,640
    
    
    
    39,576NET INCOME
    
    $
    23,142,714
    
    
    $
    22,968,275
    
    
    $
    16,403,297Allocation of Partnership Net IncomeLimited Partners
    
    $
    22,871,548
    
    
    $
    22,700,247
    
    
    $
    16,212,544General Partner
    
    
    271,166
    
    
    
    268,028
    
    
    
    190,753$
    23,142,714
    
    
    $
    22,968,275
    
    
    $
    16,403,297Net income per unit
    
    $
    4.04
    
    
    $
    3.99
    
    
    $
    2.84
  F-6




---



##### 



2006
    
    
    2005
    
    
    2004PARTNERS EQUITY  JANUARY 1
    
    $
    67,418,555
    
    
    $
    59,055,110
    
    
    $
    55,927,996Net income
    
    
    23,142,714
    
    
    
    22,968,275
    
    
    
    16,403,297Cash distributions ($3.75 per unit in 2006, $2.50 per
unit in 2005 and $2.25 per unit in 2004)
    
    
    (21,462,846
    )
    
    
    (14,370,636
    )
    
    
    (12,979,302
    )Repurchase and retirement of Units
    
    
    (699,456
    )
    
    
    (234,194
    )
    
    
    (296,881
    )PARTNERS EQUITY  DECEMBER 31
    
    $
    68,398,967
    
    
    $
    67,418,555
    
    
    $
    59,055,110
  F-7




---



##### 



2006
    
    
    2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    23,142,714
    
    
    $
    22,968,275
    
    
    $
    16,403,297Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation, depletion and amortization
    
    
    5,544,428
    
    
    
    4,850,207
    
    
    
    4,608,569Accretion expense
    
    
    237,147
    
    
    
    131,554
    
    
    
    99,181Abandonment of oil and gas properties
    
    
    78,752
    
    
    
    97,983
    
    
    
    40,000Loss (gain) on disposal of property and equipment
    
    
    34,526
    
    
    
    (4,086
    )
    
    
    Deferred income taxes
    
    
    435,000
    
    
    
    
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    342,680
    
    
    
    (2,522,313
    )
    
    
    (1,623,030
    )Other current assets
    
    
    9,092
    
    
    
    (1,382
    )
    
    
    48,863Other assets
    
    
    (71,501
    )
    
    
    12,569
    
    
    
    (3,294
    )Accounts payable
    
    
    (695,002
    )
    
    
    847,840
    
    
    
    54,807Accrued expenses
    
    
    244,220
    
    
    
    48,950
    
    
    
    30,452Total adjustments
    
    
    6,159,342
    
    
    
    3,461,322
    
    
    
    3,255,548Net cash provided by operating activities
    
    
    29,302,056
    
    
    
    26,429,597
    
    
    
    19,658,845CASH FLOWS FROM INVESTING ACTIVITIESProceeds received on receivables from employees
    
    
    53,108
    
    
    
    41,009
    
    
    
    42,356Advances disbursed to employees
    
    
    (89,400
    )
    
    
    (124,000
    )
    
    
    (39,500
    )Purchase of investments
    
    
    (8,580,618
    )
    
    
    
    
    
    
    Purchase of property and equipment
    
    
    (4,470,584
    )
    
    
    (6,400,874
    )
    
    
    (7,963,798
    )Proceeds on disposal of property and equipment
    
    
    
    
    
    
    10,500
    
    
    
    Net cash used by investing activities
    
    
    (13,087,494
    )
    
    
    (6,473,365
    )
    
    
    (7,960,942
    )CASH FLOWS FROM FINANCING ACTIVITIESDistributions
    
    
    (21,462,846
    )
    
    
    (14,370,636
    )
    
    
    (12,979,302
    )Repurchase and retirement of Units
    
    
    (699,456
    )
    
    
    (234,194
    )
    
    
    (296,881
    )Net cash used by financing activities
    
    
    (22,162,302
    )
    
    
    (14,604,830
    )
    
    
    (13,276,183
    )NET (DECREASE) INCREASE IN CASH AND
EQUIVALENTS
    
    
    (5,947,740
    )
    
    
    5,351,402
    
    
    
    (1,578,280
    )CASH AND EQUIVALENTS  JANUARY 1
    
    
    13,371,923
    
    
    
    8,020,521
    
    
    
    9,598,801CASH AND EQUIVALENTS  DECEMBER 31
    
    $
    7,424,183
    
    
    $
    13,371,923
    
    
    $
    8,020,521Supplemental disclosures of cash flow information:Cash paid during the year for:Income taxes
    
    $
    289,305
    
    
    $
    70,000
    
    
    $
    60,000
  F-8




---



##### 



Note 1. Organization and Summary of Significant Accounting Policies
 A.
    
    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).
  B.
    
    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.
 C.
    
    Use of Estimates  The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America 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.
 D.
    
    Fair Value of Financial Instruments  The fair values of cash and
equivalents, accounts receivable, accounts payable and other short-term obligations
approximate their carrying values because of the short maturity of these financial
instruments. The carrying values of the Companys long-term obligations
approximate their fair value. In accordance with Statement of Financial Accounting
Standards (SFAS) No. 107, Disclosure About Fair Value of Financial Instruments,
rates available at balance sheet dates to the Company are used to estimate the fair
value of existing obligations.
 E.
    
    Cash and Equivalents  The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents. The Company maintains at various financial institutions cash and
equivalents which may exceed federally insured amounts and which may, at times,
significantly exceed balance sheet amounts due to float.
 F-9




---



##### 



Note 1. Organization and Summary of Significant Accounting Policies (Continued)
 F.
    
    Investments  The Companys investments consist of commercial paper
with original maturity dates of greater than three months, which are recorded at
their amortized cost. Interest earnings on investments amounted to approximately
$180,100 during the year ended December 31, 2006. The Company did not hold any
investments in 2005.
 G.
    
    Property and Equipment  The Company uses the successful efforts
method of accounting for oil and gas exploration and production activities. Under
successful efforts, costs to acquire mineral interests in oil and gas properties,
to drill and equip development wells and related asset retirement costs are
capitalized. Costs of development wells (on properties the Company has no further
interest in) that do not find proved reserves and geological and geophysical costs
are expensed. The Company has not participated in exploratory drilling and owns no
interest in unproved properties.
     F-10




---



##### 



Note 1. Organization and Summary of Significant Accounting Policies (Continued)
 G.
    
    Property and Equipment (Continued)Maintenance and repairs of property and equipment are expensed as incurred. Major
renewals and improvements are capitalized, and the assets replaced are retired.H.
    
    Asset Retirement Obligations  The Company follows SFAS No. 143, 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.
    2006
    
    
    2005Beginning of Period
    
    $
    1,854,996
    
    
    $
    1,267,223Liabilities incurred
    
    
    31,033
    
    
    
    37,029Liabilities settled
    
    
    (19,469
    )
    
    
    Accretion expense
    
    
    237,147
    
    
    
    131,554Revisions in estimated cash flows
    
    
    
    
    
    
    419,190Total
    
    $
    2,103,707
    
    
    $
    1,854,996
 F-11




---



##### 



Note 1. Organization and Summary of Significant Accounting Policies (Continued)
 H.
    
    Asset Retirement Obligations (Continued)
  I.
    
    Revenue Recognition  The Company recognizes oil and gas revenues when
production is sold to a purchaser at a fixed or determinable price, when delivery
has occurred, title and risk of loss have transferred to the purchaser, and
collectibility of the revenue is reasonably assured. The Company utilizes the
sales method to account for gas production volume imbalances. Under this method,
income is recorded based on the Companys net revenue interest in production taken
for delivery. The Company had no material gas imbalances at December 31, 2006 and
2005. Other revenue is recognized at the time services are rendered, the Company
has a contractual right to such revenue and collection is reasonably assured.
  J.
    
    Income Taxes  Everflow is not a tax-paying entity and the net taxable
income or loss, other than the taxable income or loss allocable to EEI, which is a
C corporation owned by Everflow, will be allocated directly to its respective
partners. The Company is not able to determine the net difference between the tax
bases and the reported amounts of Everflows assets and liabilities due to separate
tax elections that were made by owners of the working interests and limited
partnership interests that comprised Programs.
  F-12




---



##### 



Note 1. Organization and Summary of Significant Accounting Policies (Continued)
 J.
    
    Income Taxes (Continued)
  K.
    
    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. The allocation changes as unitholders elect to
exercise the repurchase right (see Note 3).
  L.
    
    New Accounting Standards  In June 2006, the Financial Accounting
Standards Board issued Financial Interpretation No. 48 (FIN 48), Accounting for
Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109. FIN
48 addresses the accounting 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
specific criteria for the financial statement recognition and measurement of the
tax effects of a position taken or expected to be taken in a tax return. This
interpretation also provides guidance on derecognition of previously recognized tax
benefits, classification of tax liabilities on the balance sheet, recording
interest and penalties on tax underpayments, accounting in interim periods, and
disclosure requirements. FIN 48 is effective for fiscal periods beginning after
December 15, 2006. Adoption of this standard is not expected to materially impact
the Companys financial statements.
  F-13




---



##### 



Note 1. Organization and Summary of Significant Accounting Policies (Continued)
 L.
    
    New Accounting Standards (Continued)
   M.
    
    Reclassifications  Certain prior year amounts have been reclassified
to conform with the current years presentation.
 Note 2. Credit Facilities and Long-Term Debt
   Note 3. Partners Equity
  F-14




---



##### 



Note 3. Partners Equity (Continued)
    Per UnitCalculated
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnitsPrice for
    
    Less
    
    
    
    
    
    
    
    
    
    OutstandingRepurchase
    
    Interim
    
    Net
    
    # of Units
    
    FollowingYear
    
    Right
    
    Distributions
    
    Price Paid
    
    Repurchased
    
    Repurchase2003
    
    $
    8.94
    
    
    $
    .50
    
    
    $
    8.44
    
    
    
    34,034
    
    
    
    5,714,7392004
    
    $
    13.44
    
    
    $
    1.00
    
    
    $
    12.44
    
    
    
    23,865
    
    
    
    5,690,8742005
    
    $
    15.46
    
    
    $
    1.00
    
    
    $
    14.46
    
    
    
    16,196
    
    
    
    5,674,6782006
    
    $
    24.37
    
    
    $
    1.50
    
    
    $
    22.87
    
    
    
    30,584
    
    
    
    5,644,094
 F-15




---



##### 



Note 4. Provision for Income Taxes
  Year Ended December 31,2006
    
    
    2005
    
    
    2004Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Provision based on the
statutory rate (for taxable
income up to $10,000,000)
    
    $
    8,085,000
    
    
    
    34.0
    
    
    $
    7,838,000
    
    
    
    34.0
    
    
    $
    5,591,000
    
    
    
    34.0Tax effect of:Non-taxable status of the
Programs and Everflow
    
    
    (7,413,000
    )
    
    
    (31.2
    )
    
    
    (7,301,000
    )
    
    
    (31.7
    )
    
    
    (5,226,000
    )
    
    
    (31.8
    )Excess statutory depletion
    
    
    (99,000
    )
    
    
    (0.4
    )
    
    
    (99,000
    )
    
    
    (0.4
    )
    
    
    (80,000
    )
    
    
    (0.5
    )Graduated tax rates, state
income tax, tax credits
and other  net
    
    
    63,045
    
    
    
    0.3
    
    
    
    (353,360
    )
    
    
    (1.5
    )
    
    
    (245,424
    )
    
    
    (1.5
    )Total
    
    $
    636,045
    
    
    
    2.7
    
    
    $
    84,640
    
    
    
    0.4
    
    
    $
    39,576
    
    
    
    0.2
  Note 5. Retirement Plan
  F-16




---



##### 



Note 6. Related Party Transactions
  Note 7. Business Segments, Risks and Major Customers
     Customer
    
    2006
    
    2005
    
    2004Dominion Field Services, Inc., its
affiliates and
its predecessors (Dominion)
    
    
    40
    %
    
    
    40
    %
    
    
    46
    %Ergon Oil Purchasing, Inc. (Ergon Oil)
    
    
    12
    
    
    
    12
    
    
    
    10Interstate Gas Supply, Inc. (IGS)
    
    
    18
    
    
    
    18
    
    
    
    2170
    %
    
    
    70
    %
    
    
    77
    %
 F-17




---



##### 



Note 7. Business Segments, Risks and Major Customers (Continued)
   Jan
    
    Feb
    
    Mar
    
    Apr
    
    May
    
    Jun2007
    
    2007
    
    2007
    
    2007
    
    2007
    
    2007MCF
    
    
    130,000
    
    
    
    130,000
    
    
    
    130,000
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    150,000Price
    
    $
    9.93
    
    
    $
    9.93
    
    
    $
    9.93
    
    
    $
    9.74
    
    
    $
    9.74
    
    
    $
    9.55
 Jul
    
    Aug
    
    Sep
    
    Oct
    
    Nov
    
    Dec2007
    
    2007
    
    2007
    
    2007
    
    2007
    
    2007MCF
    
    
    100,000
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    140,000
    
    
    
    120,000Price
    
    $
    9.74
    
    
    $
    9.74
    
    
    $
    9.74
    
    
    $
    9.74
    
    
    $
    9.80
    
    
    $
    9.86
 Jan
    
    Feb
    
    Mar
    
    Apr
    
    May
    
    Jun2008
    
    2008
    
    2008
    
    2008
    
    2008
    
    2008MCF
    
    
    120,000
    
    
    
    120,000
    
    
    
    120,000
    
    
    
    90,000
    
    
    
    90,000
    
    
    
    90,000Price
    
    $
    9.86
    
    
    $
    9.86
    
    
    $
    9.86
    
    
    $
    9.16
    
    
    $
    9.16
    
    
    $
    9.16
 Jul
    
    Aug
    
    Sep
    
    Oct2008
    
    2008
    
    2008
    
    2008MCF
    
    
    90,000
    
    
    
    90,000
    
    
    
    90,000
    
    
    
    90,000Price
    
    $
    9.16
    
    
    $
    9.16
    
    
    $
    9.16
    
    
    $
    9.16
 F-18




---



##### 



Note 7. Business Segments, Risks and Major Customers (Continued)
  Jan
    
    Feb
    
    Mar
    
    Apr
    
    May
    
    Jun2007
    
    2007
    
    2007
    
    2007
    
    2007
    
    2007MCF
    
    
    70,000
    
    
    
    70,000
    
    
    
    70,000
    
    
    
    50,000
    
    
    
    50,000
    
    
    
    90,000Price
    
    $
    10.40
    
    
    $
    10.40
    
    
    $
    10.40
    
    
    $
    9.38
    
    
    $
    9.38
    
    
    $
    9.32
 Jul
    
    Aug
    
    Sep
    
    Oct
    
    Nov
    
    Dec2007
    
    2007
    
    2007
    
    2007
    
    2007
    
    2007MCF
    
    
    50,000
    
    
    
    50,000
    
    
    
    50,000
    
    
    
    50,000
    
    
    
    80,000
    
    
    
    60,000Price
    
    $
    9.38
    
    
    $
    9.38
    
    
    $
    9.38
    
    
    $
    9.38
    
    
    $
    9.55
    
    
    $
    9.46
 Jan
    
    Feb
    
    Mar
    
    Apr
    
    May
    
    Jun2008
    
    2008
    
    2008
    
    2008
    
    2008
    
    2008MCF
    
    
    60,000
    
    
    
    60,000
    
    
    
    60,000
    
    
    
    40,000
    
    
    
    40,000
    
    
    
    40,000Price
    
    $
    9.46
    
    
    $
    9.46
    
    
    $
    9.46
    
    
    $
    9.12
    
    
    $
    9.12
    
    
    $
    9.12
 Jul
    
    Aug
    
    Sep
    
    Oct2008
    
    2008
    
    2008
    
    2008MCF
    
    
    40,000
    
    
    
    40,000
    
    
    
    40,000
    
    
    
    40,000Price
    
    $
    9.12
    
    
    $
    9.12
    
    
    $
    9.12
    
    
    $
    9.12
  F-19




---



##### 



Note 8. Commitments and Contingencies
   Note 9. Selected Quarterly Financial Data (Unaudited)
  Quarters EndedMarch 31
    
    June 30
    
    September 30
    
    December 312006Revenues
    
    $
    9,539,090
    
    
    $
    8,079,677
    
    
    $
    8,607,349
    
    
    $
    8,621,799Income from operations
    
    
    6,821,042
    
    
    
    5,494,945
    
    
    
    5,896,245
    
    
    
    4,875,822Net income
    
    
    6,892,377
    
    
    
    5,634,514
    
    
    
    5,868,886
    
    
    
    4,746,937Net income per unit
    
    
    1.20
    
    
    
    0.98
    
    
    
    1.03
    
    
    
    0.83
 Quarters EndedMarch 31
    
    June 30
    
    September 30
    
    December 312005Revenues
    
    $
    5,813,500
    
    
    $
    7,379,613
    
    
    $
    8,053,619
    
    
    $
    11,867,619Income from operations
    
    
    3,414,384
    
    
    
    5,059,288
    
    
    
    5,331,105
    
    
    
    8,972,532Net income
    
    
    3,461,021
    
    
    
    5,116,275
    
    
    
    5,374,890
    
    
    
    9,016,089Net income per unit
    
    
    0.60
    
    
    
    0.89
    
    
    
    0.94
    
    
    
    1.56
  F-20




---



##### 



Note 10. Supplemental Information Relating to Oil and Gas Producing Activities
(Unaudited)
   
 Years ended December 31,2006
    
    
    2005
    
    
    2004Proved oil and gas properties
    
    $
    140,443,938
    
    
    $
    136,388,136
    
    
    $
    129,734,209Pipeline and support equipment
    
    
    528,193
    
    
    
    532,229
    
    
    
    621,481140,972,131
    
    
    
    136,920,365
    
    
    
    130,355,690Accumulated depreciation,
depletion,
amortization and write down
    
    
    94,064,163
    
    
    
    88,767,760
    
    
    
    84,127,102Net capitalized costs
    
    $
    46,907,968
    
    
    $
    48,152,605
    
    
    $
    46,228,588
  Years ended December 31,2006
    
    2005
    
    2004Property acquisition costs
    
    $
    173,704
    
    
    $
    321,395
    
    
    $
    318,155Development costs
    
    
    4,101,986
    
    
    
    6,017,543
    
    
    
    7,384,951
  F-21




---



##### 



Note 10. Supplemental Information Relating to Oil and Gas Producing Activities
(Unaudited) (Continued)
  Years ended December 31,2006
    
    
    2005
    
    
    2004Oil and gas sales
    
    $
    34,282,448
    
    
    $
    32,557,169
    
    
    $
    25,108,890Production costs
    
    
    (3,760,391
    )
    
    
    (3,563,389
    )
    
    
    (2,996,361
    )Depreciation, depletion and
amortization
    
    
    (5,473,789
    )
    
    
    (4,805,380
    )
    
    
    (4,559,746
    )Accretion expense
    
    
    (237,147
    )
    
    
    (131,554
    )
    
    
    (99,181
    )Abandonment of oil and gas properties
    
    
    (78,752
    )
    
    
    (97,983
    )
    
    
    (40,000
    )24,732,369
    
    
    
    23,958,863
    
    
    
    17,413,602Income tax expense
    
    
    500,000
    
    
    
    260,000
    
    
    
    100,000Results of operations for oil and gas
producing activities (excluding
corporate overhead and financing
costs)
    
    $
    24,232,369
    
    
    $
    23,698,863
    
    
    $
    17,313,602
  F-22




---



##### 



Note 10. Supplemental Information Relating to Oil and Gas Producing Activities
(Unaudited) (Continued)
  Oil
    
    Gas(BBLS)
    
    (MCF)Balance, January 1, 2004
    
    
    703,000
    
    
    
    47,069,000Extensions, discoveries and other
additions
    
    
    65,000
    
    
    
    3,194,000Production
    
    
    (72,000
    )
    
    
    (3,932,000
    )Revision of previous estimates
    
    
    86,000
    
    
    
    3,019,000Balance, December 31, 2004
    
    
    782,000
    
    
    
    49,350,000Extensions, discoveries and other
additions
    
    
    32,000
    
    
    
    1,355,000Production
    
    
    (72,000
    )
    
    
    (3,878,000
    )Revision of previous estimates
    
    
    61,000
    
    
    
    4,216,000Balance, December 31, 2005
    
    
    803,000
    
    
    
    51,043,000Extensions, discoveries and other
additions
    
    
    1,000
    
    
    
    808,000Production
    
    
    (72,000
    )
    
    
    (3,500,000
    )Revision of previous estimates
    
    
    (14,000
    )
    
    
    (5,345,000
    )Balance, December 31, 2006
    
    
    718,000
    
    
    
    43,006,000PROVED DEVELOPED RESERVES:December 31, 2003
    
    
    703,000
    
    
    
    47,069,000December 31, 2004
    
    
    782,000
    
    
    
    49,350,000December 31, 2005
    
    
    803,000
    
    
    
    51,043,000December 31, 2006
    
    
    718,000
    
    
    
    43,006,000
  F-23




---



##### 



Note 10. Supplemental Information Relating to Oil and Gas Producing Activities
(Unaudited) (Continued)
 
 December 31,2006
    
    
    2005
    
    
    2004(Thousands of Dollars)Future cash inflows from sales of oil
and gas
    
    $
    313,397
    
    
    $
    566,186
    
    
    $
    352,486Future production and development
costs
    
    
    107,322
    
    
    
    139,946
    
    
    
    105,807Future asset retirement obligations,
net of
salvage
    
    
    9,220
    
    
    
    9,145
    
    
    
    3,509Future income tax expense
    
    
    4,294
    
    
    
    8,997
    
    
    
    5,133Future net cash flows
    
    
    192,561
    
    
    
    408,098
    
    
    
    238,037Effect of discounting future net cash
flows at 10% per annum
    
    
    87,846
    
    
    
    219,835
    
    
    
    118,948Standardized measure of discounted
future net cash flows
    
    $
    104,715
    
    
    $
    188,263
    
    
    $
    119,089
 
 Years Ended December 31,2006
    
    
    2005
    
    
    2004(Thousands of Dollars)Balance, beginning of year
    
    $
    188,263
    
    
    $
    119,089
    
    
    $
    101,843Extensions, discoveries and other
additions
    
    
    1,947
    
    
    
    6,380
    
    
    
    9,487Development costs incurred
    
    
    412
    
    
    
    1,436
    
    
    
    349Revision of quantity estimates
    
    
    (11,822
    )
    
    
    15,809
    
    
    
    8,456Sales of oil and gas, net of production
costs
    
    
    (30,522
    )
    
    
    (28,994
    )
    
    
    (22,113
    )Net change in income taxes
    
    
    1,836
    
    
    
    (1,534
    )
    
    
    (203
    )Net changes in prices and production
costs
    
    
    (75,149
    )
    
    
    63,400
    
    
    
    10,504Accretion of discount
    
    
    18,826
    
    
    
    11,909
    
    
    
    10,184Other
    
    
    10,924
    
    
    
    768
    
    
    
    582Balance, end of year
    
    $
    104,715
    
    
    $
    188,263
    
    
    $
    119,089
 F-24




---



##### 



Note 10. Supplemental Information Relating to Oil and Gas Producing Activities
(Unaudited) (Continued)
   F-25




---



##### 



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
  ITEM 9A. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Managements Report on Internal Control Over Financial Reporting
  -33-




---



##### 



Internal Control-Integrated Framework
   1)
    
    We did not have adequate controls in place to establish and maintain an
effective control environment. Specifically, we did not establish and maintain
sufficient, documented and formalized consistent finance and accounting policies.
This material weakness in the control environment increases the likelihood of
material misstatements of our annual and interim financial statements that would not
be prevented or detected.2)
    
    We did not maintain sufficient, formalized written policies and procedures
governing the financial reporting process. Effective controls were not designed and
in place to provide reasonable assurance that accounts were complete and accurate and
agreed to the detailed supporting documentation.3)
    
    We did not maintain effective controls, including policies and procedures,
over accounting for property and equipment. Specifically, we do not have a
comprehensive formal policy regarding property and equipment. As a result, asset
retirements were not identified and their values were not properly assessed and
adjusted for based on their status in the proper accounting period.
 -34-




---



##### 



Additionally,
depletion, depreciation and amortization was not properly assessed and adjusted for
within the framework of an effective control environment.4)
    
    We did not maintain effective controls, including policies and procedures,
over accounting for crude oil and natural gas production accruals. Specifically, we
did not establish a formal written policy regarding crude oil and natural gas
production accruals. As a result, accrued oil and gas production revenues were not
properly assessed and adjusted for within the framework of an affective control
environment.5)
    
    We did not maintain effective controls over access by personnel to
information technology programs and systems. Specifically, we do not have adequate
policies and procedures to control security access, as well as a lack of independent
review of such access.
 Internal Control  Integrated Framework
  Changes in Internal Control Over Financial Reporting
  Remediation of Material Weaknesses in Internal Control Over Financial Reporting
  
    
    Management has communicated its endorsement and reinforced its commitment to maintaining
sound and effective internal controls over financial reporting;
 -35-




---



##### 




    
    Additional effective control policies and procedures established as a result of the new
financial data reporting system implemented during 2006 will assist us in establishing and
maintaining effective policies and procedures governing the financial reporting process;
    
    Additional personnel resources have been identified to address the shortfalls in
staffing to assist us with accounting, finance and information technology responsibilities;
    
    Review of existing control policies and procedures and further design and documentation
of additional policies and procedures as necessary to provide reasonable assurance that we
comply with these enhanced policies and procedures in key areas, including accounting for
property and equipment and crude oil and natural gas production accruals;
    
    Additional control policies and procedures have been identified and are in the process
of being added to appropriately restrict and monitor access to our information technology
programs and systems.
  Report of Independent Registered Public Accounting Firm
 
    -36-




---



##### 



1.
    
    The Company did not have adequate controls in place to establish and
maintain an effective control environment. Specifically, the Company did not
establish and maintain sufficient, documented and formalized consistent finance and
accounting policies. This material weakness in the control environment increases the
likelihood of material misstatements of our annual and interim financial statements
that would not be prevented or detected.2.
    
    The Company did not maintain sufficient, formalized written policies and
procedures governing the financial reporting process. Effective controls were not
designed and in place to provide reasonable assurance that accounts were complete and
accurate and agreed to the detailed supporting documentation.3.
    
    The Company did not maintain effective controls, including policies and
procedures, over accounting for property and equipment. Specifically, the Company
did not have a comprehensive formal policy regarding property and equipment. As a
result, asset retirements were not identified and their values were not properly
assessed and adjusted for based on their status in the proper accounting period.
Additionally, depletion, depreciation and amortization was not properly assessed and
adjusted for within the framework of an effective control environment.4.
    
    The Company did not maintain effective controls, including policies and
procedures, over accounting for crude oil and natural gas production accruals.
Specifically, the Company did not establish a formal written policy regarding
 -37-




---



##### 



5.
    
    The Company did not maintain effective controls over access by personnel to
information technology programs and systems. Specifically, the company did not have
adequate policies and procedures to control security access, as well as a lack of
independent review of such access.
  Internal Control  Integrated Framework
   
 ITEM 9B. OTHER INFORMATION
  -38-




---



##### 



PART III
 ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    Directors and Officers of EEI and EMC
 Positions and
    
    Positions andName
    
    Age
    
    Offices with EEI
    
    Offices with EMCRobert F. Sykes
    
    
    83
    
    
    Chairman of the Board
    
    Chairman of the Board
and DirectorThomas L. Korner
    
    
    53
    
    
    President, Principal
Executive Officer
and Director
    
    President, Principal
Executive Officer
and DirectorWilliam A. Siskovic
    
    
    51
    
    
    Vice President, Secretary 
Treasurer, Principal
Financial and Accounting
Officer and Director
    
    Vice President, Secretary 
Treasurer, Principal
Financial and Accounting
Officer and Director
  -39-




---



##### 



Robert F. Sykes
 Thomas L. Korner
 William A. Siskovic
 Audit Committee
  -40-




---



##### 



REPORT OF THE AUDIT COMMITTEE
  Communication with Audit Committees
 Independence Discussions with Audit Committee
   Robert F. Sykes (Chairman)Thomas L. Korner
William A. Siskovic Code of Ethics
  Compliance to Section 16(a) of the Exchange Act
 -41-




---



##### 



ITEM 11. EXECUTIVE COMPENSATION
  Compensation Discussion and Analysis
    
    
    Attracting, developing, retaining and rewarding highly qualified and productive
individuals.
    
    Aligning compensation to both the Company and individual performance.
  Overview of 2006 Executive Compensation Components
  
    
    base salary
    
    annual cash bonuses
    
    retirement and other benefits
 -42-




---



##### 



Base Salary
  Annual Cash Bonuses
    Retirement and Other Benefits
   -43-




---



##### 



Annual CompensationAll OtherName and Principal Position
    
    Year
    
    Salary
    
    Bonus
    
    Compensation (1)
    
    TotalThomas L. Korner
    
    
    2006
    
    
    $
    100,800
    
    
    $
    90,000
    
    
    $
    35,969
    (2)
    
    $
    226,769President and Principal
    
    
    2005
    
    
    
    100,800
    
    
    
    77,500
    
    
    
    32,195
    (3)
    
    
    210,495Executive Officer
    
    
    2004
    
    
    
    100,800
    
    
    
    86,000
    
    
    
    32,403
    (4)
    
    
    219,203William A. Siskovic
    
    
    2006
    
    
    $
    100,800
    
    
    $
    90,000
    
    
    $
    35,200
    (5)
    
    $
    226,000Vice President and
    
    
    2005
    
    
    
    100,800
    
    
    
    77,500
    
    
    
    32,066
    (6)
    
    
    210,366Principal Financial and
    
    
    2004
    
    
    
    100,800
    
    
    
    86,000
    
    
    
    31,670
    (7)
    
    
    218,470Accounting Officer
 
 No Named Executive Officer received personal benefits or perquisites during 2006, 2005 and 2004 in
excess of $10,000.(1)
    
    Includes amounts contributed under the Companys 401(K) Retirement Savings Plan. The
Company matched employees contributions to the 401(K) Retirement Savings Plan to the extent
of 100% of the first 6% of a participants salary reduction. Also includes amounts
contributed under the profit sharing component of the Companys 401(K) Retirement Savings
Plan. The amounts attributable to the Companys matching and profit sharing contributions
vest immediately. Includes amounts considered taxable wages with respect to personal use of a
Company vehicle and the Companys Group Term Life Insurance Plan.(2)
    
    Includes $20,604 contributed under the profit sharing component of the Companys
401(K) Retirement Savings Plan. Includes $11,460 contributed by the Company as matching
contribution from the Companys 401(K) Retirement Savings Plan. Includes $3,015 considered
taxable wages with respect to personal use of a Company vehicle. Includes $690 considered
taxable wages with respect to the Companys Group Term Life Insurance Plan.(3)
    
    Includes $18,304 contributed under the profit sharing component of the Companys
401(K) Retirement Savings Plan. Includes $10,698 contributed by the Company as matching
contribution from the Companys 401(K) Retirement Savings Plan. Includes $2,441 considered
taxable wages with respect to personal use of a Company vehicle. Includes $690 considered
taxable wages with respect to the Companys Group Term Life Insurance Plan.(4)
    
    Includes $17,644 contributed under the profit sharing component of the Companys
401(K) Retirement Savings Plan. Includes $11,488 contributed by the Company as matching
contribution from the Companys 401(K) Retirement Savings Plan. Includes $2,581 considered
taxable wages with respect to personal use of a Company vehicle. Includes $690 considered
taxable wages with respect to the Companys Group Term Life Insurance Plan.(5)
    
    Includes $20,604 contributed under the profit sharing component of the Companys
401(K) Retirement Savings Plan. Includes $11,460 contributed by the Company as matching
contribution from the Companys 401(K) Retirement Savings Plan. Includes $2,246 considered
taxable wages with respect to personal use of a Company vehicle. Includes $690 considered
taxable wages with respect to the Companys Group Term Life Insurance Plan.(6)
    
    Includes $18,304 contributed under the profit sharing component of the Companys
401(K) Retirement Savings Plan. Includes $10,698 contributed by the Company as matching
contribution from the Companys 401(K) Retirement Savings Plan. Includes $2,554 considered
taxable wages with respect to personal use of a Company vehicle. Includes $450 considered
taxable wages with respect to the Companys Group Term Life Insurance Plan.(7)
    
    Includes $17,644 contributed under the profit sharing component of the Companys
401(K) Retirement Savings Plan. Includes $11,488 contributed by the Company as matching
contribution from the Companys 401(K) Retirement Savings Plan. Includes $2,088 considered
taxable wages with respect to personal use of a Company vehicle. Includes $450 considered
taxable wages with respect to the Companys Group Term Life Insurance Plan. -44-




---



##### 



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
   BENEFICIAL OWNERSHIP OF UNITS IN THE COMPANY,
EVERFLOW MANAGEMENT LIMITED, LLC AND EMC
 PercentageInterest inPercentage
    
    Everflow
    
    PercentageName
    
    Units
    
    of Units
    
    Management
    
    Interest inof Holder
    
    in Company
    
    in Company(1)
    
    Limited, LLC(2)
    
    EMCRobert F. Sykes(3)
    
    
    1,056,464
    
    
    
    18.72
    
    
    
    66.6666
    
    
    
    66.6666Thomas L. Korner
    
    
    138,575
    
    
    
    2.45
    
    
    
    16.6667
    
    
    
    16.6667William A. Siskovic
    
    
    71,731
    
    
    
    1.27
    
    
    
    16.6667
    
    
    
    16.6667All officers and directors as
a group (3 persons in EMC)
    
    
    1,266,770
    
    
    
    22.44
    
    
    
    100.0000
    
    
    
    100.0000
 
 (1)
    
    Does not include the interest in the Company owned indirectly by such
individuals as a result of their ownership in (i) the General Partner (based on its 1.17%
interest in the Company) or (ii) EMC (based on EMCs 1% managing members interest in the
General Partner).(2)
    
    Includes the interest in the General Partner owned indirectly by such
individuals as a result of their share ownership in EMC resulting from EMCs 1% managing
members interest in the General Partner.(3)
    
    Includes 732,855 Units held by Sykes Associates, LLC, a New York limited
liability company owned by the four adult children of Mr. Sykes as members, 162,462 Units of
the Company held by the Robert F. Sykes Annuity Trust and 161,147 Units held by the Catherine
Sykes Annuity Trust. -45-




---



##### 



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
   ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  December 31,2006
    
    
    2005Audit fees
    
    $
    135,964
    
    
    $
    107,020Audit related fees
    
    
    -0-
    
    
    
    -0-Tax fees
    
    
    -0-
    
    
    
    -0-All other fees
    
    
    -0-
    
    
    
    -0-Total
    
    $
    135,964
    
    
    $
    107,020
   -46-




---



##### 



-47-




---



##### 



PART IV
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 Financial Statements
  Page(s)Report of Independent Registered Public Accounting Firm
    
    F-3Balance Sheets
    
    F-4  F-5Statements of Income
    
    F-6Statements of Partners Equity
    
    F-7Statements of Cash Flows
    
    F-8Notes to Financial Statements
    
    F-9  F-25
 Financial Statements Schedules
  Exhibits
  Exhibits required by Item 601 of Regulation S-K
  Financial Statements Schedules required by Regulation S-X (17 CFR 210)
  -48-




---



##### 



SIGNATURES
  EVERFLOW EASTERN PARTNERS, L.P.By:
    
    EVERFLOW MANAGEMENT LIMITED, LLC
General PartnerBy:
    
    EVERFLOW MANAGEMENT CORPORATION
Managing MemberBy:
    
    /s/ Robert F. Sykes
    
    Director
    
    March 16, 2007Robert F. SykesBy:
    
    /s/ Thomas L. Korner

Thomas L. Korner
    
    President and Director
(principal executive
officer)
    
    March 16, 2007By:
    
    /s/ William A. Siskovic

William A. Siskovic
    
    Vice President,
Secretary-Treasurer
and Director (principal
financial and accounting
officer)
    
    March 16, 2007




---



##### 



Exhibit Index
 Exhibit No.
    
    Description3.1
    
    Certificate of Limited Partnership of the Registrant
dated September 13, 1990, as filed with the Delaware
Secretary of State on September 14, 1990
    
    
    (1
    )3.2
    
    Form of Agreement of Limited Partnership of the
Registrant
    
    
    (1
    )3.3
    
    General Partnership Agreement of Everflow
Management Company
    
    
    (1
    )3.4
    
    Articles of Incorporation of Everflow Management
Corporation
    
    
    (1
    )3.5
    
    Code of Regulations of Everflow Management
Corporation
    
    
    (1
    )3.6
    
    Shareholders Agreement for Everflow Management Corporation
    
    
    (1
    )10.1
    
    Credit Agreement dated January 19, 1995 between
Everflow Eastern, Inc. and Everflow Eastern Partners, L.P.
and Bank One, Texas, National Association
    
    
    (2
    )10.2
    
    Operating facility lease dated October 3, 1995 between
Everflow Eastern Partners, L.P. and A-1 Storage of
Canfield, Ltd.
    
    
    (3
    )10.3
    
    Amendment to Credit Agreement dated February 23, 1996
between Everflow Eastern, Inc. and Everflow Eastern
Partners, L.P. and Bank One, Texas, National Association
    
    
    (5
    )10.4
    
    Second Amendment to Credit Agreement dated December 30,
1996 between Everflow Eastern, Inc. and Everflow Partners,
L.P. and Bank One, Texas, National Association
    
    
    (5
    )10.5
    
    Loan Modification Agreement dated June 16, 1997 between
Bank One, N.A., Bank One, Texas, N.A. and Everflow
Eastern, Inc. and Everflow Eastern Partners, L.P.
    
    
    (6
    )10.6
    
    Loan Modification Agreement dated May 29, 1998 between
Bank One, N.A., Successor to Bank One, Texas, N.A., and
Everflow Eastern, Inc. and Everflow Eastern Partners L.P.
    
    
    (7
    )10.7
    
    Articles of Organization of Everflow Management
Limited, LLC
    
    
    (8
    )
 E-1




---



##### 



Exhibit Index
 Exhibit No.
    
    Description10.8
    
    Operating Agreement of Everflow Management Limited,
LLC dated March 8, 1999
    
    
    (8
    )10.9
    
    Loan Modification Agreement dated May 25, 1999 between
Bank One, N.A., and Everflow Eastern, Inc. and Everflow
Eastern Partners, L.P.
    
    
    (9
    )10.10
    
    Loan Modification Agreement dated September 19, 2000,
between Bank One, N.A., and Everflow Eastern, Inc.
and Everflow Eastern Partners, L.P.
    
    
    (10
    )10.11
    
    Loan Modification Agreement dated August 28, 2001
between Bank One, N.A., and Everflow Eastern, Inc.
and Everflow Eastern Partners, L.P.
    
    
    (11
    )14.1
    
    Code of Ethics21.1
    
    Subsidiaries of the Registrant
    
    
    (4
    )31.1
    
    Certification of CEO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of CFO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 
 (1)
    
    Incorporated herein by reference to the appropriate exhibit to Registrants Registration
Statement on Form S-1 (Reg. No. 33-36919).(2)
    
    Incorporated herein by reference to the appropriate exhibit to the Registrants Annual Report
on Form 10-K for the year ended December 31, 1994 (File No. 0-19279).(3)
    
    Incorporated herein by reference to the appropriate exhibit to the Registrants Quarterly
Report on Form 10-Q for the third quarter ended September 30, 1995 (File No. 0-19279).(4)
    
    Incorporated herein by reference to the appropriate exhibit to the Registrants Annual Report
on Form 10-K for the year ended December 31, 1995 (File No. 0-19279).(5)
    
    Incorporated herein by reference to the appropriate exhibit to the Registrants Annual Report
on Form 10-K for the year ended December 31, 1996 (File No. 0-19279).(6)
    
    Incorporated herein by reference to the appropriate exhibit to the Registrants Quarterly
Report on Form 10-Q for the second quarter ended June 30, 1997 (File No. 0-19279).(7)
    
    Incorporated herein by reference to the appropriate exhibit to the Registrants Quarterly
Report on Form 10-Q for the second quarter ended June 30, 1998 (File No. 0-19279).(8)
    
    Incorporated herein by reference to the appropriate exhibit to the Registrants Quarterly
Report on Form 10-Q for the first quarter ended March 31, 1999 (File No. 0-19279).(9)
    
    Incorporated herein by reference to the appropriate exhibit to the Registrants Quarterly
Report on Form 10-Q for the second quarter ended June 30, 1999 (File No. 0-19279).(10)
    
    Incorporated herein by reference to the appropriate exhibit to the Registrants Quarterly
Report on Form 10-Q for the third quarter ended September 30, 2000 (File No. 0-19279).(11)
    
    Incorporated herein by reference to the appropriate exhibit to the Registrants Quarterly
Report on Form 10-Q for the third quarter ended September 30, 2001 (File No. 0-19279). E-2