UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D. C. 20549
 
 FORM
10-KSB
 
 (Mark
One)
 [X]
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the
fiscal year ended August 31, 2008
 
 [ ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the
transition period from ___________ to ___________
 
 Commission
File Number: 000-32015
 
 Aztec
Oil & Gas, Inc.
 (Name of
small business issuer in its charter)
 
 Nevada
                
                90-0251902(State
      or other jurisdiction of Identification No.)
                
                (IRS
      Employer incorporation or
organization)
 
 One
Riverway, Suite 1700, Houston, Texas 77056
 (Address
of principal executive offices) (Zip code)
 
 Issuers
telephone number: (713) 840-6444
 Fax
number: (713) 840-6323
 
 Securities
registered under Section 12(b) of the Exchange Act: None
 Securities
registered under Section 12(g) of the Exchange Act: None
 
 Common
Stock, par value $0.001
 (Title of
class)
 
 Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No [ ]
 
 Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this Form, and no disclosure will be contained, to
the best of Registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [  ]
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [  ] No [X]
 
 State the
issuer’s revenue for its most recent fiscal year (ended August 31, 2008):
$371,842
 
 State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked prices of such common equity, as of December
15, 2008: $0.08
 
 State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the most practicable date:As of November 10, 2008, there were 32,692,799
shares of Common Stock, $0.001 par value, outstanding.
 
 Transitional
Small Business Disclosure Format (Check one): Yes_____ No X
  
  
 TABLE
OF CONTENTS
 
 PAGEPART
      IItem
      1.Description of Business
                3Item
      2.Description of Property
                9Item
      3.Legal Proceedings
                10Item
      4.Submission of Matters to a Vote of Security Holders
                10PART
      IIItem
      5.Market for Common Equity and Related Stockholder Matters and Small
      Business Issuer Purchases of Equity Securities
                10Item
      6.Management’s Discussion and Analysis or Plan of
Operation
                11Item
      7.Financial Statements
                12Item
      8.Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure
                30Item
      8A.Controls and Procedures
                30PART
      IIIItem
      9.Directors, Executive Officers, Promoters and Control Persons; Compliance
      with Section 16(a) of the Exchange Act
                30Item
      10.Executive Compensation.
                33Item
      11.Security Ownership of Certain Beneficial Owners and
      Management
                35Item
      12.Certain Relationships and Related Transactions, and Director
      Independence
                37Item
      13.Exhibits
                37Item
      14.Principal Accountant Fees and Services.
                37SIGNATURES
                39
 
  
  PART
I
 
 ITEM
1. DESCRIPTION OF BUSINESS
 
 As used
in this Form 10-KSB, references to “Aztec,” “Company,” the “Registrant,” “we,”
“our” or “us” refer to Aztec Oil & Gas, Inc., including its subsidiaries,
unless the context otherwise indicates.
 
 Forward-Looking
Statements
 This
Annual Report on Form 10-KSB (this “Report”) contains forward-looking
statements.  For this purpose, any statements contained in this Report
that are not statements of historical fact may be deemed to be forward-looking
statements.  Forward-looking information includes statements relating
to future actions, prospective products, future performance or results of
current or anticipated products, sales and marketing efforts, costs and
expenses, interest rates, outcome of contingencies, financial condition, results
of operations, liquidity, business strategies, cost savings, objectives of
management, and other matters.  You can identify forward-looking
statements by those that are not historical in nature, particularly those that
use terminology such as “may,” “will,” “should,” “expects,” “anticipates,”
“contemplates,” “estimates,”  “believes,” “plans,” “projected,”
“predicts,” “potential,” or “continue” or the negative of these similar
terms.  The Private Securities Litigation Reform Act of 1995 provides
a “safe harbor” for forward-looking information to encourage companies to
provide prospective information about themselves without fear of litigation so
long as that information is identified as forward-looking and is accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in the
information.
 
 These
forward-looking statements are not guarantees of future performance and involve
risks, uncertainties and assumptions that we cannot predict. In evaluating these
forward-looking statements, you should consider various factors, including the
following: (a) those risks and uncertainties related to general economic
conditions, (b) whether we are able to manage our planned growth efficiently and
operate profitable operations, (c) whether we are able to generate sufficient
revenues or obtain financing to sustain and grow our operations, (d) whether we
are able to successfully fulfill our primary requirements for cash, which are
explained below under “Liquidity and Capital Resources”.  We assume no
obligation to update forward-looking statements, except as otherwise required
under the applicable federal securities laws.
 
 (a)
BUSINESS DEVELOPMENT
 
 Business
Development, Organization and Acquisition Activities
 The
Company was originally organized under the name Aztec Communications Group as a
Utah corporation (“Aztec Communications”).  Aztec Communication’s
original principal business objective involved its participation in the
broadcast and television business through its then wholly-owned subsidiaries,
Lloyd Communications, Inc., an Illinois corporation (“Lloyd”), and Golden Circle
Broadcasting Inc., a Tennessee corporation (“Golden Circle”).  As a
result of adverse business circumstances, in 1990, the Company sold Lloyd and
Golden Circle and ceased its business operations in the broadcast and television
business.  No material business operations were conducted by the
Company from 1990 until 2004.  In 2004, the Company changed its name
from Aztec Communications Group, Inc. to Aztec Oil & Gas, Inc. and
reorganized under the laws of the State of Nevada.  Since 2004,
Aztec’s business plan has been to purchase, manage and participate in oil
and gas interests utilizing strategies that seek to manage and reduce the
risks associated with traditional exploration and production
operations.
 
 On August
13, 2004, the Registrant effectuated a 3-for-1 forward stock split.
 
 Aztec is
a Houston-based, oil and gas exploration and production company focusing on
numerous areas in the U.S.
 
 BUSINESS
OF ISSUER
 
 Principal
Products, Services and Principal Markets
 Phase one
of Aztec's business plan called for purchasing working interests in proved oil
& gas properties with undrilled reserves and also participating in working
interest in drilling projects.  Aztec's growth strategy is partially
based on participation, as it intends to team up with outside participation
investors who will assume part or all of the costs associated with the drilling
of additional wells in exchange for a part of the revenues derived from the
wells they finance.  This strategy should allow a reduction in the
financial risks for Aztec in drilling new wells, while Aztec would still be
receiving income from present field production in addition to income from any
successful new drilling.
 
 Phase two
of Aztec's business plan called for investing in various drilling prospects with
industry professionals. Aztec has participated in drilling projects in Texas,
Oklahoma, and Louisiana. Seven of the wells have been completed, one is awaiting
evaluation and three have been plugged and abandoned. In 2005, before
implementing Phase two, Aztec also participated as a minority working interest
owner in a multi-well project in Pennsylvania.  As of August 31, 2008,
there are 29 wells in production.
 
 Phase
three of Aztec’s business plan calls for originating, developing and managing
balanced, low risk, highly focused developmental drilling projects with
investors in areas with low drilling costs and high success rates where the
process can be repeated in a relatively consistent manner.  This stage
further balances Aztec’s approach to profitable energy asset development through
low-risk, highly focused, predominantly “development” drilling projects in which
Aztec seeks participation from multiple individual and entity
investors.
 
 Aztec is
currently in its third stage of its business plan. In this stage, Aztec focuses
on drilling in basins, such as in North Central Texas and the Appalachian region
of the United States. The latter is near the high energy usage “northeastern
corridor” of the United States. We  participate in such regions with a
select number of local, highly experienced operators who have access to leases
located in geological trends that have demonstrated substantial historical
production, plus potential remaining reserves which have the potential to be
exploited in a low-risk, systematic fashion.  Such local operators
have been, and will in the future be selected by Aztec on the basis of their
demonstrated track records.
 
 In order
to execute our business plan, we have entered into consulting agreements with
several of our officers and directors to provide services to the
Company.  The Company plans to retain consultants with respect to
current and proposed properties and operations.  The Company, from
time to time, may retain independent engineering and geological consultants and
the services of lease brokers and geophysicists in connection with its
operations.
 
 Aztec has
not demonstrated profitability to date and anticipates that it will continue to
incur net losses for the foreseeable future. The extent of these losses will
depend, in part, on the amount of expenditures the Company incurs in executing
its business strategy. As of August 31, 2008, Aztec had an accumulated deficit
of $6,076,707 and expects that its operating expenses will increase as it hones
its new business strategy, especially in the areas of acquisitions.
 
 Thus,
Aztec will need to generate revenues to achieve profitability. To the extent
that increases in its operating expenses precede or are not subsequently
followed by commensurate increases in revenues, or that Aztec is unable to
adjust operating expense levels accordingly, the Company’s business, results of
operations and financial condition would be materially and adversely affected.
There can be no assurances that the Company can achieve or sustain profitability
or that the Company’s operating losses will not increase in the
future.
 
 Aztec
participated in a minority participation interest in a two-well drilling
program in the Deep Lake Field in Cameron Parish, Louisiana (State Lease
2038). Under the terms of the participation agreement Aztec participated as a
minority interest holder in drilling and completion of two wells in excess
of 13,500 feet each. The first well (Deep Lake Well No. 2) was “spudded” in
April 2005 and cost approximately $3.5 million (gross) to drill to a vertical
depth of approximately 14,300 feet. The second well (Deep Lake Well
No. 1) was drilled to an approximate vertical depth of 13,600 feet. Both
wells were completed into target zones and are now flowing commercial
quantities of natural gas and condensate.  Both wells have untapped
upper zones which are estimated to contain substantial additional
reserves.  Aztec owns a 0.90% net revenue interest in Deep Lake Well
No. 1 nd a 0.875% net revenue interest in Deep Lake Well No. 2.
 
 Early in
May 2005, Aztec announced its participation in a minority interest in one well,
the McCoy #2, in the Barnett Shale play area of Texas.  The well was
completed in 2006 and initially produced primarily oil with limited gas; however
gas flows have increased over time.  The well is currently producing
but has experienced mechanical issues that have caused production to vary
significantly.  The Operator continues to address these issues while
attempting to produce the well.
 
 Limited
Partnerships
 As of the
date of this report Aztec has formed three Limited Partnerships; Aztec 2006A Oil
& Gas Limited Partnership (“Aztec 2006A LP”), Aztec 2006B Oil & Gas
Limited Partnership (“Aztec 2006B LP”) and Aztec 2007A Oil & Gas Limited
Partnership (“Aztec 2007A LP”).  For all three partnerships, Aztec,
through its wholly-owned subsidiary, Aztec Energy, LLC (“Aztec Energy”), acts as
the Managing General Partner and retains thirty percent ownership interest in
each Limited Partnership (for which interest Aztec contributed all leases and
paid all tangible drilling costs).  Investors will receive 70% - 85%
of the cash profits, defined as revenue in excess of expenses, from successful
wells drilled within the partnership, with the percentage dependent on the rate
of return to investors during the first five years of the
partnership.  After three years from the date of the first
distribution, investors in the partnerships may request that the Managing
General Partner, subject to a 10% of total limitation, financial ability and
other terms, repurchase their units at a price equal to three times cash flow
for the preceding twelve months.  Another Aztec subsidiary, Aztec
Drilling & Operating, LLC, (“ADO LLC”) serves the Partnerships as turnkey
drilling contractor and operator.
 
 Aztec has
a controlling financial interest in Aztec 2006A LP, Aztec 2006B LP and Aztec
2007A LP, therefore, the partnerships’ financial statements are consolidated
with those of Aztec and the other partners’ equity is recorded as minority
interest.
 
 Aztec
2006A Oil & Gas Limited Partnership
 During
December 2006, Aztec Oil & Gas, Inc. completed the funding of its first
drilling partnership, Aztec 2006A Oil & Gas Limited Partnership (“Aztec
2006A LP”), with 22 outside investors.  The multi-well drilling
program based in the Doddridge County area of West Virginia commenced drilling
in February 2007.  The drilling of all four wells was completed in
March 2007.  Perforating, completion and equipment setting was
completed on all four wells during March and April 2007 and the wells came on
line and started producing May 2007 with a contract in place for both oil and
gas sales. Aztec raised $1,132,384, net of related fees of $xxx and fair value
of warrants associated with the private placement, from outside investors toward
funding the partnership.
 
 Aztec
2006B Oil & Gas Limited Partnership
 During
November 2007, Aztec completed the funding of its second drilling limited
partnership, Aztec 2006B Oil & Gas Limited Partnership (“Aztec 2006B
LP”).  Aztec 2006B LP raised total gross proceeds of $1,012,267 (net
$888,724) from 16 outside “accredited” investors.  The two well
drilling program based in the Doddridge County area of West Virginia commenced
drilling in December 2007 and was completed in early 2008.
 
 Aztec
2007A Oil & Gas Limited Partnership (“Aztec 2007A LP”)
 In
December 2007, Aztec completed the funding of its third drilling partnership,
Aztec 2007A Oil & Gas Limited Partnership (“Aztec 2007A LP”), with 18
outside investors and raised total gross proceeds of $1,087,000 (net $956,560)
from its outside investors. The two wells, Williams #1 and Williams #2, are
located in the Doddridge County area of West Virginia.  Both were
perforated and completed and equipment was set, with both wells producing with a
market rate sales contract in place for oil and gas sales.
 
 As
indicated by the activities of the previously discussed partnerships, Aztec is
currently in the third stage of its business plan. In this stage, Aztec focuses
on drilling known producing regions such as North Central Texas and the
Appalachian region of the United States. We intend to participate in such
regions with a select number of local, highly experienced operators who have
access to leases located in geological trends that have demonstrated substantial
historical production, plus potential remaining reserves which have the
potential to be exploited in a low-risk, systematic fashion. Such local
operators have been, and will in the future be selected by Aztec on the basis of
their demonstrated track records for exploiting known oil and natural gas
reserves in a timely and cost-effective manner.  Additionally Aztec
independently acquires leases and will operate them with its teaming agreement
partner, Resaca Resources.
 
 Developing
New Business Strategies
 Aztec
will analyze all relevant factors and make a determination based on a
composite of available information, without reliance on any single factor.
The period within which Aztec will decide to participate in a given
business venture cannot be predicted and will depend on certain factors,
including the time involved in identifying businesses, the time required
for the Company to complete its analysis of such businesses, the time
required to prepare appropriate documentation and other
circumstances.
 
 Uncertainties
Related to the Oil and Gas Business in General
 Aztec’s
current business is subject to all of the risks normally incident to the
exploration for and production of oil and gas, including
blow-outs, cratering, pollution, fires, and theft of equipment. Each of
these incidents could result in damage to or destruction of oil and gas
wells or formations or production facilities or injury to persons, or
damage to or loss of property. As is common in the oil and gas industry,
Aztec is insured against these risks; however,  no oil and gas
firm including Aztec, can ever be sure its insurance or that of its suppliers is
adequate.
 
 The oil
and gas business is further subject to many other contingencies which are beyond
the control of Aztec. Wells may have to be shut-in because they have become
uneconomical to operate due to changes in the price of oil, depletion of
reserves, or deterioration of equipment. Changes in the price of imported oil,
the discovery of new oil and gas fields and the development of alternative
energy sources have had and will continue to have a dramatic effect on the
Company’s business.
 
 Risks
Associated with Acquisitions
 If
appropriate opportunities present themselves, Aztec would acquire businesses,
technologies, services or product(s) that the Company believes are
strategic.
 
 Aztec
currently has no understandings, commitments or agreements with respect to
any other material acquisition and no other material acquisition
is currently being pursued. There can be no assurance that Aztec will be
able to identify, negotiate or finance future acquisitions successfully, or
to integrate such acquisitions with its current business. The process
of integrating an acquired business, technology, service or product(s) into
the Company may result in unforeseen operating difficulties and
expenditures and may absorb significant management attention that would
otherwise be available for ongoing development of the Company’s business.
Moreover, there can be no assurance that the anticipated benefits of any
acquisition will be realized. Future acquisitions could result in
potentially dilutive issuances of equity securities, the incurrence of
debt, contingent liabilities and/or impairment or amortization expenses
related to goodwill and other intangible assets, which could materially
adversely affect the Company’s business, results of operations and
financial condition. Any future acquisitions of other
businesses, technologies, services or product(s) might require Aztec to
obtain additional equity or debt financing, which might not be available on
terms favorable to Aztec, or at all, and such financing, if available,
might be dilutive.
 
 Because
the Oil and Gas industry is cyclical, the Company’s operating results may
fluctuate.
 Aztec’s
operating results may fluctuate significantly in the future as a result of
a variety of factors, many of which are outside Aztec’s control.  As a
strategic response to changes in the competitive environment, Aztec may
from time to time have to make certain pricing, marketing decisions or
acquisitions that could have a material short-term or long-term adverse
effect on Aztec’s business, results of operations and financial
condition.
 
 Oil and
natural gas prices have been and are expected to remain volatile. This
volatility causes oil and gas companies and drilling contractors to change their
strategies and expenditure levels.  Aztec may experience in the
future, significant fluctuations in operating results based on these
changes.
 
 There can
be no assurance that such patterns will not have a material adverse effect on
Aztec’s business, results of operations and financial condition. There can be no
assurance that Aztec will receive any material amount of revenue as it pursues
new business strategies in the future. The foregoing factors, in some future
quarters, may lead Aztecs operating results to fall below the
expectations.
 
 Competition
 The
search for viable oil and gas prospects and leases is intensely
competitive.  The Company will compete with other business entities,
many of which will have a competitive edge over the Company by virtue of their
stronger financial resources and prior experience in the
business.  There is no assurance that the Company will be successful
in identifying and executing suitable business opportunities.
 
 There are
many companies and individuals engaged in the oil and gas
business.  Some are very large and well established with substantial
capabilities and extensive earnings records.  The Company is at a
competitive disadvantage as compared with some other firms and individuals in
acquiring and developing oil and gas properties since our competitors may have
greater financial resources and larger technical staffs than the
Company.  In addition, in recent years a number of small companies
have been formed which have objectives similar to those of the Company and which
present substantial competition to the Company.
 
 A number
of factors, beyond the Company’s control and the effect of which cannot be
accurately predicted, affect the production and marketing of oil and natural
gas.  These factors include crude oil imports, actions by foreign oil
producing nations, the availability of adequate pipeline and other
transportation facilities, the marketing of competitive fuels and other matters
affecting the availability of a ready market, such as fluctuating supply and
demand.
 
 Government
Regulation
 In
general, our oil and gas production activities are, and any drilling operations
of the Company would be, subject to extensive regulation by numerous federal,
state and local governmental authorities, including state conservation agencies,
the Department of Energy and the Department of the Interior (including the
Bureau of Indian Affairs and Bureau of Land Management).  Regulation
of the Company’s production, transportation and sale of oil or gas has a
significant effect on the Company and its operating results.
 
 The
current production operations of the Company are, and any drilling operations of
the Company would be, subject to regulation by state conservation commissions
which have authority to issue permits prior to the commencement of drilling
activities, establish allowable rates of production, control spacing of wells,
prevent waste and protect correlative rights, and aid in the concentration of
natural gas and oil.  Typical state regulations require permits to
drill and produce oil, protection of fresh water horizons, and confirmation that
wells have been properly plugged and abandoned.
 
 In
addition, various federal and state authorities have the authority to regulate
the exploration and development of oil and gas and mineral properties with
respect to environmental matters.  Such laws and regulations,
presently in effect or as hereafter promulgated, may significantly affect the
cost of our current oil and gas production and any exploration and development
activities undertaken by the Company and could result in loss or liability to
the Company in the event that any such operations are subsequently deemed
inadequate for purposes of any such law or regulation.
 
 Patents,
Trademarks, Licenses, Franchises, Concessions, Royalty Agreements, or Labor
Contracts
 With
regards to the Company’s future oil and gas production, the Company does not
hold any patents, trademarks, licenses, etc., with respect to, nor are patents
significant in regard to, the Company’s oil and gas production
activities.  The Company plans to enter into confidentiality
agreements with its future employees, future suppliers and future consultants
and in connection with its license agreements with third parties and generally
seeks to control access to and distribution of its technology, documentation and
other proprietary information.  Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use the Company’s
proprietary information without authorization or to develop similar technology
independently.
 
 Employees
 The
Company currently has a Chief Executive Officer who is also a Director, a
President, a Vice President who also serves as Corporate Secretary and
Treasurer, one Chief Financial Officer, one Senior Economist who is also
Director, and a separate Director.  The Company has no present
intention of adding any more full time employees until it substantially
increases its income.  The Company plans to retain consultants with
respect to current and proposed properties and operations.  The
Company, from time to time, may retain independent engineering and geological
consultants and the services of lease brokers and geophysicists in connection
with its operations.
 
 RISK
FACTORS
 
 Risk
Factors Relating to Our Business
 The
drilling of natural gas and oil wells is highly speculative and risky and may
result in unprofitable wells.Natural gas and oil
drilling is a highly speculative activity. The wells drilled may not be
productive. Even completed wells may not produce enough natural gas or oil to
show a profit. Delays and added expenses may also be caused by poor weather
conditions affecting, among other things, the ability to lay
pipelines.
  Prices
for natural gas and oil have been quite unstable; a decline could cause the
Company to be unprofitable.Global economic
conditions, political conditions, and energy conservation have created unstable
prices. Revenues of each well are directly related to natural gas and oil prices
which the Company cannot predict. A decline in gas and oil prices would result
in lower revenues for the Company. Prices for natural gas and oil are likely to
remain extremely unstable.
  Rapid
growth of production in the Appalachia regions may result in lower prices and
production restrictions until new pipeline facilities are put in
service.The Appalachian Region,
including areas of the Company’s West Virginia prospects, has sometimes in the
past experienced lower prices and occasional curtailments resulting from a local
oversupply situation for natural gas. This situation has abated; however, if
excess production exceeds the additional pipeline capacity, or if producers
continue to successfully develop new supplies in the area and if additional
pipeline facilities or markets are not developed to utilize or transport the new
supplies, a local surplus could continue or reoccur, resulting in lower prices
and/or production curtailment.
  Environmental
hazards involved in drilling gas and oil wells may result in substantial
liabilities for the Company.There are numerous
natural hazards involved in the drilling of wells, including unexpected or
unusual formations, pressures, blowouts, etc. involving possible damages to
property and third parties, surface damages, bodily injuries, damage to and loss
of equipment, reservoir damage and loss of reserves. Uninsured liabilities may
result in the loss of Company properties. The Company may be subject to
liability for pollution, abuses of the environment and other similar damages.
Insurance coverage may be insufficient to protect the Company. In that event,
Company assets would pay personal injury and property damage claims and the
costs of controlling blowouts or replacing destroyed equipment rather than for
drilling activities. These payments would cause the Company to be less
profitable.
  Increases
in drilling costs would reduce the Company’s profitability.The oil and gas
industry historically has experienced periods of rapid cost increases. Increases
in the cost of exploration and development would affect the ability of the
Company to acquire additional leases, gas and oil equipment, and supplies. The
foregoing would increase costs and may lead, depending on the price which the
Company receives for its oil or gas, to lower profits of the
Company.
  Reduced
availability of drilling rigs, due in part to intense competition in drilling,
may delay the drilling of wells.A large number of
companies and individuals engage in drilling for natural gas and oil; and there
is competition for the most desirable leases as well as materials and equipment
to drill and complete wells. Increased drilling operations in some areas of the
United States have resulted in the decreased availability of drilling rigs and
gas/oil field tubular goods. Also, international developments and the possible
improved economics of domestic oil and gas exploration may influence others to
increase their domestic oil and gas exploration. These factors may reduce the
availability of rigs, equipment and services to the Company resulting in delays
in drilling activities. The reduced availability of rigs, equipment and services
could delay the Company in drilling wells on a timely basis and delay the
production of natural gas or oil.
  Local
delays in Company gas or oil production could reduce the Company’s
profitability.Wells drilled for the
Company may have access to only one potential market. Local conditions including
but not limited to closing businesses, conservation, shifting population,
pipeline maximum operating pressure constraints and develop­ment of local
oversupply or deliverability problems could halt or reduce sales from Company
wells. A delay in the production and sale of the Company’s gas and oil could
reduce the Company’s profitability.
 
 
 Risks
Relating to Our Common Shares
 
 We
may, in the future, issue additional common shares, which would reduce
investors’ percent of ownership and may dilute our share value.
 Our
Articles of Incorporation authorize the issuance of 100,000,000 shares of common
stock and 100,000 shares of preferred stock.  The future issuance of
common stock may result in substantial dilution in the percentage of our common
stock held by our then existing shareholders.  We may value any common
stock issued in the future on an arbitrary basis.  The issuance of
common stock for future services or acquisitions or other corporate actions may
have the effect of diluting the value of the shares held by our investors, and
might have an adverse effect on any trading market for our common
stock.
 
 Our
common shares are subject to the “Penny Stock” Rules of the SEC and the trading
market in our securities is limited, which makes transactions in our stock
cumbersome and may reduce the value of an investment in our stock.
 The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a “penny stock”, for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain
exceptions.  For any transaction involving a penny stock, unless
exempt, the rules requires: (a) that a broker or dealer approve a person’s
account for transactions in penny stocks; and (b) the broker or dealer receive
from the investor a written agreement to the transaction, setting forth the
identity and quantity of the penny stock to be purchased.
 
 In order
to approve a person’s account for transactions in penny stocks, the broker or
dealer must: (a) obtain financial information and investment experience
objectives of the person; and (b) make a reasonable determination that the
transactions in penny stocks are suitable for that person and the person has
sufficient knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
 
 The
broker or dealer must also deliver, prior to any transaction in penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form: (a) sets forth the basis on which the broker
or dealer made the suitability determination; and (b) that the broker or dealer
received a signed, written agreement from the investor prior to the
transaction.  Generally, brokers may be less willing to execute
transactions in securities subject to the “penny stock” rules.  This
may make it more difficult for investors to dispose of our Common shares and
cause a decline in the market value of our stock.
 
 Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions.  Finally, monthly statements have
to be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks.
 
 Because
we do not intend to pay any cash dividends on our common stock, our stockholders
will not be able to receive a return on their shares unless they sell
them.
 We intend
to retain any future earnings to finance the development and expansion of our
business.  We do not anticipate paying any cash dividends on our
common stock in the foreseeable future.  Unless we pay dividends, our
stockholders will not be able to receive a return on their shares unless they
sell them.  There is no assurance that stockholders will be able to
sell shares when desired.
 
 We
may issue shares of preferred stock in the future that may adversely impact the
rights of the holders of our common stock.
 Our
articles of incorporation authorize us to issue up to 100,000 shares of “blank
check” preferred stock.  Accordingly, our board of directors will have
the authority to fix and determine the relative rights and preferences of
preferred shares, as well as the authority to issue such shares, without further
stockholder approval. As a result, our board of directors could authorize the
issuance of a series of preferred stock that would grant the holders preferred
rights to ours assets upon liquidation, the right to receive dividends before
dividends are declared to holders of our common stock, and the right to the
redemption of such preferred shares, together with a premium, prior to the
redemption of the common stock.  To the extent that we do issue such
additional shares of preferred stock, the rights of the holders of our common
stock could be impaired thereby, including, without limitation, dilution of
their ownership interests in us.  In addition, shares of preferred
stock could be issued with terms calculated to delay or prevent a change in
control or make removal of management more difficult, which may not be in the
interest of holders of common stock.
 
 Taxation
 Our
operations, as is the case in the petroleum industry generally, are
significantly affected by federal tax laws. Federal, as well as state, tax laws
have many provisions applicable to corporations which could affect the future
tax liability of the Company.
 
 Commitments
and Contingencies
 We are
liable for future restoration and abandonment costs associated with our oil and
gas properties. These costs include future site restoration, post closure and
other environmental exit costs. The costs of future restoration and well
abandonment have not been determined in detail. Texas regulations require
operators to post bonds that assure that well sites will be properly plugged and
abandoned. Management views this as a necessary requirement for operations
within Texas and does not believe that these costs will have a material adverse
effect on our financial position as a result of this requirement.
 
 
 ITEM
2. DESCRIPTION OF PROPERTY
 
 Our
producing properties consist essentially of working and royalty interests owned
by us in various oil and gas wells and leases located in Texas, Pennsylvania,
Louisiana and West Virginia:
  There are
29 wells in the Pennsylvania Drilling Program (.4625% NRI) which have been
drilled to depths in the range of 3,800 feet.
   [Missing
Graphic Reference]The Deep Lake No.1 (.671714% WI and .90% NRI) and Deep Lake
No.2 (.690907% WI and .875% NRI) wells were drilled and both wells are now
flowing commercial quantities of natural gas. Both wells have untapped upper
zones which are estimated to contain substantial additional commercial after
reaching approximately 19,300 feet with many mechanical
difficulties.
  We have
the Freeman #1A, #2A, #3A, and #4A wells in the 2006A Drilling Program (85% WI
and 68% NRI).  These wells are located in West Virginia, have been
completed and are currently producing natural gas.
 
 We have
the Dailey Hrs. #1 and Hickman #1 wells in the 2006B Drilling Program (100% WI
and 80% NRI).  These wells are located in West Virginia, have been
completed and are currently producing limited quantities of natural
gas.
 
 We have
the Williams #1 and #2 wells in the 2007A Drilling Program (100% WI and 63%
NRI).  These wells are located in West Virginia, have been completed
and are currently producing natural gas.
 
 Reserves
 
 Our
proved reserves for the year ended August 31, 2008 and are set forth
below:
 
  Proved
Reserves
  Present
      Value ofUndiscounted
                  
                  Proved
      ReservesFuture
      Net
                  
                  Discounted
      atOil
                  
                  Gas
                  
                  Revenue
                  
                  10%
      per year(Bbls)
                  
                  (MMcf)
                  
                  ($)
                  
                  ($)Proved
      Developed Producing
                  
                  -
                  
                  353,581
                  
                  $        1,603,634
                  
                  $             242,571Proved
      Developed Non Producing
                  
                  -
                  
                  -
                  
                  $                       -
                  
                  $                         -Proved
      Undeveloped
                  
                  4,520
                  
                  207,446
                  
                  $           345,482
                  
                  $             650,362Total
      Proved
                  
                  4,520
                  
                  561,027
                  
                  $        1,949,116
                  
                  $          1,038,176
  
  The
estimates for 2008 are based primarily on the reserve report, dated August 31,
2008, of Rex D. Morris, independent petroleum consultants. Such reports are, by
their very nature, inexact and subject to changes and revisions. Proved
developed reserves are reserves expected to be recovered from existing wells
with existing equipment and operating methods.  Proved undeveloped reserves
are expected to be recovered from new wells drilled to known reservoirs on
undrilled acreage for which existence and recoverability of such reserves can be
estimated with reasonable certainty,  or from  existing  wells
where a relatively major expenditure is required to establish production. No
estimates of reserves have been included in any reports to any federal agency
other than the SEC. See SFAS 69 Supplemental Oil and Gas Disclosures included as
part of our consolidated financial statements.
  Wells
 
 The
following summarizes the Company's productive oil and gas wells as of August 31,
2008 and 2007.  Productive wells are producing wells and wells capable of
production. Gross wells are the total number of wells in which the company has
an interest. Net wells are the sum of the Company's fractional interests owned
in the gross wells.
 
 As
      of August 31,Oil
      and Gas Wells:
                
                2008
                
                2007Gross
                
                39
                
                33Net
                
                8
                
                2
 
 
 ITEM
3. LEGAL PROCEEDINGS
 
 There are
no pending material legal proceedings to which the Company is a party or in
which any director, officer or affiliate of the Company, any owner of record or
beneficially of more than 5% of any class of voting securities of the Company,
or security holder is a party adverse to the Company or has a material interest
adverse to the Company.  The Company’s property is not the subject of
any pending legal proceedings.
 
 
 ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 The
Company did not submit any matters to a vote of security holders during the
fiscal year ended August 31, 2008.
 
 
 PART
II
 
 ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 
 Market
Information
 
 Our stock
symbol is AZGS. For the year ended August 31, 2008, the prices of the
common stock in the over-the-counter market, as reported and summarized by the
OTC Bulletin Board were $0.19 high bid, and $0.02 low asked. Such prices
are based on inter-dealer bid and asked prices, without markup, markdown,
commissions, or adjustments and may not represent actual
transactions.
 
 The table
below sets forth the high and low bid prices of our common stock for each
quarter shown, as provided by the NASD Trading and Market Services
Research Unit.  Quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
 
 CALENDAR
      QUARTER
                
                HIGH
                
                LOWFISCAL
      2007Quarter
      ended November 30, 2006
                
                $0.10
                
                $0.03Quarter
      ended February 28, 2007
                
                $0.13
                
                $0.07Quarter
      ended May 31, 2007
                
                $0.18
                
                $0.11Quarter
      ended August 31, 2007
                
                $0.19
                
                $0.03FISCAL
      2008Quarter
      ended November 30, 2007
                
                $0.06
                
                $0.06Quarter
      ended February 29, 2008
                
                $0.03
                
                $0.03Quarter
      ended May 31, 2008
                
                $0.04
                
                $0.03Quarter
      ended August 31, 2008
                
                $0.09
                
                $0.07
 
 Holders
 As of
August 31, 2008 there were approximately forty one (41) shareholders of record
of common stock.
 
 Dividends
 The
Company has never paid or declared any dividend on its Common Stock and
does not anticipate paying cash dividends in the foreseeable future.
Holders of common stock are entitled to receive such dividends as the board
of directors may from time to time declare out of funds legally available
for the payment of dividends. The Company does not anticipate paying any
dividends on its common stock in the foreseeable future.
 
 Stock
Repurchase
 The
Company did not repurchase any of its shares during the fiscal year covered by
this report.
 
 Recent
Sales of Unregistered Securities; Use of Proceeds from Registered
Securities
 During
2008, Aztec issued 1,990,655 shares valued at $192,105 to various consultants
and directors for services.
 
 
 ITEM
6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
 
 This
Management’s Discussion and Analysis or Plan of Operations (“MD&A”) section
of this Report discusses our results of operations, liquidity and financial
condition, and certain factors that may affect our future results. You should
read this MD&A in conjunction with our financial statements and accompanying
notes included in this Report.
 
 PLAN
OF OPERATION
 Aztec’s
principal business objective is to purchase, initiate and/or participate in
oil and gas interests utilizing strategies that seek to manage and reduce the
risk associated with traditional exploration and production
operations.
 
 The
Company believes it has sufficient funding to sustain itself for the next twelve
months.  However, there can be no assurances to that effect, as the
Company has little revenue.  In the event the Company requires
additional funds, the Company will have to seek loans or equity placements to
cover such cash needs.  There is no assurance additional capital will
be available to the Company on acceptable terms.
 
 Management
is in the process of seeking other businesses or properties to acquire so that
it can expand its operations. The analysis of new businesses and property
acquisition opportunities and evaluating new business strategies will be
undertaken by or under the supervision of the Company’s Directors. In
analyzing prospective business opportunities, management will consider, to
the extent applicable, the available technical, financial and managerial
resources of any given business venture. Management will also consider the
nature of present and expected competition; potential advances in research
and development or exploration; the potential for growth and expansion; the
likelihood of sustaining a profit within given time frames; the perceived
public recognition or acceptance of products, services, trade or service
marks; name identification; and other relevant factors. The Company
anticipates that the results of operations of a specific business venture
may not necessarily be indicative of the potential for future earnings,
which may be impacted by a change in marketing strategies, business
expansion, changing or substantially augmenting management, and other
factors.
 
 Management
will analyze all relevant factors and make a determination based on a composite
of available information, without reliance on any single factor. The period
within which the Company will decide to participate in a given business venture
cannot be predicted and will depend on certain factors, including the time
involved in identifying businesses, the time required for the Company to
complete its analysis of such businesses, the time required to prepare
appropriate documentation and other circumstances.
 
 RESULTS
OF OPERATIONS
 
 Fiscal
Year Ended August 31, 2008 Compared to Fiscal Year Ended August 31,
2007.
 For the
year ended August 31, 2008, the Company had oil and gas revenues of $371,842 and
production costs of $81,618 as compared to oil and gas revenues of $114,706 and
production costs of $29,629 for the year ended August 31, 2007.  The
increase in both oil and gas revenues and production costs between the two
periods is due to the additional production costs associated with Aztec 2006B LP
and Aztec 2007A LP.
 
 General
and administrative expenses decreased from $2,211,918 for the year ended August
31, 2007 to $829,402 for the year ended August 31, 2008.  The decrease
is primarily due to the reduction in expense related to stock options issued for
consulting fees.
 
 Interest
expense increased from $15,327 for the year ended August 31, 2007 to $75,502 for
the year ended August 31, 2008 due to increased borrowings related to funding
the Company’s drilling operations.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 As of
August 31, 2008, we had $290,323 in available cash as compared to $4,771 for the
same twelve month period last year.
 
 The
Company has limited financial resources available, which has had an
adverse impact on the Company’s liquidity, activities and operations. These
limitations have adversely affected the Company’s ability to obtain certain
projects and pursue additional business. We may have to borrow money from
shareholders or issue debt or equity or enter into a strategic arrangement with
a third party. There can be no assurance that additional funds will be available
to us.
 
 Aztec has
an agreement with CSI Energy, LP (“CSI”), a company controlled by our Chief
Executive Officer, Franklin C. Fisher, Jr., wherein CSI has agreed to provide
Aztec with funds as needed to permit Aztec to meet its monthly operating
expenses and other obligations as they become due over the twelve month period
following August 31, 2008.  As part of this arrangement, Aztec holds
notes in the amounts of $205,560, $20,000 and $30,000, payable to
CSI.  The notes bears interest at a rates of 9%, 0% & 0% per annum
and are due in full on January 31, 2009.
 
 Aztec
holds notes in the amount of $336,600 and $3,400 payable to our Chief Executive
Officer for funds advanced to Aztec.  The notes bear interest at rates
of 9% and 0% per annum and are due in full on January 31, 2009.
 
 On May
31, 2007, Aztec executed a loan agreement establishing a line of credit with
Amegy Bank National Association.  The line of credit agreement expires
on May 29, 2008 was amended on February 14, 2008 to increase the amount of the
line of credit from $200,000 to $400,000.  Interest on any outstanding
balances will be charged at one-half of one percent above the Amegy Bank
National Association prime rate.  At August 31, 2008, the prime rate
was five percent (5.00%), making the loan rate five and one-half percent
(5.50%).  As of August 31, 2008, the amount outstanding under this
facility was $400,000.  Our chief executive officer has personally
guaranteed any amount in excess of the original $200,000 amount.  On
August 31, 2008, Aztec extended the line of credit through February 28,
2009.
 
 Off-Balance
Sheet Arrangements
 We have
no off-balance sheet arrangements.
 
 
 ITEM
7. FINANCIAL STATEMENTS.
 TABLE OF
CONTENTS
 PAGEReports
      of Independent Registered Public Accounting Firms
                13Balance
      Sheets
                15Statements
      of Operations
                16Statements
      of Stockholders’ Deficit
                17Statements
      of Cash Flows
                18Notes
      to Financial Statements
                19
 
  
  AZTEC OIL & GAS, INC.
 CONSOLIDATED
BALANCE SHEETS
 
 August
      31,ASSETS
                2008
                
                2007Current
      assets:Cash
                $       290,323
                
                $              4,771Accounts
      receivable
                175,559
                
                54,374Prepaid
      expenses and other current assets
                8,597
                
                13,989Total
      current assets
                474,479
                
                73,134Oil
      and natural gas properties, successful efforts method of accounting net of
      accumulated depreciation, depletion, amortization and impairment of $962,280 and
      $198,953
                2,124,314
                
                1,326,097Computers
      and equipment, net of accumulated depreciation of $674
                4,054
                
                -Restricted
      funds
                -
                
                740,000TOTAL
      ASSETS
                $    2,602,847
                
                $       2,139,231LIABILITIES
      AND STOCKHOLDERS’ DEFICITCurrent
      liabilities:Accounts
      payable and accrued liabilities
                $       206,115
                
                $            63,977Accounts
      payable and accrued liabilities – related party
                229,538
                
                16,097Salary
      payable
                59,296
                
                7,781Line
      of credit
                400,000
                
                120,000Refundable
      subscriptions
                200,000
                
                -Common
      stock payable
                12,167
                
                159,696Notes
      payable to related parties
                595,560
                
                545,560Total
      current liabilities
                1,702,676
                
                9,13,111Asset
      retirement obligations
                30,812
                
                -Total
      Liabilities
                1,733,488
                
                913,111Minority
      Interest
                2,375,973
                
                2,082,880Stockholders’
      Deficit:Preferred
      stock, Series A, $.001 par value, 100,000 shares authorized, issued and
      outstanding
                100
                
                100Common
      stock, $.001 par value, 100,000,000 shares authorized, 32,468,427 and
      30,477,772 shares issued and outstanding, respectively
                32,468
                
                30,477Additional
      paid-in capital
                4,537,525
                
                4,080,072Accumulated
      deficit
                (6,076,707)
                
                (4,967,409)Total
      Stockholders’ Deficit
                (1,506,614)
                
                (856,760)TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICIT
                $    2,602,847
                
                $       2,139,231
 
 
 
 The
accompanying notes are an integral part of these financial
statements.
 
  
  AZTEC
OIL & GAS, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 
 Year
      Ended August 31,2008
                
                2007Oil and gas revenue
                $               371,842
                
                $               114,706Operating
      expenses:General and
      administrative
                829,402
                
                2,211,918Production
      costs
                81,618
                
                29,629Dry
      well expenses
                126,954
                
                -Depreciation,
      depletion, amortization and accretion
                149,180
                
                9,005Impairment of
      oil and gas properties
                616,161
                
                83,203Total operating
      expenses
                1,803,312
                
                2,333,755Other
      income (expense)Interest
      expense
                (75,502)
                
                (15,327)Gain on sale of assets
                -
                
                312Interest income
                22
                
                485Total
      other income / (expense)
                (75,480)
                
                (14,530)NET
      LOSS BEFORE MINORITY INTEREST
                (1,506,950)
                
                (2,233,579)Minority
      Interest
                397,652
                
                (10,196)NET
      LOSS
                $             (1,109,298)
                
                $          (2,243,775)Net
      loss per share - basic and diluted
                $                      (0.03)
                
                $                   (0.08)Weighted
      average shares outstanding – basic and diluted
                31,843,725
                
                28,438,383
 
 
 The
accompanying notes are an integral part of these financial
statements,
 
 
 
  
  AZTEC
OIL & GAS, INC.
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
 For
the Years Ended August 31, 2007 and 2008
 
 Preferred
      Shares
                Preferred
      Stock
                Common
      Shares
                Common
      Stock
                Additional
      Paid-In Capital
                Accumulated
      Deficit
                TotalsBalances,
      August 31, 2006
                100,000
                $        100
                29,055,549
                $       29,055
                $         2,756,122
                $      (2,723,634)
                $             61,643Stock
      issued for services
                -
                -
                1,422,223
                1,422
                156,507
                -
                157,929Shared-based
      compensation expense
                -
                -
                -
                -
                1,409,571
                -
                1,409,571Syndication
      costs
                -
                -
                -
                -
                (242,128)
                -
                (242,128)Net
      loss
                -
                -
                -
                -
                
                (2,243,775)
                (2,243,775)Balances,
      August 31, 2007, as originally reported
                100,000
                100
                30,477,772
                30,477
                4,080,072
                (4,967,409)
                (856,760)SAB
      108 adjustment - syndication costs
                -
                -
                -
                -
                242,128
                -
                242,128Beginning
      balance, September 1, 2007 as adjusted
                100,000
                100
                30,477,772
                30,477
                4,322,200
                (4,967,409)
                (614,632)Stock
      issued for services
                -
                -
                1,990,655
                1,991
                190,114
                -
                192,105Share
      based compensation expense
                -
                -
                -
                -
                16,663
                -
                16,663Warrants
      issued with private placements
                -
                -
                -
                -
                8,548
                -
                8,548Net
      loss
                -
                -
                -
                -
                
                (1,109,298)
                (1,009,298)Balances,
      August 31, 2008
                100,000
                $        100
                32,468,427
                $       32,468
                $         4,537,525
                $      (6,076,707)
                $     (1,506,614)
 
 
 
 The
accompanying notes are an integral part of these financial
statements.
  
  Aztec
Oil & Gas, Inc.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 Year
      Ended August 31,2008
                
                2007Cash
      Flows from Operating Activities:Net
      loss
                $  (1,109,298)
                
                $  (2,243,775)Adjustments
      to reconcile net loss to net cash used in operating
      activities:Share-based
      compensation
                61,239
                
                1,644,863Depreciation,
      depletion, amortization and accretion
                149,180
                
                9,005Impairment
      of properties
                616,161
                
                82,753Dry
      well expenses
                126,954
                
                -Minority
      interest
                (397,652)
                
                10,196Changes
      in:Accounts
      receivable
                (121,185)
                
                (54,260)Prepaid
      expenses
                5,392
                
                15,981Accounts
      payable and accrued liabilities
                142,138
                
                157,573Accounts
      payable and accrued liabilities – related party
                213,441
                
                16,097Salary
      payable
                51,515
                
                7,781Net
      cash used in operating activities
                (262,115)
                
                (353,786)Cash
      Flows from Investing Activities:Acquisition
      of oil and gas properties
                (1,659,026)
                
                (1,111,509)Change
      in restricted cash
                740,000
                
                (740,000)Capital
      expenditures
                (4,728)
                
                -Refundable
      subscriptions
                200,000
                
                -Net
      cash used in investing activities
                (723,754)
                
                (1,851,509)Cash
      Flows from Financing Activities:Proceeds
      from limited partners, net
                1,048,522
                
                1,854,885Distributions
      to limited partners
                (107,101)
                
                (118,500)Proceeds
      from notes payable and line of credit
                361,583
                
                473,500Payments
      on notes payable
                (31,583)
                
                -Net
      cash provided by financing activities
                1,271,421
                
                2,209,885Net
      Increase in Cash
                285,552
                
                4,590Cash
      at Beginning of Year
                4,771
                
                181Cash
      at End of Year
                $        290,323
                
                $            4,771SUPPLEMENTAL
      DISCLOSURESCash
      paid during the year for:Interest
                $          19,302
                
                $         15,326Income
      taxes
                -
                
                -Non-cash
      investing and financing transactionsIncrease
      in asset retirement obligation
                29,476
                
                -SAB
      108 Adjustment
                242,128
                
                -
 
 
 The
accompanying notes are an integral part of these financial
statements.
 
  
  AZTEC
OIL & GAS, INC.
 NOTES
TO FINANCIAL STATEMENTS
 
 NOTE
1 - ORGANIZATION AND HISTORY
 
 Aztec Oil
& Gas, Inc. (“Aztec”), initially known as Aztec Communications Group, Inc.,
was organized in Utah on January 24, 1986, and did not have any activity from
1990 until 2004.  In mid-2003, there was a change in control and new
management elected to pursue oil and gas exploration and development. In
November 2003, Aztec Communications Group, Inc. reincorporated in Nevada. On
August 13, 2004 the Company changed its name to Aztec Oil & Gas, Inc. and
affected a 3-for-1 forward stock split.
 
 Aztec
exited the development stage at the beginning of the year ended August 31, 2008
as a result of significant production of oil and gas from its
properties.
 
 NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 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.
 
 Aztec’s
financials 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.
 
 Principles
of consolidation
 The
consolidated financial statements include the accounts of Aztec and all its
subsidiaries and partnerships in which Aztec has a controlling
interest.  Inter-company transactions are eliminated.
 
 Cash
and Cash Equivalents
 Cash and
cash equivalents include cash in banks and financial instruments which mature
within three months of the date of purchase.  Cash at August 31, 2008
includes $200,000 received on subscriptions for a new
partnership.  This amount is refundable to the investors and was
returned in October 2008.
 
 Concentration
of Credit Risk
 Financial
instruments that potentially subject Aztec to concentration of credit risk
consist of cash.  From time to time, Aztec has amounts in excess of
federally insured limits.  As of October 3, 2008, the FDIC temporarily
increased the insurance limits from $100,000 to $250,000 per depositor through
December 31, 2009.  Aztec had no cash in excess of federally insured limits
as of August 31, 2008 and 2007. Aztec maintains cash accounts only at large high
quality financial institutions and Aztec believes the credit risk associated
with cash is remote.
  Aztec's
receivables primarily consist of accounts receivable from oil and gas sales.
Accounts receivable are recorded at invoice amount and do not bear interest. Any
allowance for doubtful accounts is based on management's estimate of the amount
of probable losses due to the inability to collect from customers. As of August
31, 2008, no allowance for doubtful accounts has been recorded and none of the
accounts receivable have been collateralized.
   Although Aztec is directly affected by
the well-being of the oil and gas production industry, management does not
believe a significant credit risk exists at August 31, 2008.
  Oil
and Gas Properties, Successful Efforts Method
 Aztec
uses the successful efforts method of accounting for oil and gas property
acquisition, exploration, development, and production activities. Costs to
acquire mineral interests in oil and gas properties, to drill and equip
exploratory wells that find proved reserves, and to drill and equip development
wells are capitalized as incurred. Costs to drill exploratory wells that are
unsuccessful in finding proved reserves are expensed as incurred. In addition,
the geological and geophysical costs, and costs of carrying and retaining
unproved properties (i.e. delay rentals) are expensed as incurred. Costs to
operate and maintain wells and field equipment are expensed as
incurred.
  Capitalized
proved property acquisition costs are amortized by field using the
unit-of-production method based on total proved reserves. Capitalized
exploration well costs and development costs (plus estimated future
dismantlement, surface restoration, and property abandonment costs, net of
equipment salvage values) are amortized in a similar fashion (by field) based on
their proved developed reserves. Support equipment and other property and
equipment are depreciated over their estimated useful lives.
  Aztec
reviews proved oil and natural gas properties and other long-lived assets for
impairment. These reviews are performed at least annually and more frequently if
events and circumstances, (such as downward revision of the reserve estimates or
commodity prices) indicate a decline in the recoverability of the carrying value
of such properties. Aztec estimates the undiscounted future cash flows expected
in connection with the properties and compares such future cash flows to the
carrying amount of the properties to determine if the carrying amount is
recoverable. When the carrying amounts of the properties exceed their estimated
undiscounted future cash flows, the carrying amounts of the properties are
reduced to their estimated fair value. The factors used to determine fair value
include, but are not limited to, estimates of proved reserves, future commodity
prices, the timing of future production, future capital expenditures and a
risk-adjusted discount rate. There were asset impairments of $616,161 and
$83,203 recorded for the years ended August 31, 2008 and 2007,
respectively.
 
 Unproved
oil and gas properties that are individually significant are also periodically
assessed for impairment of value. An impairment loss for unproved oil and gas
properties is recognized at the time of impairment by providing an impairment
allowance.
 
 On the
retirement or sale of a partial unit of proved property, the cost is charged to
accumulated depreciation, depletion, and amortization with any resulting gain or
loss recognized in income.
 
 Deposits
and advances for services expected to be provided for exploration and
development or for the acquisition of oil and gas properties are classified as
long term other assets.
 
 Furniture
and Equipment
 Furniture
and equipment are stated at cost. Depreciation is computed on a straight-line
basis over the estimated useful lives of three to five years.
 
 Asset
Retirement Obligation
 The fair
value of an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can
be made. The present value of the estimated asset retirement costs is
capitalized as part of the carrying amount of the long-lived asset. For Aztec,
asset retirement obligations relate to the abandonment of oil and gas producing
facilities. The amounts recognized are based upon numerous estimates and
assumptions, including future retirement costs, future recoverable quantities of
oil and gas, future inflation rates and the credit-adjusted risk-free interest
rate.
 
 Income
Taxes
 Aztec
uses the asset and liability method in accounting for income taxes. Deferred tax
assets and liabilities are recognized for temporary differences between
financial statement carrying amounts and the tax bases of assets and
liabilities, and are measured using the tax rates expected to be in effect when
the differences reverse. Deferred tax assets are also recognized for operating
loss and tax credit carry-forwards. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the results of operations
in the period that includes the enactment date. A valuation allowance is used to
reduce deferred tax assets when uncertainty exists regarding their
realization.
 
 Revenue
Recognition
 Aztec
recognizes oil and natural gas revenue under the sales method of accounting for
its interests in producing wells as oil and natural gas is produced and sold
from those wells. The volumes sold may differ from the volumes to which Aztec is
entitled based on its interests in the properties. These differences create
imbalances which are recognized as a liability only when the imbalance exceeds
the estimate of remaining reserves. Aztec had no significant imbalances as of
August 31, 2008 and 2007.
 
 Share
Based Compensation
 All
share-based payments to employees, including grants of employee stock options,
are recognized in the financial statements based on their fair
values.  For expensing purposes, the value of common stock issued to
non-employees and consultants is determined based on the fair value of the
equity instruments issued and charged to expense for the nature of the service
for which the stock compensation is paid.
 
 Minority
Interest
 Aztec has
a controlling interest in Aztec 2006A LP, Aztec 2006B LP and Aztec 2007A
LP.  Therefore, the partnerships’ financial statements are
consolidated with those of Aztec and the other partner’s equity is recorded as
minority interest.  As of August 31, 2008, minority interest was
$2,375,973.  Minority interest income (loss) was $397,652 and
($10,196) for the fiscal years ended August 31, 2008 and 2007,
respectively.
 
 Basic and Diluted Income (Loss) Per
Share of Common Stock
 Basic and
diluted net income (loss) per share calculations are calculated on the basis of
the weighted average number of common shares outstanding during the year. Common
stock equivalents such as stock options and warrants are excluded from the
calculation when a loss is incurred as their effect would be
anti-dilutive.
 
 Recently
Issued Accounting Pronouncement
 In July
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48, as amended, Accounting for Uncertainty in Income
Taxes — an Interpretation of FASB Statement 109(“FIN 48”),
which clarifies the accounting for uncertainty in tax
positions.  FIN 48 provides that the tax effects from an
uncertain tax position can be recognized in our financial statements only if the
position is more likely than not of being sustained on audit, based on the
technical merits of the position.  The provisions of FIN 48 are
effective for fiscal years beginning after December 15, 2006. The adoption of
FIN 48 had no material impact to Aztec’s consolidated financial statement.
 Tax years subsequent to 2004 remain open to examination by U.S. federal
and state jurisdictions.
 
 In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(“SFAS 157”). SFAS 157 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, the FASB having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, SFAS 157 does not require any new
fair value measurement. SFAS 157, as originally issued, was effective for fiscal
years beginning after November 15, 2007. However, on December 14, 2007, the FASB
issued FASB Staff Position FAS157-b, which proposed deferring the effective date
of SFAS 157 for one year, as it relates to non-financial assets and liabilities.
Aztec will adopt SFAS 157 as it relates to financial assets and liabilities
beginning in the first quarter of fiscal 2009. Aztec is evaluating the impact
that the adoption of SFAS 157 will have on its consolidated financial
statements
 
 During
February 2007, the FASB issued SFAS No 159, The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS 159”) which permits all entities
to choose, at specified election dates, to measure eligible items at fair value.
SFAS No. 159 permits entities to choose to measure many financial instruments
and certain other items at fair value that are not currently required to be
measured at fair value, and thereby mitigate volatility in reported earnings
caused by measuring related assets and liabilities differently without having to
apply complex hedge accounting provisions. This Statement also establishes
presentation and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes for similar types
of assets and liabilities. SFAS No. 159 is effective as of the beginning of an
entity's first fiscal year that begins after November 15, 2007. Aztec is
evaluating the impact that this Statement will have on its financial
statements.
 
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations(“SFAS
141R”). The statement retains the purchase method of accounting for
acquisitions, but requires a number of changes, including changes in the way
assets and liabilities are recognized in the purchase accounting. It also
changes the recognition of assets acquired and liabilities assumed arising from
contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related
costs as incurred. SFAS 141R is effective for fiscal years beginning after
December 15, 2008. Aztec will adopt SFAS 141R beginning in the first quarter of
fiscal year 2010 and will apply the standard prospectively to business
combinations completed on or after that date.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of ARB No. 51 (“SFAS
160”).  SFAS 160 establishes accounting and reporting standards for
noncontrolling interests in a subsidiary and for the deconsolidation of a
subsidiary.  Minority interests will be recharacterized as
noncontrolling interests and classified as a component of equity.  It
also establishes a single method of accounting for changes in a parent’s
ownership interest in a subsidiary and requires expanded
disclosures.  SFAS 160 is effective for fiscal years beginning on or
after December 15, 2008, with early adoption prohibited.  Aztec will
adopt SFAS 160 beginning in the first quarter of fiscal year 2010 and will apply
the standard prospectively to business combinations completed on or after that
date.
 
 Reclassifications
 Certain
amounts in prior periods have been reclassified to conform to the current period
presentation.
 
 NOTE
3 - STAFF ACCOUNTING BULLETIN NO. 108 (“SAB 108”)
 
 In
preparing the financial statements for the year ended August 31, 2008, Aztec
identified an uncorrected misstatement arising in 2007, which at the time was
considered to be immaterial relative to the net loss incurred for the period.
Management believes that this uncorrected misstatement resulted from the
incorrect recording of syndication costs.  In accordance with the
provisions of SAB 108, Aztec has decreased accumulated other comprehensive loss
at January 1, 2006 by $242,128 and decreased the accumulated deficit at
September 1, 2007 by $242,128 to reverse the amount previously
recorded.
 
 NOTE
4 – GOING CONCERN
 
 As shown
in the accompanying consolidated financial statements, Aztec incurred a net loss
of $1,109,298 for the year ended August 31, 2008, has an accumulated deficit of
$6,076,707 and a working capital deficit of $1,228,197 as of August 31,
2008. These conditions raise substantial doubt as to Aztec’s ability to continue
as a going concern. The financial statements do not include any adjustments that
might be necessary if Aztec is unable to continue as a going
concern.
 
 CSI
Energy, LP, a company controlled by our Chief Executive Officer, has committed
to funding any operating deficits for the current year.
 The
Company's financial statements are prepared using accounting principles
generally accepted in the United States of America applicable to a going concern
which contemplates the realization of assets and liquidation of liabilities in
the normal course of business. The Company is in the process of establishing a
sufficient ongoing source of revenues to cover its operating costs. The ability
of the Company to continue as a going concern is dependent on the Company
ability to fulfill its business plan.  Aztec is currently in phase
three of its business plan, which calls for originating, developing and managing
balanced, low risk, highly focused developmental drilling projects with
investors in areas with low drilling costs and high success rates where the
process can be repeated in a relatively consistent manner.  This stage
further balances Aztec’s approach to profitable energy asset development through
low-risk, highly focused, predominantly “development” drilling projects in which
Aztec seeks participation from multiple individual and entity
investors.  Aztec focuses on drilling in basins, such as in North
Central Texas and the Appalachian region of the United States. The latter is
near the high energy usage “northeastern corridor” of the United States.
We  participate in such regions with our teaming agreement operators
and a select number of local, highly experienced operators who have access to
leases located in geological trends that have demonstrated substantial
historical production, plus potential remaining reserves which have the
potential to be explored in a low-risk, systematic fashion. Such local operators
have been, and will in the future be selected by Aztec on the basis of their
demonstrated track records.
  As
previously stated, Aztec is an oil and gas exploration, development and
production company focusing on numerous areas throughout the US. It owns a
minority interest in a 29-well oil and natural gas program in Potter, Clearfield
and Cambria counties in Pennsylvania with all of the wells presently producing
into pipelines. Aztec also owns a minority interest in two Deep Lake wells
in Cameron Parish, Louisiana ranging from 13,600 feet to 14,300 feet in depth
with both wells producing significant quantities of natural gas. Aztec
additionally owns a minority interest in one well in Wharton County, Texas which
is currently producing; and one well in the Barnett Shale play area located in
Wise County, Texas which had good initial oil and gas shows, is producing, but
is experiencing mechanical difficulties. Aztec has a minority interest in three
producing gas wells in Oklahoma of which two are conventional wells, and the
third is a horizontal, Coal Bed Methane (CBM) well. One additional well has been
drilled and completed and is presently being analyzed.
   In 2007,
through its wholly-owned subsidiaries, Aztec Energy, LLC and Aztec Drilling
& Operating, LLC, Aztec completed and now manages a successful four (4) well
drilling program in the Doddridge County area of West Virginia in which it owns
a 30% interest and which is currently producing into sales pipeline and tanks.
Aztec Energy, LLC also manages a second Aztec drilling partnership focused in
Tyler County, West Virginia, in which it owns a 30% interest. Aztec's third
drilling partnership subsequently successfully completed two wells in Tyler
County, WV in 2008, both of which are producing into pipeline. Aztec also
manages this third partnership and owns a 30% interest in same. In clarification
of its activities, Aztec sponsors low risk, development drilling programs which
include significant tax benefits, all of which are sold through Registered
Broker Dealers to Accredited Investors. Its drilling programs are very unique
and also incorporate a sophisticated exit strategy for investors.
  In order
to execute our business plan, we have entered into consulting agreements with
several of our officers and directors to provide services to the
Company.  The Company plans to retain consultants with respect to
current and proposed properties and operations.  The Company, from
time to time, may retain independent engineering and geological consultants and
the services of lease brokers and geophysicists in connection with its
operations.
 
 NOTE
5 – INVESTMENT IN DRILLING PARTNERSHIPS
 
 During
December 2006, Aztec Oil & Gas, Inc. completed the funding of its first new
drilling partnership, Aztec 2006A LP.  In this new Partnership, Aztec
through its wholly-owned subsidiary, Aztec Energy, LLC retained a thirty percent
ownership and acts as the Managing General Partner.  Another Aztec
subsidiary, Aztec Drilling & Operating, LLC, serves as the Partnership’s
drilling company and operator.
 
 As
planned, Aztec Oil & Gas, Inc., through its subsidiaries (collectively
“Aztec”), drilled and completed four (4) wells in Doddridge County, West
Virginia for participation of Aztec 2006A LP.  All four wells were
successful and completed in three or four zones each.  The wells are
actively producing.
 
 During
November 2007, Aztec completed the funding of its second drilling limited
partnership, Aztec 2006B LP, and raised total gross proceeds of $1,012,267 (net
$888,724) from its outside investors.  As of August 31, 2007, a total
of $740,000 had been raised through this 2006B limited partnership and was
reflected in the balance sheet as restricted funds.  Aztec Energy, LLC
is the Managing General Partner of Aztec 2006B LP.
 
 For each
$50,000 invested in the partnership, each investor received 9,000 warrants to
purchase common stock in Aztec.  A total of 182,208 warrants were
issued in connection with Aztec 2006B LP.  The warrants are
immediately exercisable whereby Class “A” warrants expired on December 31, 2007
with an exercise price of $0.35 per share.  Classes “B” and “C”
warrants expire on December 31, 2008 with an exercise price of $0.65 and $0.95,
respectively.  The warrants had a fair market value of $3,644 at date
of issuance based upon the Black-Scholes option pricing model utilizing discount
rates ranging from 4.01% to 4.19%, a volatility factor ranging from 77.53% to
115.77%, an expected life of 4 months to 1.5 years and a dividend rate of
zero.
 
 During
December 2007, Aztec completed the funding of its third drilling limited
partnership, Aztec 2007A LP, and raised total gross proceeds of $1,087,000 (net
$956,560) from its outside investors.  Aztec Energy, LLC is the
Managing General Partner of 2007A.
 
 Investors
in the partnerships will receive 70% - 85% of the cash profits, defined as
revenue in excess of expenses, from successful wells drilled within the
partnership, with the percentage dependent on the rate of return to the
partnership investors during the first five years of the
partnership.  The Managing General Partner will receive the
difference.  After three years from the date of the first
distribution, investors in partnership may request that the Managing General
Partner, subject to financial ability and other terms, to repurchase their units
at a price equal to three times cash flow for the preceding twelve
months.
 
 Aztec has
a controlling financial interest in Aztec 2006A LP, Aztec 2006B LP and Aztec
2007A LP and therefore, the partnerships’ financial statements are consolidated
with those of Aztec and the other partners’ equity is recorded as minority
interest.  At August 31, 2008, minority interest was
$2,375,973.  Minority interest share of net loss was $397,652 for the
year ended August 31, 2008.
 
 
  
  
 NOTE
6 - OIL AND GAS PROPERTIES
 
 Oil and
gas properties, at cost:
 
 Year
      Ended
                
                
                Year
      EndedAugust
      31, 2008
                
                
                August
      31, 2007Proved
      leasehold costs
                
                $
                109,189
                
                
                $
                -Unproved
      leasehold costs
                
                
                190,764
                
                
                
                49,592Costs
      of wells and development
                
                
                2,757,166
                
                
                
                -Unevaluated
      capitalized exploratory well costs
                
                
                -
                
                
                
                1,475,458Capitalized
      asset retirement costs
                
                
                29,475
                
                
                
                -Total
      cost of oil and gas propertiesAccumulated
      depletion, depreciation,
                  amortization
      and impairment
                
                
                (962,280)
                
                
                
                (198,953)Oil
      and gas properties, net
                
                $
                2,124,314
                
                
                $
                1,326,097
  Suspended
Well Costs
 
 The
Company follows the guidance of FASB Staff Position FAS 19-1, "Accounting for
Suspended Well Costs."  Aztec had capitalized exploratory wells costs
of $-0- and of $1,254,544 as of August 31, 2008 and August 31, 2007,
respectively.  The following table reflects the net changes in
capitalized exploratory well costs during fiscal 2008, and does not include
amounts that were capitalized and subsequently expensed in the same
period.
 
 2008
                
                
                2007Beginning
      balance at September 1 of fiscal year
                
                $
                1,254,544
                
                
                $
                -Total
      Exploration Well Additions
                
                
                126,954
                
                
                
                1,254,544Reclassifications
      to wells, facilities, and equipment based on the determination of proved
      reserves
                
                
                (1,254,544
                )
                
                
                -Capitalized
      exploratory well costs charged to expense
                
                
                (126,954
                )
                
                
                -Ending
      Balance at August 31, 2008 of fiscal year
                
                $
                -
                
                
                $
                1,254,544
 
 
 Impairment
of oil and gas properties
 
 In
accordance with Statement of Financial Accounting Standards No. 144, “Accounting
for Impairment or Disposal of Long-Lived Assets”, if impairment is necessary,
the asset carrying value is written down to fair value.  Cash flow
pricing estimates are based on existing proved reserve and production
information and pricing assumptions that management believes are
reasonable.  Unproved oil and gas properties that are individually
significant are periodically assessed for impairment by providing an impairment
allowance if the net book value of the property is not
fully recoverable.  During the fiscal year ended August 31, 2008,
Aztec expensed $616,161 as impairment expense on proved properties related to
the 2006B Hickman properties and the Bradley properties.
  
 NOTE
7 – ASSET RETIREMENT OBLIGATIONS
 
 Aztec
records the fair value of a liability for asset retirement obligations in the
period in which it is incurred and records a corresponding increase in the
carrying amount of the related long-lived asset. The present value of the
estimated asset retirement cost is capitalized as part of the carrying amount of
the long-lived asset and is depreciated over the useful life of the asset. Aztec
accrues an abandonment liability associated with its oil and
gas wells when those assets are placed in service. The liability is recorded at
its estimated fair value and accretion is recognized over time as the discounted
liability is accreted to its expected settlement value. Fair value is determined
by using the expected future cash outflows discounted at Aztec’s credit-adjusted
risk-free interest rate. No market risk premium has been included in Aztec’s
calculation. Aztec recorded $30,812 and $0 of asset retirement obligations for
the years ended August 31, 2008 and 2007, respectively.
  The
following is a description of the changes to Aztec’s asset retirement
obligations:
  Year
      ended August 31,2008
                  2007Asset
      retirement obligations at beginning of year
                  $                         -
                  $                        -Additions
      for exploratory and development drilling
                  29,476
                  -Accretion
      expense
                  1,336
                  -Asset
      retirement obligations at end of year
                  $              30,812
                  $                        -
 
 NOTE
8 – NOTES PAYABLE TO RELATED PARTY
 
 Aztec has
an agreement with CSI Energy, LP (“CSI”), a company controlled by our Chief
Executive Officer, wherein CSI has agreed to provide Aztec with funds as needed
to permit Aztec to meet its monthly operating expenses and other obligations as
they become due over the twelve month period following August 31,
2008.  As part of this arrangement, Aztec holds notes in the amounts
of $205,560, $20,000 and $30,000, payable to CSI.  The notes bears
interest at a rates of 9%, 0% & 0% per annum and are due in full on January
31, 2009.
 
 Aztec
holds a note in the amount of $336,600 and $3,400 payable to our Chief Executive
Officer for funds advanced to Aztec.  The notes bear interest rates of
9% and 0% per annum and are due in full on January 31, 2009.
 
 NOTE
9 – LINE OF CREDIT
 
 On May
31, 2007, Aztec executed a loan agreement establishing a line of credit with
Amegy Bank National Association.  The line of credit agreement expires
on May 29, 2008 was amended on February 14, 2008 to increase the amount of the
line of credit from $200,000 to $400,000.  Interest on any outstanding
balances will be charged at one-half of one percent above the Amegy Bank
National Association prime rate.  At August 31, 2008, the prime rate
was five percent (5.00%), making the loan rate five and one-half percent
(5.50%).  As of August 31, 2008 the amount outstanding under this
facility was $400,000.  Our chief executive officer has personally
guaranteed any amount in excess of the original $200,000 amount.  On
August 31, 2008, Aztec extended the line of credit through February 28,
2009.
 
 NOTE
10- STOCKHOLDERS’ EQUITY
 
 Series A
Preferred stock was established on August 26, 2004 and all 100,000 authorized
shares were immediately issued for cash and services.  This stock is
not convertible or redeemable, but at all times may vote 70% of the total votes
of all common shares outstanding.  It has no liquidation or stated
value.
 
 During
2008, Aztec issued 1,990,655 shares valued for a combined total of $192,105 to
various consultants and directors for services.
 
 NOTE
11 – WARRANTS AND OPTIONS
 
 During
2007 800,000 options were issued to the president. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions. risk-free interest rate of 3.9%, expected
volatility of 161% and a dividend rate of zero.
 
 In June
2007, 6,000,000 options were issued to the new Chief Executive Officer and
Chairman of the Board, Franklin C. Fisher, Jr.  The options vest
immediately; have an exercise price of $0.11 per share and a fair value at date
of grant of $589,672.  The fair value was estimated using the
Black-Scholes option pricing model and a risk free interest rate of 5.10%, an
expected volatility of 210% and a dividend rate of zero.  Because the
options vest immediately and there is no service or market performance
condition, all of the fair value was expensed at date of grant.
 
 A summary
of the options issued by us for the years ended August 31, 2008 and 2007 is as
follows:
 
 Options
                
                Weighted
      - Average Exercise Price per Share
                
                Weighted-Average
                  Remaining
                  Contractual
      Term
                  (in
      years)
                
                Aggregate
                  Intrinsic
                  ValueOutstanding
      on August 31, 2006
                800,000
                
                $  0.75
                
                3.0
                
                $    -Granted
                7,000,000
                
                0.20
                
                8.8
                
                -Exercised
                -
                
                -
                
                -
                
                -Surrendered/Canceled
                -
                
                -
                
                -
                
                -Outstanding
      on August 31, 2007
                7,800,000
                
                0.18
                
                7.9
                
                -Granted
                -
                
                -
                
                -
                
                -Exercised
                -
                
                -
                
                -
                
                -Surrendered/Canceled
                -
                
                -
                
                -
                
                -Outstanding
      on August 31, 2008
                7,800,000
                
                $  0.18
                
                6.9
                
                $    -Exercisable
      on August 31, 2008
                7,800,000
                
                $  0.18
                
                6.9
                
                $    -
  The
weighted-average grant-date fair value for the year ended August 31, 2008 was
$______/share and $0.74/share August 31, 2007. No options were exercised during
the year. The unrecognized share based compensation cost related to stock option
expense at August 31, 2008 is $0.
 
 During
August 2006, 6,000,000 warrants issued during 2004 were revised in accordance
with a pre-existing, written formula agreement with International Fluid
Dynamics, Inc. (“IFD”), a company owned and controlled by our current Chief
Executive Officer and Chairman of the Board. The fair value on the grant date as
determined using the Black Scholes warrant pricing model was $618,696. Estimates
used in the model include a risk-free interest rates used of 4.8%, and expected
volatility of 145%. The warrants were to be expensed over the remaining life of
the consulting agreement which is approximately 8 years; however, in June 2007,
when the principal owner of IFD was elected Chief Executive Officer and Chairman
of the Board, Aztec expensed the entire remaining unamortized value of the
warrant grant and recognized $615,461 of compensation expense during fiscal year
2007.
 
 A summary
of the warrants issued by us for the years ended August 31, 2008 and 2007 is as
follows:
 
 Warrants
                
                Weighted-
      Average Exercise Price per Share
                
                Weighted-Average
                  Remaining
                  Contractual
      Term
                  (in
      years)
                
                Aggregate
      Intrinsic ValueOutstanding
      on August 31, 2006
                20,000,000
                
                $
      1.15
                
                2.3
                
                $    -Granted
                245,142
                
                0.55
                
                1.3
                
                -Exercised
                -
                
                —
                
                —
                
                -Expired
                -
                
                —
                
                —
                
                -Outstanding
      on August 31, 2007
                20,245,142
                
                $
      1.14
                
                1.9
                
                -Granted
                182,208
                
                0.65
                
                1.0
                
                -Exercised
                -
                
                -
                
                -
                
                -Expired
                (142,450)
                
                0.35
                
                -
                
                -Outstanding
      on August 31, 2008
                20,284,900
                
                $
      1.13
                
                1.45
                
                $    -Exercisable
      on August 31, 2008
                20,284,900
                
                $
      1.13
                
                1.45
                
                $    -
 
 The
unrecognized share based compensation cost related to stock option expense at
August 31, 2008 is $-0- .
 
 In
conjunction with Aztec 2006A LP fundraising, 245,142 warrants were issued and
valued at $4,904.   In conjunction with Aztec 2006A LP
fundraising, 182,208 warrants were issued and valued at $3,644.
 
 NOTE
12 - RELATED PARTY TRANSACTIONS
 
 At August
31, 2008, Aztec has common stock payable of $2,500 to Mark Vance. Mr. Vance
serves as a Director of Aztec.
 
 At August
31, 2008, Aztec has common stock payable of $6,667 to Larry A.
Hornbrook.  Mr. Hornbrook serves as Chief Financial Officer of Aztec
and compensation is deferred until following year of services in compliance to
consulting agreement between Mr. Hornbrook and Company.
 
 At August
31, 2008, Aztec has common stock payable of $3,000 to Ken Lehrer. Mr. Lehrer
serves as Sr. Economist and a Director of Aztec.
 
 On June
15, 2007, Aztec entered into an employment agreement with Franklin C. Fisher,
Jr., (“Fisher”) who assumed the role of Chief Executive Officer and Chairman of
the Board.  Fisher is also a major shareholder in
Aztec.  Prior to Fisher assuming the role of Chief Executive Officer
and Chairman of the Board, Aztec entered into a consulting agreement with
International Fluid Dynamics, Inc. (IFD), a company owned and controlled by
Fisher.  The Agreement entered into on June 22, 2004, engaged IFD to
provide, among other things, advice and consulting regarding Aztec’s business,
acquisition and marketing strategies.  The agreement’s term begins
January 1, 2005 through December 31, 2014.  As compensation, IFD
received 6,000,000 warrants at various exercise prices and which vested
immediately.  No compensation was recorded in connection with this
warrant grant as the exercise prices were extremely “out of the money” and the
fair value was nominal.  The IFD agreement also provides for monthly
retainers to be paid to IFD as follows:  $10,000 per month beginning
January 1, 2005 through December 31, 2007, $12,500 per month beginning January
1, 2007 through December 31, 2010 and $15,000 per month beginning January 1,
2011 through December 31, 2014.  At IFD’s election, payment can be
made in common stock with a value equivalent to the monthly consulting fee
due.  For valuation purposes, any monthly fee paid in stock will be
valued at 75% of the average closing price for the five trading days preceding
the date at which the fee is due.  To date, none of the retainers have
been paid in Aztec stock.  In January 2005, 99% of the proceeds
payable to IFD were assigned to Fisher.  On August 1, 2006, the
6,000,000 warrants were revised with lower exercise prices and extended exercise
dates in accordance with a prior, written, formula based agreement between IFD
and Aztec.  The revised warrants had a fair value of
$618,696.
 
 NOTE
13 – COMMITMENTS AND CONTINGENCIES
 
 We
currently occupy approximately _____ square feet of office space under a lease
service agreement dated ______ for a term of _______.  The office is
located at ___________________ in Houston, Texas.  Our base rent is
$_____ per month.  For the fiscal year ended August 31, 2008, Aztec
incurred $_____ for office rental expense.
 
 NOTE
14 - INCOME TAXES
 
 Reconciliation
between actual tax expense (benefit) and income taxes computed by applying the
U.S. federal income tax rate and state income tax rate to income from continuing
operations before income taxes are as follows:
 
 August
      31, 2008
                August
      31, 2007Computed
      at U.S. and State statutory rates (34%)
                $                    (343,000)
                $                   (311,000)Permanent
      differences
                (55,000)
                -Changes
      in valuation allowance
                398,000
                311,000Total
                $                                 --
                $                                --
  Tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred liabilities are presented below:
  August
      31, 2008
                August
      31, 2007Deferred
      tax assets:Net
      operating loss carry-forwards
                $                  714,000
                $             354,000Oil
      and gas properties
                38,000Less
      valuation allowance
                (752,000)
                (354,000)Total
                $                              --
                $                         --
  At August
31, 2008, Aztec had a net operating loss carry-forwards for federal and state
income tax purposes of approximately $2,100,000 which will begin to expire, if
unused, beginning in 2024. The valuation allowance increased approximately
$398,000 and $311,000 for the years ended August 31, 2008 and 2007,
respectively.
   The above
estimates are based upon management's decisions concerning certain elections
which could change the relationship between net income and taxable income.
Management decisions are made annually and could cause the estimates to vary
significantly.
  NOTE
15 – SUBSEQUENT EVENTS
 During
October 2008, Aztec issued 224,372 shares of stock for services valued at
$13,186.
 
   SUPPLEMENTAL
INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
   (UNAUDITED)
   The
following supplemental unaudited information regarding Aztec’s oil and gas
activities are presented pursuant to the disclosure requirements of SFAS No. 69.
The standardized measure of discounted future net cash flows is computed by
applying constant prices of oil and gas to the estimated future production of
proved oil and gas reserves, less estimated future expenditures (based on
period-end costs) to be incurred in developing and producing the proved
reserves, less estimated future income tax expenses (based on period-end
statutory tax rates) to be incurred on pre-tax net cash flows less tax basis of
the properties and available credits, and assuming continuation of existing
economic conditions. The estimated future net cash flows are then discounted
using a rate of 10 percent per year to reflect the estimated timing of the
future cash flows.
  (1)
Capitalized Costs Relating to Oil and Gas Producing Activities:
 
 As
      of August 31,2008
                
                2007Proved
      oil and gas producing properties andrelated
      lease and well equipment
                
                $              2,895,830
                
                $                          -Unproved
      oil and gas properties
                
                190,764
                
                1,525,050Accumulated
      depreciation, depletion and impairment
                
                (962,280)
                
                (198,953)Net
      Capitalized Costs
                
                $              2,124,314
                
                $              1,326,097
 
 
 
 (2) Costs
Incurred in Oil and Gas Property Acquisition, Exploration, and Development
Activities:
 
 For
      the Years Ended August 31,2008
                
                2007Acquisition
      of Properties:Proved
                $                59,597
                
                $                               -Unproved
                -
                
                49,592Exploration
      Costs
                126,954
                
                1,475,455Development
      Costs
                1,501,952
                
                -Total
                $              1,688,503
                
                $               1,525,047
  All
operations of Aztec are located in the United States.
   
  
 
 (3)
Results of Operations for Producing Activities:
 
 For
      the Years Ended August 31,2008
                
                2007Sales
                $            371,842
                
                $               114,706Production
      costs
                (81,618)
                
                (30,079)Dry
      well expense
                (126,954)
                
                -Depreciation,
      depletion and impairment
                (765,341)
                
                (91,758)Income
      tax expense
                -
                
                -Results
      of operations for producing activities
                $        (602,071)
                
                $                  (7,131)(excluding
      corporate overhead and interest costs)
 
 
 (4)  Reserve
Quantity Information
 
 2008
                
                2007Oil
                
                Gas
                
                Oil
                
                Gas(BBL)
                
                (MCF)
                
                (BBL)
                
                (MCF)Beginning
      of the year
                
                -
                
                -
                
                -
                
                -Purchases
      of minerals in place
                
                -
                
                327,876
                
                -
                
                -Extensions
      and discoveries
                
                5,136
                
                264,017
                
                99
                
                12,094Production
                
                (616)
                
                (30,867)
                
                (99)
                
                (12,094)Ending
      of the year*
                
                4,520
                
                561,027
                
                -
                
                -
 
 *Includes
4,520 bbl and 527,721 mcf attributable to consolidated subsidiaries in which
there is a 70% minority interest.
 
 During
the year ended August 31, 2008, The Company had reserve studies and estimates
prepared on its various properties.  The difficulties and
uncertainties involved in estimating proved oil and gas reserves makes
comparisons between companies difficult.  Estimation of reserve
quantities is subject to wide fluctuations because it is dependent on judgmental
interpretation of geological and geophysical data
 
 (5)
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Reserves
 
 August
      31,2008
                
                2007Future
      cash inflows
                $             5,527,966
                
                $         114,706Future
      production
                (2,260,576)
                
                (30,079)Future
      development costs
                (268,750)
                
                -Future
      income tax expense
                (1,049,524)
                
                -Future
      net cash flows
                1,949,116
                
                84,627Discounted
      for estimated timing of cash flows
                (910,940)
                
                (3,935)Standardized
      measure of discounted future net cash flows**
                $             1,038,176
                
                $           80,692
 
 **Includes
$892,933 attributable to a consolidated subsidiaries in which there is a 70%
minority interest.
 
 Future
income taxes were determined by applying the statutory income tax rate to future
pre-tax net cash flow relating to proved reserves.
 
 The
following schedule summarizes changes in the standardized measure of discounted
future net cash flow relating to proved oil and gas reserves:
 
 August
      31,2008
                
                2007Standardized
      measure, beginning of year
                $                     -
                
                $                 -Extensions,
      discoveries and improved recovery
                916,821
                
                80,692Revisions
      of previous estimates
                -
                
                -Purchases
      of minerals in place
                970,597
                
                -Sales
      of minerals in place
                -
                
                -Net
      change in prices and production costs
                -
                
                -Accretion
      of discount
                -
                
                -Oil
      and gas sales, net of production costs
                (290,224)
                
                (80,692)Changes
      in estimated future development costs
                -
                
                -Previously
      estimated development cost incurred
                -
                
                -Net
      change in income taxes
                (559,018)
                
                -Change
      in timing of estimated future production
                -
                
                -Standardized
      measure, end of year
                $         1,038,176
                
                $                -
  The above
schedules relating to proved oil and gas reserves, standardized measure of
discounted future net cash flows and changes in the standardized measure of
discounted future net cash flows have their foundation in engineering estimates
of future net revenues that are derived from proved reserves and prepared using
the prevailing economic conditions. These reserve estimates are made from
evaluations conducted by independent geologists, of such properties and will be
periodically reviewed based upon updated geological and production data.
Estimates of proved reserves are inherently imprecise. The above standardized
measure does not include any restoration costs due to the fact Aztec does not
own the land.
   Subsequent
development and production of Aztec’s reserves will necessitate revising the
present estimates. In addition, information provided in the above schedules does
not provide definitive information as the results of any particular year but,
rather, helps explain and demonstrate the impact of major factors affecting
Aztec’s oil and gas producing activities. Therefore, the Aztec suggests that all
of the aforementioned factors concerning assumptions and concepts should be
taken into consideration when reviewing and analyzing this
information.
   
  
  
  ITEM
8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
 
 Effective
March 18, 2008, the client auditor relationship between Aztec and Malone &
Bailey, PC ("Malone") was terminated as Malone was dismissed by
Aztec.  Effective March 18, 2008, Aztec engaged GBH CPAs, PC ("GBH")
as its principal independent public accountant for the fiscal year ended August
31, 2008.  The decision to change accountants was recommended,
approved and ratified by Aztec's Board of Directors effective March 18,
2008.
 
 Malone's
report on the financial statements of Aztec for the fiscal years ended August
31, 2007 and 2006, and any later interim period, including the interim period up
to and including the date the relationship with Malone ceased, did not contain
any adverse opinion or disclaimer of opinion and was not qualified or modified
as to uncertainty, audit scope or accounting principles, except for concerns
about Aztec's ability to continue as a going concern.
 
 In
connection with the audit of Aztec's fiscal years ended August 31, 2007 and
2006, and any later interim period, including the interim period up to and
including the date the relationship with Malone ceased, there were no
disagreements between Malone and Aztec on a matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of Malone would have caused
Malone to make reference to the subject matter of the disagreement in connection
with its report on Aztec's financial statements.
 
 There
have been no reportable events as provided in Item 304(a)(iv) of Regulation S-B
during Aztec's fiscal years ended August 31, 2007 and 2006, and any later
interim period, including the interim period up to and including the date the
relationship with Malone ceased.
 
 ITEM
8A.  CONTROLS AND PROCEDURES.
 
 Disclosure
Controls and Procedures
 Our
disclosure controls and procedures are designed to ensure that information
required to be disclosed in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the SEC. Our Chief Executive
Officer and Chief Financial Officer have reviewed the effectiveness of our
“disclosure controls and procedures” (as defined in the Securities Exchange Act
of 1934 Rules 13a-14(c) and 15d-14(c)) during the period covered by this report
and have concluded that the disclosure controls and procedures were effective in
ensuring that material information relating to us is recorded, processed,
summarized, and reported in a timely manner
 
 This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management's report in this annual
report.
 
 Internal
Controls Over Financial Reporting
 We have
made changes to our internal controls over our financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our
most recent fiscal year.  We have hired an outside CPA firm to act as
our controller and have implemented checks and balances to ensure accurate
financial reporting.
 
 
 PART
III
 
 ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT.
 
 Each
director of our Company serves for a term of one year or until the successor is
elected at the Company’s annual shareholders’ meeting and is qualified, subject
to removal by the Company’s shareholders.  Each officer serves, at the
pleasure of the board of directors, for a term of one year and until the
successor is elected at the annual meeting of the board of directors and is
qualified.
 
 Set forth
below is the name, age and present principal occupation or employment, and
material occupations, positions, offices or employments for the past five years
of our current directors and executive officers.
 
 Name
                Age
                Position
                Director
      SinceFranklin
      C. Fisher, Jr.
                68
                President,
      CEO and Chairman, Director
                September
      10, 2007Larry
      Hornbrook
                60
                Chief
      Financial Officer
                N/AKenneth
      E. Lehrer
                62
                Sr.
      Economist and Director
                August
      08, 2005Mark
      Vance
                54
                Director
                October
      25, 2005Kathryn
      E. Parks
                24
                VP
      and Secretary
                N/A
 
 Franklin
C. Fisher, Jr., Director, CEO and Chairman
 Mr.
Fisher, in 1964, joined a small, nearly bankrupt steel fabrication firm in
Houston, TX as executive trainee.  After two years he bought out the
owner in a leveraged buy-out.  The business was moved to new
facilities within the following year and diversification of the firm’s
activities was started.  Six years later, Mr. Fisher formed a holding
company for his various enterprises which included: construction (domestic and
foreign), petrochemical plant rework, steel fabrication, design and erection,
hydraulic motors (development and manufacturing), engineering/design, products
distribution (domestic and foreign), oil and gas investment and production
(domestic), real estate investment (domestic),  foreign investment
(mine clearing firm in Egypt) and chemicals.
 
 Mr.
Fisher sold the firms, except those involved in trading and investments, to
concentrate on his oil and gas activities personal investments, plus financial,
legal, negotiation, and strategy consulting.  In 1975, Mr. Fisher
became Chairman and a major shareholder of Ashford Bank (subsequently MBank
Memorial).  It was highly successful and was sold to Mercantile Bank
in 1983 and Mr. Fisher remained as Chairman until mid-1985 and on the Board of
Directors until 1986 when he resigned.  Since 1983, he has
concentrated on his oil and gas activities and on managing his own investments
and companies in which he owns interests.  Additionally, he maintains
a wide array of consulting projects involving strategy formulation and
implementation, negotiation, legal strategy, financials restructuring, mergers,
takeovers, workouts, public stock issues, investment analysis, and operational
management.  He is active in the investment field plus oil and gas
exploration and development, and involved in the mediation of litigation and
other disputes.  Mr. Fisher received his B.A. from Texas A & M
University which he attended on a football scholarship and received his Juris
Doctorate degree from University of Texas.  He was admitted to
practice law in Texas in 1964.  He was appointed to U.S. District
Export Council by U.S. Secretary of Commerce in 1976 and for several subsequent
terms.  He is a past member of YPO (Young Presidents Organization) and
a present member of WPO (World Presidents Organization).
 
 Larry
Hornbrook, CFO
 Larry A.
Hornbrook, CPA, has practiced public accounting since 1990 as a sole
practitioner or under the company name of Crawford & Hornbrook, PLLC. His
clientele are in a variety of industries including oil and gas, real estate,
construction, and services. The firm performs tax research and planning,
tax return preparation, financial statement preparation and corporate
restructurings.
 
 Mr.
Hornbrook was Tax Manager for Golden Corral Corporation, an owner of national
and regional restaurant chains, from 1987 to 1989.
 
 He served
as Tax Manager for Transcontinental Energy Corporation from 1983 to 1986.
Transcontinental Energy Corporation was an independent oil and gas producer
and contract driller, which offered public limited partnerships.  His
responsibilities included preparation of federal and state income
and franchise taxes for corporate entities, preparation of federal and
state income tax returns for over 30 partnership involving more than 10,000
partners.
 
 He served
as Tax Manager for Mitchell Energy & Development Corp. from 1978 to 1983.
Mitchell was one of the largest independent energy firms headquartered in
Texas and owned and operated oil and gas wells, contract drilling rigs,
pipelines, compressors and liquid extraction plants.
 
 Mr.
Hornbrook was Tax Senior for Arthur Andersen & Co from 1975 to
1978.
 
 Mr.
Hornbrook has been a Texas Certified Public Accountant since 1978.
He received his B.S. (Management) Cum Laude from the University of South
Dakota.  He served in the United States Marine Corps from 1969 to 1972
attaining the rank of Sergeant and receiving a Meritorious Mast for excellent
performance of duties. He also received a Meritorious Unit Commendation, Good
Conduct Medal, National Defense Medal, and Vietnam Service Medal with two
stars.
 
 Kenneth
E. Lehrer, Sr. Economist and Director
 Dr.
Lehrer formed an organization in 1982, engaged in the areas of -
Economics, Finance, Economic Damage Analysis (including Business and
Technology Losses), Banking, Business, ESOP and Non Public Business
Valuations, Securities, Healthcare, Fairness and Advisory Opinions,
Intellectual Property Valuations, Real Estate and Corporate Finance. His
company both prepares institutional economic / finance reports, feasibility
analysis, corporate business plans and provides litigation support (having
been qualified in both State and Federal Courts) in the areas of -
economics, real estate, banking, corporate and IP valuations, class actions
and finance. Dr. Lehrer served for approximately twenty (20) years (1984 -
2002) as an Adjunct Professor of Finance at the University of Houston,
Graduate School of Business Administration and is presently an Adjunct
Professor of Finance and Economics at the University of Phoenix (Houston
Division).
 
 Dr.
Lehrer has served with the Federal Home Loan Bank of Dallas as agent for
the Federal Savings and Loan Insurance Corporation of - Acadia Savings and
Loan Association, French Market Homestead Savings, Twin City Savings, First
Savings of Louisiana and is a member of the National Association of
Corporate Directors.
 
 Dr.
Lehrer commenced his career in 1970 at Bankers Trust Company (New York), and
then became a Manager for the Greek Shipper, Costas Lemos [dec’d]. Here, he
assisted on projects in New York, Houston, Denver, Guam and in Europe.  Dr.
Lehrer relocated to Houston in 1977.
 
 Dr.
Lehrer holds four (4) degrees from New York University: Bachelor of
Science (Finance), Master of Business Administration (Banking), Master of
Arts (Economics) and a Doctorate in Urban Economics. Dr. Lehrer is
registered with the Securities and Exchange Commission as an Investment
Advisor under the Investment Advisors Act of 1940 and has held the Full
Registration/General Securities (Series 7) and Texas Securities (Series 63)
Licenses.
 
 Mark
Vance, Director
 From 2002
to mid-2005, Mr. Vance was the senior executive in charge of
strategic alliances with Worksafe, Inc. (Dallas, TX) and YCO Services
(Houston, TX). Most recently, he developed Worksafe’s strategic plan and
led the mezzanine fund raise with private equity groups in the U.S. At YCO
Services, he created an alliance partnership with Compaq/Hewlett Packard
for the distribution of professional services.
 
 From 1998
to 2001, Mr. Vance was vice president of business development and chief
financial officer for Control Network System Inc. in Los Angeles. This
$17 million privately held, fully integrated company developed
international voice over data networks between the U.S. and Asia and was
acquired by Total Axcess Inc. in December 2001. As a company founder, he
developed strategic relationships in adding to managing all financial
affairs, cash management and investor relations.
 
 Mr. Vance
was a founder and served as senior vice president and chief
financial officer for Telescape International Inc. (Houston, TX) from 1996
to 1997. He developed the business plan and investor presentation and
succeeded in raising first rounds of private equity funding, positioning
the company for an IPO.
 
 Prior, he
was a founder and developed the strategic plan for a $10 million private
equity raise with Alex Brown that led to the merger of Matrix Telecom and
DNS Communications (Dallas, TX) creating a formidable competitor in
the industry. He served as chief operating officer and chief financial
officer-- including management of the finance, legal, accounting, human
resources, information services and insurance departments--from 1993 to
1995.
 
 He served
as director of finance (and chief financial officer of a subsidiary) at
Wiltel Corporation (Houston, TX) from 1992 to 1993. While there he
developed and instituted a Latin American distributorship program for the
company, including strategic marketing, pricing and sales
policies.
 
 Mr. Vance
served as a financial analyst, controller and tax manager with
various companies within the energy industry in Houston from 1976 to 1991
including Mitchell Energy, Quintana Petroleum, and Texaco.
 
 He
received his MBA in Accounting from the University of Houston in 1979, and a
Bachelor of Science degree in finance from LSU in 1976.
 
 Kathryn
E Parks, VP, Secretary, Treasurer
 Ms. Parks
was legal liaison in the firm of Sonfield & Sonfield a Houston, Texas law
firm which has been continually in existence and practice since 1898. Her duties
included partner support, client liaison, legal research, implementation,
validation and filing of documents and reports with various federal, state and
governmental regulatory agencies for a variety of public and private
firms.  Ms. Parks was elected by Aztec in June of 2006.  In
March, 2008 she joined Aztec full time to serve as Vice President, Secretary,
Treasurer and serves as Administrative Coordinator for all of Aztec’s
activities.
 
 Directors
are elected in accordance with our bylaws to serve until the next annual
stockholders meeting. Aztec does not currently pay compensation to directors for
services in that capacity.
 
 None of
our directors or officers is a director in any other reporting
companies.  None of our directors or officers has been affiliated with
any company that has filed for bankruptcy within the last five
years.  There are no family relationships among our directors or
officers.  We are not aware of any proceedings to which any of our
officers or directors, or any associate of any such Officer or Director, is a
party adverse to our Company or any of our subsidiaries or has a material
interest adverse to it or any of its subsidiaries.
 
 Code
of Ethics.
 The
Company has not yet adopted a Code of Ethics because it has only three
directors.
 
 Audit
Committee Financial Expert.
 The Board
of Directors has not established an audit committee and does not have an audit
committee financial expert.  The Board is of the opinion that an audit
committee is not necessary since the Company has only three directors and to
date, such directors have been performing the functions of an audit
committee.
 
 Committees
and Procedures
 (1) The
registrant has no standing audit, nominating and compensation committees of
the Board of Directors, or committees performing similar functions. The
Board acts itself in lieu of committees due to its small size.
 
 (2) The
view of the board of directors is that it is appropriate for the registrant
not to have such a committee because its directors participate in the
consideration of director nominees and the Company and its board is so
small.
 
 (3) The
members of the Board who act as the nominating committee are
not independent, pursuant to the definition of independence of a
national securities exchange registered pursuant to Section 6(a) of the Act
(15 U.S.C. 78f(a).
 
 (4) The
nominating committee has no policy with regard to the consideration of any
director candidates recommended by security holders, but the committee will
consider director candidates recommended by security holders.
 
 (5) The
basis for the view of the board of directors that it is appropriate for the
registrant not to have such a policy is that there is no need to adopt a policy
for a small company.
 
 (6) The
nominating committee will consider candidates recommended by security holders,
and by security holders in submitting such recommendations.
 
 (7) There
are no specific, minimum qualifications that the nominating committee
believes must be met by a nominee recommended by security holders except to
find anyone willing to serve with a clean background.
 
 (8) The
nominating committee’s process for identifying and evaluation of nominees
for director, including nominees recommended by security holders, is to
find qualified persons willing to serve with a clean backgrounds. There are
no differences in the manner in which the nominating committee evaluates
nominees for director based on whether the nominee is recommended by a
security holder, or found by the board.
 
 SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
 Section
16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers, and persons who beneficially own more than ten
percent of a registered class of our equity securities (referred to as
“reporting persons”), to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of common
stock and other Aztec Oil & Gas, Inc. equity securities. Reporting
persons are required by Commission regulations to furnish us with copies of
all Section 16(a) forms they file. We believe, based solely on our review of the
copies of such forms and other written representations to us, that during the
fiscal year ended August 31, 2008, all reporting persons have complied with all
applicable Section 16(a) filing requirements.
 
 
 ITEM
10. EXECUTIVE COMPENSATION
 
 As a
result of the Company’s current limited available cash, no officer or director
received compensation during the fiscal year ended August 31, 2008. Aztec
intends to pay salaries when cash flow permits.
 
 SUMMARY
COMPENSATION TABLES
 Annual
      CompensationOther
      AnnualName
      and Principal Position
                Year
                Salary
      ($)
                Bonus
      ($)
                Compensation
      ($)Franklin
      C. Fisher, Jr. (2)
                2008
                -0-
                -0-
                -0-Chief
      Executive Officer, Chairman/Director
                2007
                7,000
                -0-
                -0-Kenneth
      E. Lehrer (3)
                2008
                -0-
                -0-
                -0-Sr.
      Economist/Director
                2007
                -0-
                -0-
                66,0002006
                -0-
                -0-
                56,0002005
                12,000
                -0-
                24,000Larry
      Hornbrook (4) (6)
                2008
                -0-
                -0-
                6,813CFO,
      Director
                2007
                -0-
                -0-
                20,2582006
                -0-
                -0-
                -0-2005
                -0-
                -0-
                -0-Mark
      Vance
                2008
                -0-
                -0-
                -0-Director
                2007
                -0-
                -0-
                37,5002006
                -0-
                -0-
                33,3332005
                -0-
                -0-
                -0-Kathryn
      E. Parks (5)
                2008
                19,687
                -0-
                -0-VP
      and Secretary
                2007
                -0-
                -0-
                1,9502006
                -0-
                -0-
                1,2002005
                -0-
                -0-
                -0-Kirk
      N. Blackim (1)
                2007
                -0-
                22,300
                62,700Former
      President/Director
                2006
                -0-
                -0-
                75,9002005
                -0-
                -0-
                -0-
  (1)
In September 2005, the company retained the services of Kirk Blackim
as President and Director of the Company. Mr. Blackim was paid $6,600 in
stock monthly for services. The number of shares is determined using the
average value of the shares traded during the month. Additionally warrants
were issued to Kirk Blackim for services for 800,000 shares at exercise prices
ranging from $1.00 per share to $2.00 per share.  Mr. Blackim
resigned as President and Director effective September 5, 2007.
 
 (2)
Following the resignation of Kirk Blackim on September 10, 2007, Mr. Franklin
Fisher, Jr. became President while maintaining his position as CEO and
Director.  Mr. Fisher receives an annual salary of
$144,000.  The Company entered into a consulting agreement with
International Fluid Dynamics, Inc. (“IFD”), a company owned and controlled by
Mr. Fisher.  The agreement entered into on June 22, 2004, engaged IFD
to provide, among other things, advice and consulting regarding Aztec’s
business, acquisition and marketing strategies.  The agreement’s term
is January 1, 2005 through December 31, 2014.  As compensation, IFD
received 6,000,000 warrants at various exercise prices and which vested
immediately.  No compensation was recorded in connection with this
warrant grant as the exercise prices were extremely “out of the money” and the
fair value was nominal.  The IFD agreement also provides for monthly
retainers to be paid to IFD as follows:  $10,000 per month beginning
January 1, 2005 through December 31, 2007, $12,500 per month beginning January
1, 2007 through December 31, 2010 and $15,000 per month beginning January 1,
2011 through December 31, 2014.  At IFD’s election, payment can be
made in common stock with a value equivalent to the monthly consulting fee
due.  For valuation purposes, any monthly fee paid in stock will be
valued at 75% of the average closing price for the five trading days preceding
the date at which the fee is due.  To date, none of the retainers have
been paid in Aztec stock.  In January 2005, 99% of the proceeds
payable to IFD were assigned to Fisher.  On August 1, 2006, the
6,000,000 warrants were revised with lower exercise prices and extended exercise
dates in accordance with a prior, written, formula based agreement between IFD
and Aztec.  The revised warrants had a fair value of $618,696, all of
which was expensed in the year ended August 31, 2007.
 
 (3) On
August 25, 2006, Dr. Kenneth Lehrer vacated the position of CFO and accepted the
newly created position of Sr. Economist.
 
 (4) In
August 2006, the company retained the services of Mr. Larry Hornbrook as
CFO.  Mr. Hornbrook will be paid an hourly rate for his
services.  One third of the amount will be paid in cash and two thirds
will be paid in stock.  The number of shares is determined using the
average value of the shares traded during the month.  Additionally
warrants were issued to Larry Hornbrook for services for 200,000 shares at
exercise prices ranging from $0.50 to $1.00 per share.
 
 (5) On
June 12, 2006, Ms. Danyel Owens resigned as Vice President and Secretary of
Aztec and the position was filled by Ms. Kathryn Parks.
 
 (6) Larry
A. Hornbrook received $227.88 in expense reimbursement in 2007.
 
 
 LONG
TERM COMPENSATION TABLE
 
 Long
      Term CompensationAwards
                
                PayoutsName
      and Principal
                  Position
                Year
                Restricted
      Award(s)($)
                Stock
      Securities Underlying Options/ SARs(#)
                LTIP
      Payouts
                  ($)
                All
      Other Compensation ($)Franklin
      C. Fisher, Jr.
                2008
                -0-
                -0-
                -0-
                -0-Chief
      Executive Officer and Chairman
                2007
                -0-
                -0-
                -0-
                -0-Larry
      Hornbrook
                2008
                -0-
                $13,625
                -0-
                -0-CFO
                2007
                -0-
                $20,258
                -0-
                -0-2006
                -0-
                -0-
                -0-
                -0-2005
                -0-
                -0-
                -0-
                -0-Kenneth
      Lehrer (1)
                2008
                -0-
                $11,774
                -0-
                -0-Sr.
      Economist,
                2007
                -0-
                $66,000
                -0-
                -0-Director
                2006
                -0-
                $56,000
                -0-
                -0-2005
                $57,421
                $54,000
                -0-
                -0-Mark
      Vance
                2008
                -0-
                $12,250
                -0-
                -0-Director
                2007
                -0-
                $37,500
                -0-
                -0-2006
                -0-
                $33,333
                -0-
                -0-2005
                -0-
                -0-
                -0-
                -0-Kathryn
      Parks
                2008
                -0-
                $2,685
                -0-
                -0-VP
      and Secretary
                2007
                -0-
                $
      1,950
                -0-
                -0-2006
                -0-
                $
      1,200
                -0-
                -0-2005
                -0-
                -0-
                -0-
                -0-Kirk
      N. Blackim
                2007
                -0-
                $85,000
                -0-
                -0-Former
      President/
                2006
                -0-
                $75,900
                -0-
                -0-Director
                2005
                -0-
                -0-
                -0-
                -0-
 
 (1)
                Kenneth
      E. Lehrer received an additional 2,006 common shares in October,
      2005.
 (2)
                Mr.
      Blackim resigned as President and Director effective September 5,
      2007.
 
 
 Grants
of Stock Options and Stock Appreciation Rights
 In 2007
Aztec granted 6,000,000 stock options to Mr. Franklin Fisher, Chairman &
CEO, as part of his employment contract with the Company.
 
 Option/
SAR Exercises
 None of
our directors or executive officers exercised any stock options or stock
appreciation rights during the fiscal year ended August 31, 2008.  Mr.
Fisher, Mr. Hornbrook and Mr. Lehrer all hold unexercised stock options held as
of such date.
 
 Long
Term Incentive Plan Awards
 The
Company has no long-term incentive plans.
 
 Compensation
of Directors
 Our
directors do not receive monetary compensation for their services as
directors.
 
 Employment
Contracts
 The
Company currently has one employment agreement which is with Mr.
Fisher.
 
 
 ITEM
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
 A. The
following table lists, as of August 31, 2008, the number of shares of common
stock of our Company that are beneficially owned by (i) each person or entity
known to our Company to be the beneficial owner of more than 5% of the
outstanding common stock; (ii) each officer and director of our Company; and
(iii) all officers and directors as a group. Information relating to beneficial
ownership of common stock by our principal shareholders and management is based
upon information furnished by each person using “beneficial ownership” concepts
under the rules of the Securities and Exchange Commission. Under these rules, a
person is deemed to be a beneficial owner of a security if that person has or
shares voting power, which includes the power to vote or direct the voting of
the security, or investment power, which includes the power to vote or direct
the voting of the security. The person is also deemed to be a beneficial owner
of any security of which that person has a right to acquire beneficial ownership
within 60 days. Under the Securities and Exchange Commission rules, more than
one person may be deemed to be a beneficial owner of the same securities, and a
person may be deemed to be a beneficial owner of securities as to which he or
she may not have any pecuniary beneficial interest. Except as noted below, each
person has sole voting and investment power.
 
 The
percentages below are calculated based on 32,692,799 shares of our common stock
issued and outstanding as of November 5, 2008.  Unless otherwise
indicated, the address of each person listed is c/o Aztec Oil & Gas, Inc.,
One Riverway, Suite 1700, Houston, Texas 77056.
 
 Title
      Of Class
                Name,
      Address Of Beneficial Owner And Position(1)
                Shares
      Of
                  Common
      Stock
                Percent
                  Of
      Class(2)Common
                Franklin
      C. Fisher, Jr.
                12,157,670
                37.1876%CEO,
      DirectorCommon
                Larry
      Hornbrook
                295,965
                0.9053%CFOCommon
                Ken
      Lehrer
                1,119,952
                3.4257%Sr.
      Economist, DirectorCommon
                Mark
      Vance
                789,888
                2.4161%DirectorCommon
                Kathryn
      E. Parks
                90,000
                0.2753%VP
      & SecretaryAll
      directors and officers as a group (5 persons)
                14,453,475
                44.2100%
  
 (1)
Unless otherwise indicated, each person named in the above-described table has
the sole voting and investment power with respect to his shares of the Common
Stock beneficially owned.
 
 (2)
Unless otherwise provided, the calculation of percentage ownership is based on
32,692,799 shares of our common stock issued and outstanding as of November 5,
2008 any shares of the Common Stock which are not outstanding as of such
date but are subject to options, warrants, or rights of conversion
exercisable within 60 days of November 30, 2008 shall be deemed to be
outstanding for the purpose of computing percentage ownership of
outstanding shares of the Common Stock by such person but shall not be
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
 
 B.
Persons Sharing Ownership of Control of Shares
 There are
no persons sharing ownership or control of shares.
 
 C.
Non-voting Securities and Principal Holders Thereof
 The
Company has not issued any non-voting securities.
 
 D.
Options, Warrants and Rights
 Aztec
issued International Fluid Dynamics warrants for 6,000,000 shares
at exercise prices ranging from $0.75 per share to $1.65 per share. No
compensation was recorded in connection with these warrants because their
fair value was nominal and the exercise prices were extremely “out of the
money”.
 
 E.
Preferred Stock
 On June
11, 2004, the Board of Directors approved Articles of Designation of Series A
Preferred Stock. Series A Preferred stock was established on August 26, 2004.
All 100,000 authorized shares were immediately issued with 50,000 shares for
$15,000 cash and 50,000 shares for services valued at $15,000. The shares of
outstanding Series A Preferred Stock shall have the number of votes equal to
seventy percent (70%) of votes of all outstanding shares of capital stock such
that all the outstanding shares of Preferred Stock shall always constitute 70%
of the voting rights of the Corporation, but the holders are not obliged or
bound to vote said stock or to vote together and the shares are owned by
separate entities. Such Series A Preferred stock has no other extraordinary
preferences.
 
 
 ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 a. Transactions with Related
Persons. There are no transactions since the beginning of the fiscal
year, or any proposed transaction in which any related person had or will have a
direct or indirect material interest.
 
 The
Officers and Directors of the Company are involved in other business activities
and may, in the future, become involved in other business opportunities. If a
specific business opportunity becomes available, such persons may face a
conflict in selecting between the Company and their other business interests.
The Company has not formulated a policy for the resolution of such
conflicts.
 
 b. Parents of Issuer. The Company
has no parents.
  c.
                Promoters and Control
      Persons. The Company has not had a promoter at any time during the
      past five fiscal years.
  
 ITEM
13. EXHIBITS.
 
 (a)
Exhibits
 
 Number
                Description3.1
                Articles
      of Incorporation *3.2
                Bylaws*21
                Subsidiaries
      of Aztec Oil & Gas, Inc.31.1
                Certifications
      of the Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
                Certifications
      of the Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                Certifications
      of Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350 as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.1
                Certifications
      of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
 *Incorporated
by Reference.  Filed on Registration Statement Form S-18 effective
February 14, 1986. Commission File No. 33-349
 
 
 (b)
REPORTS ON FORM 8-K
 The
Company filed a Current Report on
 
 Subsequent Reports on Form
8-K
 
 On
September 10, 2007, the Company filed a Current Report on Form 8-K disclosing
the resignation of Kirk N. Blackim as President and Director of the Company on
September 5, 2007. Effective as of the same date, Franklin C. Fisher, Jr., who
had been serving as Chief Executive Officer and Chairman, also assumed the title
of President.
 
 On March
19, 2008, the Company filed a Current Report on Form 8-K pursuant to Item 4.01
Changes In Registrant's Certifying Accountant.
 
 On March
27, 2008, the Company filed an amendment to the Form 8-K filed on March 19,
2008.
 
 
 ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
 GBH CPAs,
PC are our independent auditors.  We have no disagreement with our
independent auditors on any matter of accounting principle or practice,
financial statement disclosure or auditing scope or procedure.
 
 Audit
Fees
 The
aggregate fees billed by our independent auditors, for professional services
rendered for the audit of our annual financial statements included in our Annual
Reports o Form 10-K for the years ended August 31, 2008 and 2007, and for the
review of quarterly financial statements included in our Quarterly Reports on
Form 10-QSB for the quarters ended November 30, February 29/28, May 31, 2008 and
2007, were:
 
 2008
                
                2007GBH
      CPAs, PC
                $      44,000
                
                $                 -Malone
      & Bailey PC
                $      46,460
                
                $      63,074
 
 Audit-Related
Fees
 For the
years ended August 31, 2008 and 2007, there were no fees billed for assurance
and related services by our Auditor relating to the performance of the audit of
our financial statements which are not reported under the caption “Audit Fees”
above.
 
 Tax
Fees
 We do not
use our Auditors for tax compliance, tax advice and tax planning.
 
 We do not
use the Auditors for financial information system design and implementation.
These services, which include designing or implementing a system that aggregates
source data underlying the financial statements or generates information that is
significant to our financial statements, are provided internally or by other
service providers. We do not engage the auditors to provide compliance
outsourcing services.
  The Board
of Directors has considered the nature and amount of fees billed by our Auditors
and believes that the provision of services for activities unrelated to the
audit is compatible with maintaining GBH CPA’s independence.
  All
Other Fees
 None
 
 Policy
on pre-approval of audit and permissible non-audit services
 Our Board
of Directors unanimously approved 100% of the fees paid to the principal
accountant for audit-related, tax and other fees.  Our Board of
Directors pre-approves all non-audit services to be performed by the
auditor.  The percentage of hours expended on the principal
accountant’s engagement to audit our financial  statements for the
most recent fiscal year that were attributed to work performed by persons other
than the principal accountant’s full-time, permanent employees was
0%.
  
  SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
 
 (Registrant)
                
                AZTEC
      OIL & GAS, INC.Date:
      December 16, 2008
                
                By: /s/  Franklin
      C. Fisher, Jr.Name:  Franklin
      C. Fisher, Jr.Title:     Chief
      Executive Officer and Director
                  (Principal
      Executive Officer)Date:
      December 16, 2008
                
                By: /s/  Larry
      A. HornbrookName:  Larry
      A. HornbrookTitle:     Chief
      Financial Officer
                  (Principal
      Financial and Accounting Officer)Date:
      December 16, 2008
                
                By:
      /s/  Ken LehrerName:  Ken
      LehrerTitle:     Sr.
      Economist, DirectorDate:
      December 16, 2008
                
                By:
      /s/  Mark VanceName:  Mark
      VanceTitle:     Director