**U.S.
        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, 2006
 
 [
        ]
        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) 622-1937
 
 Securities
        registered under Section 12(b) of the Exchange Act: None
 
 Securities
        registered under Section 12(g) of the Exchange Act:
 
 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 (ending August 31, 2006):
        $6,049.
 
 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 November
        30, 2006: $3,657,051 (28,131,158 shares times $0.13).
 
 State
        the
        number of shares outstanding of each of the issuer's classes of common equity,
        as of the most practicable date:
 
 Class
        Outstanding as of November 30, 2006
 
 Common
        Stock, $.001 par value 29,292,894
 
 Transitional
        Small Business Disclosure Format (Check one): Yes_____ No __ X ___
 
  
 
 TABLE
        OF
        CONTENTS
 PART
                  I
              PAGEItem
                  1. Description of Business
              1Item
                  2. Description of Property
              5Item
                  3. Legal Proceedings
              5Item
                  4. Submission of Matters to a Vote of Security Holders
              5PART
                  II
              5Item
                  5. Market for Common Equity and Related Stockholder
                  Matters
              5Item
                  6. Management's Discussion and Analysis or Plan of
                  Operation
              6Item
                  7. Financial Statements
              8Item
                  8. Changes in and Disagreements with Accountants on Accounting
                  and
                  Financial Disclosure
              17Item
                  8A. Controls and Procedures
              17PART
                  IIIItem
                  9. Directors, Executive Officers, Promoters and Control Persons;
                  Compliance with Section 16(a) of the Exchange Act
              18Item
                  10. Executive Compensation.
              20Item
                  11. Security Ownership of Certain Beneficial Owners and
                  Management
              23Item
                  12. Certain Relationships and Related Transactions
              23Item
                  13. Exhibits
              24Item
                  14. Principal Accountant Fees and Services.
              25SIGNATURES
              26
 
 
  Forward-Looking
        Statements
 
 This
        report contains forward-looking statements. The forward-looking
        statements include all statements that are not statements of historical
        fact. The forward-looking statements are often identifiable by their use of
        words such as "may," "expect," "believe," "anticipate," "intend," "could,"
        "estimate," or "continue," "plans" or the negative or other variations of
        those or comparable terms. Our actual results could differ materially from
        the anticipated results described in the forward-looking statements.
        Factors that could affect our results include, but are not limited to,
        those discussed in Item 6, "Management's Discussion and Analysis or Plan of
        Operation" and included elsewhere in this report.
 
 **PART
        I**
 
 **ITEM
        1. DESCRIPTION OF BUSINESS.**
 
 (a)
        BUSINESS DEVELOPMENT
 
 (i)
        Business Development, Organization and Acquisition Activities
 -----------------------------------------------------------------
 
 Aztec
        Oil
& Gas, Inc. ("Aztec" or "the Company") is a Houston-based oil and
        gas exploration and production (E&P) company. The Company is taking
        advantage of significant opportunities that are proving to possess high
        revenue potential. Since its formation in 2004, Aztec's business plan has
        been to purchase oil and gas interests utilizing strategies that seek to
        manage and reduce the risk associated with traditional exploration and
        production operations.
 
 The
        Company is a developmental stage company whose original principal business
        objective involved its participation in the broadcast and television business
        through its then wholly-owned subsidiary, Lloyd Communications, Inc., a Illinois
        corporation and Golden Circle Broadcasting Inc., a Tennessee corporation.
        As a
        result of adverse business circumstances, the Company sold all its business
        operations, and no material business operations have been conducted by the
        Registrant since 1990. In 2004, the Company changed its name from Aztec
        Communications Group, Inc. to Aztec Oil & Gas, Inc.
 
 In
        September, 2004 the company acquired a 31.283% membership unit interest in
        Z2,
        LLC., a Florida limited liability company. Z2, LLC, owns 100% of the working
        interest in the 7,200+ acre Big Foot oil field in Texas.
 
 On
        February 23, 2006, the Company sold its interest in Z2, LLC for $1,555,404.
        The
        sales agreement provides for $25,000 to be paid at time of signing, and a
        note
        receivable. The note is for $1,561,000 with no stated interest rate. Interest
        on
        the note is imputed at 8% per annum. The terms of the note require payments
        of
        $75,000 on the 17th of each month for three months, with a balloon payment
        on
        May 31, 2006. All amounts due under this note were paid in full in April
        2006.
 
 B.
        Business of Issuer
 
 1)
        Principal Products, Services and Principal Markets.
 
 Aztec's
        business plan calls for purchasing interests in producing oil & gas
        properties with undrilled reserves. Aztec's growth strategy is partially
        based
        on participation, as it intends to team up with outside participation investors
        who will assume the costs associated with the drilling of additional wells
        in
        exchange for a part of the revenues derived from the wells they finance.
        Once
        the well hard costs are repaid to those participation investors, the Company
        expects that any working interest revenues would be split approximately 50-50
        between those participation investors and Aztec and other lease interest
        holders. The Company expects that implementation of 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 calls for investing in various drilling prospects
        with
        industry professionals. Aztec has participated in ten drilling projects in
        Texas, Oklahoma, and Louisiana. Four of the wells have been completed, three
        are
        awaiting evaluation and completion, and three have been plugged and abandoned.
        Aztec is also participating in a forty well project in Pennsylvania. This
        project has drilled thirty eight of the forty wells. To date, nineteen wells
        have been completed.
 
 The
        Company has an operating history since 2004 with oil and gas properties,
        upon
        which an evaluation of the Company, its current business and its prospects
        can
        be based, each of which must be considered in light of the risks, expenses
        and
        problems frequently encountered by all companies in the early stages of
        development, and particularly by such companies entering new areas of business.
        The Company’s prospects must be considered in light of the risks, uncertainties,
        expenses and difficulties frequently encountered by companies in their early
        stages of a new business plan, particularly companies involved in the highly
        competitive oil and gas industry. Such risks include, without limitation,
        the
        ability of the Company to manage its operations, including the amount and
        timing
        of capital expenditures and other costs relating to the expansion of the
        company’s operations, direct and indirect competitors of the Company, including
        those with greater financial, technical and marketing resources, the inability
        of the Company to attract, retain and motivate qualified personnel and general
        economic conditions.
  The
        Company has not demonstrated a successful business plan or profitability
        to date
        and the Company 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 earmarks to execute its new business
        strategy. As of August 31, 2006, the Company had an accumulated deficit of
        $(2,723,633). The Company expects that its operating expenses will increase
        as
        it defines its new business strategy, especially in the areas of acquisitions.
 
 Thus,
        the
        Company 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 the Company 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.
 
 The
        Company 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 is participating 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), which cost approximately $3.5 million to drill to a
        vertical depth of approximately 14,300 feet, had a spud (start) date of
        April 15, 2005. The second well (Deep Lake Well No. 1) was drilled to an
        approximate vertical depth of 13,600 feet. According to the program's
        operator and several consulting geologists, both well sites targeted
        formations that are considered to contain natural gas plus some condensate.
        Both wells have been drilled and completed into target zones. The wells
        were connected to the pipeline during the Company’s 4th quarter. The initial
        flow from the wells indicates that production will be in commercial
        quantities.
 
 On
        October 21, 2005 the Company announced its recent progress in the McCoy No.
        2
        well in the Barnett Shale play north of Fort Worth, Texas. The McCoy No.
        2 well
        has recently been completed and is in the "flow-back" process after completion
        of stimulation procedures. The operator of the well reported present oil
        production of approximately 130 barrels of oil per day and good gas presence
        with approximately 70% of the treatment fluid recovered to date. The operator
        anticipates complete fluid recovery and analysis of production capability
        over
        the next 45 days. Strong oil and gas production is projected from this well.
        McCoy No. 2 is Aztec's first well in Aztec's efforts to participate in the
        exploitation of oil and gas reserves in the Barnett Shale play. Under the
        terms
        of the participation agreement with Rife Energy Operating, Inc., the operator,
        Aztec Oil & Gas acquired a minority working interest in the drilling and
        completion of McCoy No. 2.
 
 On
        October 26, 2005, Aztec announced that it has taken a minority working interest
        in a program to drill up to 40 natural gas wells located in Cambria, Clearfield
        and Potter counties in Pennsylvania. To date thirty eight wells have been
        drilled. Nineteen wells have been completed and were in various stages of
        testing and evaluation. Twenty one of the wells are awaiting the completion
        of a
        pipeline. The pipeline is expected to be completed before December 31, 2006
 
 (a)
        Limited Operating History
 
 The
        Company's prospects must be considered in light of the risks, uncertainties,
        expenses and difficulties frequently encountered by companies in their early
        stages of a new business plan.
 
 The
        ability of the Company to manage its operations, including the amount and
        timing
        of capital expenditures and other costs relating to the expansion of the
        company's operations, the introduction and development of different or more
        extensive communities by direct and indirect competitors of the Company,
        including those with greater financial, technical and marketing resources,
        the
        inability of the Company to attract, retain and motivate qualified personnel
        and
        general economic conditions.
 
 (b)
        Anticipated Losses for the Foreseeable Future
 
 The
        Company has not achieved profitability to date, and the Company anticipates
        that
        it will continue to incur net losses for the foreseeable future. As of August
        31, 2006, the Company had an accumulated deficit of $(2,723,633) dollars.
        Management expects its expenses will increase as the Company further executes
        its business plan. 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.
 
 (c)
        Developing New Business Strategies
 
 As
        stated, until the Company acquired Z2, LLC, on September 15, 2004 (which
        was
        subsequently sold in February 2006, the Company had been inactive. With the
        acquisition of Z2, LLC, the Company developed a business strategy to team-up
        with outside participation investors who will assume the costs associated
        with
        the drilling of additional wells in exchange for a part of the revenues derived
        from the wells they finance.
 
 The
        Company 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.
 
 (d)
        Uncertainties Related to the Oil and Gas Business in General
 
 The
        Company'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,
        the Company is not fully insured against these risks either because
        insurance is not available or because the Company has elected not to insure
        due to prohibitive premium costs.
 
 The
        oil
        and gas business is further subject to many other contingencies which are
        beyond
        the control of the Company. 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.
 
 (e)
        Selection of a Business Opportunity
 
 Should
        the Company pursue other potential business opportunities, it
        anticipates they will be referred from various sources, including its
        officers and directors, professional advisors, and its shareholders, who
        may present unsolicited proposals. The Company does not plan to engage in
        any general solicitation or advertising for a business opportunity, and
        would rely upon personal contacts of its officers, as well as indirect
        associations with other business and professional people. Management's
        reliance on "word of mouth" may limit the number of potential business
        opportunities identified. While it is not presently anticipated that the
        Company will engage unaffiliated professional firms specializing in
        business acquisitions or reorganizations, such firms may be retained if
        management deems it in the best interest of the Company.
 
 The
        Company will not restrict its search to any particular business,
        industry, or geographical location. Management reserves the right to
        evaluate and enter into any type of business in any location. In seeking a
        business venture, the decision of management will not be controlled by an
        attempt to take advantage of any anticipated or perceived appeal of a
        specific industry, management group, product, or industry, but will be
        based on the business objective of seeking long-term capital appreciation.
        The Company may participate in a newly organized business venture or in a
        more established business. Participation in a new business venture entails
        greater risks since, in many instances, management of such a venture may
        not have a proven track record; the eventual market for such venture's
        product or services will likely not be established; and the profitability
        of the venture will be untested and impossible to accurately forecast.
        Should the Company participate in a more established venture that
        is experiencing financial difficulty, risks may stem from the Company's
        inability to generate sufficient funds to manage or reverse the
        circumstances causing such financial problems.
 
 During
        2005 Aztec retained the services of Doherty & Company, L.L.C., a
        firm specializing in acquisitions, specifically for the purpose of
        identifying acquisition targets. Aztec's business model is based on
        purchasing interests in proven, producing oil & gas properties with
        underexploited drilling sites rather than taking on the very large expenses
        and high risks associated with traditional drilling and exploration. With
        its retention of Doherty & Company, Aztec began looking at other
        potential oil & gas properties and/or drilling prospects in which it
        may have the potential to acquire working interests in an effort to boost
        its oil & gas properties portfolio and thus further increase
        its overall oil production capabilities. The relationship with Doherty
& Co. has been terminated.
 
 (f)
        Risks
        Associated with Acquisitions
 
 If
        appropriate opportunities present themselves, the Company would acquire
        businesses, technologies, services or product(s) that the Company believes
        are
        strategic.
 
 The
        Company 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 the
        Company 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 the Company
        to obtain additional equity or debt financing, which might not be available
        on terms favorable to the Company, or at all, and such financing, if
        available, might be dilutive.
 
 (g)
        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 business. Some are very
        large and well established with substantial capabilities and long
        earnings records. The Company is at a competitive disadvantage with some
        other firms and individuals in acquiring and disposing of oil properties
        since they 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.
        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.
 
 (h)
        Risks
        Associated With New Business Strategies, Features and Functions
 
 As
        the
        Company develops its new business strategies, there can be no
        assurance that the Company would be able to expand its operations in a
        cost-effective or timely manner or that any such efforts would maintain or
        increase overall market acceptance. Furthermore, any new business launched
        by the Company that is not favorably received by consumers could damage the
        Company's reputation. Expansion of the Company's operations in this manner
        would also require significant additional expenses and development,
        Company's management, financial and operational resources. The lack of
        market acceptance of the Company's services would result in the Company's
        inability to generate satisfactory revenues and its inability to offset
        their costs could have a material adverse effect on the Company's business,
        results of operations and financial condition.
 
 (i)
        Because the Oil and Gas industry is cyclical, the Company's operating results
        may fluctuate.
 
 The
        Company's operating results may fluctuate significantly in the future as
        a result of a variety of factors, many of which are outside the Company's
        control. See "--Limited Operating History." As a strategic response to
        changes in the competitive environment, the Company 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 the
        Company's business, results of operations and financial
        condition.
 
 Oil
        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. The Company 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
        the Company's business, results of operations and financial condition. There
        can
        be no assurance that the Company 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 the Company's operating results to fall below the
        expectations.
 
 2)
        Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements,
        or
        Labor Contracts
 
 With
        regards to the Company's future oil 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 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.
 
 3)
        Government Regulation
 
 General
        -
        The Company's oil 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 have a significant effect
        on
        the Company and its operating results.
 
 State
        Regulation - 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 conservation 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.
 
 Environmental
        Matters - Various federal and state authorities have 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 its current oil
        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.
 
 4)
        Employees
 
 The
        Company currently has: one President, one Chief Financial Officer, one Senior
        Economist, one Corporate Secretary and a separate Director. The Company has
        no
        intention at this time to add employees until it can become a profitable
        entity.
        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.
 
 (i)
        The
        Company's performance is dependent on the performance of its officers. In
        particular, the Company's success depends on their ability to develop
        a business strategy which will be successful for the Company.
 
 (ii)
        The
        Company does not carry key person life insurance on any of its personnel.
        The loss of the services of any of its executive officers or other key
        employees could have a material adverse effect on the business, results
        of operations and financial condition of the Company. The Company's future
        success also depends on its ability to retain and attract highly qualified
        technical and managerial personnel.
 
 (iii)
        There can be no assurance that the Company will be able to retain its
        key managerial and technical personnel or that it will be able to attract
        and retain additional highly qualified technical and managerial personnel
        in the future. The inability to attract and retain the technical and
        managerial personnel necessary to support the growth of the Company's
        business, due to, among other things, a large increase in the wages
        demanded by such personnel, could have a material adverse effect upon the
        Company's business, results of operations and financial
        condition.
 
 **ITEM
        2. DESCRIPTION OF PROPERTY.**
 
 The
        Company's corporate headquarters are located at: One Riverway, Suite 1700,
        Houston, Texas 77056, Phone: (713) 840-6444.
 
 **ITEM
        3. LEGAL PROCEEDINGS.**
 
 As
        of the
        date hereof, Aztec is not a party to any material legal proceedings, and
        none
        are known to be contemplated against Aztec.
 
 **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**
 
 The
        Company did not submit any matters to a vote of securities holder during
        the
        fiscal year ended August 31, 2006.
 
 **PART
        II**
 
 **ITEM
        5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS.**
 
 (i)
        Market Information
 ----------------------
 
 The
        Company's common stock was cleared for trading on the OTC Bulletin
        Board system. Its stock symbol is AZGS. For the year ended August 31, 2006,
        the prices of the common stock in the over-the-counter market, as reported
        and summarized by the OTC Bulletin Board were $0.58 high bid, and $0.10 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
                  2005Quarter
                  ended November 30, 2004
              $2.90
              $0.10Quarter
                  ended February 28, 2005
              $1.78
              $0.81Quarter
                  ended May 31, 2005
              $2.49
              $0.67Quarter
                  ended August 31, 2005
              $0.70
              $0.47FISCAL
                  2006Quarter
                  ended November 30, 2005
              $0.51
              $0.28Quarter
                  ended February 28, 2006
              $0.32
              $0.15Quarter
                  ended May 31, 2006
              $0.26
              $0.13Quarter
                  ended August 31, 2006
              $0.22
              $0.10
 
 (ii)
        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.
 
 
 (iii)
        Holders
 -------------
 
 The
        approximate number of holders of record of common stock as of August 31,
        2006
        was approximately one hundred twenty (120).
 
 (iv)
        Stock Repurchase
 ---------------------
 
 The
        Company did not repurchase any of its shares during the fiscal year covered
        by
        this report.
 
 (v)
        Stock
        Split
 ----------------
 
 On
        August
        13, 2004, the Registrant effectuated a 3-for-1 forward stock split.
 
 
 **ITEM
        6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
        OPERATION.**
 
 (i)
        General
 -----------
 
 RESULTS
        OF OPERATIONS
 
 For
        the
        twelve months ended August 31, 2006, the Company recognized
        partnership income of $213,660 and interest income of $30,316 as compared
        to partnership loss of $(719,000) and $165,543 interest income for the same
        period last year. For the twelve months ended August 31, 2006, the Company
        had oil and gas income of $6,049 as compared to $301 for the same period
        last
        year. Oil and Gas Expenses were $(11,068) for the twelve month period, which
        resulted in a net Oil and Gas Loss of $(5,019). Total operating expenses
        for the twelve months ended August 31, 2006 were $1,108,986 as compared to
        $1,112,492 for the same period last year. Other expenses included a $78,046
        note receivable discount given for early payment received on the note receivable
        arising from the sale of Aztec’s investment in Z2, LLC.
 
 PLAN
        OF
        OPERATION
 
 The
        Company is a developmental stage company whose original principal
        business objective is to purchase oil and gas interests utilizing
        strategies that seek  to manage and reduce the risk associated with
        traditional exploration and  production operations.
 
 On
        February 23, 2006, the Company sold its interest in Z2, LLC for
        $1,555,404. The sales agreement provides for $25,000 to be paid at time of
        signing, and a note receivable. The note is for $1,561,000 with no stated
        interest rate. Interest on the note is imputed at 8% per annum. The terms
        of the note require payments of $75,000 on the 17th of each month for three
        months, with a balloon payment on May 31st. The note provides for a
        discount if payments are made before the required dates. On April 29th, the
        note was paid. The discount for early payment was $78,046.
 
 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
        no revenues and the Company's need for capital may change dramatically if
        it
        acquires an interest in a business opportunity during that period. 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. In the event
        the
        Company is able to complete a business combination during this period, lack
        of
        its existing capital may be a sufficient impediment to prevent it from
        accomplishing the goal of completing a business combination. There is no
        assurance, however, that without funds it will ultimately allow the Company
        to
        complete a business combination. Once a business combination is completed,
        the
        Company's needs for additional financing are likely to increase substantially.
 
 Management
        is in the process of seeking other businesses to acquire so that it can
        expand its operations. The analysis of new businesses 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,
        modifying product emphasis, 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.
 
 
 (iii)
        Liquidity and Capital Resources
 -------------------------------------
 
 The
        Registrant entered into a Term Credit Agreement on August 12, 2004 with Hong
        Kong League Central Credit Union, whereby the Registrant borrowed $1,950,000
        (USD) which is payable in full on June 30, 2006. This loan was repaid during
        the
        Company’s fourth quarter.
 
 In
        September 2005, Aztec issued 83,258 shares of common stock valued at $38,000
        for
        consulting services.
 
 In
        October 2005, Aztec issued 46,782 shares of common stock valued at $17,000
        for
        consulting services.
 
 In
        November 2005, Aztec issued 51,471 shares of common stock valued at $17,100
        for
        consulting services.
 
 In
        November 2005, Aztec issued 15,686 shares of common stock valued at $5,333
        for
        services as director of Aztec.
 
 During
        the quarter ended February 28, 2006, Aztec issued 495,535 shares of common
        stock
        valued at $82,498 for consulting services.
 
 During
        the quarter ended May 31, 2006 Aztec issued 389,887 shares of common stock
        valued at $61,300 for consulting services and directors' fees.
 
 During
        the quarter ended August 31, 2006 Aztec authorized issuance of
        1,012,914 shares of common stock valued at $131,920. Of these shares,
        148,824 valued at $19,800 are to be issued in 2007. In addition, Aztec
        cancelled some stock that was issued in prior quarters during fiscal year
        2006. Shares of common stock that were cancelled totaled 474,756 valued at
        $310,439.
 
 At
        year
        end Aztec has three consultants who are paid $16,100 in stock on a monthly
        basis. For one consultant, the number of shares is determined using
        an average closing price of the last five days each month. For the
        other consultants, the number of shares is determined by using the average
        value of the shares traded during the month. Two of the consultants are
        issued stock for their services. The third consultant will receive his
        stock in 2007 as it is recorded as stock payable at August 31, 2006. Four
        other consultants were paid for consulting and legal services during fourth
        quarter.
 
 At
        year
        end, Aztec had two directors who are paid $13,000 in stock on a quarterly
        basis.
        For one director, the number of shares is determined by using the average
        value
        of the shares traded during the month. Shares for the other director is
        determined using an average closing price of the last five days of each
        month.
 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. There is no assurance that the
        Company will be able to raise sufficient funding to enhance the Company's
        financial resources sufficiently to generate volume for the Company.
 
 The
        Company has an agreement with CSI Energy, LP (“CSI”) wherein CSI has agreed to
        provide the Company with funds as needed to permit the Company to meet its
        monthly operating expenses and other obligations as they become due over
        the
        twelve month period following August 31, 2006. Other than the CSI agreement,
        the
        Company does not have any preliminary agreements or understandings between
        the
        Company and its officers and directors with respect to loans or financing
        to
        operate the Company.
 
 
 **ITEM
        7. FINANCIAL STATEMENTS.**
 
 TABLE
        OF
        CONTENTS
 
 PAGEReport
                  of Independent Registered Public Accounting Firm
              F-1Balance
                  Sheet
              F-2Statements
                  of Operations
              F-3Statement
                  of Stockholders' Deficit
              F-4Statements
                  of Cash Flows
              F-5Notes
                  to Financial Statements
              F-6-11
 
 
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 To
        the
        Board of Directors and Stockholders
 Aztec
        Oil
& Gas, Inc.
 (A
        Development Stage Company)
 Houston,
        Texas
 
 We
        have audited the accompanying balance sheet of Aztec Oil & Gas, Inc. as of
 August 31, 2006, and the related statements of operations,
        stockholders' deficit and cash flows for the two years then ended and for
        the period from January 24, 1986 (inception) through August 31, 2006. These
        financial statements are the responsibility of Aztec's management. Our
        responsibility is to express an opinion on these financial statements based
        on our audits. We did not audit the financial statements for the period
        January 24, 1986 (Inception) through August 31, 2003. Those statements
        were audited by other auditors whose report has been furnished to us, and
        our
        opinion on the statements of operations, stockholders' equity, and cash flows
        for the period January 24, 1986 (Inception) through August 31, 2003,
        insofar as it relates to the amounts for prior periods through August 31,
        2003,
        is based solely on the report of the other auditors.
 
 We
        conducted our audits in accordance with standards of the Public
        Company Accounting Oversight Board (United States). Those standards require
        that we plan and perform each audit to obtain reasonable assurance about
        whether the financial statements are free of material misstatement. An
        audit includes examining, on a test basis, evidence supporting the amounts
        and disclosures in the financial statements. An audit also includes
        assessing the accounting principles used and significant estimates made by
        management, as well as evaluating the overall financial statement
        presentation. We believe that our audits provide a reasonable basis for our
        opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the financial position of Aztec as of August 31, 2006
        and the
        results of its operations and its cash flows for each of the periods described
        above in conformity with accounting principles generally accepted in the
        United
        States of America.
 
 
 /s/
        Malone & Bailey, PC
 Malone
        & Bailey, PC
 www.malone-bailey.com
 Houston,
        Texas
 
 December
        13, 2006
 
 
 
  **AZTEC OIL & GAS, INC.**
 (A Development Stage Company)
 **BALANCE SHEET**
 **August
        31, 2006**
   Current AssetsCash
              $  
                  181Accounts Receivable
              114Prepaid
                  Consulting Fees
              27,175Total Current Assets
              27,470Oil and natural gas properties,successful efforts method of accountingUnproved properties - not currently amortized,net of impairment and dry hole costs of
                  $198, 953
              304,681Non-current AssetsPrepaid Costs
              2,795TOTAL ASSETS
              $
                  334,946LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent LiabilitiesNotes payable
              $
                  5,000Common stock payable
              52,800Accounts payable
                  to related party
              215,502Total current liabilities
              273,302Stockholders’ Equity  Preferred stock, Series A, $.001 par value, 100,000 sharesAuthorized, issued and outstanding respectively
              100Common stock, $.001 par value, 100,000,000 sharesauthorized, 29,055,
                  549 issued andoutstanding
              29,055Additional paid-in capital
              2,756,122Deficit accumulated during the development stage
              (2,723,633)Total Stockholders’ Equity
              61,644TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
              $
                  334,946
 
 See
        accompanying Notes to Financial Statements
  
  
  **AZTEC
        OIL & GAS, INC.**
 **(A
        Development Stage Company)**
 **STATEMENTS
        OF OPERATIONS**
  Years Ended
                  August 31,
              
              Through
                   Inception
                August 31,2006
              
              2005
              
              2006Oil and Gas Income
              
              $
              6,049
              
              $
              301
              
              $
              6,350General & Administrative
              
              
              406,179
              
              
              287,034
              
              
              836,702Oil and Gas Expenses
              
              
              11,068
              
              
              23
              
              
              11,091Share
                  Based Compensation
              
              
              402,726
              
              
              476,474
              
              
              818,577Dry Hole Costs
              
              
              181,778
              
              
              17,175
              
              
              198,953Interest
              
              
              107,235
              
              
              236,991
              
              
              366,672Amortization
              
              
              -
              
              
              94,795
              
              
              94,795Impairment
              
              
              -
              
              
              -
              
              
              ,59,637Total Operating
                  Expenses
              
              
              (1,108,986
              )
              
              (1,112,492
              )
              
              (4,286,427
              )Partnership Income (Loss)
              
              
              213,660
              
              
              (719,000
              )
              
              (505,340
              )Gain on Sale of Assets
              
              
              1,341,744
              
              
              -
              
              
              1,341,744Extinguishment
                  of Debt
              
              
              271,289
              
              
              
              
              
              271,289Discount
                  on Payoff of Notes
              
              
              396,928
              
              
              
              
              
              396,928Discount on Note Receivable
              
              
              (78,046
              )
              
              
              
              
              (78,046
              )Interest Income
              
              
              30,316
              
              
              165,543
              
              
              195,859Total Non-operatingIncome (Loss)
              
              
              2,175,891
              
              
              (553,457
              )
              
              1,622,434NET INCOME (LOSS)
              
              $
              1,072,954
              
              $
              (1,665,648
              )
              $
              (2,657,643
              )Basic Income(Loss) per Share
              
              $
              0.04
              
              $
              (0.06
              )Weighted AverageShares Outstanding
              
              
              27,884,829
              
              
              26,898,796Diluted Income per share
              
              $
              0.04
              
              $
              (0.06
              )Diluted Weighted AverageShares Outstanding
              
              
              27,920,694
 See
        accompanying Notes to Financial Statements
 
  
  
 
 AZTEC
        OIL
& GAS, INC.
 (Formerly
        Aztec Communications Group, Inc.)
 (A
        Development Stage Company)
 STATEMENT
        OF STOCKHOLDERS’ DEFICIT
 Years
        Ended August 31, 2006, 2005, and 2004
    Preferred
                  Stock
              
              Common
                  Stock
              
              Additional
                  Paid In Capital
              
              Accumulated
                  During the Development Stage
              
              TotalsBalances,
                  August 31, 2003
              
              $
              -
              
              $
              22,107
              
              $
              1,937,430
              
              $
              (1,964,637
              )
              $
              (5,100
              )Stock
                  Issued for Services
              
              
              50
              
              
              2,400
              
              
              84,550
              
              
              
              
              
              87,000Stock
                  Issued for Cash
              
              
              50
              
              
              
              
              
              14,950
              
              
              
              
              
              15,000Net
                  Loss
              
              
              
              
              
              
              
              
              
              
              
              (
                  166,303
              )
              
              (166,303
              )Balances,
                  August 31, 2004
              
              
              100
              
              
              24,507
              
              
              2,036,930
              
              
              (2,130,940
              )
              
              (69,403
              )Stock
                  Issued for Services
              
              
              -
              
              
              2,775
              
              
              357,741
              
              
              -
              
              
              360,516Net
                  Income (Loss)
              
              
              
              
              
              
              
              
              
              
              
              (1,665,648
              )
              
              (1,665,648
              )Balances,
                  August 31, 2005
              
              
              100
              
              
              27,282
              
              
              2,394,671
              
              
              (3,796,588
              )
              
              (1,374,535
              )Stock
                  Issued for Services
              
              
              
              
              
              1,773
              
              
              310,728
              
              
              
              
              
              312,501SFAS
                  123R compensation expense
              
              
              
              
              
              
              
              
              50,723
              
              
              
              
              
              50,723Net
                  Income
              
              
              
              
              
              
              
              
              
              
              
              1,072,954
              
              
              1,072,954Balances,
                  August 31, 2006
              
              
              100
              
              $
              29,055
              
              $
              2,756,122
              
              $
              (2,723,634
              )
              $
              61,643
    
 Preferred 
                  Shares
              
              
              Common
                  SharesBalances,
                  August 31, 2003
              -
              
              
              22,107,150Stock
                  Issued for Services
              50,000
              
              
              2,400,000Stock
                  Issued for Cash
              50,000
              
              
              -Balances,
                  August 31, 2004
              100,000
              
              
              24,507,150Stock
                  Issued for Services
              -
              
              
              2,775,201Balances,
                  August 31, 2005
              100,000
              
              
              27,282,351Stock
                  Issued for Services
              -
              
              
              1,773,198Balances,
                  August 31, 2006
              100,000
              
              
              29,055,549
   See
        accompanying notes to financial statements.
 
  
  
 
 **AZTEC OIL & GAS, INC.**
 **(A Development Stage Company)**
 **STATEMENTS OF CASH FLOW**
 Twelve
                  Months Ended August 31,
              Inception
                  Through August 31,2006
              2005
              2006Cash
                  Flows Used in Operating ActivitiesNet
                  Income (Loss)
              $1,072,955
              $(3,796,588)
              $(2,723,633)Adjustments
                  to Reconcile Net Incometo
                  Net Cash Used in Operating Activities:Partnership
                  (Income) Loss
              (213,660)
              719,000
              505,340Share
                  Based Compensation
              299,203
              563,474
              862,677Amortization
              50,723
              100,000
              150,723Gain
                  on Sale of Assets
              (1,341,744)
              -
              (1,341,744)Gain
                  on Settlement
              (349,381)
              
              (349,381)Dry
                  Hole Costs
              181,778
              17,175
              198,953Discount
                  on Note Receivable
              78,046
              
              78,046Impairment
              -
              1,959,637
              1,959,637Changes
                  in:Accounts
                  Receivable
              (114)
              (12,586)
              (12,700)Prepaid
                  Expenses
              (16,269)
              (27,280)
              (43,549)Accounts
                  Payable
              122,635
              143,560
              266,195Accrued
                  Expenses
              (310,082)
              43,795
              (266,287)Net
                  Cash Used in Operating Activities
              (425,910)
              (289,813)
              (715,723)Cash
                  Flows Used in Investing ActivitiesLoan
                  to Z3, LLC
              -
              (1,850,000)
              (1,850,000)Repayment
                  of Loan to Z3, LLC
              143,708
              1,718,878
              1,862,586Payment
                  of Loan Payable Costs
              -
              (100,000)
              (100,000)Proceeds
                  for Sale of Assets
              1,477,358
              -
              1,477,358Acquisition
                  of Oil and Gas Properties
              (102,644)
              (232,283)
              (334,927)Prepaid
                  Well Costs
              -
              (81,601)
              (81,601)Net
                  Cash Provided by (Used in)Investing
                  Activities
              1,518,422
              (545,006)
              973,416Cash
                  Flows Provided by Financing ActivitiesNote
                  Payable to a bank
              -
              1,950,000
              1,950,000Repayment
                  of Note Payable to Bank
              (1,224,862)
              (1,590,817)
              (2,815,679)Proceeds
                  from Notes Payable
              72,000
              521,167
              593,167Proceeds
                  from Sales ofPreferred
                  Stock
              
              15,000
              15,000Net
                  Cash Provided by (Used in)Financing
                  Activities
              (1,152,862)
              895,350
              (257,512)Net
                  Increase (Decrease) in Cash
              (60,350)
              60,531
              181Cash
                  at Beginning of Period
              60,531
              -
              -Cash
                  at End of Period
              $
                  181
              $
                  60,531
              $
                  181Cash
                  paid during the year for:Interest
              $
                  107,235
              $236,990Tax
              $
                  -
              $
                  -
 See
        accompanying Notes to Financial Statements
 
  
  
 
 AZTEC
        OIL
& GAS, INC.
 (A
        DEVELOPMENT STAGE COMPANY)
 NOTES
        TO
        FINANCIAL STATEMENTS
 
 NOTE
        1 -
        NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
 
 Aztec
        Oil
& Gas, Inc. (the “Company” or “Aztec”) was initially known as Aztec
        Communications Group, Inc. was organized in Utah on January 24, 1986,
        and
 had
        not
        had any activity since 1989. 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 reincorporated in Nevada. Aztec changed its name to
        Aztec
        Oil & Gas, Inc. on August 13, 2004. Also on August 13, 2004, Aztec affected
        a 3-for-1 forward stock split.
 
 The
        preparation of financial statements in conformity with
        accounting principles generally accepted in the United States of American
        requires management to make estimates and assumptions that affect the
        reported amounts of assets, liabilities, revenues and expenses, as well as
        certain financial statement disclosures. While management believes that the
        estimates and assumptions used in the preparation of the financial
        statements are appropriate, actual results could differ from these
        estimates.
 
 Certain
        prior year amounts have been reclassified to conform with the 2006
        presentation.
 
 **Cash
        Equivalents.** Highly
        liquid investments with original maturities of threemonths or less are
        considered cash equivalents.
 
 **Oil
        and gas properties.** Aztec
        uses the successful efforts method of accounting for oil and gas producing
        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. Costs to drill
        exploratory wells that do not find proved reserves, geological
        and geophysical costs, and costs of carrying and retaining unproved
        properties will be expensed.
 
 Unproved
        oil and gas properties that are individually significant will
        be periodically assessed for impairment of value, and a loss will be
        recognized at the time of impairment by providing an impairment allowance.
        Other unproved properties will be amortized based on Aztec's experience of
        successful drilling properties, after considering estimated abandonment
        costs and estimated salvage values, are depreciated and depleted by the
        unit-of-production method. Support equipment and other property and
        equipment are depreciated over their estimated useful lives.
 
 On
        the sale or retirement of a complete unit of a proved property, the cost
        and related accumulated depreciation, depletion and amortization are
        eliminated from the property accounts and the resultant gain or loss will
        be recognized. On the retirement or sale of a partial unit of proved
        property, the cost is charged to accumulated depreciation, depletion, and
        amortization with a resulting gain or loss recognized in
        income.
 
 On
        the
        sale of an entire interest in an unproved property for cash or
        cash equivalent, gain or loss on the sale will be recognized, taking
        into consideration the amount of any recorded impairment if the property
        had been assessed individually. If a partial interest in an unproved
        property is sold, the amount received will be treated as a reduction of the
        cost of the interest retained.
 
 Interest
        will be capitalized on expenditures for significant exploration and development
        projects while activities are in progress to bring the assets to their intended
        use.
 
 **Asset
        Retirement Obligations.** The
        Company follows the provisions of Financial Accounting Standards Board Statement
        No. 143, “Accounting for Asset Retirement Obligations” (SFAS No. 143). This
        accounting standard requires entities to record the fair value of a liability
        for an asset retirement obligation in the period in which it is incurred.
        When
        the liability is initially recorded, the entity capitalizes a cost by increasing
        the carrying amount of the related long-lived asset. Over time, the liability
        is
        accreted to its present value each period, and the capitalized cost is
        depreciated over the useful life of the related asset. Upon settlement of
        the
        liability, an entity either settles the obligation for its recorded amount
        or
        incurs a gain or loss upon settlement.
 
 **Revenue
        recognition.** We
        recognize oil and natural gas revenue for its interest in producing wells
        as oil
        and natural gas is produced and sold from those wells. Oil and natural gas
        sold
        by us is not significantly different from our share of production.
 
 **Income
        Taxes.** U.S.
        income tax expense is based on reported earnings before income taxes.
        Deferred income taxes reflect the impact of temporary differences between
        assets and liabilities recognized for financial reporting purposes and such
        amounts recognized for tax purposes, and are measured by applying enacted
        tax rates in effect in years in which the differences are expected to
        reverse.
 
 **Share
        Based Compensation.** In
        December 2004, the FASB issued SFAS No. 123R, “Share-Based Payments” (“FAS
        123R”). The Company adopted the disclosure requirements of FAS 123R as of
        January 1, 2006 using the modified prospective transition method approach
        as
        allowed under FAS 123R. FAS 123R establishes standards for the accounting
        for
        transactions in which an entity exchanges its equity instruments for goods
        or
        services. FAS 123R focuses primarily on accounting for transactions in which
        an
        entity obtains employee services in share-based payment transactions. FAS
        123R
        requires that the fair value of such equity instruments be recognized as
        expense
        in the historical financial statements as services are performed. Prior to
        FAS
        123R, only certain pro forma disclosures of fair value were required.
 
 **Earnings
        Per Share.** Basic
        earnings per share equals net earnings divided by weighted average shares
        outstanding during the year. Diluted earnings per share include the impact
        of common stock equivalents using the treasury stock method when the effect
        is dilutive.
 
 **Recently
        Issued Accounting Pronouncements.** In
        May
        2005, the Financial Accounting Standards Board (“FASB”) issued SFAS Statement
        No. 154 (“SFAS 154”), Accounting Changes and Error Corrections.  SFAS 154
        requires that, when a company changes its accounting policies, the change
        must
        be applied retrospectively to all prior periods presented instead of a
        cumulative effect adjustment in the period of the change.  SFAS 154 may
        also apply when the FASB issues new rules requiring changes in accounting. 
If the new rule allows cumulative effect treatment, it will take precedence
        over
        SFAS 154.  This statement is effective for fiscal years beginning after
        December 15, 2005.  The adoption of SFAS 154 is not expected to have a
        significant impact on the Company’s financial position or its results of
        operations.
 
 In
        June
        2006, the Financial Accounting Standards Board (“FASB”) issued FASB
        Interpretation No. 48, Accounting for Uncertainty in Income taxes (“FIN 48”).
        FIN 48, which is an interpretation of SFAS No. 109, “Accounting for Income
        Taxes,” provides guidance on the manner in which tax positions taken or to be
        taken on tax returns should be reflected in an entity’s financial statements
        prior to their resolution with taxing authorities. The Company is required
        to
        adopt FIN 48 during the first quarter of fiscal 2008. The Company is currently
        evaluating the requirements of FIN 48 and has not yet determined the impact,
        if
        any; this interpretation may have on its consolidated financial
        statements.
 
 NOTE
        2 -
        INVESTMENT
 
 In
        September 2004, Aztec purchased a 31.283% membership unit interest in
        Z2, LLC, a Florida limited liability company, for $250,000 cash, 400,000
        shares of Aztec common stock valued at $204,000, and the assumption of
        $265,000 in debt. Z2, LLC owns a 100% working interest (60% net revenue
        interest) in the Big Foot oil field in Texas.
 
 In
        October 2004, Aztec borrowed $265,000 for the purchase of the
        31.283% interest in Z2, LLC. The notes bear 10% interest, and mature one
        year from the issue date.
 
 Aztec
        loaned $1,850,000 to Z3, LLC (an affiliate of Z2, LLC) for a drilling program.
        This loan is being repaid at the rate of $50,000 per month, including interest
        at 10.5% per annum.
 
 On
        February 23, 2006, the Company sold its interest in Z2, LLC for
        $1,555,404. The sales agreement provides for $25,000 to be paid at time of
        signing, and a note receivable. The note is for $1,561,000 with no stated
        interest rate. Interest on the note is imputed at 8% per annum. The terms
        of the note require payments of $75,000 on the 17th of each month for three
        months, with a balloon payment on May 31st. The note provides for a
        discount if payments are made before the required dates. On April 29th, the
        note was fully paid. The discount for early payment was
        $78,046.
 
 NOTE
        3 -
        INCOME TAX
 
 Income
        taxes are not due since Aztec has a net loss in retained earnings whereby
        the
        net income generated in 2005 is offset by the net losses from inception.
        Aztec
        has net operating losses of $127,000 which will expire in fiscal years starting
        in 2024.
 
 The
        components of deferred taxes are as follows:
 
 Deferred
                  tax assetsNet
                  operating loss carry forwards
              $
                  43,000Less:
                  valuation allowance
              (43,000)Current
                  net deferred tax assets
              0
  NOTE
        4-
        EQUITY
 
 During
        2006, Aztec issued 1,773,198 shares valued at $312,501 to various consultants
        and directors for services.
 
 In
        accordance with SFAS 123R, Aztec recognized amortization of options issued
        in
        2006 beginning March 1, 2006 of $47,488. Had SFAS 123R been in effect as
        of
        September 1, 2005, additional expense of $42,842 would have been
        recognized. This change would not have any effect on the earnings per share
        or
        fully diluted earnings per share.
 
 During
        2006 800,000 options were issued to the president and CEO. 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. A risk free interest
        rates
        used of 3.9%, and expected volatility of 161%.
 
 A
        summary
        of the options issued by us for the year ended August 31, 2006 is as
        follows:
 
 **Options**
              
              **Weighted-**
                **Average
                  Exercise**
                **Price
                  per Share**
              
              **Weighted-Average**
                **Remaining**
                **Contractual
                  Term**
                **(in
                  years)**
              
              **Aggregate**
                **Intrinsic**
                **Value**Outstanding
                  on August 31, 2005
              
              -
              
              $
              -
              
              -
              
              -Granted
              
              800,000
              
              $
              1.44
              
              4.0
              
              -Exercised
              
              —
              
              $
              —
              
              —
              
              —Surrendered/Canceled
              
              -
              
              $
              —
              
              —
              
              -Outstanding
                  on August 31, 2006
              
              800,000
              
              $
              1.44
              
              4.0
              
              
              -Exercisable
                  on August 31, 2006
              
              800,000
              
              $
              1.44
              
              4.0
              
              
              —
  The
        weighted-average grant-date fair value for the years ended August 31, 2006
        was
        $0.35/share, respectively. No options were exercised during the year. The
        unrecognized share based compensation cost related to stock option expense
        at
        August 31, 2006 is $192,531 and will be recognized over a weighted average
        of
        4.0 years.
 
 During
        August 2006, 6,000,000 warrants issued during 2005 were cancelled and re-issued
        in accordance with a consulting agreement. 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 are expensed over the remaining life of
        the
        consulting agreement which is approximately 8 years. As of 2006, $3,235 was
        amortized.
 
 NOTE
        5-
        SIGNIFICANT EQUITY INVESTMENT
 
 Aztec's
        investment in the partnership Z2 LLC constitutes a significant portion of
        its
        assets. The company's share of Z2 LLC is 31.283%. Selected information is
        as
        follows:
 Twelve
                  Months Ended August 31, 2006Gross
                  Sales
              1,731,338Hedge
                  Income (Loss)
              (1,338,813)Net
                  Sales
              3,070,151Gross
                  Profit
              2,165,694Net
                  Income
              1,522,371
 
 During
        the twelve month's ended August 31, Aztec's share of income from Z2 LLC was
        used
        first to offset unrecognized losses from prior periods of approximately
        $261,600. Income in excess of the unrecognized losses was reported as income
        and
        increased the company's basis in Z2 LLC. As is noted above in Note 2, Aztec
        sold
        its investment in Z2 LLC in February 2006.
 
 NOTE
        6-
        OIL AND GAS PROPERTIES
 
 All
        oil
        and gas interests currently owned directly by Aztec fell into the unproved,
        exploratory category. While some wells have been completed and
        are preparing to deliver oil or gas, there is insufficient data to
        re-categorize the wells from exploratory to proved and make a determination
        of the proved reserves.
 
 NOTE
        7 -
        RELATED PARTY TRANSACTION
 
 At
        August
        31, 2006 the Company has common stock payable of $52,800 to Kirk N. Blackim.
        Mr.
        Blackim serves as Director and President of the Company.
 
 **ITEM
        8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE.**
 
 On
        November 23, 2004, the Company filed Form 8-K with the United
        States Securities and Exchange Commission, in which the Company stated in
        Item 4.01 "Changes in Registrant's Certifying Account:"
 
 a)
        On
        November 18, 2004 the Registrant's Board of Directors dismissed
        Gwendolyn J. Giles CFE, CPA ("Giles") as its independent auditors. On
        November 18, 2004, the Registrant's Board of Directors engaged Malone &
Bailey, PC, Houston, Texas to serve as the Registrant's independent public
        accountants and to audit the Registrant's financial statements for the year
        ended August 30, 2004. The Registrant does not presently have an Audit
        Committee.
 
 During
        the Registrant's two prior fiscal years and the period from September
        1, 2001 through the date of its dismissal, there have been no disagreements
        with Giles on any matter of accounting principles or practices, financial
        statement disclosure, or auditing scope or procedure, which disagreements
        if not resolved to the satisfaction of Giles would have caused it to make
        reference thereto in its reports on the Registrant's financial statements.
        In addition, for the same periods, there have been no reportable events (as
        defined in Regulation S-K Item 304(a)(1)(v)).
 
 Giles's
        reports on the financial statements of the Registrant for the years ended
        December 31, 2002 and 2003 did not contain any adverse opinion
        or disclaimer of opinion and were not qualified or modified as to
        uncertainty, audit scope or accounting principles, except that the reports
        for both years indicated that there was a substantial doubt as to the
        Registrant's ability to continue as a going concern and that the financial
        statements did not include any adjustments that might result from the
        outcome of this uncertainty.
 
 The
        Company provided Giles with a copy of the disclosures contained herein
        and requested Giles furnish the Company with a letter addressed to the
        Securities and Exchange Commission stating whether Giles agrees with the
        above statements, and if not, the respects in which Giles does not agree.
        The Company will file the letter requested from Giles by amendment to this
        report when provided.
 
 b)
        During the two fiscal years of the Registrant ended August 31, 2003
        and August 31, 2002 and the interim period through the date of this Current
        Report on Form 8-K, the Registrant did not consult with Malone &
Bailey, PC regarding (i) the application of accounting principles to a
        specified transaction, either completed or proposed or the type of audit
        opinion that might be rendered on the Registrant's financial statements,
        and either a written report was provided to the Registrant or oral advice
        was provided that Malone & Bailey, PC concluded was an important factor
        considered by the Registrant in reaching a decision as to an accounting,
        auditing or financial reporting issue or (ii) any matter that was either
        the subject of a disagreement (as defined in paragraph 304(a)(1)(iv) of
        Regulation S-K and the related instructions to this item) or a
        reportable event (as described in paragraph 304(a)(1)(v) of Regulation
        S-K).
 
 **ITEM
        8a. CONTROLS AND PROCEDURES**
 
 As
        of the
        end of the period covered by this report, the Company conducted
        an evaluation, under the supervision and with the participation of the
        principal executive officer and principal financial officer, of the
        Company's disclosure controls and procedures (as defined in Rules 13a-15(e)
        and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange
        Act")). Based on this evaluation, the principal executive officer and
        principal financial officer concluded that the Company's disclosure
        controls and procedures are effective to ensure that information required
        to be disclosed by the Company in reports that it files or submits under
        the Exchange Act is recorded, processed, summarized and reported within the
        time periods specified in Securities and Exchange Commission rules and
        forms. There was no change in the Company's internal control over financial
        reporting during the Company's most recently completed fiscal quarter that
        has materially affected, or is reasonably likely to materially affect, the
        Company's internal control over financial reporting.
 
 On
        August
        25, 2006 the Board elected Mr. Larry Hornbrook as Chief Financial Officer
        to
        succeed Mr. Kenneth Lehrer who remains as director of Aztec Oil & Gas,
        Inc.
  
  
 **PART
        III**
 
 **ITEM
        9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH
        SECTION 16(A) OF THE EXCHANGE ACT.**
 
 A.
        The
        following table sets forth the current officers and directors of Aztec Oil
&
Gas, Inc.
 
 Name
              Age
              Position
              Director
                  SinceKirk
                  N. Blackim
              47
              President
                  and Director
              Oct.
                  25, 2005Larry
                  Hornbrook
              58
              VP
                  and CFO
              Aug.
                  25, 2006Mark
                  Vance
              52
              Director
              Oct.
                  25, 2005Kathryn
                  E. Parks
              23
              VP
                  and Secretary
              June
                  12, 2006
 
 B.
        Work
        Experience
 
 Kirk
        N.
        Blackim, President and Director
 ----------------------------------------
 Matrix
        Energy Capital Associates, company specializes in oil and gas
        consulting with emphasis on capital development for small and mid-sized
        exploration, production and transportation companies. Houston, TX Job
        Title: Founder. Period of Employment: November 1998 to
        Present Responsibilities: Reservoir engineering, geological, geophysical
        and facilities design and management.
 
 Koch
        Producer Services, Inc., Subsidiary of Koch Industries, Inc. Houston,
        Texas. Job Title: Senior Vice President Period of Employment: April, 1996
        to November, 1998 Responsibilities: Closed mezzanine debt and risk
        management transactions.
 
 TCW
        Asset
        Management Company Houston, Texas. Job Title: Vice President Period of
        Employment: August, 1994 to April, 1996 Responsibilities: Closed mezzanine
        debt transactions.
 
 Kansas
        Pipeline Operating Company (including affiliated companies) Lenexa, Kansas.
        Job Title: Senior Vice President and Director (Prior titles: SVP, CFO,
        COO) Period of Employment: January, 1987 to July,
        1994 Responsibilities: Involved in numerous acquisitions and asset
        construction projects that included financing transactions.
 
 
 Koch
        Industries, Inc. (including subsidiaries) Wichita, Kansas Job Title:
        General Accounting Manager/Computer Systems Coordinator Koch Carbon
        Division Period of Employment: May, 1983 to January,
        1987 Responsibilities: Managed accounts receivable, accounts payable, fixed
        asset and cash accounting.
 
 
 Larry
        Hornbrook, VP and 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, VP, 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 as Chairman of the Board of Directors for 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.
 
 Kate
        Parks, VP and Secretary
 _________________________
 Ms.
        Parks
        currently works for Robert L. Sonfield, Jr. of Sonfield & Sonfield,
        Attorneys at Law.  She also acts as a filing agent for EDGAR submitting
        information to the US Securities and Exchange Commission. From 2001 to 2006
        Ms.
        Parks worked as a Registered Certified Pharmacy Technician.
 
 
 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.
 
 Officers
        are elected by the board of directors and hold office until
        their successors are chosen and qualified, until their death or until they
        resign or have been removed from office. All corporate officers serve at
        the discretion of the board of directors.
 
 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.
 
 **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, 2006. Aztec
        intends to pay salaries when cash flow permits.
 
 **SUMMARY
        COMPENSATION TABLES**
 Annual
                  CompensationOther
                  AnnualName
                  and Principal Position
              Year
              Salary
                  ($)
              Bonus
                  ($)
              Compensation
                  ($)Kirk
                  N. Blackim (1)
              2006
              -0-
              -0-
              -0-President/Director
              2005
              -0-
              -0-
              -0-Kenneth
                  E. Lehrer (2)
              2006
              -0-
              -0-
              -0-VP,
                  Sr. Economist/Director
              2005
              12,000
              -0-
              -0-Larry
                  Hornbrook (3)
              2006
              -0-
              -0-
              -0-VP,
                  CFO, Director
              2005
              -0-
              -0-
              -0-Mark
                  Vance
              2006
              -0-
              -0-
              -0-Director
              2005
              -0-
              -0-
              -0-Kathryn
                  E. Parks (5)
              2006
              -0-
              -0-
              -0-VP
                  and Secretary
              2005
              -0-
              -0-
              -0-
  (1)
          In
          September 2005, the company retained the services of Kirk Blackim
          as President of the company. Mr. Blackim will be 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.
 
 (2)
          On
          August 25, 2006, Kenneth Lehrer vacated the position of CFO and accepted
          the
          newly created position of Sr. Economist.
 
 (3)
          Larry
          Hornbrook filled the vacancy of CFO on August 25, 2006.
 
 (4)
          Kenneth E. Lehrer received $259 in expense reimbursement.
 
 (5)
          On
          June 12, 2006, Danyel Owens resigned as Secretary of Aztec and the position
          was
          filled by Kathryn Parks.
  
  
 **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 ($)Kirk
                  N. Blackim
              2006
              -0-
              $75,900
              -0-
              -0-President/
                  Director
              2005
              -0-
              -0-
              -0-
              -0-Larry
                  Hornbrook
              2006
              $
                  -0-
              -0-
              -0-
              -0-VP,
                  CFO
              2005
              $
                  -0-
              -0-
              -0-
              -0-Kenneth
                  Lehrer (1)
              2006
              $
              $56,000
              -0-
              -0-VP,
                  Sr. Economist,
              2005
              $
                  57,421
              $54,000
              -0-
              -0-DirectorMark
                  Vance
              2006
              -0-
              $33,333
              -0-
              -0-Director
              2005
              -0-
              -0-
              -0-
              -0-Kathryn
                  Parks
              2006
              -0-
              $
                  1,200
              -0-
              -0-VP
                  and Secretary
              2005
              -0-
              -0-
              -0-
              -0-
 
 (1)
        Kenneth E. Lehrer received an additional 2,006 common shares in October,
        2005.
 
 The
        Company currently does not have employment agreements with its executive
        officers.
 
 Audit
        Committee
 ---------------
 The
        company does not presently have an Audit Committee. The members of the Board
        sit
        as the Audit Committee. No qualified financial expert has been hired because
        the
        company is to small to afford such expense.
 
 Code
        of
        Ethics
 --------------
 The
        company has not adopted a Code of Ethics for the Board and the salaried
        employees.
 
 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 board and the company are so
        small.
 
 (3)
        The
        members of the Board who acts as nominating committee is 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.
 
 **ITEM
        11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
        MANAGEMENT**
 
 The
        following table sets forth certain information concerning the
        beneficial ownership of our outstanding common stock as of August 31, 2006,
        by each person known by Aztec to own beneficially more than 10% of the
        outstanding common stock, by each of our directors and officer and by all
        of our directors and officers as a group. Unless otherwise indicated below,
        to our knowledge all persons listed below have sole voting and investment
        power with respect to their shares of common stock except to the extent
        that authority is shared by spouses under applicable law.
 
 TITLE
                  OF CLASS
              NAME,
                  ADDRESS OF BENEFICIAL OWNER AND POSITION(1)(2)
              SHARES
                  OF
                COMMON
                  STOCK
              PERCENT
                OF
                  CLASS(3)Common
              Kirk
                  N. Blackim
              425,683
              1.46%President,
                  DirectorCommon
              Larry
                  Hornbrook
              9,000
              nilVP,
                  CFOCommon
              Ken
                  Lehrer
              408,839
              1.40%VP,
                  Sr. Economist, DirectorCommon
              Mark
                  Vance
              193,628
              nilSecretary,
                  DirectorCommon
              Kathryn
                  E. Parks
              10,000
              nilVP
                  & SecretaryAll
                  directors and officersas
                  a group (4 persons)
              
              1,047,150
              3.60%
  (1)
        Address: One Riverway, Suite 1700, Houston, Texas 77056.
 
 (2)
        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.
 
 (3)
        Unless otherwise provided, the calculation of percentage ownership is
        based on 29,055,549 shares of the Common Stock outstanding as of August 31,
        2006, 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 August 31, 2006 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
 
 No
        person
        or shareholder owns or shares the power to vote ten percent (10%) or more
        of the
        Company's securities.
 
 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 together and the shares are owned by separate entities. Such
        Series A Preferred stock has no other extraordinary preferences.
 
 F.
        Parents of Issuer
 
 Under
        the
        definition of parent, as including any person or business entity who controls
        substantially all (more than 80%) of the issuers of common stock, the Company
        has no parents.
 
 **ITEM
        12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
 Through
        a
        Board Resolution, the Company hired the professional services of Malone &
Bailey, PC, Houston, Texas, Certified Public Accountants, to perform audits
        of
        the Company's financials. Malone & Bailey, PC owns no stock in the Company.
        The company has no formal contracts with its accountants, they are paid on
        a fee
        for service basis.
 
 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.
 
 **ITEM
        13. EXHIBITS AND REPORTS ON FORM 8-K.**
 
 (a)
        EXHIBITS
 
 31.1
        Certifications of the Chief Executive Officer pursuant to Section 302 of
        the
        Sarbanes-Oxley Act of 2002.
 
 31.2
        Certifications of the Chief 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.
 
 32.2
        Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
        as
        adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
 
 
 (b)
        REPORTS ON FORM 8-K
 
 
 The
        Company filed a Current Report on September 28, 2005, pursuant to Item 7.01
        ("Regulation FD Disclosure") and 9.01 ("Exhibits").
 
 The
        Company filed an amended Current Report on September 29, 2005, pursuant to
        4.02
        ("Non-Reliance on Previously Issued Financial Statements or a Related
        Audit").
 
 The
        Company filed an amended Current Report on October 4, 2005, pursuant to 4.02
        ("Non-Reliance on Previously Issued Financial Statements or a Related Audit")
        and 9.01 ("Exhibits").
 
 The
        filed
        a Current Report on October 25, 2006, pursuant to Item 5.02 (“Departure of
        Directors or Principal Officers; Election of Directors; Appointment of Principal
        Officers”).
 
 The
        Company filed a Current Report on December 15, 2005, pursuant to Item 4.02
        ("Non-Reliance on Previously Issued Financial Statements or a Related Audit
        Report or Completed Interim Review").
 
 The
        Company filed a Current Report on December 19, 2005, pursuant to Item 9.01
        ("Exhibit"), entitled, Letter from Malone & Bailey, PC.
 
 The
        Company filed an amended Current Report on January 4, 2006, pursuant to Item
        4.02 ("Non-Reliance on Previously Issued Financial Statements or a Related
        Audit
        Report or Completed Interim Review") and Exhibit 9.01 ("Exhibits").
 
 The
        Company filed a Current Report on February 21, 2006, pursuant to Item 4.02
        ("Non-Reliance on Previously Issued Financial Statements or a Related Audit
        Report or Completed Interim Review") reporting the need to restate the audited
        financial statements for the twelve months ended August 31, 2005, previously
        filed with the Securities and Exchange Commission in order to correct
        misstatements relating to the accounting for the equity method investment
        in Z2,
        LLC.
 
 The
        Company filed a Current Report on February 28, 2006, pursuant to Item 1.01
        (“Entry into a Material Definitive Agreement”) and Item 2.01 (“Completion of
        Acquisition or Disposition of Assets”).
 
 The
        Company filed an amended Current Report on March 14, 2006, pursuant to Item4.02
        ("Non-Reliance on Previously Issued Financial Statements or a Related Audit
        Report or Completed Interim Review") and Exhibit 9.01 ("Exhibits").
 
 
 Subsequent
        Reports on Form 8-K
 ------------------------------
 
 The
        Company filed a Current Report on September 14, 2006, pursuant to Item 5.02
        (“Departure of Directors or Principal Officers; Election of Directors;
        Appointment of Principal Officers”).
 
 **ITEM
        14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**
 
 AUDIT
        FEES
 
 Audit
        Fees: During Aztec's 2006 and 2005 fiscal year, Malone & Bailey, PC, billed
        Aztec $54,343 and $23,460, respectively, in fees for the audit of the Company's
        annual financial statements and the review of those financial statements
        included in the Company's quarterly reports on Form 10-QSB.
 
 
 AUDIT-RELATED
        FEES
 
 Aztec
        did
        not engage Malone & Bailey, PC to provide services to Aztec regarding
        financial information systems design and implementation during the fiscal
        year
        ended August 31, 2006.
 
 TAX
        FEES
 
 The
        aggregate fees billed by the Company's auditors for professional services
        for
        tax compliance, tax advice, and tax planning were $0 and $0 for fiscal 2006
        and
        2005, respectively.
 
 ALL
        OTHER
        FEES
 
 All
        Other
        Fees: During Aztec's 2006 fiscal year, Malone & Bailey, PC, billed Aztec $0
        in fees for all other non-audit services rendered to Aztec, which amount
        includes tax related services of $0, foreign statutory audits of $0.
 
 The
        Aztec
        Board of Directors believes that the provision of the services described
        under
        "All other Fees" was compatible with maintaining Malone & Bailey, PC's
        independence from Aztec.
  
  
 **SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Act of 1934,
        the
        registrant has duly caused this amended report to be signed on its behalf
        by the
        undersigned, thereunto duly authorized.
 
 **Aztec
        Oil & Gas, Inc.**
 (Registrant)
 
 Dated:
                  December 14, 2006
              
              By: /s/
                  Kirk N. BlackimKirk
                  N. BlackimPresident
                  and Director
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed by the following persons on behalf of the Registrant and in the
        capacities and on the dates indicated.
 
 Dated:
                  December 14, 2006
              
              By: /s/
                  Kathryn E. ParksKathryn
                  E. ParksSecretary