Quarterly Report
Period Ending February 28, 2010
| Item 1. Exact name of the issuer and the address of its principal executive offices. | 1 |
| Item 2. Shares outstanding. | 1 |
| Item 3. Interim financial statements. | 2 |
| Consolidated Balance Sheets | 3 |
| Consolidated Statements Of Operations | 4 |
| Consolidated Statements Of Cash Flow | 5 |
| Consolidated Statements Of Changes In Stockholders’ Deficit | 6 |
| Item 4. Management’s discussion and analysis or plan of operation. | 9 |
| Item 5. Legal proceedings. | 10 |
| Item 6. Defaults upon senior securities. | 10 |
| Item 7. Other information. | 10 |
| Item 8. Exhibits. | 10 |
| Item 9. Certifications. | 10 |
Item 1. Exact name of the issuer and the address of its principal executive offices.
Aztec Oil & Gas, Inc.
One Riverway, Ste 1700
Houston, TX 77056
Item 2. Shares outstanding.
| | Period end date; | Number of shares authorized | Number of shares outstanding* |
| Common Stock | February 28, 2010 | 100,000,000 | 36,089,187 |
| | | | |
| Series A Preferred | February 28, 2010 | 100,000 | 100,000 |
*All outstanding shares are freely tradable.
Section 2 – Quarterly Reporting
Item 3. Interim financial statements.
SCHMUCK, SMITH, TEES & COMPANY
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTANTS
3500 WASHINGTON AVE., SUITE 200
HOUSTON, TEXAS 77007-5945
(713) 880-4900
FAX (713) 880-4910
To the Board of Directors
Aztec Oil & Gas Corporation, Inc.
Houston, Texas
We have compiled the accompanying consolidated balance sheet of Aztec Oil & Gas Corporation, Inc., and its subsidiaries (“the Company”) as of February 28, 2010, and the related statements of operations, stockholders’ deficit and cash flow for the three and six months then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements information that is the representation of management. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any other form of assurance on them.
Management has elected to omit some of the disclosures required by generally accepted principles. If the omitted disclosures were included in the financial statements, they might influence the user’s conclusions about the Company’s financial position, results of operations, and cash flows. Accordingly these financial statements are not designed for those who are not informed about such matters.
The August 31, 2009 financial statements of Aztec Oil & Gas Corporation, Inc. and its subsidiaries were audited by other accountants whose reports stated that they were not aware of any material modifications that should be made to those statements in order for them to be in conformity with general accepted accounting principles.
| |
SCHMUCK, SMITH, TEES & CO., P.C. April 14, 2010 |
Section 2 – Quarterly Reporting
Consolidated Balance Sheets (Unaudited)
| | February 28, 2010 | | August 31, 2009 |
| ASSETS | | | |
| Current assets: | | | |
| Cash | $ 3,339,088 | | $ 1,206,063 |
| Accounts receivable | 20,716 | | 16,943 |
| Prepaid expenses and other current assets | 117,199 | | 7,922 |
| Total current assets | 3,477,003 | | 1,230,928 |
| | | | |
| Non-current assets: | | | |
| Restricted cash | 396,000 | | 1,600,000 |
| Prepaid well costs | 244,746 | | |
| Oil and natural gas properties, successful efforts method of accounting net of accumulated depreciation, depletion, amortization and impairment of $2,363,609 and $2,332,482, respectively | 2,382,121 | | 802,243 |
| Computers and equipment, net of accumulated depreciation of $4,838 and $2,701, respectively | 8,693 | | 10,830 |
| | | | |
| TOTAL ASSETS | $ 6,508,563 | | $ 3,644,001 |
| | | | |
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | |
| Current liabilities: | | | |
| Accounts payable and accrued liabilities | $ 167,205 | | $ 216,412 |
| Accounts payable and accrued liabilities – related party | 649,916 | | 487,787 |
| Salary payable | 393,435 | | 291,313 |
| Notes payable and line of credit | 267,658 | | 331,438 |
| Refundable subscriptions | - | | - |
| Common stock payable | 8,000 | | 5,500 |
| Notes payable to related parties | 881,743 | | - |
| Total current liabilities | 2,405,657 | | 1,332,450 |
| | | | |
| Long term liabilities: | | | |
| Notes payable to related parties | - | | 881,743 |
| Asset retirement obligations | 37,700 | | 35,197 |
| Total long term liabilities | 37,700 | | 916,940 |
| | | | |
| Total liabilities | 2,405,657 | | 2,249,390 |
| | | | |
| Minority interest | 8,225,941 | | 4,559,916 |
| | | | |
| Stockholders’ deficit: | | | |
| Preferred stock, Series A, $.001 par value, 100,000 shares authorized, issued and outstanding | 100 | | 100 |
| Common stock, $.001 par value, 100,000,000 shares authorized, 36,089,187 and 34,155,787 shares issued and outstanding, respectively | 36,089 | | 34,155 |
| Additional paid-in capital | 4,816,311 | | 4,655,245 |
| Accumulated deficit | (8,975,535) | | (7,854,805) |
| Total stockholders’ deficit | (4,123,035) | | (3,165,305) |
| | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ 6,508,563 | | $ 3,644,001 |
See accountant’s report.
Section 2 – Quarterly Reporting
AZTEC OIL & GAS, INC.
Consolidated Statements of Operations
(Unaudited)
| | Three Months Ended February 28, | | Six Months Ended February 28, |
| | 2010 | | 2009 | | 2010 | | 2009 |
| Oil and gas revenue | $ 34,118 | | $ 283,371 | | $ 58,590 | | $ 363,404 |
| | | | | | | | |
| Operating expenses: | | | | | | | |
| General and administrative | 504,639 | | 243,791 | | 1,115,752 | | 597,364 |
| Oil and gas expenses | 29,171 | | 14,086 | | 44,355 | | 61,402 |
| Depreciation, depletion, amortization and accretion | 18,843 | | 30,480 | | 33,365 | | 74,548 |
| Impairment of oil and gas properties | - | | - | | - | | 530,511 |
| Total Operating Expenses | 552,653 | | 288,357 | | 1,193,472 | | 1,263,825 |
| | | | | | | | |
| Other income (expense) | | | | | | | |
| Interest Expense | (19,250) | | (19,014) | | (39,174) | | (42,759) |
| Interest Income | - | | - | | - | | - |
| Total other income / (expense) | (19,250) | | (19,014) | | (39,174) | | (42,759) |
| | | | | | | | |
| NET LOSS BEFORE MINORITY INTEREST | (537,785) | | (24,000) | | (1,174,056) | | (943,180) |
| | | | | | | | |
| Minority Interest | 36,527 | | 6,700 | | 53,326 | | 398,371 |
| | | | | | | | |
| NET LOSS | $ (501,258) | | $ (17,300) | | $(1,120,730) | | $ (544,809) |
| | | | | | | | |
| Net loss per share - basic and diluted | $ (0.01) | | $ (0.00) | | $ (0.03) | | $ (0.02) |
| | | | | | | | |
| Weighted average shares outstanding – basic and diluted | 35,515,218 | | 33,262,775 | | 35,045,733 | | 32,993,886 |
See accountant’s report.
Section 2 – Quarterly Reporting
AZTEC OIL & GAS, INC.
Consolidated Statements of Cash Flow
(Unaudited)
| | Six Months Ended February 28, |
| | 2010 | | 2009 |
| Cash flows used in operating activities: | | | |
| Net loss | $ (1,120,730) | | $ (544,809) |
| | | | |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | |
| Share-based compensation | 165,500 | | 71,740 |
| Depletion, depletion, amortization and accretion | 15,640 | | 74,970 |
| Impairment of properties | - | | 530,511 |
| Minority Interest | (53,326) | | (398,373) |
| | | | |
| Changes in: | | | |
| Accounts receivable | (3,773) | | 111,464 |
| Prepaid expenses | (109,277) | | (74,025) |
| Accounts payable and accrued liabilities | (49,207) | | (11,873) |
| Accounts payable and accrued liabilities – related party | 162,129 | | 101,583 |
| Salary payable | 102,122 | | 110,026 |
| Net cash used in operating activities | (890,922) | | (28,786) |
| | | | |
| Cash flows from investing activities: | | | |
| Acquisition of oil and gas properties | (1,590,878) | | (274,191) |
| Change in restricted cash | 1,204,000 | | - |
| Prepaid well costs | (244,746) | | - |
| Capital expenditures | - | | (2,413) |
| Refundable subscriptions | - | | (200,000) |
| Net cash used in investing activities | (631,624) | | (476,604) |
| | | | |
| Cash flows from financing activities: | | | |
| Proceeds from limited partners, net of syndication costs | 3,729,785 | | 224,000 |
| Distributions to limited partners | (10,434) | | (61,631) |
| Proceeds from notes payable and line of credit | 24,416 | | 27,482 |
| Proceeds from notes payable - related party | - | | 195,000 |
| Payments on notes payable | (88,196) | | (11,251) |
| Net cash provided by financing activities | 3,655,571 | | 373,600 |
| | | | |
| Net increase (decrease) in cash | 2,133,025 | | () |
| | | | |
| Cash at beginning of period | 1,206,063 | | 290,323 |
| Cash at end of period | 3,339,088 | | 158,533 |
| | | | |
| Cash paid during the period for: | �� | | |
| Interest | $ 8,832 | | $ 13,967 |
| Income taxes | - | | - |
| Non-cash investing and financing transactions | | | |
| Increase in asset retirement obligation | $ 2,400 | | $ - |
| Stock issued for stock payable | $ 5,500 | | $ - |
See accountant’s report.
Section 2 – Quarterly Reporting
Consolidated Statements of Changes in Stockholders’ Deficit
For the Three and Six Months Ended February 28, 2010
(Unaudited)
| | Preferred Shares | Preferred Stock | Common Shares | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Totals |
| Balances, August 31, 2009 | 100,000 | $ 100 | 34,155,787 | $ 34,155 | $ 4,655,245 | $ (7,854,805) | $ (3,165,305) |
| | | | | | | | |
| Stock issued for services | - | - | 880,819 | 881 | 76,619 | - | 77,500 |
| | | | | | | | |
| Net income | - | - | - | - | - | (619,472) | (619,472) |
| | | | | | | | |
| Balances, November 30, 2009 | 100,000 | $ 100 | 35,036,606 | $ 35,036 | $ 4,731,864 | $ (8,474,277) | $ (3,707,277) |
| | | | | | | | |
| Stock issued for services | - | - | 1,052,580 | 1,053 | 84,447 | - | 85,500 |
| | | | | | | | |
| Net income | - | - | - | - | - | (501,258) | (501,258) |
| | | | | | | | |
| Balances, February 28, 2010 | 100,000 | $ 100 | 36,089,186 | $ 36,089 | $ 4,816,311 | $ (8,975,535) | $ (4,123,035) |
See accountant’s report.
Section 2 – Quarterly Reporting
AZTEC OIL & GAS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of Aztec Oil & Gas, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in Aztec’s Annual Report for the year ended August 31, 2009. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes t o the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2009 as reported in the Annual Report have been omitted.
NOTE 2 - INVESTMENT IN DRILLING PARTNERSHIP
As of the date of this report, Aztec has completed seven Limited Partnerships; Aztec 2006A Oil & Gas Limited Partnership (“Aztec 2006A LP”), Aztec 2006B Oil & Gas Limited Partnership (“Aztec 2006B LP”), Aztec 2007A Oil & Gas Limited Partnership (“Aztec 2007A LP”), Aztec VIIIA Oil & Gas Limited Partnership (“Aztec VIIIA LP”), Aztec VIIIB Oil & Gas Limited Partnership (“Aztec VIIIB LP”), Aztec VIIIC Oil & Gas Limited Partnership (“Aztec VIIIC LP”) and Aztec XA Oil & Gas Limited Partnership (“Aztec XA LP”). For all seven partnerships, Aztec, through its wholly-owned subsidiary, Aztec Energy, LLC (“Aztec Energy”), acts as the Managing General Partner and retains thirty percent ownership interest in each Limite d Partnership (for which interest Aztec contributed all leases and paid all tangible drilling costs). Investors receive 70% - 85% of the cash profits, defined as revenue in excess of expenses, from successful wells drilled within the partnership, with the percentage dependent on the rate of return to investors during the first five years of the partnership. After three years from the date of the first distribution, investors in the partnerships may request that the Managing General Partner, subject to a 10% limitation based on the total interests in the profits or capital of the Partnership, financial ability and other terms, repurchase their units at a price equal to three times cash flow for the preceding twelve months. There have been no such requests to date. Another Aztec subsidiary, Aztec Drilling & Operating, LLC, (“ADO LLC”) serves the Partnerships as turnkey drilling contractor and operator.
Aztec has a controlling financial interest in Aztec 2006A LP, Aztec 2006B LP, Aztec 2007A LP, Aztec VIIIA LP, Aztec VIIIB LP, Aztec VIIIC LP and Aztec XA LP, therefore, the partnerships’ financial statements are consolidated with those of Aztec and the other partners’ equity is recorded as minority interest.
NOTE 3 – OIL AND GAS PROPERTIES
Oil and gas properties at February 28, 2010 and August 31, 2009 consisted of the following:
| | February 28, 2010 | | August 31, 2009 |
| Proved leasehold costs | $ | 188,082 | | $ | 123,925 |
| Unproved leasehold costs | | 240,291 | | | 78,809 |
| Costs of wells and development | | 3,950,418 | | | 2,863,419 |
| Unevaluated capitalized exploratory well costs | | 334,173 | | | 38,206 |
| Capitalized asset retirement costs | | 32,766 | | | 30,366 |
| Total cost of oil and gas properties | | 4,745,730 | | | 3,134,725 |
| Accumulated depletion, depreciation, amortization and impairment | | (2,363,609) | | | (2,332,482) |
| Oil and gas properties, net | $ | 2,382,121 | | $ | 802,243 |
Aztec reviews proved oil and natural gas properties and other long-lived assets for impairment. These reviews are performed at least annually and more frequently if events and circumstances, (such as downward revision of the reserve estimates or commodity prices) indicate a decline in the recoverability of the carrying value of such properties. Aztec estimates the undiscounted future cash flows expected in connection with the properties and compares such future cash flows to the carrying amount of the properties to determine if the carrying amount is recoverable. When the carrying amounts of the properties exceed their estimated undiscounted future cash flows, the carrying amounts of the properties are reduced to their estimated fair value. The factors used to determine fair value include, but are not limited to, estimates of proved reser ves, future commodity prices, the timing of future production, future capital expenditures and a risk-adjusted discount rate. There were asset impairments of $0 and $530,511 the three months ended November 30, 2009 or November 30, 2008, respectively.
NOTE 4 – NOTES PAYABLE AND LINE OF CREDIT
Aztec has an agreement with CSI Energy, LP (“CSI”), a company controlled by our Consultant, Franklin C. Fisher, Jr., wherein CSI has agreed to provide Aztec with funds as needed to permit Aztec to meet its monthly operating expenses and other obligations as they become due over the twelve month period following August 31, 2009. As part of this arrangement, Aztec holds eight notes totaling $153,183 with an interest rate of 3.25%, four notes totaling $55,000 with an interest rate of 4.00% and one note in the amount of $205,560 with an interest rate of 9%, payable to CSI. The notes are due in full on September 1, 2010. None of the assets of Aztec are secured or collateralized by these notes.
Aztec also has notes payable directly to our Consultant. Aztec holds four notes totaling $108,000 with an interest rate of 3.25%, one note in the amount of $20,000 with an interest rate of 4%, one note in the amount of $336,600 with an interest rate of 9.00% and one note in the amount of $3,400 with an interest rate of 9.00%, payable to our Chief Executive Officer for funds advanced to Aztec. The notes are due in full on September 1, 2010. None of the assets of Aztec are secured or collateralized by these notes.
Aztec financed its directors’ and officers’ insurance policy in the amount of $24,416 on September 1, 2009, of which $11,220 remains outstanding as of February 28, 2010. The note bears an interest rate of 5.67% and matures on August 1, 2010.
In May 2007 Aztec established a line of credit with Amegy Bank National Association with a credit limit of $200,000. In February 2008, the amount of the line of credit increased from $200,000 to $400,000. Interest on any outstanding balances is charged at one-half of one percent above the Amegy Bank National Association prime rate. At August 31, 2009, the prime rate was five percent (5.00%), making the loan rate five and one-half percent (5.50%). As of February 28, 2010, the amount outstanding under this facility was $256,438. Our Consultant has personally guaranteed the entire amount of the line of credit. In May 2009, Aztec extended the line of credit through May 30, 2010. Under the extension agreement, Aztec is required to make monthly interest payments on the last day of each month and was required to repay principal monthly for three months, commencing on June 30, 2009 in the amount of $25,000 each month. Thereafter, Aztec is required to repay principal monthly in the amount $10,000 until the line of credit is due in full on May 30, 2010.
NOTE 5 - ASSET RETIREMENT OBLIGATIONS
The following is a description of the changes to the Company's asset retirement obligations for the three months ended February 28, 2010 and 2009:
| | February 28, | | February 28, |
| | 2010 | | 2009 |
| Asset retirement obligations at beginning of quarter | $ 37,652 | | $ 31,228 |
| Additions | - | | - |
| Accretion expense | 48 | | 421 |
| Asset retirement obligations at end of quarter | $ 37,700 | | $ 31,649 |
NOTE 6 – SHAREHOLDERS’ DEFICIT
During the quarter ended February 28, 2010, Aztec issued 1,052,580 shares of common stock valued at $85,500 to various officers and directors for services. Some of these issuances were for accounts payable accrued at November 30, 2009. Aztec also accrued $8,000 for director compensation as stock payable to be issued in the next quarter.
Section 2 – Quarterly Reporting
Item 4. Management’s discussion and analysis or plan of operation.
A. Plan of Operation.
1. Describe the issuer’s plan of operation for the next twelve months. This description should include such matters as:
Aztec’s principal business objective is to purchase, initiate and/or participate in oil and gas interests utilizing strategies that seek to manage and reduce the risk associated with traditional exploration and production operations; and to sponsor oil and gas drilling programs sold through FINRA registered broker dealers to accredited investors.
The Company feels that their business plan will provide sufficient funding to sustain itself for the next twelve months. However, there can be no assurances to that effect. In the event the Company requires additional funds, the Company will have to seek loans or equity placements to cover such cash needs. There is no assurance additional capital will be available to the Company on acceptable terms.
Management is in the process of expanding its present drilling program business, placed through FINRA registered broker dealers, and seeking other businesses or properties to acquire so that it can expand its operations. The analysis of new businesses and property acquisition opportunities and evaluating new business strategies will be undertaken by or under the supervision of the Company’s Officers and 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 likelih ood of sustaining a profit within given time frames; the perceived public recognition or acceptance of products, services, trade or service marks; name identification; and other relevant factors. The Company anticipates that the results of operations of a specific business venture may not necessarily be indicative of the potential for future earnings, which may be impacted by a change in marketing strategies, business expansion, changing or substantially augmenting management, and other factors.
Management will analyze all relevant factors and make a determination based on a composite of available information, without reliance on any single factor. The period within which the Company will decide to participate in a given business venture cannot be predicted and will depend on certain factors, including the time involved in identifying businesses, the time required for the Company to complete its analysis of such businesses, the time required to prepare appropriate documentation and other circumstances.
i. a discussion of how long the issuer can satisfy its cash requirements and whether it will have to raise additional funds in the next twelve months;
(See A1 above)
ii. a summary of any product research and development that the issuer will perform for the term of the plan;
(See A1 above)
iii. any expected purchase or sale of plant and significant equipment; and
(See A1 above)
iv. any expected significant changes in the number of employees.
(See A1 above)
B. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
1. Full fiscal years.
i. Any known trends, events or uncertainties that have or are reasonably likely to have a material impact on the issuer's short-term or long-term liquidity;
Oil prices appear headed for a rise and on a long term basis are anticipated to increase substantially which will aid Issuer. Issuer can operate profitably at today’s energy prices on a well by well basis, and on a total firm basis with a reasonable increase in revenue which is anticipated.
ii. Internal and external sources of liquidity;
Issuer has a good banking relationship with Amegy Bank of Texas, and is also able to borrow for short term needs from Franklin C Fisher, Jr and his controlled entities.
iii. Any material commitments for capital expenditures and the expected sources of funds for such expenditures;N/A
iv. Any known trends, events or uncertainties that have had or that are reasonably expected to have a material impact on the net sales or revenues or income from continuing operations;No
v. Any significant elements of income or loss that do not arise from the issuer's continuing operations;
No
vi. The causes for any material changes from period to period in one or more line items of the issuer's financial statements; andOil and natural gas pricing
vii. Any seasonal aspects that had a material effect on the financial condition or results of operation.
No, except natural gas prices normally rise in the winter months and fall in the summer.
2. Interim Periods.
Issuer formed and funded more drilling partnerships under its sponsored drilling programs through FINRA licensed broker dealers, and intends to continue to do so.
C. Off-Balance Sheet Arrangements.
Not applicable; the issuer has no off-balance sheet arrangements.
Item 5. Legal proceedings.
See Initial Disclosure Statement filed on April 14, 2010.
Item 6. Defaults upon senior securities.
----None---
Item 7. Other information.
----None---
Item 8. Exhibits.
See Initial Disclosure Statement filed on April 14, 2010.
Item 9. Certifications.
I, Waylan Johnson., certify that:
1. I have reviewed this Quarterly Disclosure Statement of Aztec Oil & Gas, Inc.;
2. Based on my knowledge, this disclosure statement does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this disclosure statement; and
3. Based on my knowledge, the financial statements, and other financial information included or incorporated by reference in this disclosure statement, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this disclosure statement.
By: //s// Waylan Johnson
Waylan Johnson
Date: April 14, 2010
I, Larry Hornbrook, certify that:
1. I have reviewed this Quarterly Disclosure Statement of Aztec Oil & Gas, Inc.;
2. Based on my knowledge, this disclosure statement does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this disclosure statement; and
3. Based on my knowledge, the financial statements, and other financial information included or incorporated by reference in this disclosure statement, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this disclosure statement.
By: //s// Larry Hornbrook
Larry Hornbrook
Date: April 14, 2010
Section 2 – Quarterly Reporting
