UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


WASHINGTON, D.C.
20549











x
            Quarterly Report under Section 13
      or 15(d) of the Securities Exchange Act of
  1934.


For the quarterly period
ended:September 30, 2008





o
            Transition Report under Section 13
      or 15(d) of the Securities Exchange Act of
  1934.


For the transition period
from:  _______  to _______





Commission file
number:2-76219-NY





VICTORY
ENERGY CORPORATION


(Exact name of small business issuer as
specified in its charter)





NEVADA
            
            87-0564472(State or other jurisdiction of
      incorporation or organization)
            
            (I.R.S. Employer I.D.
      Number)





112 N Curry Street, Carson City, Nevada
89703-4934


(Address of principal executive
offices)





(702) 989-9735


(Issuer’s telephone
number)





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:  YESxNOo




Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of "large accelerated
filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.




Large accelerated
      filer
             ̈
            
            Accelerated
      filer
             ̈Non-accelerated
      filer
             ̈
            
            Smaller Reporting
      Company
            x




Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).YESoNOx





State the number of shares outstanding
of each of the issuer’s classes of common equity, as of the latest practicable
date: As of September 30, 2008, there were 120,512,710 shares of our common
stock outstanding.





Transitional Small Business Disclosure
Format. YESoNOx




-1-








INDEX


Page No.PART
      1. FINANCIAL INFORMATIONItem
      1.                      Financial
      Statements
            3Consolidated
      Balance Sheet, September 30, 2008 (unaudited) and December 31, 2007
      (audited)
            3Consolidated
      Statement of Operations, for the three months ended September 30,
      2008 and 2007, and cumulative frominception to June 30, 2008
      (unaudited)
            4Consolidated
      Statement of Stockholders’ Equity (Deficit) for the period from January 7,
      1982 (inception)through September 30, 2008 (unaudited)
            5Consolidated
      Statements of Cash Flows, for the three months ended September 30,
      2008 and 2007, and cumulative frominception (Jan. 7, 1982)
      to September 30, 2008 (unaudited)
            6Notes to
      Condensed Financial Statements (unaudited)
            7Item
      2.                      Management’s
      Discussion and Analysis or Plan of Operation
            17Item
      3.                     
      Quantitative and Qualitative Disclosures About Market
      Risk
            21Item
      4.                      Controls
      and Procedures
            21PART
      II. OTHER INFORMATIONItem
      1.                      Legal
      Proceedings
            22Item
      2.                      Unregistered
      Sales of Equity Securities and Use of Proceeds
            22Item
      3.                      Defaults
      Upon Senior Securities
            22Item
      4.                      Submission
      of Matters to a Vote of Security Holders
            22Item
      5.                      Other
      Information
            22Item
      6.                      Exhibits
      and Reports on Form 8-K
            22





-2-
 
 Item
1.                    Finan cial
Statements


VICTORY ENERGY CORPORATION AND
      SUBSIDIARIES(A Development Stage
      Company)Consolidated Balance
      Sheets
 ASSETSSeptember
    30,
                  
                  
                  December
31,2008
                  
                  
                  2007Unaudited
                  
                  
                  (Restated)CURRENT
    ASSETS
                  
                  
                  
                  
                  Note 8Cash and Cash
      Equivalents
                  
                  $
                  4,337
                  
                  
                  $
                  3,251Subscriptions
      Receivable
                  
                  
                  160,000
                  
                  
                  
                  160,000Prepaid
      Rent
                  
                  
                  7,250
                  
                  
                  
                  -Total
      Curent Assets
                  
                  
                  171,587
                  
                  
                  
                  163,251FIXED ASSETS,
      NET
                  
                  
                  -
                  
                  
                  
                  -Other
AssetsDrilling
      Costs
                  
                  
                  6,304,000
                  
                  
                  
                  -Natural Gas Working
      Interest
                  
                  
                  1,430,000
                  
                  
                  
                  -Investment in Joint
      Venture
                  
                  
                  50,000
                  
                  
                  
                  50,000Total
      Other Assets
                  
                  
                  7,784,000
                  
                  
                  
                  50,000TOTAL
      ASSETS
                  
                  $
                  7,955,587
                  
                  
                  $
                  213,251LIABILITIES & STOCKHOLDERS'
      EQUITY (DEFICIT)CURRENT
      LIABILITESAccounts
      Payable
                  
                  $
                  110,781
                  
                  
                  $
                  34,803Accrued
      Liabilities
                  
                  
                  320,500Credit Line - WFB
      Business Line
                  
                  
                  76,414
                  
                  
                  
                  81,860Prepaid
      Subscriptions
                  
                  
                  203,500
                  
                  
                  
                  203,500Loan from
      Officer
                  
                  
                  879,306
                  
                  
                  
                  1,377,879Total
      Current Liabilities
                  
                  
                  1,590,501
                  
                  
                  
                  1,698,042Total
      Liabilities
                  
                  
                  1,590,501
                  
                  
                  
                  1,698,042Commitments and contingencies
      (Note 6)STOCKHOLDERS' EQUITY
      (DEFICIT)Preferred Stock, $0.001 par value,
      10,000,000 shares  authorized,2,255,172 issued
      and outstanding at September 30, 2008630,517 issued
      and outstanding at December 31, 2007
                  
                  
                  2,255
                  
                  
                  
                  631Common Stock, $0.001 par value,
      200,000,000 shares authorized,120,512,710issued and outstanding at
      September 30, 200842,395,366 issued and
      outstanding at December 31, 2007
                  
                  
                  120,513
                  
                  
                  
                  42,395Additional paid-in
      capital
                  
                  
                  14,261,260
                  
                  
                  
                  7,860,331Deficit accumulated in the
      development stage
                  
                  
                  (8,018,942
                  )
                  
                  
                  (9,388,148
                  )Total
      Stockholders' Equity (Deficit)
                  
                  
                  6,365,086
                  
                  
                  
                  (1,484,791
                  )TOTAL LIABILITIES AND
      STOCKHOLDERS' EQUITY (DEFICIT)
                  
                  $
                  7,955,587
                  
                  
                  $
                  213,251


-3-




VICTORY ENERGY CORPORATION AND
      SUBSIDIARIES(A Development Stage
      Company)Consolidated Statement
      ofOperationsUnaudited
 For the
    periodof
    Inception,For the
                  
                  
                  For the
                  
                  
                  from January
    2,Three Months
      Ended
                  
                  
                  Nine Months
      Ended
                  
                  
                  1982
throughSeptember
    30,
                  
                  
                  September
    30,
                  
                  
                  September
    30,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2008RevenuesNatural Gas
      Production
                  
                  $
                  357,617
                  
                  
                  $
                  -
                  
                  
                  $
                  758,636
                  
                  
                  $
                  -
                  
                  
                  $
                  778,843Costs of
      Production
                  
                  
                  11,000
                  
                  
                  $
                  -
                  
                  
                  
                  11,000
                  
                  
                  $
                  -
                  
                  
                  
                  11,000.00346,617
                  
                  
                  
                  -
                  
                  
                  
                  747,636
                  
                  
                  
                  -
                  
                  
                  
                  767,843.00Costs and
      ExpensesRoyalties
                  
                  
                  228,894
                  
                  
                  
                  -
                  
                  
                  
                  797,322
                  
                  
                  
                  -
                  
                  
                  
                  8,431,143.00Consulting
      Expense
                  
                  
                  71,810
                  
                  
                  
                  95,000
                  
                  
                  
                  1,779,400
                  
                  
                  
                  3,007,501
                  
                  
                  
                  1,937,546.00Professional
      Fees
                  
                  
                  16,425
                  
                  
                  
                  -
                  
                  
                  
                  369,285
                  
                  
                  
                  -
                  
                  
                  
                  369,285.00Land
      Leases
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  780
                  
                  
                  
                  1,680
                  
                  
                  
                  26,500.00Wages and
      Salaries
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  270,500.00Other General &
      Administrative
                  
                  
                  296,907
                  
                  
                  
                  47,159
                  
                  
                  
                  156,022
                  
                  
                  
                  212,502
                  
                  
                  
                  1,373,479.00Total
      Expenses
                  
                  
                  385,142
                  
                  
                  
                  142,159
                  
                  
                  
                  3,102,809
                  
                  
                  
                  3,221,683
                  
                  
                  
                  12,408,453.00Operating
      Loss
                  
                  
                  (38,525
                  )
                  
                  
                  (142,159
                  )
                  
                  
                  (2,355,173
                  )
                  
                  
                  (3,221,683
                  )
                  
                  
                  (11,640,610
                  )Other Income and
      (expenses)Sale of Net Revenue
      Interest in Wells
                  
                  
                  4,678,000
                  
                  
                  
                  -
                  
                  
                  
                  7,678,000
                  
                  
                  
                  -
                  
                  
                  
                  7,678,000.00Loss on abandonment of
      subsidiary
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (50,900.00
                  )Loss from reduction in
      debt
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (48,363.00
                  )Interest
      Expense
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (5,664.00
                  )Other
      Income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,216.00Total Other Income and
      (expenses)
                  
                  
                  4,678,000
                  
                  
                  
                  -
                  
                  
                  
                  7,678,000
                  
                  
                  
                  -
                  
                  
                  
                  7,575,289Net Income
      (Loss)
                  
                  $
                  4,639,475
                  
                  
                  $
                  (142,159
                  )
                  
                  $
                  5,322,827
                  
                  
                  $
                  (3,221,683
                  )
                  
                  $
                  (4,065,321
                  )Basic and Dilutive net loss per
      share
                  
                  $
                  0.04
                  
                  
                  $
                  (0.00
                  )
                  
                  $
                  0.02
                  
                  
                  $
                  (0.15
                  )Weighted average number of
      sharesoutstanding, basic and
      diluted
                  
                  
                  118,933,524
                  
                  
                  
                  31,285,366
                  
                  
                  
                  308,036,585
                  
                  
                  
                  21,461,340Dilutive effect of preferred
      stock,
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  225,517,200
                  
                  
                  
                  -(Note 2)







-4-
 
  VICTORY ENERGY CORPORATION AND
      SUBSIDIARIES(A Development Stage
      Company)Consolidated Statement of Stockholders' Equity (Deficit)For the nine months ended
      September 30, 2008Unaudited
 AccumulatedAdditional
                    
                    
                    Deficit
    DuringCommon
Stock
                    
                    
                    Preferred
    Stock
                    
                    
                    Paid-in
                    
                    
                    DevelopmentShares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Capital
                    
                    
                    Stage
                    
                    
                    TotalBalances at December 31,
      2007
                    
                    
                    42,395,366
                    
                    
                    $
                    42,395
                    
                    
                    
                    630,517
                    
                    
                    $
                    631
                    
                    
                    $
                    7,860,331
                    
                    
                    $
                    (9,388,148
                    )
                    
                    $
                    (1,484,791
                    )Common stock for services
      $0.04/sh
                    
                    
                    600,000
                    
                    
                    
                    600
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    23,400
                    
                    
                    
                    
                    
                    
                    
                    24,000Common Stock for services
      $0.08/sh
                    
                    
                    8,550,000
                    
                    
                    
                    8,550
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    675,450
                    
                    
                    
                    
                    
                    
                    
                    684,000Common stock for services @
      $0.20/sh
                    
                    
                    2,000,000
                    
                    
                    
                    2,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    98,000
                    
                    
                    
                    
                    
                    
                    
                    100,000Preferred Stock converted to
      common
                    
                    
                    4,482,758
                    
                    
                    
                    4,483
                    
                    
                    
                    (44,827
                    )
                    
                    
                    (45
                    )
                    
                    
                    (4,438
                    )
                    
                    
                    
                    
                    
                    
                    -Common Stock for services
      $0.23/sh
                    
                    
                    2,000,000
                    
                    
                    
                    2,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    458,000
                    
                    
                    
                    
                    
                    
                    
                    460,000Preferred stock converted to
      common
                    
                    
                    28,568,965
                    
                    
                    
                    28,569
                    
                    
                    
                    (285,690
                    )
                    
                    
                    (286
                    )
                    
                    
                    (28,283
                    )
                    
                    
                    
                    
                    
                    
                    -Common stock for services
      $0.20/sh.
                    
                    
                    2,000,000
                    
                    
                    
                    2,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    398,000
                    
                    
                    
                    
                    
                    
                    
                    400,000Common stock for
      cash
                    
                    
                    600,000
                    
                    
                    
                    600
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    29,400
                    
                    
                    
                    
                    
                    
                    
                    30,000Common stock for services
      $0.17/sh.
                    
                    
                    115,000
                    
                    
                    
                    115
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    19,435
                    
                    
                    
                    
                    
                    
                    
                    19,550Common stock for consulting
      $0.17/sh.
                    
                    
                    100,000
                    
                    
                    
                    100
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    16,900
                    
                    
                    
                    
                    
                    
                    
                    17,000Common stock for
      cash
                    
                    
                    1,600,000
                    
                    
                    
                    1,600
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    78,400
                    
                    
                    
                    
                    
                    
                    
                    80,000Warrants exercised for common
      $0.25
                    
                    
                    1,000,000
                    
                    
                    
                    1,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    249,000
                    
                    
                    
                    
                    
                    
                    
                    250,000Common stock for
      consulting  $0.13
                    
                    
                    1,000,000
                    
                    
                    
                    1,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    129,000
                    
                    
                    
                    
                    
                    
                    
                    130,000Common stock for
      services  $0.13
                    
                    
                    1,250,000
                    
                    
                    
                    1,250
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    131,250
                    
                    
                    
                    
                    
                    
                    
                    132,500Preferred stock issued for debt
      $0.10/sh
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,000,000
                    
                    
                    
                    2,000
                    
                    
                    
                    198,000
                    
                    
                    
                    
                    
                    
                    
                    200,000Stock Dividend declared May 2,
      2008
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (3,953,621
                    )
                    
                    
                    (3,953,621
                    )Stock Dividend paid July 1,
      2008
                    
                    
                    19,767,863
                    
                    
                    
                    19,768
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    3,933,853
                    
                    
                    
                    
                    
                    
                    
                    3,953,621Conversion of Prreferred
      Stock
                    
                    
                    4,482,758
                    
                    
                    
                    4,483
                    
                    
                    
                    (44,828
                    )
                    
                    
                    (45
                    )
                    
                    
                    (4,438
                    )
                    
                    
                    
                    
                    
                    
                    -Net income 9 mo. ended Sep 30,
      2008
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    5,322,827
                    
                    
                    
                    5,322,827Balances at June 30,
      2008
                    
                    
                    120,512,710
                    
                    
                    $
                    120,513
                    
                    
                    
                    2,255,172
                    
                    
                    $
                    2,255
                    
                    
                    $
                    14,261,260
                    
                    
                    $
                    (8,018,942
                    )
                    
                    $
                    6,365,086
  -5-
 VICTORY ENERGY CORPORATION AND
      SUBSIDIARIES(A Development Stage
      Company)Consolidated Statements
      of CashFlowsUnaudited
 For the
                    
                    
                    For the
                    
                    
                    Inception
    fromThree Months
      Ended
                    
                    
                    Nine Months
      Ended
                    
                    
                    Jan. 7,
1982September
30
                    
                    
                    September
30
                    
                    
                    through2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    Jun. 30,
    2008CASH FLOWS FROM OPERATING
      ACTIVITIES:Net Operating
      Loss
                    
                    $
                    (38,525
                    )
                    
                    $
                    (142,159
                    )
                    
                    $
                    (2,355,173
                    )
                    
                    $
                    (3,221,683
                    )
                    
                    
                    (11,640,610
                    )Adjustments to reconcile net loss
      to net cashused by operating
      activities:DepreciationNon cash issue of common
      stock for services
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,967,050
                    
                    
                    
                    1,535,384
                    
                    
                    
                    8,624,532Non Operating
      Losses
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (102,711
                    )Decrease (Increase) in Prepaid
      Expenses
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (7,250
                    )
                    
                    
                    
                    
                    
                    
                    (7,250
                    )Incrrease (Decrease) in Prepaid
      Subscriptions
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    203,500(Incrrease) Decrease in
      Subscriptions Receivable
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (735,000
                    )
                    
                    
                    (160,000
                    )Increase (Decrease) in Accounts
      Payable
                    
                    
                    52,807
                    
                    
                    
                    (5,840
                    )
                    
                    
                    75,978
                    
                    
                    
                    
                    
                    
                    
                    110,781Increase (Decrease) in Accrued
      Liabilities
                    
                    
                    320,500
                    
                    
                    
                    
                    
                    
                    
                    320,500
                    
                    
                    
                    15,458
                    
                    
                    
                    320,500Increase (Decrease ) in Accrued
      Payroll,P'roll TaxesRepayment of Long Term
      DebtNet Cash provided by (used
      by)Operating
      Activities
                    
                    
                    334,782
                    
                    
                    
                    (147,999
                    )
                    
                    
                    1,105
                    
                    
                    
                    (2,405,841
                    )
                    
                    
                    (2,651,258
                    )CASH FLOWS FROM INVESTING
      ACTIVITIESDrilling
    Costs
                    
                    
                    (4,678,000
                    )
                    
                    
                    
                    
                    
                    
                    (6,304,000
                    )
                    
                    
                    
                    
                    
                    
                    (6,304,000
                    )Investment in Natural Gas Working
      Interest
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (1,430,000
                    )
                    
                    
                    
                    
                    
                    
                    (1,430,000
                    )Purchase of Fixed
      AssetsInvestment in Joint
      Venture
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (50,000
                    )Net Cash (used by) Investing
      Activities
                    
                    
                    (4,678,000
                    )
                    
                    
                    -
                    
                    
                    
                    (7,734,000
                    )
                    
                    
                    -
                    
                    
                    
                    (7,784,000
                    )CASH FLOWS FROM FINANCING
      ACTIVITIESBank
    overdraft
                    
                    
                    
                    
                    
                    
                    (11,760
                    )
                    
                    
                    
                    
                    
                    
                    (79
                    )Proceeds of sale of working
      interest in wells
                    
                    
                    4,678,000
                    
                    
                    
                    
                    
                    
                    
                    7,678,000
                    
                    
                    
                    
                    
                    
                    
                    7,678,000Proceeds of Short Term
      AdvanceProceeds (Repayment) of
      LoansProceeds (repayment) of Credit
      Line
                    
                    
                    (131
                    )
                    
                    
                    218
                    
                    
                    
                    (5,446
                    )
                    
                    
                    23,879
                    
                    
                    
                    76,414Proceeds (Repayment) of Loan from
      Officer
                    
                    
                    (330,472
                    )
                    
                    
                    159,670
                    
                    
                    
                    (498,573
                    )
                    
                    
                    458,150
                    
                    
                    
                    879,306Increase (Decrease) in Other Loans
      PayableProceeds from the sale of
      Preferred Stock
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    200,000
                    
                    
                    
                    
                    
                    
                    
                    246,950Proceeds from
      conversion  of Preferred Stock
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,189,020
                    
                    
                    
                    200,000Proceeds from the sale of
      Common Stock
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    110,000
                    
                    
                    
                    735,000
                    
                    
                    
                    732,321Subscriptions Receivable for
      stock issued
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    160,000Proceeds of sale/excchange
      of warrants
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    250,000
                    
                    
                    
                    
                    
                    
                    
                    250,000Contributed Capital by
      shareholders
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    216,604Net Cash provided by Financing
      Activities
                    
                    
                    4,347,397
                    
                    
                    
                    148,128
                    
                    
                    
                    7,733,981
                    
                    
                    
                    2,405,970
                    
                    
                    
                    10,439,595NET INCREASE (DECREASE) IN
      CASH
                    
                    
                    4,179
                    
                    
                    
                    129
                    
                    
                    
                    1,086
                    
                    
                    
                    129
                    
                    
                    
                    4,337CASH AT BEGINNING OF
      PERIOD
                    
                    
                    158
                    
                    
                    
                    -
                    
                    
                    
                    3,251
                    
                    
                    
                    -
                    
                    
                    
                    -CASH AT END OF
      PERIOD
                    
                    $
                    4,337
                    
                    
                    $
                    129
                    
                    
                    $
                    4,337
                    
                    
                    $
                    129
                    
                    
                    $
                    4,337CASH PAID
    FOR:Interest
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Income
Taxes
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
  -6-




VICTORY
ENERGY CORPORATION


September
30, 2008





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





VICTORY
ENERGY CORPORATION
 September
30, 2008
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 1 -
BUSINESS AND CONTINUED OPERATIONS
  Victory
Energy Corporation (OTC symbol VTYE), formerly known as Victory Capital Holdings
Corporation (our “Company”) was organized under the laws of the State of Nevada
on January 7, 1982, under the name All Things, Inc. On March 21, 1985 the
Company’s name was changed to New Environmental Technologies Corporation and on
April 28, 2003 to Victory Capital Holdings Corporation.  The name was
changed finally to Victory Energy Corporation on May 3, 2006.
 The
Company was formed for the purpose of engaging in all lawful businesses. The
Company’s initial authorized capital consisted of 100,000,000 shares of $0.001
par value common voting stock.  As of the date of this filing the
authorized capital is 200,000,000 shares of $.001 par value common
stock.
 
 The
consolidated financial statements presented are those of Victory Energy
Corporation and subsidiaries.   While the information presented
in the accompanying interim nine months financial statements is unaudited, it
includes all adjustments which are, in the opinion of management, necessary to
present fairly the financial position, results of operations and cash flows for
the interim periods presented in accordance with the accounting principles
generally accepted in the United States of America. All adjustments are of a
normal recurring nature.
 
 On
October 3, 2001, the Company formed a wholly owned subsidiary named Papadog,
Inc. Papadog has since changed its name to Global Card Services, Inc. and then
to Global Card Incorporated, (“Global”).  As of the date of this
report, there has been no activity for this subsidiary.
 
 On
November 12, 2003, the Company formed a wholly owned subsidiary named On Demand
Communications, Inc., (“On Demand”).  As of the date of this report,
there has been no activity for this subsidiary.
 
 On
November 27, 2006 the company incorporated a Nevada
subsidiary,  Victory Energy Resources, Inc.   The name
of the subsidiary was changed to Victory Carbon Solutions, Inc.  There
has been no activity in this company.
 
 Current
Business of the Company
  The
Company had no material business operations from 1989 to 2003. In 2004, the
Company  began the search for the acquisition of assets, property or
businesses and in 2005 focused on projects in the oil and gas industry,
intending to drill for oil and gas on leased land.  In 2006 the
company entered into a farm-out agreement with the owner of certain oil and gas
leases for a 100% working interest in an acreage inMontana, subject to overriding
royalties.The Company also secured other mineral rights in
Montana and Texas, as well as a joint venture in New Mexico.
 -7-
 
 In
December 2007 the Corporation contracted to purchase, with institutional
investors, through a financial facility, a working interest in six existing and
producing gas wells in Crockett County, Texas.  The conclusion of the
transaction and recording of the wells took place in the first quarter of
2008.  This was followed in the second quarter of 2008 with an
additional $2,078,000 investment from the same institutional investors and
$2,600,000 in the third quarter.  Funds were used for drilling a
total ten wells, which the Corporation owns outright. Drilling was
completed by the end of the third quarter, when eight wells were producing, and
two pending.
 
 Jon
Fullenkamp, the President/C.E.O., is the sole employee and has a great deal of
experience in the oil and gas industry.  The Company retains
independent contractors to assist in operating and managing the prospects and
projects.
 
 NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Fair Value of Financial
Instruments
 
 The
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards (“SFAS”) No. 107, “Disclosures About Fair Value of Financial
Instruments.”  SFAS No. 107 requires disclosure of fair value information
about financial instruments when it is practicable to estimate that value. 
The carrying amounts of the Company’s financial instruments as of September 30,
2008 and 2007 approximate their respective fair values because of the short-term
nature of these instruments.  Such instruments consist of cash, accounts
payable and accrued expenses.  The fair value of related party payables is
not determinable.
 
 Income
Taxes
 
 The
Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns.  Under this method, deferred tax assets and liabilities
are determined based on the difference between the tax basis of assets and
liabilities and their financial reporting amounts based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income.  Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. The Company generated deferred tax credits through net
operating loss carryforwards.  However, a valuation allowance of 100%
has been established, as the realization of the deferred tax credits is not
reasonably certain, based on going concern considerations outlined
below.
 
 Going
Concern
 
 The
Company’s financial statements are prepared using accounting principles
generally accepted in the United States of America applicable to a going
concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business.  The Company has
suffered recurring losses.  The Company incurred an operating loss of
$2,355,173 in the nine months ended September 30, 2008,  but net
income of $5,322,827, primarily due to the sale of  net revenue
interests in wells.  The company has a shareholders’ equity of
$6,365,086 at September 30, 2008.  However the Company has not yet
established an ongoing source of revenues sufficient to cover its operating
costs and to allow it to continue as a going concern.  The ability of
the Company to continue as a going concern is dependent on the Company obtaining
adequate capital to fund operating losses until it becomes
profitable.  If the Company is unable to obtain adequate capital, it
could be forced to cease development of operations.
 -8-
 
 In order
to continue as a going concern, develop a reliable source of revenues, and
achieve a profitable level of operations the Company will need, among other
things, additional capital resources.  Management’s plans to continue
as a going concern include raising additional capital through sales of common
stock and sales of royalty rights.  In the interim, shareholders of
the Company are committed to meeting its operating expenses.  However,
management cannot provide any assurances that the Company will be successful in
accomplishing any of its plans.
 
 The
ability of the Company to continue as a going concern is dependent upon its
ability to successfully accomplish the plans described in the preceding
paragraph and eventually secure additional sources of financing and attain
profitable operations.  The accompanying financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
 
 Development-Stage
Company
 
 The
Company is considered a development-stage company, with limited operating
revenues during the periods presented, as defined by Statement of Financial
Accounting Standards (“SFAS”) No. 7.  SFAS No. 7 requires companies to
report their operations, shareholders deficit and cash flows since inception
through the date that revenues are generated from management’s intended
operations, among other things.  Management has defined inception as
January 7, 1982.  Since inception, the Company has incurred operating
losses totaling $11,640,610, much of which relates to stock-based compensation
to officers, directors and consultants as a means to preserve working capital.
The Company’s working capital has been generated through the sales of common
stock, sale of a working interest and royalty rights, loans made by officers of
the Company and a bank line of credit. Management has provided financial data
since January 7, 1982 “Inception” in the financial statements, as a means to
provide readers of the Company’s financial information to make informed
investment decisions.
 
 Use of
Estimates
 
 The
preparation of the financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period.  Actual
results could differ from those estimates.
 
 Principles of
Consolidation
 
 The
consolidated financial statements include those of Victory Energy Corporation
and its wholly owned subsidiaries, Global Card Incorporated, On Demand
Communications, Inc. and Victory Energy Resources, Inc. All material
inter-company items and transactions have been eliminated.  There has
been no activity in the subsidiaries.
 
 Earnings (Loss) Per
Share
 
 Statement
of Financial Accounting Standards No. 128 “Earnings Per Share” requires
presentation of basic earnings per share and diluted earnings per
share.  Basic income (loss) per share (“Basic EPS”) is computed by
dividing net loss available to common stockholders by the weighted average
number of common shares outstanding during the period.  Diluted
earnings per share (“Diluted EPS”) is similarly calculated using the treasury
stock method except that the denominator is increased to reflect the potential
dilution that would occur if preferred stock at the end of the applicable period
were exercised. These potential dilutive securities were included in the
calculation of earnings per share for the nine months ended September 30,
2008.   They were not included in the calculation for September
30, 2007 because the Company incurred a loss in that period, and thus their
effect would have been anti-dilutive.  At September 30, 2008
potentially dilutive securities consisted of 2,255,172 shares of preferred
stock, convertible at the rate of 1 preferred share to 100 common
shares.
 -9-
 
 The
following is a reconciliation of the numerators and denominators of the basic
and diluted earnings per share computations for the six months ended September
30, 2008 and 2007.
 
 September 302008
              
              
              2007Numerator:Basic and diluted net loss per
      share:Net
      Income (Loss)
              
              $
              5,322,827
              
              
              $
              (3,321,683
              )DenominatorBasic and diluted weighted
      averagenumber of shares
      outstanding
              
              
              308,036,585
              
              
              
              21,461,340Basic and Diluted Net Loss Per
      Share
              
              $
              0.02
              
              
              $
              (0.15
              )Dilutive effect of Preferred
      Stock
              
              
              225,517,200
              
              
              
              0
 
 Equipment and
Fixtures
 
 Equipment
and fixtures are recorded at cost.  Depreciation is provided using
accelerated and straight-line methods over the estimated useful lives of the
related assets as follows.
 
 Description
              YearsFurniture
      and fixtures
              7Computer
      hardware and software
              3-5
  Equipment
and fixtures have been fully depreciated.
 
 Accounting for Oil and Gas
Producing Activities
 
 The
company uses the successful efforts method of accounting for oil and gas
producing activities.  Under this method, acquisition costs for proved
and unproved properties are capitalized when incurred.  Exploration
costs, including geological and geophysical costs of carrying and retaining
unproved properties and exploratory dry hole drilling costs, including the costs
to drill and equip development wells, and successful exploratory drilling costs
to locate proved reserves are capitalized.
 -10-
 
 Exploratory
drilling costs are capitalized when incurred pending the determination of
whether a well has found proved reserves.  A determination of whether
a well has found proved reserves is made shortly after drilling is
completed.  The determination is based on a process which relies on
interpretations of available geologic, geophysics, and engineering
data.  If a well is determined to be successful, the capitalized
drilling costs will be reclassified as part of the cost of the
well.
 
 If a well
is determined to be unsuccessful, the capitalized drilling costs will be charged
to expense in the period the determination is made.  If an exploratory
well requires a major capital expenditure before production can begin, the cost
of drilling the exploratory well will continue to be carried as an asset pending
determination of whether proved reserves have been found only as long as the
well has found a sufficient quantity of reserves to justify it’s completion as a
producing well if the required capital expenditure is made and drilling of the
additional exploratory wells is under way or firmly planned for the near
future.
 
 If
drilling in the area is not under way or firmly planned, or if the well has not
found a commercially producible quantity of reserves, the exploratory well is
assumed to be impaired, and its costs are charged to expense.  In the
absence of a determination as to whether the reserves that have been found can
be classified as proved, the costs of drilling such an exploratory well is not
carried as an asset for more than one year following completion of
drilling.
 
 If after
that year has passed, a determination that proved reserves exist cannot be made,
the well is assumed to be impaired, and its costs are charged to
expense.  It’s costs can however, continue to be capitalized if a
sufficient quantity of reserves are discovered in the well to justify it’s
completion as a producing well and sufficient progress is made assessing the
reserves and the well’s economic and operating feasibility.  The
impairment of unamortized capital costs is measured as a lease level and is
reduced to fair value if it is determined that the sum of expected future net
cash flows is less than the net book value.
 
 The
company determines if impairment has occurred through either adverse changes or
as a result of the annual review of all fields.  During 2007 and up to
the third quarter of 2008 the company did not record any
impairment.  Development costs of proved oil and gas properties,
including estimated dismantlement, restoration and abandonment costs and
acquisition costs, are depreciated and depleted on a field basis by the
units-of-production method using proved reserves, respectively.
 
 The Costs
of unproved oil and gas properties are generally combined and impaired over a
period that is based on the average holding period for such properties and the
company’s experience of successful drilling.  Properties related to
gathering and pipeline systems and equipment are depreciated using the
straight-line method based on estimated useful lives ranging from 10 to 25
years.  Generally pipeline and transmission systems are amortized over
12 to 25 years, gathering and compressing equipment is amortized over 10 years
and storage equipment and facilities are amortized over 10 to 16
years.
 
 Certain
other assets are depreciated on a straight-line basis over 3 to 10
years.  Buildings are depreciated on a straight-line basis over 25
years.  Costs of retired, sold or abandoned properties that make up a
part of an amortization base (partial field) are charged to accumulated
depreciation, depletion and amortization if the units-of-production rate is not
significantly affected.  Accordingly, a gain or loss, if any, is
recognized only when a group of proved properties (entire field) that make up
the amortization base has been retired, abandoned or sold.
 
 Oil and Gas Revenue
Recognition
 
 The
company applies the sales method of accounting for natural gas
revenue.  Under thus method, revenues are recognized based on the
actual volume of natural gas sold to purchasers.
 -11-
  NOTE 3 –
RELATED PARTY TRANSACTIONS
 
 Five
ledger accounts in the books of the Company relating to loans, salaries and
out-of-pocket expenses payable to the President/C.E.O., Jon Fullenkamp, were
combined into one account “Loan from Officer”, which totaled $879,306 at
September 30, 2008. The loan is non-interest bearing and payable on
demand.  Under the terms of the employment agreement, the employee may
at his election convert any and all funds due to him into shares of the
Company’s common stock at a conversion price of $0.01 per share. In practice,
funds due to him have been converted at a discounted market value.
 
 In March
2006 the company issued a promissory note to a group of stockholders for
consideration of $141,458 in cash. The terms were to be repayable in one year at
an interest rate of 10%, payable quarterly.  Interest was deferred. In
December, 2006 the note was reclassified to prepaid subscriptions, reflecting an
accommodation with the stockholders. In December 2007, the subscription was
eliminated in further negotiations.
 
 On May 5,
2008 2,000,000 preferred shares were issued to Jonathan Fullenkamp, President
and Chief Executive Officer, for consideration of $200,000 applied to Officer’s
Loan.
 
 NOTE 4 –
INVESTMENT IN OIL AND GAS PROPERTIES
 
 In May,
2006 the Company paid $50,000 to Geosurveys, Inc, a geophysical survey company
of oil and gas prospects.  This was part of an agreement with Eldorado
Exploration, Inc. whereby the Company obtained a 2 1⁄2 percent working interest in
a prospective oil well called the Mesa #1 well on leased land in New
Mexico.   The agreement provides for cost sharing of drilling
costs.
 
 In
December 2006 the Corporation contracted to purchase a 50% working interest in
six existing and producing gas wells in Crockett County, Texas, together with
certain drilling costs, for $3,000,000.  The lease is known as the
Adams-Baggett Canyon Sandstone gas field.  The working interest in
turn owns a net revenue interest of 74% in the six wells.  Victory
Energy’s share of the net revenue interest is 50% of the 74%, ( 37% of the
whole).
 
 The
$3,000,000 purchase price was paid In January 2008.  It was
capitalized as drilling costs of $1,570,000 and leasehold interest of $1,430,000
according to their relative values.  Victory Energy’s leasehold
interest in the six wells was recorded with the Texas Railroad Commission in
Crockett County, Texas on May 12, 2008.
 
 The
$3,000,000 funds for the purchase were provided by an institutional investment
group.   The investment group received a right to 59% of
Victory’s net revenue from the six wells.   The 59% is reduced to
49% when the investment is recovered.  The balance of net revenue is
Victory Capital’s share, 41%, increasing to 51% when the $3,000,000 investment
has been repaid.
 
 The
$3,000,000 sale of the rights to the investment group for a share of net revenue
income was recorded as a sale of property under “Other Income”.
 
 The
Company received additional drilling funds of $2,134,000 in June, 2008 from the
same investment group for drilling ten new wells in Adams-Baggett Canyon
Sandstone gas field.  Additional drilling funds of $2,600,000 were
received for the project in July, August and September,
2008.  Drilling was completed by September 30, 2008 on the ten wells,
of which eight were put into production, (two pending).   A
contract for an additional three wells was begun, which completed the
funding.
 
 The
investment group was sold rights to net revenue income from the ten wells, under
the same terms as before,  i.e. 59%,  reducing to 49% when
the investment is recovered.
 
 In the
nine months ended September 30, 2008, the Company received $738,636 from
proceeds of the sale of gas production.    The Company’s
obligation to the investment group under the terms of the sale of rights is
$435,795, which was paid.
 -12-
 
 A
geologists report dated January 26, 2007 from Joe C. Neal & Associates
indicates the following oil and gas reserves, reported in accordance with
Financial Accounting Standards Board pronouncement 69 (FAS-69):
  PROVEDUNDEVELOPEDNet
      Reserves toEvaluated
      Interests:Oil, MBBL
              
              
              0Gas, MMCF
              
              
              11,519Future  Cash
      Inflows
              
              $
              74,877,000Ad
      Valorem Taxes &Severance
      Taxes
              
              $
              7,694,000Operating
      Costs
              
              $
              18,768,000Capital
      Costs
              
              $
              12,000,000Future
      Net Cash Flows,Undiscounted
              
              $
              36,415,000Standardized
      measure ofPer
      Annum DiscountedFuture
      net cash flowsrelating
      to provedOil
      and gas reserves,Discounted
      at 10%
              
              $
              11,434,000Victory
      Energy Corporation share50% x 74% x
      41%  (15%)
              
              $
              1,734,538
  NOTE 5 -
COMMITMENTS AND CONTINGENCIES
 
 There
were no additional commitments and contingencies in the nine months ended
September 30, 2008.
 -13-
 
 NOTE 6 –
CAPITAL STOCK TRANSACTIONS
 
 2008
 
 In
January, 2008, 600,000 shares of common stock were issued for services $0.04 per
share reflecting market value.   $24,000 was recorded as legal
fees.
 
 From
February 1 to 21, 2008, 8,550,000 shares of common stock were issued for
services $0.08 per share reflecting market value.   $684,000 was
recorded as consulting fees.
 
 On
February 22, 2008, 2,000,000 shares of common stock were issued for services
$0.20 per share reflecting market value.   $100,000 was recorded
as consulting fees.
 
 In March,
2008, 2,000,000 shares of common stock were issued for services $0.23 per share
reflecting market value.   $322,000 was recoded as legal
fees.  $138,000 was recorded as consulting fees.
 
 On April
3, April 30, May 5 and June 27, an aggregate of 28,568.96 of preferred shares
were converted at the rate of one share of preferred stock to 100 shares of
common stock to 28,568,965 common stock.
 
 On April
4, 2008, 2,000,000 shares of common stock were issued to M. Iorlano in
settlement of a consulting contract of $400,000.
 
 On April
28, 2008, 600,000 common shares were sold to R. Zamber, realizing
$30,000.
 
 On April
28, 2008 115,000 common shares were issued to R.D. Jergens in satisfaction of a
claim.  $19,550 was recorded as expense.
 
 On April
28, 2008, 100,000 shares were issued to L, Folkes.  $17.000 consulting
expense was recorded.
 
 On April
30, 2008 1,600,000 common shares were sold to R. Zamber, realizing
$80,000.
 
 On April
30, 2008, 1000,000 warrants were exercised by James Consulting for 1,000,000
common shares, realizing $250,000.
 
 On May 2,
2008, 1,000,000 common shares were issued to Steinfield
Consulting.   Expense of $130,000 was recorded.
 
 On May 2,
2008, 1,000,000 common shares were issued to Management
Services.   Expense of $132,500 was recorded.
 
 On July
1, 2008,  19,767,863 common shares were issued in payment of a stock
dividend to stockholders of record May 2, 2008:  one share for each
four shares held.
 
 On July
28, 2008,  4,482,758 common shares were issued to preferred
stockholders, having converted 44,827.58 preferred shares to common shares in a
ratio of I referred to 100 common to 1 preferred.
 -14-
 
 The total
of issued and outstanding common shares at September 30, 2008 and 2007 was
120,512,710 and 42,395,366 respectively.
  Preferred
Stock
 
 On March
13, 2008 44,827.58 shares of preferred stock were converted, at the rate of one
share of preferred stock to 100 shares of common stock, to 4,482,758 shares
common stock.
 
 On April
3, April 30, May 5 and June 27, an aggregate of 28,568.96 of preferred shares
were converted, at the rate of one share of preferred stock to 100 shares of
common stock, to 28,568,965 shares of common stock.
 
 On May 2,
2008, 2,000,000 preferred shares were issued to Jonathan Fullenkamp for proceeds
of $200,000, applied to Officer Loan.
 
 On July
28, 2008,  44,827.58 shares of preferred stock were converted to
4,482,758 shares of common stock in a ratio of 100  common to 1
preferred share.
 
 The total
of issued and outstanding preferred shares at September 30, 2008 and 2007 was
2,255,172 and 630,517 respectively.
 
 NOTE 7 –
LITIGATION
 The
Corporation is not subject to any reportable legal
proceedings.
 
 NOTE 8 –
RESTATEMENTS
 
 Balance
Sheet.
 
 Drilling
Costs of $3,000,000 were aggregated in a previous quarterly reporting, related
to the sale of a portion of a net working interest in gas wells.  The
costs are more specifically separated into components:
 
 Drilling
      Costs
              
              $
              1,430,000Natural
      Gas Working
      Interests
              
              $
              1,570,000$
              3,000,000
  This had
no effect on net income or net equity.
 
 Officer
loan was reclassified from Other Liabilities to Current Liabilities in the
restated balance sheet, since the obligation is payable on
demand.    The reclassification had no effect on net equity,
or net income.
 
 Statement of
Operations.
  Revenue
is sub classified as Natural Gas Production.   This had no effect
on net income or net equity.
 -15-
 
 Statement of Cash
Flows.
  Bank
Overdraft in a previous quarterly filing was included in the aggregate of ending
cash.  Bank Overdraft is a borrowing from the bank and is restated as
a financing activity in the Statement of Cash Flows.  The restatement
had no effect on net equity or net income.
 
 NOTE 8 –
SUBSEQUENT EVENTS
 
 On
October 3, 2008 the Corporation filed with the Secretary of State of Nevada an
amendment to the Articles of Incorporation increasing the authorized common
stock to 490,000,000 shares.





-16-





Item
2.                    
Management's Discussionand Analysisor Plan of Operation





The following discussion includes
certain forward-looking statements within the meaning of the safe harbor
protections of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Statements that
include words such as “believe,” “expect,” “should,” “intend,” “may,”
“anticipate,” “likely,” “contingent,” “could,” “may,” or other future-oriented
statements, are forward-looking statements. Such forward-looking statements
include, but are not limited to, statements regarding our business plans,
strategies and objectives, and, in particular, statements referring to our
expectations regarding our ability to continue as a going concern, generate
increased market awareness of, and demand for, our current products, realize
profitability and positive cash flow, and timely obtain required financing.
These forward-looking statements involve risks and uncertainties that could
cause actual results to differ from anticipated results. The forward-looking
statements are based on our current expectations and what we believe are
reasonable assumptions given our knowledge of the markets; however, our actual
performance, results and achievements could differ materially from those
expressed in, or implied by, these forward-looking statements. Factors within
and beyond our control that could cause or contribute to such differences
include, among others, the following: those associated with drilling and
subsequent sale of oil and gas, our critical capital raising efforts in an
uncertain and volatile economical environment, our ability to maintain
relationship with strategic companies, our cash preservation and cost
containment efforts, our ability to retain key management personnel, our
relative inexperience with advertising, our competition and the potential impact
of technological advancements thereon, the impact of changing economic,
political, and geo-political environments on our business, as well as those
factors discussed elsewhere in this Form 10-QSB and in “Item 1 - Our Business,”
“Item 6 - Management’s Discussion and Analysis,” and elsewhere in our most
recent Form 10-KSB, filed with the United States Securities and Exchange
Commission.





Readers are urged to carefully review
and consider the various disclosures made by us in this report and those
detailed from time to time in our reports and filings with the United States
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that are likely to affect our
business.





Our Business





Victory Energy Corporation (OTC symbol
VYEY), formerly known as Victory Capital Holdings Corporation (our
“Corporation”) was organized under the laws of the State of Nevada on January 7,
1982, under the name All Things, Inc. On March 21, 1985, our Corporation’s name
was changed to New Environmental Technologies Corporation; on April 28, 2003,
our name was changed to Victory Capital Holdings Corporation and on May 3, 2006,
it was changed to Victory Energy Corporation. Our Corporation was formed for the
purpose of engaging in all lawful businesses. Our Corporation’s initial
authorized capital consisted of 100,000,000 shares of $0.001 par value common
voting stock and as of the date of this filing our authorized capital is
200,000,000 shares of $.001 par value common stock.





Our Corporation has had no material
business operations since 1989. In 2004, we began the search for the acquisition
of assets, property or businesses that may benefit our Corporation and our
shareholders. Our goal has been to bring value to the Corporation and to our
shareholders through such acquisitions. Each merger and acquisition we approach
is done with the intention to position us in markets and sectors where excellent
growth is anticipated. We plan to retain a percentage of stock ownership in each
subsidiary while spinning them out as their own new public Corporation if such
transaction is economically feasible. The balance of the stock will be
distributed to the Corporation’s shareholders at the time of spin out of the new
public Corporation. This is a non-dilutive method to increase shareholder value
as we grow and maintain a position in the market segments
selected.





Current Business of the
Corporation





Management determined that the
Corporation should focus on projects in the oil and gas industry. This is based
upon a belief that this industry is an economically viable sector in which to
conduct business operations. The Corporation has targeted specific prospects and
intends to engage in the drilling for oil and gas. Jon Fullenkamp, the
Corporation’s President, has extensive experience in the oil and gas industry
and has already recruited additional experience with new directors and advisory
board members.


-17-




The Corporation has established a
relationship with a private institutional investment group who are providing
drilling funds to the Corporation for the further development of oil and gas
properties. This group provides for direct participation by the investors in the
production of completed wells.  The Corporation receives a 15% carried
interest in the gas wells and shares in the same value of the production revenue
on a monthly basis.  Once initial invested cost to acquire or
drill  each well is returned  to the private institutional
investment group, the Corporations participation will increase to
25%.  The Corporation will receive the same level of participation in
the revenues on a monthly basis at that time.




During the fourth quarter of 2007, the
Corporation negotiated the terms to acquire ownership in six term assignments
containing six producing gas wells.  The term assignments and gas
wells are located in Crockett County Texas located in the Permian
Basin.





In the first quarter of 2008 the
Corporation acquired, with private institutional investors, through a financial
facility, 50% of 50% of 74% net revenue interest in six term assignments
containing six existing and producing gas wells in Crockett County, Texas. 
In the transaction of the purchase of 50% of the original six producing gas
wells, a 100% of the net royalty interest ownership is 74%.  As
Victory Energy Corporation purchased 50% of the net royalty interest; this
represents 50% of the 74% available. The purchase resulted in acquiring 37% of
the 74%, which is equal to 50% of the net royalty interest
ownership.  The Corporation retains 15% of 50% of the net royalty
interest and the investment group retains the remainder. The investment group
invested $1,430,000 for the purchase of these original six producing
wells.  Victory Energy Corporation did not invest
cash.





In
December 2007 the Corporation contracted to purchase, with institutional
investors, through a financial facility, a working interest in six existing and
producing gas wells in Crockett County, Texas.  The conclusion of the
transaction and recording of the wells took place in the first quarter of
2008.  This was followed in the second quarter of 2008 with an
additional $2,078,000 investment from the same institutional investors and
$2,600,000 in the third quarter.  Funds were used for drilling a total
of ten wells, which the Corporation owns outright. Drilling was completed by the
end of the third quarter, when eight wells were producing, and two
pending.


Funds for the transaction were provided
by a private institutional investment group in exchange for a portion of
Victory’s interest ownership in each term assignment.  Currently
Victory maintains 15% of the interest ownership until such time the revenues
have paid back the original acquisition investment, then Victory’s interest
ownership will increase to 25%.





The Corporation has targeted the
prolific Canyon Sandstone gas field in the Texas Permian Basin, with the intent
to focus on the drilling and completion of natural gas wells in this existing
field.  The opportunity is of reduced risk due to the extensive
historical information available from this specific natural gas
field.




The Canyon Sandstone gas play is located
in the Texas Permian Basin as part of the large prolific Adams-Baggett Canyon
Sandstone gas field. The Canyon Sandstone formation is found at a depth of 4,300
feet to 4,900 feet. Initial flow test for these wells
is approximately 250,000 cubic feet of gas per day per well. The average life
span of a Canyon Sandstone gas well is approximately 30 years, the decline
production curve starting during the second year.





Natural gas from the Canyon Sandstone
gas zone receives a 20% premium in price above the standard price due to its
higher BTU content per cubic foot of natural gas.





Within this existing gas field are two
deeper zones, Strawn Limestone and the Ellenburger Dolomite. The Strawn zone is
usually found at 9,000 to 9,800 feet, while the depth of the Ellenburger zone is
between 10,500 and 11,500 feet.





To reduce risk in the field, each well
drilled has the opportunity to have the Canyon Sandstone gas zone available to
produce from.  For each of the deeper gas wells drilled in this field,
the Corporation will always have the Canyon Sandstone zone available as a fall
back opportunity to produce from and recover any additional drilling expenses
incurred from drilling a deeper well.


-18-





The underlying opportunity in drilling a
deeper gas well is to first produce the deepest zone, Ellenburger Dolomite,
until it is depleted.  The next step is then to produce the shallower
Strawn Limestone until depletion and finally to produce the Canyon Sandstone
zone to depletion.




The Corporation received its first
revenue from production sales from this field in March of
2008.





We also hold an interest as a joint
venture partner in the Mesa Gas Prospect located in Roosevelt County New
Mexico.  The Corporation had held 1,960 acres in a prospective
oilfield identified as N.E. Glasgow Prospect located in Montana where plans were
to incorporate this prospect into the Corporation’s developments in Valley
County Montana.  The acreage was allowed to lapse back to the State of
Montana.  The Corporation now is currently working with the State of
Montana to reacquire the acreage.  We had taken on the evaluation of a
prospect in Oklahoma identified as the Skedee Prospect. As we progressed into
the due diligence of these prospects and the potential production, management
determined that the development of the prospect was not worth the required
investment capital. Even with the potential reduction in investment dollars, the
prospects had an unacceptable pay back time for the initial investment.
Management felt the shareholders would be better served by seeking other
prospects.




Other than our President, we have no
other employees at this time and we will seek to retain independent contractors
to assist in operating and managing the prospects as well as to carry out the
principal and necessary functions incidental to the oil and gas business. With
the intended acquisition of oil and natural gas, we intend to establish
ourselves as an industry partner within the industry. With our established
revenue base with cash flow, we will seek opportunities more aggressive in
nature.




Results of Operations for Period Ended
September 30, 2008





As of September 30, 2008, the
Corporation has earned revenues of $758,636 and has incurred a net operating
loss to date of $2,355,173. Other income of $7,678,000 from the sale of net
revenue rights resulted in an overall net income of $5,322,827. Operations have
been primarily seeking potential opportunities in the oil and gas industry
through the location of commercially economical prospects, and raising capital
and developing revenue generating opportunities and strategic
relationships.





During the three month period ended
September 30, 2008, we incurred operating expenses in the amount of $3,202,809.
These operating expenses included due diligence expenses, consulting fees,
professional fees, land leases, oil and gas leases, and office and general
expenses.





Liquidity and Capital
Resources




To date, we have financed our operations
from funds invested by a drilling consortium, sale of common stock and from
funds put into the Corporation by our CEO. We intend to raise future capital
from the sale of a percentage of our prospects to fund development and
production or through the sale of our common stock to finance the prospects in
their entirety.


-19-




Recent Accounting
Pronouncements




In February 2007, the Financial
Accounting Standards Board (FASB) issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities – Including an Amendment of FASB
Statement No. 115”.  This statement permits entities to choose to
measure many financial instruments and certain other items at fair value. Most
of the provisions of SFAS No. 159 apply only to entities that elect the fair
value option. However, the amendment to SFAS No. 115 “Accounting for Certain
Investments in Debt and Equity Securities” applies to all entities with
available-for-sale and trading securities. SFAS No. 159 is effective as of the
beginning of an entity’s first fiscal year that begins after November 15, 2007.
Early adoption is permitted as of the beginning of a fiscal year that begins on
or before November 15, 2007, provided the entity also elects to apply the
provision of SFAS No. 157, “Fair Value Measurements”. In February 2007, the
Financial Accounting Standards Board (FASB) issued SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities – Including an Amendment
of FASB Statement No. 115”.  This statement permits entities to choose
to measure many financial instruments and certain other items at fair value.
Most of the provisions of SFAS No. 159 apply only to entities that elect the
fair value option. However, the amendment to SFAS No. 115 “Accounting for
Certain Investments in Debt and Equity Securities” applies to all entities with
available-for-sale and trading securities. SFAS No. 159 is effective as of the
beginning of an entity’s first fiscal year that begins after November 15, 2007.
Early adoption is permitted as of the beginning of a fiscal year that begins on
or before November 15, 2007, provided the entity also elects to apply the
provision of SFAS No. 157, “Fair Value Measurements”. The adoption of this
statement is not expected to have a material effect on our financial
statements.




In September 2006, the SEC issued Staff
Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements.” SAB No. 108 addresses how the effects of prior year uncorrected
misstatements should be considered when quantifying misstatements in current
year financial statements. SAB No. 108 requires companies to quantify
misstatements using a balance sheet and income statement approach and to
evaluate whether either approach results in quantifying an error that is
material in light of relevant quantitative and qualitative factors. SAB No. 108
is effective for period ending after November 15, 2006. We are currently
evaluating the impact of adopting SAB No. 108 but does not expect that it will
have a material effect on its financial statements




In September 2006, the FASB issued SFAS
No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and
132®”. This statement requires employers to recognize the overfunded or
underfunded status of a defined benefit postretirement plan (other than a
multiemployer plan) as an asset or liability in its statement of financial
position and to recognize changes in that funded status in the year in which the
changes occur through comprehensive income of a business entity or changes in
unrestricted net assets of a not-for-profit organization.  This
statement also requires an employer to measure the funded status of a plan as of
the date of its year-end statement of financial position, with limited
exceptions. The provisions of SFAS No. 158 are effective for employers with
publicly traded equity securities as of the end of the fiscal year ending after
December 15, 2006. The adoption of this statement did not have a material effect
on our reported financial position or results of operations.





In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements”. The objective of SFAS No. 157 is to increase
consistency and comparability in fair value measurements and to expand
disclosures about fair value measurements.  SFAS No. 157 defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
SFAS No. 157 applies under other accounting pronouncements that require or
permit fair value measurements and does not require any new fair value
measurements. The provisions of SFAS No. 157 are effective for fair value
measurements made in fiscal years beginning after November 15, 2007. The
adoption of this statement is not expected to have a material effect on our
future reported financial position or results of operations.




In June 2006, the FASB issued FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statements No. 109”. FIN 48 clarifies the accounting for
uncertainty in income taxes by prescribing a two-step method of first evaluating
whether a tax position has met a more likely than not recognition threshold and
second, measuring that tax position to determine the amount of benefit to be
recognized in the financial statements. FIN 48 provides guidance on the
presentation of such positions within a classified statement of financial
position as well as on derecognition, interest and penalties, accounting in
interim periods, disclosure, and transition. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The adoption of this statement is not
expected to have a material effect on our future reported financial position or
results of operations.


-20-




In September 2006, the SEC issued Staff
Accounting Bulletin (“SAB”) No. 108, “Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements.” SAB No. 108 addresses how the effects of prior year uncorrected
misstatements should be considered when quantifying misstatements in current
year financial statements. SAB No. 108 requires companies to quantify
misstatements using a balance sheet and income statement approach and to
evaluate whether either approach results in quantifying an error that is
material in light of relevant quantitative and qualitative factors. SAB No. 108
is effective for period ending after November 15, 2006. We are currently
evaluating the impact of adopting SAB No. 108 but do not expect that it will
have a material effect on our financial statements.




In September 2006, the FASB issued SFAS
No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and
132®”. This statement requires employers to recognize the overfunded or
underfunded status of a defined benefit postretirement plan (other than a
multiemployer plan) as an asset or liability in its statement of financial
position and to recognize changes in that funded status in the year in which the
changes occur through comprehensive income of a business entity or changes in
unrestricted net assets of a not-for-profit organization.  This
statement also requires an employer to measure the funded status of a plan as of
the date of its year-end statement of financial position, with limited
exceptions. The provisions of SFAS No. 158 are effective for employers with
publicly traded equity securities as of the end of the fiscal year ending after
December 15, 2006. The adoption of this statement did not have a material effect
on our reported financial position or results of operations.





In September 2006, the FASB issued SFAS
No. 157, “Fair Value Measurements”. The objective of SFAS No. 157 is to increase
consistency and comparability in fair value measurements and to expand
disclosures about fair value measurements.  SFAS No. 157 defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
SFAS No. 157 applies under other accounting pronouncements that require or
permit fair value measurements and does not require any new fair value
measurements. The provisions of SFAS No. 157 are effective for fair value
measurements made in fiscal years beginning after November 15, 2007. The
adoption of this statement is not expected to have a material effect on our
future reported.





Item 3. Quantitative and Qualitative
Disclosures About Market Risk





None





Item 4T.  Controlsand Procedures




Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
for the Corporation. Under the supervision and with the participation of our
management, including the Principal Executive Officer and Principal Financial
Officer, we have evaluated the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and
15d-15 as of the end of the period covered by this report. Based on that
evaluation, the Principal Executive Officer and Principal Financial Officer have
concluded that these disclosure controls and procedures require updating to
specifically comply with item 601(b) (31) of Regulation S-B and SOX 404 to be
effective such that the material information required to be filed in our SEC
reports is recorded, processed, summarized and reported within the required time
periods specified in the SEC rules and forms. There were no changes in our
internal control over financial reporting during the quarter
ended September 30, 2008 that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.
Within the next 15 days the Corporation will engage a consultant to assist the
Corporation in establishing internal controls. By November 30th the
Corporation will establish an Audit Committee, a Compensation Committee, a
Corporate Governance and Nominating Committee, and a Public Policy
Committee.   Potential investors should be aware that the design
of any system of controls and procedures is based in part upon certain
assumptions about the likelihood of future events.  There can be no
assurance that any system of controls and procedures will succeed in achieving
its stated goals under all potential future conditions, regardless of how
remote.






-21-




PART II- OTHER
INFORMATION







Item 1.Legal Proceedings





The Corporation is not subject to any
reportable legal proceedings.




Item 2.  Unregistered Sales of
Equity Securitiesand Use
of Proceeds




During the three months ended September
30, 2008, no new shares of common stock were issued.




Item 3.  DefaultsUpon Senior
Securities




During the three months ended September
30, 2008, we were not in default on any of our
indebtedness.




Item 4.  Submission of
Mattersto a Vote of
Security Holders




There were no matters submitted to a
vote of our shareholders.




Item 5.Other
Information.




None




Item
6.  Exhibits




Exhibit No.
            Description of
      Exhibit31
            Certification
      of Chief Executive/Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232
            Certification
      of Chief Executive/Financial Officer pursuant to Section
      906




-22-


SIGNATURE







In accordance with the requirements of
the Exchange Act, the registrant caused this report to be signed on its behalf
by the undersigned, hereunto duly authorized.




Victory Energy
      CorporationDate:November 12, 2008
            By:
            /s/ Jon
      FullenkampJon
    FullenkampPrincipal Executive
      Officer
              Principal Financial
      Officer
              Principal Accounting
      Officer
              and
Director




Date:Novemebr 12, 2008
            By:
            /s/  Perry
      MansellPerry
      MansellDirector




-23-