Organization and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Organization And Summary Of Significant Accounting Policies

Organization and Summary of Significant Accounting Policies

Victory Energy Corporation (Victory) is an independent, growth oriented oil and natural gas company engaged in the acquisition, exploration and production of oil and natural gas properties, through its partnership with Aurora Energy Partners. The Company is engaged in the exploration, acquisition, development, and production of domestic oil and natural gas properties. Current operations are primarily located onshore in Texas and New Mexico. The Company was organized under the laws of the State of Nevada on January 7, 1982. The Company is authorized to issue 47,500,000 shares of $0.001 par value common stock, and has 27,563,619 shares of common stock outstanding as of December 31, 2012. On January 12, 2012 the Company implemented a 50:1 reverse stock split. All information is this form 10K reflects the recent stock split. Our corporate headquarters are located at 3355 Bee Caves Rd. Ste. 608, Austin, TX 78746.

A summary of significant accounting policies followed in the preparation of the accompanying consolidated financial statements is set forth below.

Basis of Presentation and Consolidation, Including Restatement:

Victory is the managing partner of Aurora Energy Partners, a Texas General Partnership (“Aurora”), and holds a 50% partnership interest in Aurora. Aurora is consolidated with Victory for financial statement purposes, as the terms of the partnership agreement gives Victory effective control of the partnership. The consolidated financial statements include the accounts of Victory and the accounts of Aurora. The Company’s management, in considering accounting policies pertaining to consolidation, has reviewed the relevant accounting literature. The Company follows that literature, in assessing whether the rights of the non-controlling interests should overcome the presumption of consolidation when a majority voting, or controlling interest in its investee “is a matter of judgment that depends on facts and circumstances.” In applying the circumstances and contractual provisions of the partnership agreement, management determined that the non-controlling rights do not, individually or in the aggregate, provide for the non-controlling interest to “effectively participate in significant decisions that would be expected to be made in the ordinary course of business.” The rights of the non-controlling interest are protective in nature. All intercompany balances have been eliminated in consolidation. The 2011 and 2010 consolidated financial statements have been restated to present the non-controlling interest (NCI) in Aurora owned by others in the consolidated financial statements.

Non-controlling Interests:

The Navitus Energy Group is a partner with Victory in Aurora. The two partners each own a 50% interest in Aurora. Victory is the Managing Partner and has contractual authority to manage the business affairs of Aurora. The Navitus Energy Group currently has four partners. They are James Capital Consulting, LLC ("JCC"), James Capital Energy, LLC ("JCE"), Rodinia Partners, LLC and Navitus Partners, LLC. Although this partnership has been in place since January 2008, its members and other elements have changed since that time.

The non-controlling interest in Aurora is held by Navitus Energy Group, a Texas general partnership. As of December 31, 2012, $2,409,497 was recorded as the equity of the non-controlling interest in our consolidated balance sheet representing the third-party investment in Aurora, with losses attributable to non-controlling interests of $359,864 for the year ended December 31, 2012. As of December 31, 2011, $1,740,933 was recorded as the equity of the non-controlling interest in our consolidated balance sheet representing the third-party investment in Aurora, with losses attributable to the non-controlling interests of $399,511 for the year ended December 31, 2011.

Restatements and Reclassifications:

Certain prior year and quarterly amounts have been restated; to correctly present the non-controlling interest representing the third-party investment in Aurora in our consolidated financial statements; certain prior year amounts have been reclassified to conform to current year to correct an oil and gas impairment loss error; to correct the reporting of a separation agreement with a former CEO (John Fullenkamp) in March 2011; and to correct the income tax provisions for the years ended December 31, 2011 and 2010 in accordance with ASC 740, Accounting for Income Taxes.

Certain prior year amounts have been reclassified to conform to the current year presentation, which did not materially impact the restated financial statements.

Background and Restatement Adjustments

In August of 2012, the staff of the United States Securities and Exchange Commission (SEC) made inquiry to the Company regarding consolidated financial statements disclosure concerning the presentation of non-controlling interest (related to Aurora Energy Partners) on its consolidated financial statements.

Although this consolidated presentation was disclosed in the footnotes to the consolidated financial statements, as was the 50% non-controlling interest of Navitus in Aurora, the amount of non-controlling interest of Navitus in Aurora was not presented on the face of the consolidated financial statements.

After discussions with the SEC the Company determined that the amount of non-controlling interest of Navitus should also be separately stated on the face of the Company’s consolidated financial statements, in addition to being discussed in footnote disclosure. Total consolidated assets, liabilities, and stockholders equity did not change; however the non-controlling interest in Aurora is separately identified in the stockholders equity section of the consolidated financial statements. The Company net loss per share improved by the effect of the non-controlling interest in the loss of Aurora.

Resulting Restatement Adjustments:

As a result of the issues identified in the Audit Committee Review and the confirmation letter from the SEC, the consolidated financial statements were restated to present the shares of equity and shares of income and loss attributable to the Non-Controlling Interests (“NCI”) in the Company’s Consolidated Financial Statements. Beginning with cumulative equity affected as of December 31, 2010, the audited consolidated financial statements for the year ended December 31, 2011 have been restated, as have the six unaudited quarterly consolidated interim reports for the calendar years 2011 and 2012. The Company’s audited consolidated financial statements for the year ended 2012 and 2011 (restated), reported in this filing, present the NCI.

VICTORY ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

				12/31/2011										12/31/2010
ASSETS	As Originally Reported			Restatement Adjustments				As Restated			As Originally Reported			Restatement Adjustments				As Restated
Current Assets
Cash and cash equivalents	$	475,623		$	-				475,623		$	111,572		$	-			$	111,572
Accounts receivable - less allowance for doubtful accounts of $200,000, and $0 for 2012 and 2011, respectively		79,185			-				79,185			74,828			-				74,828
Prepaid Expenses		29,555			-				29,555			24,898			-				24,898
Total current assets		584,363			-				584,363			211,298			-				211,298
Fixed Assets
Furniture and equipment		10,623			-				10,623			2,294			-				2,294
Accumulated depreciation		(3,550	)		-				(3,550	)		(2,294	)		-				(2,294	)
Total furniture and fixtures, net		7,073			-				7,073			-			-				-
Option to acquire leases and mineral rights		-			-				-			25,000			-				25,000
Producing oil and natural gas properties, net of impairment		2,019,792			114,778		d		2,134,570			1,466,813			114,778		d		1,581,591
Accumulation depletion		(1,093,063	)		(6,148	)	e		(1,099,211	)		(953,084	)		-				(953,084	)
Total oil and gas properties, net		926,729			108,630				1,035,359			538,729			114,778				653,507
Other Assets - Funds held at court	$	-		$	-				-		$	13,006		$	-			$	13,006
Total Assets	$	1,518,165		$	108,630			$	1,626,795		$	763,033		$	114,778			$	877,811
LIABILITIES AND STOCKHOLDERS ' EQUITY
Current Liabilities
Accounts payable	$	326,973		$	-				326,973		$	342,285		$	-			$	342,285
Accrued interest		150,267			-				150,267			10,501			-				10,501
Accrued liabilities		179,979			-				179,979			74,088			-				74,088
Accrued liabilities - related parties		-			-				-			50,000			-				50,000
Line of credit - bank		-			-				-			68,667			-				68,667
Amounts due former officer		-			-				-			-			404,624		f		404,624
Liability for unauthorized preferred stock issued		32,164			-				32,164			85,654			-				85,654
Total current liabilities		689,383			-				689,383			631,195			404,624				1,035,819
Other Liabilities
Senior secured convertible debenture, net of debt discount		632,534			-				632,534			127,338			-				127,338
Deferred tax liability		748,763			(748,763	)	g		-			238,000			(238,000	)	g		-
Asset retirement obligations		30,004			-				30,004			27,282			-				27,282
Total long term liabilities		1,411,301			(748,763	)			662,538			392,620			(238,000	)			154,620
Total liabilities		2,100,684			(748,763	)			1,351,921			1,023,815			166,624				1,190,439
Stockholders' Equity
Common stock, $0.001 par value, 47,500,000 shares authorized, 7,647,494 shares and 2,740,734 shares issued and outstanding for 2011 and 2010,
respectively		382,308			-				382,308			136,720			-				136,720
Additional paid-in capital		35,126,462			(8,499,240	)	a		26,627,222			31,740,090			(9,611,210	)	a		22,128,880
Accumulated deficit		(36,091,289	)		7,615,700		b		(28,475,589	)		(32,137,592	)		7,368,005		b		(24,769,587	)
Total Victory Energy Corporation stockholders' equity		(582,519	)		(883,540	)			(1,466,059	)		(260,782	)		(2,243,205	)			(2,503,987	)
Non-controlling interest		-			1,740,933				1,740,933			-			2,191,359				2,191,359
Total stockholder's equity (deficit)		(582,519	)		857,393				274,874			(260,782	)		(51,846	)			(312,628	)
Total Liabilities and Stockholder's Equity	$	1,518,165		$	108,630			$	1,626,795		$	763,033		$	114,778			$	877,811

a:	Partnership contributions and distributions from January 1, 2008 through December 31, 2010 and tax provisions.
b:	Cumulative change in equity due to non-controlling interest from January 1, 2008 through December 31, 2010 and PCAOB adjustments.

c:	Non-controlling interest associated with net losses through March 31, 2011 and PCAOB adjustments.
d:	Adjustment to correct a material misstatement of impairment.

e:	Adjustment to correct a material misstatement of depreciation.
f:	Adjustment for liability due to former officer which was not settled as of December 31, 2010.

g:   Adjustment for tax provision.

VICTORY ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	12/31/2011
	As Originally Reported			Restatement Adjustments				As Restated
Revenues
Oil and gas sales	$	305,180		$	-			$	305,180
Total revenues		305,180			-				305,180
Operating Expenses:
Lease operating costs		121,580			-				121,580
Production taxes		39,156			-				39,156
Exploration		559,523			-				559,523
General and administrative		2,094,768			-				2,094,768
Impairment of assets		102,579			-				102,579
Depreciation, depletion and accretion		76,525			6,148		a		82,673
Total operating expenses		2,994,131			6,148				3,000,279
Income (Loss) from operations		(2,688,951	)		(6,148	)			(2,695,099	)
Other Income (Expense):
Gain on settlement with former officer		-			404,624		b		404,624
Interest expense		(1,815,038	)		-				(1,815,038	)
Total other income and expense		(1,815,038	)		404,624				(1,410,414	)
NET INCOME ( LOSS) BEFORE TAX BENEFIT		(4,503,989	)		398,476				(4,105,513	)
TAX BENEFIT		550,292			(550,292	)	c		-
NET INCOME (LOSS)		(3,953,697	)		(151,816	)			(4,105,513	)
Less: net loss attributable to non-controlling interest		-			399,511				399,511
Net loss attributable to Victory Energy Corporation	$	(3,953,697	)	$	247,695			$	(3,706,002	)
Weighted average shares, basic and diluted		5,281,307							5,281,307
Net loss per share, basic and diluted	$	(0.75	)					$	(0.70	)
a: Adjustment to correct a material misstatement of depreciation.
b: Adjustment for liability due to former officer which was settled as of March 24, 2011.
c: Adjustment for tax provision.

Use of Estimates:

The preparation of our consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used primarily when accounting for depreciation, depletion, and amortization (“DD&A”) expense, property costs, estimated future net cash flows from proved reserves, cost to abandon oil and natural gas properties, taxes, accruals of capitalized costs, operating costs and production revenue, capitalized general and administrative costs and interest, insurance recoveries, effectiveness and estimated fair value of derivative positions, the purchase price allocation on properties acquired, various common stock, warrants and option transactions, and contingencies.

Oil and Natural Gas Properties:

We follow the successful efforts method of accounting for oil and natural gas properties. Under this method, all costs associated with property acquisitions, successful exploratory wells, all development wells, including dry hole development wells, and asset retirement obligation assets are capitalized. Additionally, interest is capitalized while wells are being drilled and the underlying property is in development. Costs of exploratory wells are capitalized pending determination of whether each well has resulted in the discovery of proved reserves. Oil and natural gas mineral leasehold costs are capitalized as incurred. Items charged to expense generally include geological and geophysical costs, costs of unsuccessful exploratory wells, and oil and natural gas production costs. Capitalized costs of proved properties including associated salvage are depleted on a well-by-well or field-by-field (common reservoir) basis using the units-of-production method based upon proved producing oil and natural gas reserves. The depletion rate is the current period production as a percentage of the total proved producing reserves. The depletion rate is applied to the net book value of property costs to calculate the depletion expense. Proved reserves materially impact depletion expense. If the proved reserves decline, then the depletion rate (the rate at which we record depletion expense) increases, reducing net income. Dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs with gain or loss recognized upon sale. A gain (loss) is recognized to the extent the sales price exceeds or is less than original cost or the carrying value, net of impairment. Oil and natural gas properties are also reviewed for impairment at the end of each reporting period. Unproved property costs are excluded from depleatable costs until the related properties are developed. See impairment discussed in “Long-lived assets and intangible assets” below.

We depreciate other property and equipment using the straight-line method based on estimated useful lives ranging from five to 10 years.

The Company recorded impairment expense of $344,353 and $102,579 for 2012 and 2011 respectively, upon determining that the oil and natural gas properties were impaired.

Long-lived Assets and Intangible Assets

The Company accounts for intangible assets in accordance with ASC 360, “Property, Plant and Equipment”. Intangible assets that have defined lives are subject to amortization over the useful life of the assets. Intangible assets held having no contractual factors or other factors limiting the useful life of the asset are not subject to amortization but are reviewed at least annually for impairment or when indicators suggest that impairment may be needed. Intangible assets are subject to impairment review at least annually or when there is an indication that an asset has been impaired.

For unproved property costs, management reviews these investments for impairment on a property-by-property basis if a triggering event should occur that may suggest that impairment may be required.

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the carrying amount of the asset, including any intangible assets associated with that asset, exceeds its estimated future undiscounted net cash flows, the Company will recognize an impairment loss equal to the difference between its carrying amount and its estimated fair value. The fair value used to calculate the impairment for producing oil and natural gas field that produces from a common reservoir is first determined by comparing the undiscounted future net cash flows associated with total proved properties to the carrying value of the underlying evaluated property. If the cost of the underlying evaluated property is in excess of the undiscounted future net cash flows, the future net cash flows are discounted at 10%, which the Company believes approximates fair value, to determine the amount of impairment.

Asset Retirement Obligations:

U.S. GAAP requires us to record our estimate of the fair value of liabilities related to future asset retirement obligations in the period the obligation is incurred. Asset retirement obligations relate to the removal of facilities and tangible equipment at the end of an oil and natural gas property’s useful life. The application of this rule requires the use of management’s estimates with respect to future abandonment costs, inflation, market risk premiums, useful life and cost of capital. U.S. GAAP requires that our estimate of our asset retirement obligations does not give consideration to the value the related assets could have to other parties.

The following table is a reconciliation of the ARO liability for continuing operations for the twelve months ended December 31, 2012 and 2011.

	Years Ended
	December 31,
	2012		2011
Asset retirement obligation at beginning of period	$	30,004	$	27,282
Liabilities incurred		7,002		1,269
Revisions to previous estimates		0		0
Accretion expense		2,899		1,453
Asset retirement obligation at end of period	$	39,905	$	30,004

Other Property and Equipment:

Our office equipment in Austin, Texas is being depreciated on the straight-line method over their estimated useful life of 5 to 7 years.

Cash and Cash Equivalents:

The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents. The Company had no cash equivalents at December 31, 20l2 and December 31, 2011, respectively.

Accounts Receivable:

Our accounts receivable are primarily from purchasers of natural gas and oil and exploration and production companies which own an interest in properties we operate.

Allowance for Doubtful Accounts:

The Company recognizes an allowance for doubtful accounts to ensure trade receivables are not overstated due to un-collectability. Allowance for doubtful accounts are maintained for all customers based on a variety of factors, including the length of time receivables are past due, macroeconomic conditions, significant one-time events and historical experience. An additional allowance for individual accounts is recorded when they become aware of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted. As of December 31, 2012, the Company has deemed $200,000 from the sale of oil and gas properties associated with the Jones County prospect, to be uncollectible and thus, has recorded this amount as an allowance for doubtful accounts.

Asset Impairment:

At December 31, 2012 and 2011, the carrying value of the Company's financial instruments such as prepaid expenses and payables approximated their fair values based on the short-term maturities of these instruments. The carrying value of other long-term liabilities approximated their fair values because the underlying interest rates approximate market rates at the balance sheet dates. Management believes that due to the Company's current credit worthiness, the fair value of long-term debt could be less than the book value; however, due to current market conditions and available information, the fair value of such debt is not readily determinable. Financial Accounting Standard Board ("FASB") ASC Topic 820 established a hierarchical disclosure framework associated with the level of pricing observability utilized in measuring fair value. This framework defined three levels of inputs to the fair value measurement process and requires that each fair value measurement be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety. The three broad levels of inputs defined by

FASB ASC Topic 820 hierarchy are as follows:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;

Leve1 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Leve1 2 input must be observable for substantially the full term of the asset or liability; and

Leve1 3 - unobservable inputs for the asset or liability. These unobservable inputs reflect the entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances (which might include the reporting entity's own data).

The initial measurement of asset retirement obligations at fair value is calculated using discounted cash flows techniques and based on internal estimates of future retirement costs associated with proved oil and gas properties. Inputs used in the calculation of asset retirement obligations include plugging costs and reserve lives. A reconciliation of Victory’s asset retirement obligations is presented in Note 1.

During 2012, proved oil and gas properties with a carrying value of $395,463 were written down, based upon engineering estimates, to their fair value of $51,110, resulting in impairment charges of $344,353. During 2011, proved oil and gas properties with a carrying value of $557,034 were written down, based upon Level 3 inputs, to their fair value of $454,455, resulting in impairment charges of $102,579. Significant Level 3 assumptions associated with the calculation of discounted cash flows used in the impairment analysis include Victory’s estimate of future crude oil and natural gas prices, production costs, development expenditures, anticipated production of proved reserves, appropriate risk-adjusted discount rates and other relevant data; primarily derived from a third party independent reserve report.

Revenue Recognition:

The Company uses the sales method of accounting for oil and natural gas revenues. Under this method, revenues are recognized based on actual volumes of gas and oil sold to purchasers. The volumes sold may differ from the volumes to which the Company is entitled based on our interests in the properties. Differences between volumes sold and entitled volumes create oil and natural gas imbalances which are generally reflected as adjustments to reported proved oil and natural gas reserves and future cash flows in their supplemental oil and natural gas disclosures. If their excess takes of natural gas or oil exceed their estimated remaining proved reserves for a property, a natural gas or oil imbalance liability is recorded in the Consolidated Balance Sheets.

Concentrations:

There is a ready market for the sale of crude oil and natural gas. During 2012 and 2011, our gas field and our producing wells sold their respective gas and oil production to one purchaser for each field or well. However, because alternate purchasers of oil and natural gas are readily available at similar prices, we believe that the loss of any of our purchasers would not have a material adverse effect on our financial results.

Earnings per Share:

Basic earnings per share are computed using the weighted average number of common shares outstanding at December 31, 2012, the weighted average number of common shares outstanding was 23,292,609. Diluted earnings per share reflect the potential dilutive effects of common stock equivalents such as options, warrants and convertible securities. Given the historical and projected future losses of the Company, all potentially dilutive common stock equivalents are considered anti-dilutive. As of December 31, 2012, the Company had 27,563,619 shares of common stock shares outstanding and 2,982,218 of common stock equivalents, comprised of 137,932 unconverted Preferred B shares, 2,624,286 warrants outstanding, and 220,000 stock options outstanding, which were anti-dilutive and not included in the earnings per share calculation. As of December 31, 2011, the weighted average number of common shares outstanding was 5,281,307. As of December 31, 2011, the Company had 7,647,494 shares of common stock outstanding, and 783,145 of common stock equivalents comprised of 603,145 warrants outstanding and 180,000 stock options outstanding, which were anti-dilutive and not included in the earnings per share calculation.

Income Taxes:

The Company accounts for income taxes in accordance with ASC 740 “Income Taxes” which requires an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. Deferred tax assets include tax loss and credit carry forwards and are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Stock Based Compensation:

The Company applies ASC 718, “Compensation-Stock Compensation” to account for its issuance of options and warrants to key partners, directors and officers. The standard requires all share-based payments, including employee stock options, warrants and restricted stock, be measured at the fair value of the award and expensed over the requisite service period (generally the vesting period). The fair value of options and warrants granted to key partners, directors and officers is estimated at the date of grant using the Black-Scholes option pricing model by using the historical volatility of the Company’s stock price. The calculation also takes into account the common stock fair market value at the grant date, the exercise price, the expected life of the common stock option or warrant, the dividend yield and the risk-free interest rate.

The Company from time to time may issue stock options, warrants and restricted stock to acquire goods or services from third parties. Restricted stock, options or warrants issued to third parties are recorded on the basis of their fair value, which is measured as of the date issued. The options or warrants are valued using the Black-Scholes option pricing model on the basis of the market price of the underlying equity instrument on the “valuation date,” which for options and warrants related to contracts that have substantial disincentives to non-performance, is the date of the contract, and for all other contracts is the vesting date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period.

The Company recognized stock-based directors fee and service incentive fee compensation expense from warrants granted to directors for the years ended December 31, 2012 and 2011 of $40,500 and $312,000, respectively. 

The Company recognized stock-based officer compensation expense from stock options granted to officers of the company for the twelve months ended December 31, 2012 and 2011 of $147,093 and $152,700 respectively. 

Going Concern:

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As presented in the consolidated financial statements, the Company has incurred a net loss of $6.7 million and $3.7 million during the years ended December 31, 2012 and 2011, respectively. $4.0 million and $1.8 million, during the years ended December 31, 2012 and 2011, respectively, was for non-cash expenses including the amortization of the debt discount and warrants associated with the Company’s 10% Senior Secured Convertible Debentures, the unamortized portion of the debt discount recognized on the conversion of the 10% Senior Secured Convertible to common stock on February 29, 2012, depletion, depreciation, impairment, warrants given for services, and stock based compensation.

The cash proceeds from the sale of the Company’s 10% Senior Secured Convertible Debentures and new contributions to the Aurora partnership by The Navitus Energy Group (“Navitus”) have allowed the Company to continue operations and invest in new oil and natural gas properties. Management anticipates that operating losses will continue in the near term until new wells are drilled, successfully completed and incremental production increases revenue. As of December 31, 2012 on a year to date basis the Company has invested $1,012,899 in the acquisition of land or the drilling of wells.

The Company remains in active discussions with Navitus and others related to longer term financing required for our capital expenditures planned for 2013. Without additional outside investment from the sale of equity securities and/or debt financing, our capital expenditures and overhead expenses must be reduced to a level commensurate with available cash flows.

The accompanying consolidated financial statements are prepared as if the Company will continue as a going concern. The consolidated financial statements do not contain adjustments, including adjustments to recorded assets and liabilities, which might be necessary if the Company were unable to continue as a going concern.