UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



(Mark One)

þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the Quarterly Period Ended March
31, 2012



or



 ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the Transition Period from _________
to _________



Commission file number: 000-53972



MESA ENERGY HOLDINGS, INC.

(Exact name of registrant as specified
in its charter)



|Delaware                                                       |  | 98-0506246                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



5220 Spring Valley Road, Suite 525

Dallas, Texas 75254



(Address of principal executive offices)
(zip code)



(972) 490-9595

(Registrant’s telephone number, including
area code)



Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.    Yes þ  No
 ̈



Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes þ   No
 ̈



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 þ



Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ̈ No  
þ.



As of May 14, 2012, there were 82,974,616 shares of the
registrant’s common stock outstanding.













MESA ENERGY HOLDINGS,
INC.



INDEX TO FINANCIAL STATEMENTS



|                               |                                                                                               | Page
|------------------------------ | --------------------------------------------------------------------------------------------- | ----
|PART I.  FINANCIAL INFORMATION |                                                                                              
|                               |                                                                                               |     
|                               | Item 1.  Consolidated Interim Financial Statements (Unaudited)                                | 3   
|                               |                                                                                               |     
|                               | Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15  
|                               |                                                                                               |     
|                               | Item 3.  Quantitative and Qualitative Disclosures About Market Risk                           | 20  
|                               |                                                                                               |     
|                               | Item 4. Controls and Procedures                                                               | 21  
|                               |                                                                                               |     
|PART II.  OTHER INFORMATION    |                                                                                              
|                               |                                                                                               |     
|                               | Item 1.  Legal Proceedings                                                                    | 21  
|                               |                                                                                               |     
|                               | Item 1A.  Risk Factors                                                                        | 21  
|                               |                                                                                               |     
|                               | Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                          | 21  
|                               |                                                                                               |     
|                               | Item 3.  Defaults Upon Senior Securities                                                      | 22  
|                               |                                                                                               |     
|                               | Item 4.  Mine Safety Disclosures                                                              | 22  
|                               |                                                                                               |     
|                               | Item 5.  Other Information                                                                    | 22  
|                               |                                                                                               |     
|                               | Item 6.  Exhibits                                                                             | 22  
|                               |                                                                                               |     
|                               | Signatures                                                                                    | 23  





2







PART 1. FINANCIAL INFORMATION

Item 1. Consolidated Interim Financial Statements



MESA ENERGY HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)



|                                                                                                                                      |  | March 31, 2012 |            |   | December 31, 2011 |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ---------- | - | ----------------- | -
|ASSETS                                                                                                                                |  |                |            |   |                   |  
|Current assets:                                                                                                                       |  |                |            |   |                   |  
|Cash and cash equivalents                                                                                                             |  | $              | 3,824,842  |   |                   | $
|Accounts receivable – oil and gas                                                                                                     |  |                | 2,248,248  |   |                   |  
|Accounts receivable – other                                                                                                           |  |                | 70,486     |   |                   |  
|Derivative assets, commodity contracts – current                                                                                      |  |                | 18,821     |   |                   |  
|Deferred financing costs – current                                                                                                    |  |                | 51,507     |   |                   |  
|Deferred tax asset – current                                                                                                          |  |                | 42,413     |   |                   |  
|Prepaid expenses                                                                                                                      |  |                | 30,223     |   |                   |  
|TOTAL CURRENT ASSETS                                                                                                                  |  |                | 6,286,540  |   |                   |  
|                                                                                                                                      |  |                |            |   |                   |  
|Oil and gas properties, successful efforts accounting:                                                                                |  |                |            |   |                   |  
|Proved properties subject to amortization – net                                                                                       |  |                | 6,457,876  |   |                   |  
|Support facilities and equipment – net                                                                                                |  |                | 2,141,603  |   |                   |  
|Land                                                                                                                                  |  |                | 48,345     |   |                   |  
|Oil and gas properties – net                                                                                                          |  |                | 8,647,824  |   |                   |  
|                                                                                                                                      |  |                |            |   |                   |  
|Office furniture and equipment – net                                                                                                  |  |                | 45,598     |   |                   |  
|Deferred tax asset – noncurrent                                                                                                       |  |                | 3,227,302  |   |                   |  
|Deferred financing cost – noncurrent, net of accumulated amortization of $300,797 and $287,943, respectively                          |  |                | 15,577     |   |                   |  
|Derivative assets, commodity contracts – noncurrent                                                                                   |  |                | 76,848     |   |                   |  
|Deposit on asset retirement obligations                                                                                               |  |                | 640,000    |   |                   |  
|Other assets                                                                                                                          |  |                | —          |   |                   |  
|                                                                                                                                      |  |                |            |   |                   |  
|TOTAL ASSETS                                                                                                                          |  | $              | 18,939,689 |   |                   | $
|                                                                                                                                      |  |                |            |   |                   |  
|LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                  |  |                |            |   |                   |  
|Current liabilities:                                                                                                                  |  |                |            |   |                   |  
|Accounts payable – trade                                                                                                              |  | $              | 1,483,012  |   |                   | $
|Revenue payable                                                                                                                       |  |                | 756,909    |   |                   |  
|Accrued expenses                                                                                                                      |  |                | 341,387    |   |                   |  
|Accrued expenses – related parties                                                                                                    |  |                | 54,840     |   |                   |  
|Deferred tax liability – current                                                                                                      |  |                | —          |   |                   |  
|Notes payable – current                                                                                                               |  |                | 28,172     |   |                   |  
|TOTAL CURRENT LIABILITIES                                                                                                             |  |                | 2,664,320  |   |                   |  
|                                                                                                                                      |  |                |            |   |                   |  
|Non-current liabilities:                                                                                                              |  |                |            |   |                   |  
|Notes payable – noncurrent                                                                                                            |  |                | 5,307,652  |   |                   |  
|Convertible notes payable, net of discount                                                                                            |  |                | 349,915    |   |                   |  
|Derivative liability, convertible debt – noncurrent                                                                                   |  |                | 579,181    |   |                   |  
|Asset retirement obligations                                                                                                          |  |                | 3,360,056  |   |                   |  
|TOTAL LIABILITIES                                                                                                                     |  |                | 12,261,124 |   |                   |  
|                                                                                                                                      |  |                |            |   |                   |  
|Commitments and contingencies                                                                                                         |  |                | —          |   |                   |  
|                                                                                                                                      |  |                |            |   |                   |  
|Stockholders’ equity:                                                                                                                 |  |                |            |   |                   |  
|Preferred stock, par value $0.0001, 10,000,000 shares authorized, -0- shares issued and outstanding                                   |  |                | —          |   |                   |  
|Common stock, par value $0.0001, 300,000,000 shares authorized, 80,674,616 and 79,531,616 shares issued and outstanding, respectively |  |                | 8,067      |   |                   |  
|Additional paid-in capital (deficiency)                                                                                               |  |                | (135,583   | ) |                   |  
|Retained earnings                                                                                                                     |  |                | 6,806,081  |   |                   |  
|TOTAL  STOCKHOLDERS’ EQUITY                                                                                                           |  |                | 6,678,565  |   |                   |  
|                                                                                                                                      |  |                |            |   |                   |  
|TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                            |  | $              | 18,939,689 |   |                   | $



See accompanying notes to unaudited consolidated
financial statements.



3







MESA ENERGY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                               |  | For the Three Months Ended March 31, |           
|-------------------------------------------------------------- |  | ------------------------------------ | ----------
|                                                               |  | 2012                                 |           
|                                                               |  |                                      |           
|Revenue                                                        |  | $                                    | 4,394,812 
|                                                               |  |                                      |           
|Operating expense:                                             |  |                                      |           
|Lease operating expense                                        |  |                                      | 1,982,964 
|Environmental remediation expense                              |  |                                      | 216,214   
|Exploration cost                                               |  |                                      | 52,132    
|Depletion, depreciation, accretion and impairment expense      |  |                                      | 420,340   
|Loss on settlement of asset retirement obligation              |  |                                      | 116,394   
|General and administrative expense                             |  |                                      | 858,723   
|Total operating expense                                        |  |                                      | 3,646,767 
|                                                               |  |                                      |           
|Income (loss) from operations                                  |  |                                      | 748,045   
|                                                               |  |                                      |           
|Other income (expense):                                        |  |                                      |           
|Interest income                                                |  |                                      | 3,072     
|Interest expense                                               |  |                                      | (177,364  
|Realized gain on commodity contracts                           |  |                                      | 9,393     
|Unrealized loss on change in derivatives – commodity contracts |  |                                      | (843,281  
|Unrealized loss on change in derivatives  – convertible debt   |  |                                      | (765,013  
|Other income                                                   |  |                                      | 5,538     
|Total other expense                                            |  |                                      | (1,767,655
|                                                               |  |                                      |           
|Net loss before income taxes                                   |  |                                      | (1,019,610
|Income tax benefit                                             |  |                                      | 353,848   
|Net loss                                                       |  | $                                    | (665,762  
|                                                               |  |                                      |           
|Net loss per common share:                                     |  |                                      |           
|Basic                                                          |  | $                                    | (0.01     
|Diluted                                                        |  | $                                    | (0.01     
|                                                               |  |                                      |           
|Weighted average number of common shares outstanding:          |  |                                      |           
|Basic                                                          |  |                                      | 81,916,572
|Diluted                                                        |  |                                      | 81,916,572



See accompanying notes to these unaudited
consolidated financial statements.



4







MESA ENERGY HOLDINGS,
INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                          |  | For the Three Months Ended March 31, |          
|----------------------------------------------------------------------------------------- |  | ------------------------------------ | ---------
|                                                                                          |  | 2012                                 |          
|CASH FLOWS FROM OPERATING ACTIVITIES                                                      |  |                                      |          
|Net loss                                                                                  |  | $                                    | (665,762 
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                                      |          
|Depreciation, depletion, accretion and impairment expense                                 |  |                                      | 420,340  
|Deferred income taxes                                                                     |  |                                      | (353,848 
|Share-based compensation                                                                  |  |                                      | 86,860   
|Realized loss on settlement of asset retirement obligation                                |  |                                      | 116,394  
|Amortization of deferred financing cost                                                   |  |                                      | 12,854   
|Amortization of debt discount                                                             |  |                                      | 675      
|Induced debt conversion expense charged to interest expense                               |  |                                      | —        
|Unrealized loss from change in derivative values                                          |  |                                      | 1,608,294
|Changes in operating assets and liabilities:                                              |  |                                      |          
|Accounts receivable                                                                       |  |                                      | 200,344  
|Prepaid and other assets                                                                  |  |                                      | (21,252  
|Accounts payable and accrued expenses                                                     |  |                                      | (249,670 
|Revenue payable                                                                           |  |                                      | (39,312  
|Accrued expenses – related party                                                          |  |                                      | —        
|CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                           |  |                                      | 1,115,917
|                                                                                          |  |                                      |          
|CASH FLOWS FROM INVESTING ACTIVITIES                                                      |  |                                      |          
|Cash paid for development of oil and gas properties                                       |  |                                      | (35,062  
|Cash paid for support facilities and equipment                                            |  |                                      | (130,039 
|Cash paid for purchase of furniture, fixtures, and equipment                              |  |                                      | (15,517  
|CASH USED IN INVESTING ACTIVITIES                                                         |  |                                      | (180,618 
|                                                                                          |  |                                      |          
|CASH FLOWS FROM FINANCING ACTIVITIES                                                      |  |                                      |          
|Proceeds from borrowings on debt                                                          |  |                                      | 11,224   
|Proceeds from borrowings on debt – related party                                          |  |                                      | —        
|Principal payments on long-term notes payable                                             |  |                                      | (304,073 
|CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                           |  |                                      | (292,849 
|                                                                                          |  |                                      |          
|NET CHANGE IN CASH                                                                        |  |                                      | 642,450  
|CASH AT BEGINNING OF PERIOD                                                               |  |                                      | 3,182,392
|CASH AT END OF PERIOD                                                                     |  | $                                    | 3,824,842
|                                                                                          |  |                                      |          
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                         |  |                                      |          
|Cash paid for interest                                                                    |  | $                                    | 183,268  
|Cash paid for income taxes                                                                |  | $                                    | 40,000   
|                                                                                          |  |                                      |          
|NON-CASH INVESTING AND FINANCING TRANSACTIONS                                             |  |                                      |          
|Common stock issued for the conversion of notes payable and accrued interest              |  | $                                    | 112,500  
|Settlement of derivative liability from conversion of debt                                |  | $                                    | 298,915  



See accompanying notes to these unaudited
consolidated financial statements.



5







MESA ENERGY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



NOTE 1 – ORGANIZATION AND SIGNIFICANT
ACCOUNTING POLICIES



Organization



Mesa Energy, Inc. (“MEI”) is
a wholly owned subsidiary of Mesa Energy Holdings, Inc. (the “Company”). MEI’s predecessor entity, Mesa Energy,
LLC, was formed in April 2003 as an exploration and production company in the oil and gas industry. MEI’s oil and gas operations
are conducted through itself and its wholly owned subsidiaries. MEI acquired Tchefuncte Natural Resources, LLC (“TNR”)
in July 2011. TNR owns interests in 80 wells and related surface production equipment in five fields located in Plaquemines and
Lafourche Parishes in Louisiana. Mesa Gulf Cost Operating, LLC became the operator of all operated properties in Louisiana in October
2011. Mesa Operating, LLC, a wholly owned subsidiary, is a qualified operator in the states of Texas, Oklahoma, and Wyoming. MEI
is a qualified operator in the State of New York and operates the Java Field. Our operating entities have historically employed,
and will continue in the future to employ, on an as-needed basis, the services of drilling contractors, other drilling related
vendors, field service companies and professional petroleum engineers, geologists and land men as required in connection with future
drilling and production operations. See Note 2 for more information on the acquisition of TNR.



Basis of Presentation



The accompanying unaudited interim consolidated
financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United
States and the rules of the Securities and Exchange Commission. and should be read in conjunction with the audited consolidated
financial statements and notes thereto contained in the Company’s latest annual report filed with the SEC on Form 10-K. In
the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial
position and the results of operations for the interim periods presented have been reflected herein. The results of operations
for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the unaudited interim
consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial
statements for fiscal year 2011, as reported in the Form 10-K, have been omitted.



Principles of Consolidation



The consolidated financial statements include
the Company’s accounts and those of the Company’s wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.



Use of Estimates



The preparation of financial statements
in conformity with generally accepted accounting principles requires 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 financial statements
and the reported amounts of revenue and expense during each reporting period. Management believes these estimates and assumptions
are reasonable; however, such estimates and assumptions are subject to a number of risks and uncertainties, which may cause actual
results to differ materially from management’s estimates.



Loss Per Share



The Company’s loss per share is computed
by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted earnings per share
reflects the potential dilution of securities, if any, that could share in the earnings of the Company and are calculated by dividing
net loss by the diluted weighted average number of common shares. The diluted weighted average number of common shares is computed
using the treasury stock method for common stock that may be issued for outstanding stock options and convertible debt. The following
is a reconciliation of the numerator and denominator used for the computation of basic and diluted net loss per common share:



6







|                                                                             |  | For the Three Months Ended March 31, |           
|---------------------------------------------------------------------------- |  | ------------------------------------ | ----------
|                                                                             |  | 2012                                 |           
|Numerator:                                                                   |  |                                      |           
|Net loss available to stockholders                                           |  | $                                    | (665,762  
|Basic net loss allocable to participating securities(1)                      |  |                                      | —         
|Basic net loss available to stockholders                                     |  |                                      | (665,762  
|Impact of assumed conversions-interest expense, net of income taxes          |  |                                      | —         
|Loss available to stockholders assuming conversion of convertible debentures |  | $                                    | (665,762  
|                                                                             |  |                                      |           
|Denominator:                                                                 |  |                                      |           
|Weighted average number of common shares – Basic                             |  |                                      | 81,916,572
|Effect of dilutive securities(2):                                            |  |                                      |           
|Warrants                                                                     |  |                                      | —         
|Convertible promissory notes                                                 |  |                                      | —         
|Weighted average number of common shares – Diluted                           |  |                                      | 81,916,572
|                                                                             |  |                                      |           
|Net loss per common share:                                                   |  |                                      |           
|Basic                                                                        |  | $                                    | (0.01     
|Diluted                                                                      |  | $                                    | (0.01     



| | (1) | Restricted share awards that contain nonforfeitable rights to dividends are participating securities
and, therefore, are included in computing earnings using the two-class method. Participating securities, however, do not participate
in undistributed net losses.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | For the three months ended March 31, 2012, convertible debt outstanding representing 2,828,152
shares and stock options representing 2,368,000 shares were antidilutive and, therefore, excluded from the diluted share calculation.
For the three months ended March 31, 2011, convertible debt outstanding representing 3,400,000 shares and stock options representing
848,500 shares were antidilutive and, therefore, excluded from the diluted share calculation.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Recently Issued Accounting Pronouncements



The Company does not expect the adoption
of any recently issued accounting pronouncements to have a significant impact on its financial position, results of operations
or cash flows.



Subsequent Events



The Company has evaluated all transactions
through the financial statement issuance date for subsequent event disclosure consideration.



NOTE 2 – ACQUISITION OF TCHEFUNCTE
NATURAL RESOURCES, LLC.



On July 22, 2011, the Company acquired
100% of the membership interests in Tchefuncte Natural Resources, LLC, which became a wholly-owned subsidiary of the Company. Assets
acquired are comprised of five oil and gas fields in Plaquemines and Lafourche Parishes in Louisiana. In exchange for their members’
interests, the selling members of TNR received an aggregate of 21.2 million shares of the Company’s common stock valued at
$2,968,000 based on the closing price of Mesa’s stock on July 22, 2011.



7







The following unaudited pro forma information assumes the acquisition
of TNR occurred as of January 1, 2011. The pro forma results are not necessarily indicative of what actually would have occurred
had the acquisition been in effect for the entire period presented.



|                                                     |  | For the Three Months Ended |           
|---------------------------------------------------- |  | -------------------------- | ----------
|                                                     |  | March 31, 2011             |           
|                                                     |  |                            |           
|Revenue                                              |  | $                          | 2,682,046 
|Net income                                           |  | $                          | 1,147,829 
|                                                     |  |                            |           
|Net income per common share – basic                  |  | $                          | 0.02      
|Net income per common share – diluted                |  | $                          | 0.02      
|                                                     |  |                            |           
|Weighted average common shares outstanding –basic    |  |                            | 66,581,907
|Weighted average common shares outstanding – diluted |  |                            | 73,381,907



NOTE 3 – FAIR VALUE MEASUREMENTS



The following tables set forth by level
within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis
as of March 31, 2012 and December 31, 2011.



|                                        |  | March 31, 2012 |        
|--------------------------------------- |  | -------------- | -------
|                                        |  | Carrying Value |        
|                                        |  |                |        
|                                        |  |                |        
|Derivative assets – commodity contracts |  | $              | 95,669 
|Derivative liability – convertible debt |  |                | 579,181



|                                        |  | December 31, 2011 |        
|--------------------------------------- |  | ----------------- | -------
|                                        |  | Carrying Value    |        
|                                        |  |                   |        
|                                        |  |                   |        
|Derivative assets – commodity contracts |  | $                 | 938,950
|Derivative liability – convertible debt |  |                   | 113,083



The Company did not identify any other
assets and liabilities that are required to be presented on the consolidated balance sheet at fair value. Additional information
regarding our derivative instruments can be found in Note 4 – Commodity Derivative Instruments and Note 6 – Debt.



NOTE 4 – COMMODITY DERIVATIVE INSTRUMENTS



The Company has commodity derivative instruments
for which it determined the fair value using period-end closing oil and gas prices, interest rates and volatility factors for the
periods under each contract as of March 31, 2012. The details of the derivative instruments are summarized below:



Costless Gas Collar



|                  |  |               |  | Average       |               |  |            |  
|----------------- |  | ------------- |  | ------------- | ------------- |  | ---------- | -
|Production Period |  | Total Volume  |  | Floor/Ceiling |               |  | Fair Value |  
|Apr 2012-Jul 2013 |  | 180,000 MMBtu |  |               | $4.00 / $5.75 |  |            | $



Oil Fixed Price Swaps



|                      |  |              |  | Average     |        |  |            |  
|--------------------- |  | ------------ |  | ----------- | ------ |  | ---------- | -
|Production Period     |  | Total Volume |  | Fixed Price |        |  | Fair Value |  
|Apr 2012-Dec 2012 (1) |  | 9,000 Bbls   |  | $           | 100.30 |  |            | $
|Apr 2012-Dec 2012     |  | 31,500 Bbls  |  | $           | 114.50 |  |            | $
|Jan 2013-Jul 2013     |  | 18,900 Bbls  |  | $           | 114.90 |  |            | $



8







Oil Basis Swap



|Production Period |  | Total Volume |  | Basis Price |       |  | Fair Value |  
|----------------- |  | ------------ |  | ----------- | ----- |  | ---------- | -
|Apr 2012-Sep 2012 |  | 6,000 Bbls   |  | $           | 20.00 |  |            | $



| | (1) | Crude oil swap entered into on January 6, 2012.
| | --- | -----------------------------------------------



The Company elected not to apply hedge
accounting to these derivatives. At March 31, 2012, the Company recognized a short term derivative asset of $18,821 and a long-term
derivative asset of $76,848, with the $843,281 decrease in fair value from December 31, 2011 reported in other income (expense)
as unrealized loss on derivative instruments for the three months ended March 31, 2012. Net realized gains of $9,393 from settlements
of these derivatives have been reported in other income (expense) as realized gain on commodity contracts during the three months
ended March 31, 2012.



The Company also has a derivative liability
associated with the value of the conversion features of its convertible debt which is discussed more fully in Note 6 - Debt.



NOTE 5 – PROPERTY, PLANT AND EQUIPMENT



Oil and Gas Properties



The Company’s oil and gas properties
at March 31, 2012 are located in the United States.



The carrying values of the Company’s
oil and gas properties by field, net of depletion and impairment, at March 31, 2012 and December 31, 2011 were:



|                     |  | March 31, |           |  | December 31, |  
|-------------------- |  | --------- | --------- |  | ------------ | -
|Property             |  | 2012      |           |  | 2011         |  
|                     |  |           |           |  |              |  
|Lake Hermitage Field |  | $         | 2,422,515 |  |              | $
|Valentine Field      |  |           | 1,572,837 |  |              |  
|La Rose Field        |  |           | 1,445,426 |  |              |  
|Bay Batiste Field    |  |           | 1,017,098 |  |              |  
|Manila Village Field |  |           | —         |  |              |  
|Java Field           |  |           | —         |  |              |  
|Total                |  | $         | 6,457,876 |  |              | $



Net proved oil and gas properties at March 31, 2012 were:



|Year Incurred  |  | Acquisition Costs |           |  | Exploration
 and Development Costs |   |           | Dry Hole Costs |  |   | Disposition  of Assets |   |  | Depletion, Amortization,
 and Impairment |            |   | Total |  
|-------------- |  | ----------------- | --------- |  | ---------------------------------- | - | --------- | -------------- |  | - | ---------------------- | - |  | ---------------------------------------- | ---------- | - | ----- | -
|               |  |                   |           |  |                                    |   |           |                |  |   |                        |   |  |                                          |            |   |       |  
|2010 and prior |  | $                 | 754,878   |  |                                    | $ | 2,947,554 |                |  | $ | (466,066               | ) |  | $                                        | (2,090,383 | ) |       | $
|2011           |  |                   | 7,334,184 |  |                                    |   | 606,053   |                |  |   | —                      |   |  |                                          | —          |   |       |  
|2012           |  |                   | —         |  |                                    |   | 35,062    |                |  |   | —                      |   |  |                                          | —          |   |       |  
|               |  |                   |           |  |                                    |   |           |                |  |   |                        |   |  |                                          |            |   |       |  
|Total          |  | $                 | 8,069,062 |  |                                    | $ | 3,588,669 |                |  | $ | (466,066               | ) |  | $                                        | (2,090,383 | ) |       | $



9







In the three months
ended March 31, 2012, we plugged and abandoned two wells, the Southdown 2D and the LLDSB #7, retiring their costs comprising, solely,
asset retirement costs for the Southdown 2D well and asset retirement costs and intangible drilling costs for the LLDSB #7. Costs
of the LLDSB #7 well were retired after an unsuccessful attempt to convert it to a salt water disposal well resulted in an oil
spill for which we incurred $216,214 of environmental remediation expense in addition to the expense of plugging and abandoning
the well. See Note 7 – Asset Retirement Obligations for more discussion on the impact of the retirement of these two wells
on their asset retirement obligations.



Support Facilities and Equipment



The Company’s
support facilities and equipment serve its oil and gas production activities. The following table details these properties and
equipment, together with their estimated useful lives:



|                                            |  |       |  | March 31, |           |   | December 31, |  
|------------------------------------------- |  | ----- |  | --------- | --------- | - | ------------ | -
|                                            |  | Years |  | 2012      |           |   | 2011         |  
|                                            |  |       |  |           |           |   |              |  
|Tank batteries                              |  | 7     |  | $         | 767,252   |   |              | $
|Production equipment                        |  | 7     |  |           | 959,000   |   |              |  
|Field offices                               |  | 20    |  |           | 267,089   |   |              |  
|Crew boat                                   |  | 7     |  |           | 57,835    |   |              |  
|Asset retirement cost                       |  | 7     |  |           | 256,363   |   |              |  
|                                            |  |       |  |           | 2,307,539 |   |              |  
|Accumulated depreciation                    |  |       |  |           | (165,936  | ) |              |  
|Total support facilities and equipment, net |  |       |  | $         | 2,141,603 |   |              | $



Office Furniture Equipment, and Other



|                                        |  |       |  | March 31, |        |   | December 31, |  
|--------------------------------------- |  | ----- |  | --------- | ------ | - | ------------ | -
|                                        |  | Years |  | 2012      |        |   | 2011         |  
|                                        |  |       |  |           |        |   |              |  
|Office equipment and purchased software |  | 3     |  | $         | 31,580 |   |              | $
|Furniture and fixtures                  |  | 10    |  |           | 18,624 |   |              |  
|                                        |  |       |  |           | 50,204 |   |              |  
|Accumulated depreciation                |  |       |  |           | (4,606 | ) |              |  
|Total property and equipment, net       |  |       |  | $         | 45,598 |   |              | $



Support facilities and equipment and office
furniture, equipment, and other are depreciated using the straight line method over their estimated useful lives.



NOTE 6 – DEBT



Convertible Promissory Notes



The Company had $349,915 and $461,740 of
convertible promissory notes outstanding at March 31, 2012 and December 31, 2011, net of unamortized debt discount of $3,604 and
$4,279, respectively. During the first quarter of 2012, Convertible Notes of $112,500 were converted into 900,000 common shares
of the Company at $0.125 per share. On May 11, 2011, pursuant to the Omnibus Waiver and Modification Agreements provided by the
three remaining holders, the convertible debt holders agreed to extend the maturity date of their outstanding note balances to
July 31, 2013, amend the conversion price of $0.25 to $0.125 per share and subordinate their lien on the assets of the Company
to F & M Bank in conjunction with the Company entering into the Credit Facility in order to acquire TNR. Management determined
that the reduction of the conversion price created an embedded derivative with a $0 fair value on May 11, 2011. The fair value
of the embedded derivative at March 31, 2012 and December 31, 2011 was $579,181 and $113,083, respectively.



Changes in the fair value of embedded derivative
instruments for the three months ended March 31, 2012 and the year ended December 31, 2011 were as follows:



|                              |  | January 1, 2012 Derivative Liability |         |  | Realized (Gain)
 or Loss |   |          | Unrealized
 (Gain) or Loss |  |   | March 31, 2012 Derivative Liability | 
|----------------------------- |  | ------------------------------------ | ------- |  | ------------------------ | - | -------- | -------------------------- |  | - | ----------------------------------- | 
|                              |  |                                      |         |  |                          |   |          |                            |  |   |                                     | 
|Derivative conversion feature |  | $                                    | 113,083 |  |                          | $ | (298,915 | )                          |  | $ | 765,013                             | 



10







|                              |  | January 1, 2011 Derivative Liability |   |  | Realized (Gain)
 or Loss |   |   | Unrealized
 (Gain) or Loss |  |   | December 31, 2011 Derivative Liability | 
|----------------------------- |  | ------------------------------------ | - |  | ------------------------ | - | - | -------------------------- |  | - | -------------------------------------- | 
|                              |  |                                      |   |  |                          |   |   |                            |  |   |                                        | 
|Derivative conversion feature |  | $                                    | — |  |                          | $ | — |                            |  | $ | 113,083                                | 



The fair value of the derivative conversion
feature is estimated using the following principal assumptions for the binomial valuation model on the date of initial valuation:



|Date          |  | Probability of instrument issuance at a price lower than the conversion price |    |   | Probable prices at which instruments will be issued
|------------- |  | ----------------------------------------------------------------------------- | -- | - | ---------------------------------------------------
|              |  |                                                                               |    |   |                                                    
|December 2011 |  |                                                                               | 10 | % |                                                    
|March 2012    |  |                                                                               | 10 | % |                                                    
|Thereafter    |  |                                                                               | 10 | % |                                                    





|                                                 |  | March 31, 2012 |           |   | December 31, 2011 |  
|------------------------------------------------ |  | -------------- | --------- | - | ----------------- | -
|Common stock issuable upon conversion            |  |                | 2,500,000 |   |                   |  
|Market price of common stock on measurement date |  | $              | 0.26      |   |                   | $
|Conversion price                                 |  | $              | 0.12      |   |                   | $
|Conversion period in years                       |  |                | 1.33      |   |                   |  
|Expected volatility                              |  |                | 158.15    | % |                   |  
|Expected dividend yield                          |  |                | —         | % |                   |  
|Risk free interest rate                          |  |                | 0.50      | % |                   |  



Credit Facility and Notes Payable



The Company’s notes payable were
as follows:



|                           |  | March 31, |           |   | December 31, |  
|-------------------------- |  | --------- | --------- | - | ------------ | -
|                           |  | 2012      |           |   | 2011         |  
|                           |  |           |           |   |              |  
|Credit Facility            |  | $         | 5,195,963 |   |              | $
|Term notes                 |  |           | 139,861   |   |              |  
|Notes payable outstanding  |  |           | 5,335,824 |   |              |  
|Less:  Current maturities  |  |           | (28,172   | ) |              |  
|Notes payable – noncurrent |  | $         | 5,307,652 |   |              | $



On July 22, 2011, MEI entered into a $25
million senior secured revolving line of credit (“Credit Facility") with F&M Bank and Trust Company (“F&M
Bank”) that matures on July 22, 2013. Loans made under this credit facility are secured by TNR’s proved producing reserves
(“PDP”) as well as guarantees provided by the Company, MEI, and the Company’s other wholly-owned subsidiaries.
The Company is required to make monthly interest payments on the Credit Facility based on a variable interest rate. The interest
rate is the F&M Bank Base Rate plus 1% subject to a floor of 5.75%. Interest is currently accruing at 5.75%. A 2.00% annual
fee is applicable to letters of credit drawn under the Credit Facility.



The borrowing base is subject to two scheduled
redeterminations each year. F&M Bank completed its first scheduled redetermination pursuant to the Credit Facility and increased
the Company’s borrowing base from $10,500,000 to $13,500,000 in April 2012. The redetermination eliminated the Company’s
obligation to make the remaining $150,000 Monthly Commitment Reduction payment required prior to the redetermination. Reporting
requirements, loan covenants and events of default are customary for this type of Credit Facility. The Company was in compliance
with all of the debt covenants as of March 31, 2012.



11







NOTE 7 – ASSET RETIREMENT OBLIGATIONS



The following table provides a reconciliation
of the changes in the estimated asset retirement obligation for the quarter ended March 31, 2012 and for the year ended December
31, 2011.



|                                           |  | 2012 |           |   | 2011 |  
|------------------------------------------ |  | ---- | --------- | - | ---- | -
|                                           |  |      |           |   |      |  
|Beginning asset retirement obligation      |  | $    | 3,450,252 |   |      | $
|Obligation assumed from acquisition of TNR |  |      | —         |   |      |  
|Accretion expense                          |  |      | 49,161    |   |      |  
|Sale of property                           |  |      | —         |   |      |  
|Settlement of asset retirement obligation  |  |      | (139,357  | ) |      |  
|Ending asset retirement obligation         |  | $    | 3,360,056 |   |      | $



In the first quarter
of 2012 we plugged and abandoned two wells, the Southdown 2D and the LLDSB #7 recognizing a loss on settlement of asset retirement
obligation of $116,394. See Note 5 – Property, Plant, and Equipment for more discussion on the LLDSB #7 well as regards the
events leading up to the environmental remediation expense we incurred, not included in plugging and abandonment costs, which resulted
in our plugging and abandoning this well.



NOTE 8 –
INCOME TAXES



As of March 31,
2012, the Company has U.S. net operating loss carry forwards of approximately $4.6 million which begin to expire in 2028. The Company
also has tax credit carry forwards of approximately $20,000 in alternative minimum tax credits which do not expire.



We recognize the
financial statement effects of tax positions when it is more likely than not, based on the technical merits, that the position
will be sustained upon examination by a taxing authority. Recognized tax positions are initially and subsequently measured as the
largest amount of tax benefit that is more likely than not of being realized upon ultimate settlement with a taxing authority.
We have not taken a tax position that, if challenged, would have a material effect on the consolidated financial statements or
the effective tax rate for the three months ended March 31, 2012.



NOTE 9 – STOCKHOLDERS’ EQUITY



The
Company is authorized to issue 300 million shares of common stock with a $0.0001 par value per share and 10 million shares of preferred
stock with a $0.0001 par value per share. At March 31, 2012 and December 31, 2011, the Company had80,674,616 and 79,531,616
shares issued and outstanding, respectively. No preferred stock has been
issued by the Company.



Stock Options



Options to purchase 140,000 shares of common
stock were granted in 2012 with an estimated fair value of $34,597. The following summarizes the values from and assumptions for
the Black-Scholes option pricing model for stock options issued during the three months ended March 31, 2012:



|                                         |  | 2012 |                 
|---------------------------------------- |  | ---- | ----------------
|Weighted average grant date fair value   |  | $    | 0.27            
|Weighted average grant date              |  |      | February 4, 2012
|Weighted average risk-free interest rate |  |      | 0.84            
|Expected life (in years)                 |  |      | 5               
|Weighted average volatility              |  |      | 143.90          
|Expected dividends                       |  | $    | —               



12







The following table summarizes the Company’s employee
stock option activity for the three months ended March 31, 2012:



|                                 |  | Shares |           |  | Weighted Average Exercise Price |   |      | Weighted Average Remaining Contractual Life |  | Aggregate Intrinsic Value | 
|-------------------------------- |  | ------ | --------- |  | ------------------------------- | - | ---- | ------------------------------------------- |  | ------------------------- | 
|                                 |  |        |           |  |                                 |   |      |                                             |  |                           | 
|Outstanding at December 31, 2011 |  |        | 2,228,000 |  |                                 | $ | 0.20 |                                             |  |                           | 
|Granted                          |  |        | 140,000   |  |                                 |   | 0.27 |                                             |  |                           | 
|Exercised                        |  |        | —         |  |                                 |   | —    |                                             |  |                           | 
|Cancelled/Expired                |  |        | —         |  |                                 |   | —    |                                             |  |                           | 
|Outstanding at March 31, 2012    |  |        | 2,368,000 |  |                                 |   | 0.20 |                                             |  | 3.4  years                | 
|                                 |  |        |           |  |                                 |   |      |                                             |  |                           | 
|Exercisable at March 31, 2012    |  |        | 1,102,000 |  |                                 | $ | 0.25 |                                             |  | 2.3  years                | 



Compensation expense related
to stock options of $38,814 and $36,395 was recognized for the three months ended March 31, 2012 and 2011, respectively. At March
31, 2012, the Company had $83,011 of unrecognized compensation expense related to outstanding unvested stock options, which will
be fully recognized over the next 2.0 years. No stock options have been exercised.



Restricted Stock



The following table summarizes the Company’s employee
restricted stock activity, including activity for awards not granted under the 2009 Plan, for the three months ended March 31,
2012:



|                                                |  | Shares |           |   | Weighted Average Grant Price |  
|----------------------------------------------- |  | ------ | --------- | - | ---------------------------- | -
|Unvested Restricted Shares at December 31, 2011 |  |        | 1,941,000 |   |                              | $
|Granted                                         |  |        | —         |   |                              |  
|Vested and issued                               |  |        | (243,000  | ) |                              |  
|Cancelled/Expired                               |  |        | —         |   |                              |  
|Unvested Restricted Shares at March 31, 2012    |  |        | 1,698,000 |   |                              | $



At March 31, 2012, the Company had $224,700 of unrecognized
compensation expense related to outstanding restricted stock granted to employees, which is expected to be recognized over the
next 1.4 years. Compensation expense related to restricted stock grants of $48,046 and $3,420 was recognized in the first three
months of 2012 and 2011, respectively.



NOTE 13 – SUBSEQUENT EVENTS



In April 2012, options for 60,000 shares
of restricted common stock were awarded to three employees pursuant to the 2009 Equity Incentive Plan as follows:





|Exercise price              |  |  | $0.20 - $0.22     |  
|--------------------------- |  |  | ----------------- | -
|Vesting period in years (1) |  |  | 1.95              |  
|Term of options in years    |  |  | 5                 |  
|Expected volatility         |  |  | $142.40% - 143.49 | %
|Expected dividend yield     |  |  | 0                 | %
|Risk free interest rate     |  |  | 0.88              | %



| | (1) | Vesting schedule – June 30, 2012: 10%; September 30, 2012, March 30, 2013, and September
30, 2013: 20% each; March 30, 2014: 30%.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------



13







The fair value of the options at the grant
date was determined, using a Black Scholes model, to be $11,486 using the assumptions in the table above.



On April 1, 2012, 200,000 shares of restricted
stock with a fair value of $30,000 vested and were issued in connection with an Employment Services Agreement.



In April 2012, $262,500 of convertible debt was converted into
2,100,000 shares of common stock.



14







Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations



This report contains forward-looking
statements. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including
without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations
regarding our financial position, estimated working capital, business strategy, the plans and objectives of our management for
future operations and those statements preceded by, followed by or that otherwise include the words “believe,” “expects,”
“anticipates,” “intends,” “estimates,” “projects,” “target,” “goal,”
“plans,” “objective,” “should” or similar expressions or variations on such expressions are
forward-looking statements. We can give no assurances that the assumptions upon which the forward-looking statements are based
will prove to be correct. Because forward-looking statements are subject to risks and uncertainties, actual results may differ
materially from those expressed or implied by the forward-looking statements. There are a number of risks, uncertainties and other
important factors that could cause our actual results to differ materially from the forward-looking statements, including, but
not limited to, our inability to obtain adequate financing, insufficient cash flows and resulting illiquidity, our inability to
expand our business, government regulations, lack of diversification, volatility in the price of oil and/or natural gas, increased
competition, results of arbitration and litigation, stock volatility and illiquidity, our failure to implement our business plans
or strategies and general economic conditions. A description of some of the risks and uncertainties that could cause our actual
results to differ materially from those described by the forward-looking statements in this Quarterly Report on Form 10-Q appears
in the section captioned “Risk Factors” in our 2011 Annual Report on Form 10-K.



Except as otherwise required by the
federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking
statement contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is based.



Overview



We are a growth-oriented exploration and
production (E&P) company with a definitive focus on growing reserves and net asset value per share, primarily through the acquisition
and enhancement of high quality producing properties and the development of highly diversified developmental drilling opportunities.
We currently own producing oil and natural gas properties in Plaquemines and Lafourche Parishes in Louisiana as well as developmental
properties in Wyoming County, NY.



The following discussion highlights the
principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described
and provides information which management believes is relevant for an assessment and understanding of the statements of financial
position, results of operations and cash flows presented herein. This discussion should be read in conjunction with our unaudited
financial statements, related notes and the other financial information included elsewhere in this report.



Producing Fields - Plaquemines and Lafourche
Parishes, Louisiana



On July 22, 2011, MEI completed the acquisition
of Tchefuncte Natural Resources, LLC (“TNR”), a Louisiana operator. Immediately prior to MEI’s closing of the
TNR acquisition, TNR completed the acquisition of properties in four fields in south Louisiana from Samson Contour Energy E &
P, LLC (“Samson”). TNR, now a wholly owned subsidiary of MEI, owns 100% working interests in the Lake Hermitage Field
in Plaquemines Parish, Louisiana along with various working interests in producing properties in four additional fields in Plaquemines
and Lafourche Parishes, Louisiana. The total net mineral acreage held by production in the five fields is approximately 7,189 acres.



We believe that by recompleting or otherwise
returning several additional shut-in wells to production, improving operational efficiencies and optimization of the gas lift systems,
a significant increase in production can be achieved in these fields. Two wells were successfully recompleted to uphole zones in
the Lake Hermitage Field in the fourth quarter of 2011 with positive results. The recompletion of two additional wells is planned
for the second quarter of 2012 with more recompletions to follow in the third and fourth quarters of 2012. In addition, we expect
to accomplish a number of additional enhancements and upgrades to processing facilities and flow lines in 2012, all of which are
to be funded out of cash flow. These efforts should significantly increase production and PDP reserves. An extensive geological
and engineering evaluation of the Lake Hermitage Field is nearing completion and a similar evaluation of the other four fields
is underway. In addition, our technical team has identified and is in the process of refining a number of proved undeveloped (“PUD”)
drilling locations and we expect to drill the first of several developmental wells later this year. We are reviewing a number of
deep targets with potential for farm out or joint venture with other operators and are actively pursuing additional acquisition
opportunities in South Louisiana.



15









Lake Hermitage Field – Plaquemines Parish, Louisiana



The Company owns a 100% working interest
in each of the eighteen wells in the Lake Hermitage Field. Current net production is approximately 220 BOE/D from seven producing
wells and a total of 3,578 mineral acres is held by production in the field. Ten wells are currently shut-in pending evaluation
for workover and/or future recompletion in uphole zones. The remaining well has been permitted for conversion to a salt water disposal
well which would reduce expenses and allow us to handle more fluid on a daily basis. An attempt in the first quarter to convert
the LLDSB # 7 to a salt water disposal well was unsuccessful and it has been plugged and abandoned. There are three processing
facilities and tank batteries in the field. The high gravity crude oil produced at Lake Hermitage is transported out of the field
by barge.



A significant improvement in efficiency
has been achieved in the Lake Hermitage Field by the installation of higher capacity equipment and by optimization of the gas lift
system. In addition, two wells were successfully recompleted to uphole zones in the fourth quarter of 2011. The recompletion of
two additional wells is planned for the second quarter of 2012 with more recompletions to follow in the third and fourth quarters
of 2012.



An extensive geological and engineering
evaluation of the field has identified fifty-eight potential drilling locations, nine of which are proved undeveloped (“PUD”)
locations with multiple stacked pay zones. We expect to drill the first of several developmental wells in this field later this
year.



Bay Batiste Field, Plaquemines Parish, Louisiana



The Company owns an average 61% working
interest in seven wells in the Bay Batiste Field. Current net production is approximately 80 BOE/D from one producing well. The
other six wells are currently shut-in pending evaluation for future workover or recompletion in uphole zones. Approximately 74
net mineral acres are held by production by the producing well. The salt water disposal well and two production facilities have
plenty of excess capacity to handle production from recompleted wells or from third party operators nearby. Access to markets is
excellent.



Larose Field – Lafourche Parish, Louisiana



Various working interests, some of which
are non-operated, are owned by the Company in eight wells in the Larose Field. Current net production is approximately 80 BOE/D
from three producing wells and approximately 439 net mineral acres are held by production in the field. Five wells are currently
shut-in pending evaluation for future workover or recompletion in uphole zones. The processing facilities and tank batteries are
well located and have plenty of excess capacity. Access to pipelines and crude oil markets is excellent.



Valentine Field – Lafourche Parish, Louisiana



The Company owns an average 90% working
interest in forty-four wells in the Valentine Field. Current net production is approximately 400 BOE/D from fourteen producing
wells and approximately 3,082 net mineral acres are held by production in the field. There are four salt water disposal wells in
the field and twenty-six wells are currently shut-in pending evaluation for future workover or recompletion in uphole zones. The
processing facilities and tank batteries are strategically located throughout the field and have plenty of excess capacity. A field
operations center is centrally located in the field. Access to pipelines and crude oil markets is excellent.



Evaluation of the existing well bores and
overall field operations is in progress and we expect to begin an initial round of recompletions and workovers in 2012. In addition
to numerous recompletion and workover opportunities, there is offset developmental drilling potential as well as deep gas potential.
All of those potential opportunities are currently being evaluated.



16







SE Manila Village Field – Plaquemines
Parish, Louisiana



The Company owns a non-operated working
interest in two wells operated by Hilcorp in the Manila Village Field. 16.88 net mineral acres are held by production in the field.
The wells are shut-in at this time.



Java Field Natural Gas Development Project – Wyoming
County, New York



On August 31, 2009, we acquired the Java
Field, a natural gas development project targeting the Marcellus Shale present in the Appalachian basin in Wyoming County in western
New York. The acquisition included 19 producing natural gas wells and their associated leases/units, two surface tracts of land
totaling approximately 36 acres and two pipeline systems, including a 12.4 mile pipeline and gathering system that serves the existing
field as well as a separate 2.5 mile system located northeast of the field. Our average net revenue interest (NRI) in the
leases is approximately 78%. Production from the wells is nominal but serves to hold the acreage for future development. In
late 2009, we evaluated a number of the existing wells in order to determine the viability of the re-entry of existing wellbores
for plug-back and recompletion of the wells in the Marcellus Shale. As a result of this evaluation, we selected the Reisdorf
Unit #1 and the Ludwig #1 as our initial targets and these two wells were recompleted in the Marcellus Shale and fracked in May
and June of 2010. The initial round of testing and analysis provided a solid foundation of data that strongly supports further
development of the Marcellus in western New York. Formation pressures and flow-back rates were much higher than expected providing
a clear indication of the potential of the resource. We now believe that shallow horizontal drilling, as is currently being
done successfully at this depth in the Fayetteville Shale in northern Arkansas, is ultimately what is needed to maximize the
resource.



The State of New York has placed a moratorium
on high volume frac stimulation in order to develop new permitting rules. The new permitting rules have not been completed
and there can be no assurance when such permitting rules will be issued or what restrictions such permits might impose on producers. Accordingly,
we are unable to continue with our development plans in New York for the time being. Unless the moratorium is removed and new permitting
rules provide for the economic development of these properties, production on these properties will remain marginally economic. Accordingly,
management made a determination to fully impair the properties as of December 31, 2010.



A recent report released by the New York
Department of Environmental Conservation proposes to remove the moratorium in all areas of the state other than in the New York
City and Syracuse watersheds and to implement new permitting rules for drilling and fracking horizontal wells. Although these
measures have yet to be formally adopted, we believe that this report constitutes significant progress and that its final adoption
could ultimately allow us to proceed with the next phase of development of the property and the expansion of our acreage position
in western New York.



Mineral Acreage Leasing - Garfield and Major Counties, Oklahoma



We believe that diversification is vitally
important to a rapidly growing E & P company and we recently made the determination that we need to pursue additional expandable
and repeatable drilling opportunities, primarily for oil, in other plays. After extensive evaluation, we have focused our efforts
on the Mississippian Limestone and the Woodford Shale in north central Oklahoma.



Oklahoma is a great place to develop a
drilling program. It is relatively close to Dallas, is a very oil friendly state and has good availability of services and a moderate
climate. The Mississippian Limestone in Oklahoma is a proven zone that has been drilled vertically in that area for many years
so there is a lot of well control information available. The emerging horizontal play is mature enough to have a substantial amount
of public information available, yet early enough that acreage can still be acquired at moderate prices. This is an opportunity
to establish a repeatable drilling program with room to run in an area with a high drilling success rate. All in all, we believe
this area offers all of the positive attributes that we are looking for.



The Mississippian Limestone in the area
of interest is at vertical depths of approximately 7,000’ and is 300’ to 400’ thick. The Woodford Shale, which
would be a secondary objective in any well drilled, is immediately below the Mississippian appears to be oil bearing and is 50
to 100’ thick. Potential reserves in the Mississippian on a per well basis are estimated to be 200,000 to 400,000 barrels
per well with recoverable barrels per section estimated to be as much as 2,600,000 BOE. The Woodford would add to that number.
A multi-stage frac is required using acid, fresh water and a simple sand proppant. The Mississippian produces some water, so disposal
wells will likely be required. The oil is light, sweet crude with a gravity of 40 to 45 dg.



17







We have identified specific areas of interest
where we believe open acreage can be acquired at a reasonable cost and have commenced a grass-roots acreage acquisition effort.
Because the acquisition of leases is a competitive and time consuming process, we may elect to farm-in leases or to purchase leases
from other oil and natural gas companies. In most cases, the assignor of such leases and/or lease brokers or finders will reserve
an overriding royalty interest (an “ORRI”), and may also retain a portion of the working interest.



On rare occasions, the mineral owner or
current lease holder may elect to joint venture with us and participate for his royalty interest in the drilling unit. In this
event, our working interest ownership would be reduced by the amount retained by the third party. In all other instances, we anticipate
owning a 100% working interest in newly drilled wells.



Adjusted EBITDA as a Non-GAAP Performance
Measure



In evaluating our business, management
believes earnings before interest, taxes, depreciation, depletion, amortization and accretion, unrealized gains and losses on financial
instruments, gains and losses on sales of assets and stock-based compensation expense ("Adjusted EBITDA") is a key indicator
of financial operating performance and is a measure of our ability to generate cash for operational activities and future capital
expenditures. Adjusted EBITDA is not a GAAP measure of performance. We use this non-GAAP measure primarily to compare our performance
with other companies in our industry and as a measure of our current liquidity. We believe that this measure may also be useful
to investors for the same purposes and as an indication of our ability to generate cash flow at a level that can sustain or support
our operations and capital investment program. Investors should not consider this measure in isolation or as a substitute for income
from operations, or cash flow from operations determined under GAAP, or any other measure for determining operating performance
that is calculated in accordance with GAAP. In addition, because Adjusted EBITDA is not a GAAP measure, it may not necessarily
be comparable to similarly titled measures that may be disclosed by other companies.



The following is a reconciliation of our
net income in accordance with GAAP to our Adjusted EBITDA for the three-month periods ending March 31, 2012 and 2011:



|                                                               |  | For the Three Months Ended March 31, |          
|-------------------------------------------------------------- |  | ------------------------------------ | ---------
|                                                               |  | 2012                                 |          
|                                                               |  |                                      |          
|Net loss                                                       |  | $                                    | (665,762 
|                                                               |  |                                      |          
|Adjustments:                                                   |  |                                      |          
|Interest (income) expense, net                                 |  |                                      | 174,292  
|Depreciation, depletion and accretion expense                  |  |                                      | 420,340  
|Stock-based compensation expense                               |  |                                      | 86,860   
|Unrealized loss on change in derivatives – commodity contracts |  |                                      | 843,281  
|Unrealized loss on change in derivatives  – convertible debt   |  |                                      | 765,013  
|Income tax benefit                                             |  |                                      | (353,848 
|Adjusted EBITDA                                                |  | $                                    | 1,270,176



Results of Operations



Quarter Ended March 31, 2012 Compared
to Quarter Ended March 31, 2011



Revenue



Revenue from sales of oil and natural gas
were $4,394,812 in the first quarter of 2012 as compared to $18,409 in the first quarter of 2011. This increase in revenues reflects
additional sales volumes from producing wells acquired in the TNR Acquisition. Average natural gas prices decreased $0.62/Mcf to
$2.84/Mcf in the first quarter of 2012 from an average price of $3.46/Mcf in the first quarter of 2011. The average price of oil
in the first quarter of 2012 was $113.22/Bbl. Prior to the TNR Acquisition, the Company had no oil production or sales. Natural
gas sales volumes increased during the first quarter of 2012 to 2,240 Mcf per day from 58 Mcf per day during the first quarter
of 2011. Oil sales volumes during the first quarter of 2012 were 367 Bbls per day. The increase in volumes is also attributable
to the addition of producing properties resulting from the Company’s acquisition of TNR.



18







Operating expenses



| | · | Lease operating expense.Production expense increased to $1,982,964 in the first quarter of 2012 from $4,380 in the first quarter of 2011. Higher expense in the first quarter of 2012 as compared to the first quarter of 2011is the result of the addition of TNR operations.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Environmental remediation expense. Environmental remediation expense of $216,214 was recognized in connection with an oil spill which occurred while attempting to convert the LLDSB #7 well to a salt water disposal well. As a result of the spill and additional complications, the conversion of the well was unsuccessful and the well was plugged and abandoned.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Exploration expense. Exploration expense increased to $52,132 during the three months ended March 31, 2012 from $13,746 during the three months ended March 31, 2011. This was primarily due to prospecting costs incurred by Mesa Midcontinent, LLC in Oklahoma.                                                                                                     

| | · | General and administrative expense. General and administrative expense increased to $858,723 for the three months ended March 31, 2012 from $146,033 for the first three months of 2011. The increase is primarily the result of additional payroll and administrative burdens due to the TNR Acquisition and stock-based compensation.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Depreciation, depletion, accretion, and impairment expense. The increase in depreciation, depletion, accretion, and impairment expense to $420,340 for the three months ended March 31, 2012 from $1,805 for the three months ended March 31, 2011 reflects the additional volumes of oil and gas produced from wells obtained in the TNR Acquisition. Additional depreciation of production support facilities and equipment obtained in the TNR Acquisition and accretion of asset retirement obligations associated with those properties and equipment added to the increase from the first three months of 2011.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Loss on settlement of asset retirement
        obligation. We recognized a loss of $116,394 for the plugging and abandonment of two wells. We incurred no such loss in the
        first quarter of 2011.                                                                                                                                                                                                                                                                                                                                                                                                            

Operating income.As a result of
the above described revenues and expenses, we recognized operating income of $748,045 in the first quarter of 2012 as compared
to an operating loss of $147,555 in the first quarter of 2011.



Interest expense.Interest expense
decreased to $177,364 for the three months ended March 31, 2012, from $249,008 for the three months ended March 31, 2011. The decrease
was primarily a function of reduced outstanding convertible debt in the first quarter of 2012 versus the first quarter of 2011,
despite interest on debt acquired subsequent to the first quarter of 2011, principally the outstanding Credit Facility and other
related fees paid to F&M Bank. The Company also recorded $111,974 of induced debt conversion expense charged to interest expense
during the quarter ended March 31, 2011 and did not incur any of these expenses in the 2012 quarter.



Unrealized losses on changes in derivative
value.The unrealized loss on change in derivatives – commodity contracts for the three months ended March 31, 2012 and
2011 was $843,281 and $0, respectively. Unrealized losses in the first quarter of 2012 were primarily the result of increases in
oil prices relative to the fixed oil prices in our swap derivatives. The unrealized loss on change in derivatives – convertible
debt for the three months ended March 31, 2012 and 2011 was $765,013 and $0, respectively. The unrealized loss associated with
the convertible debt derivative represented the change in the potential liability for issuing shares with a higher value than the
conversion price upon conversion of convertible debt into common stock.



Realized gain on changes in derivatives
– commodity contracts.Cash settlements from hedging our sales of oil and gas production were $9,393 in the first quarter
of 2012 as compared to $0 in the first quarter of 2011. The increase is attributable to our hedging program, implemented in accordance
with covenants associated with our credit facility with F&M Bank.



Income tax benefit.Income tax benefit
for the first quarter of 2012 increased to $353,848 from $0 in the first quarter of 2011 resulting from the elimination of our
tax valuation allowanceand recognition, at December 31, 2011, of a deferred income tax asset.



19







Net loss.Our net loss for the three
months ended March 31, 2012 was $665,762 ($0.01 per basic and diluted share). Our net loss for the three months ended March 31,
2011 was $396,563 ($0.01 per basic and diluted share), due to unrealized noncash losses on change in derivative values in the first
quarter of 2012, despite increased first quarter 2012 operating income over first quarter 2011 operating income.



Liquidity and Capital Resources



Overview



As of March 31, 2012, we had working capital
of $3,622,220. As of December 31, 2011, we had working capital of $3,104,453. The increase in the working capital was attributable
to:



| | · | Increased revenues from the properties acquired from TNR.                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | A reduction in current portion
of long term debt due to the elimination of the requirement that we pay the monthly commitment reduction of our note with F&M
Bank upon credit redetermination in the first quarter of 2012.





Cash and Accounts Receivable



At March 31, 2012, we had cash and cash
equivalents of $3,824,842, compared to $3,182,392 at December 31, 2011. Cash increased by $642,450 due to cash from operations
of $1,115,917 that was partially offset by uses of $473,467 investing and financing activities.



Liabilities



Accounts payable and accrued expenses increased
to $2,636,148 at March 31, 2012, from $2,629,472 at December 31, 2011, primarily due to an increased level of operating and capital
expenditure activity associated with additional wells and facilities acquired with the purchase of TNR.



As of March 31, 2012, the outstanding balance
of principal on debt, net of discount, was $5,685,739, a net decrease of $404,674 from the outstanding balance of $6,090,413, as
of December 31, 2011. The decrease was primarily due to repayment of $300,000 on the F&M Bank Credit Facility and the conversion
of $112,500 of convertible notes to common stock during the quarter ended March 31, 2012.



Cash Flows



For the three months ended March 31, 2012,
the net cash provided by operating activities was $1,115,917, which was used to fund our capital expenditures and Credit Facility
repayments for the period. We expect to fund operations and the capital expenditure budget for the next twelve months out of cash
flow and, absent another significant acquisition, do not anticipate the need for additional sources of capital.



Off-Balance Sheet Arrangements



We do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.



Item 3. Quantitative and Qualitative
Disclosures about Market Risk.



Not required under Regulation S-K for “smaller
reporting companies.”



20







Item 4. Controls and Procedures



a) Evaluation of disclosure controls
and procedures.



Our management, with the participation
of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures
pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of March 31, 2012. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and
procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating
the benefits of possible controls and procedures relative to their costs.



Based on management’s evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that, as a result of the material weaknesses described below,
as of March 31, 2012, our disclosure controls and procedures are not presently designed at a level to provide reasonable assurance
that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized,
and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified
are:



| | 1. | As of March 31, 2012, we did not adequately segregate, or mitigate the risks associated with, incompatible
functions among personnel to reduce the risk that a potential material misstatement of the financial statements would occur without
being prevented or detected. Accordingly, management concluded that this control deficiency constituted a material weakness.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                            

| | 2. | As of March 31, 2012, we had insufficient personnel with an appropriate level of technical accounting
knowledge, experience, and training in the application of U.S. GAAP commensurate with our increased complexity and our financial
accounting and reporting requirements to ensure that financial reporting occurs in a timely manner. The inability to report in
a timely manner was primarily a result of the Company’s acquisition of TNR and the resulting need to perform purchase accounting,
incorporate transactional accounting and processes for a much larger enterprise, and to generate more external reports within the
time required than we possessed the capacity to do. Accordingly, management concluded that this control deficiency constituted
a material weakness
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We are committed to improving our accounting
and financial reporting functions. As part of this commitment, we are considering the engagement of additional employees and have
engaged consultants to assist in the preparation and filing of financial reports.



We will continue to monitor and evaluate
the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis
and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds
allow.



(b) Changes in internal
control over financial reporting.



We regularly review our system of internal control over financial
reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain
an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating
activities, and migrating processes.



PART II – OTHER INFORMATION



Item 1. Legal Proceedings



We are currently not a party to any material legal proceedings
or claims.



Item 1A. Risk Factors



Not required under Regulation S-K for “smaller reporting
companies.”





Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds



On February 15, 2012, Brio Capital, LP
elected to convert $50,000 of its Convertible Promissory Note resulting in the issuance of 400,000 shares.





21







On February 17, 2012, Chestnut Ridge Partners,
LP elected to convert $62,500 of its Convertible Promissory Note resulting in the issuance of 500,000 shares.



The above offerings and sales were deemed
to be exempt under either rule 506 of Regulation D and Section 4(2) or Rule 902 of Regulation S of the Securities Act of 1933,
as amended. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to
a limited number of persons, all of whom were accredited investors or business associates of ours, and transfer was restricted
by us in accordance with the requirements of the Securities Act of 1933. In addition to representations by the above-referenced
persons, we have made independent determinations that all of the above-referenced persons were accredited or sophisticated investors,
and that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative nature
of their investment. Except as expressly set forth above, the individuals and entities to which we issued securities as indicated
in this section are unaffiliated with us.



Item 3. Defaults Upon Senior Securities



None.



Item 4. Mine Safety Disclosures



Not applicable.



Item 5. Other Information



None.



Item 6. Exhibits



|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.01*      |  | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                              
|31.02*      |  | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                              
|32.01**     |  | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                              
|32.02**     |  | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                              
|101INS      |  | XBRL Instance Document***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|101SCH      |  | XBRL Schema Document***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|101CAL      |  | XBRL Calculation Linkbase Document***                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|101LAB      |  | XBRL Labels Linkbase Document***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|101PRE      |  | XBRL Presentation Linkbase Document***                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|101DEF      |  | XBRL Definition Linkbase Document***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|*           |  | Filed herewith.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|**          |  | This certification is being furnished
and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject
to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities
Act or the Exchange Act, except if and to the extent that the Registrant specifically incorporates it by reference.                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|***         |  | To be furnished by amendment. The XBRL related information in Exhibit 101 shall not be deemed “filed” for
    purposes of     Section 18 of     the     Securities Exchange Act of 1934, as amended, or otherwise subject to liability of
    that section and     shall not be     incorporated     by reference into any filing or other document pursuant to the
    Securities Act of 1933, as     amended, except as     shall be     expressly set forth by specific reference in such filing
    or document.



22







SIGNATURES



Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                    | MESA ENERGY HOLDINGS, INC.
|------------------- | --------------------------
|                    |                           
|Date:  May 15, 2012 | By:                       
|                    |                           
|                    |                           
|                    |                           
|                    |                           
|Date:  May 15, 2012 | By:                       
|                    |                           
|                    |                           



23