U.S.
SECURITIES AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 [X]
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For the
quarterly period ended June 30, 2010
 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 333-149338
 
 MESA
ENERGY HOLDINGS, INC.
 (Exact
name of registrant as specified in its charter)
 
 Delaware
              
              98-0506246(State
      of incorporation)
              
              (IRS
      Employer ID Number)
 
 5220
Spring Valley Rd
 Suite
525
 Dallas,
TX 75254
 (972)
490-9595
 (Address
and telephone number of principal executive offices)
 
 ______________________________________
 (Former
name, former address and former fiscal year, if changed since last
report)
 
 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 [X] 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
[  ] 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 [X ]
 
 There
were 40,182,021 shares of the registrant’s common stock, par value $0.0001 per
share, outstanding as of August 16, 2010.
  
  MESA
ENERGY HOLDINGS, INC.
  TABLE
OF CONTENTS
  PagePart
      I Financial InformationItem 1
                                                            Financial
      StatementsConsolidated
      Balance Sheets as of June 30, 2010 and December 31, 2009
    (Unaudited)
                                                            
                                                            1Consolidated
      Statements of Operations for the three and six months ended June 30, 2010
      and 2009, and the period from Inception (April 25, 2003) to June 30, 2010
      (Unaudited)
                                                            2Consolidated
      Statement of Changes in Members’ and Stockholders’ Equity (Deficit) for
      the period from Inception (April 25, 2003) to June 30, 2010
      (Unaudited)
                                                            3Consolidated
      Statements of Cash Flows for the three and six months ended June 30, 2010
      and 2009 and the period from Inception (April 25, 2003) to June 30, 2010
      (Unaudited)
                                                            
                                                            5Notes
      to the Consolidated Financial Statements (Unaudited)
                                                            
                                                            7Item 2
                                                            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                                            
                                                            16Item 3
                                                            Quantitative
      and Qualitative Disclosures About Market Risk
                                                            
                                                            21Item 4T
                                                            Controls
      and Procedures
                                                            
                                                            21Part
      II Other InformationItem
      2
                                                            Unregistered
      Sales of Equity Securities and Use of Proceeds
                                                            23Item 6
                                                            Exhibits
                                                            
                                                            24Signatures
                                                            
                                                            25
  ii
  Note
Regarding Forward-Looking Statements
 
 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, and our failure to implement our business plans or strategies. 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 Annual Report on Form 10-K filed with the
Securities and Exchange Commission (the “SEC”) on April 15, 2010.
  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.
 
 
  iii
  PART
I – FINANCIAL INFORMATION
 
 Item
1.  Financial Statements
 
 MESA ENERGY HOLDINGS,
      INC.(An Exploration Stage
      Company)Consolidated Balance
      Sheets(Unaudited)June 30,
    2010
                                                
                                                
                                                December 31,
      2009ASSETSCurrent
    assetsCash and cash
      equivalents
                                                
                                                $
                                                126,548
                                                
                                                
                                                $
                                                267,141Restricted
      cash
                                                
                                                
                                                -
                                                
                                                
                                                
                                                20,000Accounts
      receivable– oil and
      gas
                                                
                                                
                                                7,408
                                                
                                                
                                                
                                                5,515Deferred financing
      cost, current
                                                
                                                
                                                145,212
                                                
                                                
                                                
                                                114,591Prepaid
      expenses
                                                
                                                
                                                39,041
                                                
                                                
                                                
                                                24,126TOTAL CURRENT
      ASSETS
                                                
                                                
                                                318,209
                                                
                                                
                                                
                                                431,373Oil and gas properties, using
      successful efforts accountingProperties not subject
      to amortization, less accumulated impairment of$27,140
      and $27,140, respectively
                                                
                                                
                                                592,874
                                                
                                                
                                                
                                                264,192Properties subject to
      amortization, less accumulated depletion of$3,725and $1,411,
      respectively
                                                
                                                
                                                94,888
                                                
                                                
                                                
                                                74,984Pipeline property, less
      accumulated depreciation of$15,533and  $6,213
      respectively
                                                
                                                
                                                359,587
                                                
                                                
                                                
                                                366,581Land
                                                
                                                
                                                38,345
                                                
                                                
                                                
                                                38,345Net oil and gas
      properties
                                                
                                                
                                                1,085,694
                                                
                                                
                                                
                                                744,102Furniture and equipment, less
      accumulated depreciation of $5,199and $5,051,
      respectively
                                                
                                                
                                                4
                                                
                                                
                                                
                                                153Deferred financing cost , net of
      accumulated amortization of  $110,803and$38,197,
      respectively
                                                
                                                
                                                64,805
                                                
                                                
                                                
                                                76,394Prepaid asset retirement
      cost
                                                
                                                
                                                40,000
                                                
                                                
                                                
                                                40,000TOTAL
ASSETS
                                                
                                                $
                                                1,508,712
                                                
                                                
                                                $
                                                1,292,022LIABILITIES AND STOCKHOLDERS’
      DEFICITCurrent
      liabilitiesAccounts
      payable-trade
                                                
                                                $
                                                118,288
                                                
                                                
                                                $
                                                86,433Accrued
      expenses
                                                
                                                
                                                397,389
                                                
                                                
                                                
                                                246,305Accrued
      expenses-related parties
                                                
                                                
                                                117,816
                                                
                                                
                                                
                                                104,458Deposits
                                                
                                                
                                                33
                                                
                                                
                                                
                                                8,033Notes payable-related
      parties
                                                
                                                
                                                -
                                                
                                                
                                                
                                                43,000Derivative
      liability
                                                
                                                
                                                1,753,401
                                                
                                                
                                                
                                                7,461,680TOTAL CURRENT
      LIABILITIES
                                                
                                                
                                                2,386,927
                                                
                                                
                                                
                                                7,949,909Non-current
      liabilitiesConvertible note
      payable
                                                
                                                
                                                2,145,000
                                                
                                                
                                                
                                                1,530,000Long-term debt-related
      parties
                                                
                                                
                                                451,400
                                                
                                                
                                                
                                                451,400Asset
      retirement obligations
                                                
                                                
                                                57,854
                                                
                                                
                                                
                                                55,280TOTAL
      LIABILITIES
                                                
                                                
                                                5,041,181
                                                
                                                
                                                
                                                9,986,589Commitments and
      contingencies
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Stockholders’
      DeficitPreferred 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,40,132,021and39,385,700shares issued and outstanding,
      respectively
                                                
                                                
                                                4,014
                                                
                                                
                                                
                                                3,939Additional paid-in
      capital
                                                
                                                
                                                (7,120,518
                                                )
                                                
                                                
                                                (5,457,156
                                                )Accumulatedearnings
      (deficit)during the exploration
      stage
                                                
                                                
                                                3,584,035
                                                
                                                
                                                
                                                (3,241,350
                                                )TOTAL STOCKHOLDERS’DEFICIT
                                                
                                                
                                                (3,532,469
                                                )
                                                
                                                
                                                (8,694,567
                                                )TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICIT
                                                
                                                $
                                                1,508,712
                                                
                                                
                                                $
                                                1,292,022See
      accompanying notes to unaudited consolidated financial
      statements.
  1
  
 MESA
      ENERGY HOLDINGS, INC.(An
      Exploration Stage Company)Consolidated
      Statements of OperationsFor
      the Three and Six Months Ended June 30, 2010 and 2009and
      the Period from Inception (April 25, 2003) to June 30,
2009(Unaudited)For the Three Months Ended
                                  June 30,
                                
                                
                                For the Six Months Ended
                                  June 30,
                                
                                
                                Inception
      to
                                  June
      30,2010
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2009
                                
                                
                                2010Revenues
                                
                                $
                                9,463
                                
                                
                                $
                                -
                                
                                
                                $
                                19,280
                                
                                
                                $
                                -
                                
                                
                                $
                                35,919Operating
      expensesExploration
      cost
                                
                                
                                6,648
                                
                                
                                
                                27,057
                                
                                
                                
                                22,260
                                
                                
                                
                                83,125
                                
                                
                                
                                505,426Dry
      hole cost
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                466,066Depreciation,
      depletion, amortization,
                                  accretion,
      and impairment
                                
                                
                                7,178
                                
                                
                                
                                18,665
                                
                                
                                
                                14,356
                                
                                
                                
                                18,739
                                
                                
                                
                                114,791General
      and administrative expenses
                                
                                
                                750,792
                                
                                
                                
                                45,261
                                
                                
                                
                                1,324,938
                                
                                
                                
                                136,801
                                
                                
                                
                                4,017,768Loss
      on sale of Poydras Energy, LLC
                                
                                
                                -
                                
                                
                                
                                1,151,997
                                
                                
                                
                                -
                                
                                
                                
                                1,151,997
                                
                                
                                
                                1,151,997Gain
      on sale of oil and gas properties
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (1,673,620
                                )Total
      operating expenses
                                
                                
                                764,618
                                
                                
                                
                                1,242,980
                                
                                
                                
                                1,361,554
                                
                                
                                
                                1,390,662
                                
                                
                                
                                4,582,428Loss
      from operations
                                
                                
                                (755,155
                                )
                                
                                
                                (1,242,980
                                )
                                
                                
                                (1,342,274
                                )
                                
                                
                                (1,390,662
                                )
                                
                                
                                (4,546,509
                                )Other
      income (expenses)Interest
      expense
                                
                                
                                (96,860
                                )
                                
                                
                                (14,415
                                )
                                
                                
                                (856,155
                                )
                                
                                
                                (28,644
                                )
                                
                                
                                (2,856,120
                                )Interest
      income
                                
                                
                                1,415
                                
                                
                                
                                42
                                
                                
                                
                                3,714
                                
                                
                                
                                617
                                
                                
                                
                                27,735Gain
      on change of derivative value
                                
                                
                                18,045,075
                                
                                
                                
                                -
                                
                                
                                
                                9,020,100
                                
                                
                                
                                -
                                
                                
                                
                                10,941,800Other
      income
                                
                                
                                -
                                
                                
                                
                                7,625
                                
                                
                                
                                -
                                
                                
                                
                                7,625
                                
                                
                                
                                17,129Total
      other income (expense)
                                
                                
                                17,949,630
                                
                                
                                
                                (6,748
                                )
                                
                                
                                8,167,659
                                
                                
                                
                                (20,402
                                )
                                
                                
                                8,130,544Net
      income (loss)
                                
                                $
                                17,194,475
                                
                                
                                $
                                (1,249,728
                                )
                                
                                $
                                6,825,385
                                
                                
                                $
                                (1,411,064
                                )
                                
                                $
                                3,584,035Net
      income (loss) per share:Basic
                                
                                $
                                0.43
                                
                                
                                $
                                (0.05
                                )
                                
                                $
                                0.17
                                
                                
                                $
                                (0.06
                                )Diluted
                                
                                $
                                0.35
                                
                                
                                $
                                (0.05
                                )
                                
                                $
                                0.14
                                
                                
                                $
                                (0.06
                                )Weighted
      average number of shares outstanding:Basic
                                
                                
                                39,813,663
                                
                                
                                
                                24,206,391
                                
                                
                                
                                39,679,629
                                
                                
                                
                                24,206,391Diluted
                                
                                
                                48,577,384
                                
                                
                                
                                24,206,391
                                
                                
                                
                                48,757,869
                                
                                
                                
                                24,206,391
 
 
 See
accompanying notes to unaudited consolidated financial statements.
 
  2
  
 MESA
      ENERGY HOLDINGS, INC.(An
      Exploration Stage Company)Consolidated
      Statement of Changes in Members’ and Stockholders’ Equity
      (Deficit)For
      the Period from Inception (April 25, 2003) to June 30,
2010(Unaudited)Common StockMembers’
                                                      Equity
                                                    
                                                    
                                                    Shares
                                                    
                                                    
                                                    Par
                                                      Value
                                                    
                                                    
                                                    Additional
                                                      Paid-in
                                                      Capital
                                                    
                                                    
                                                    Accumulated
                                                      Deficit
                                                    
                                                    
                                                    TotalsBalances at April 25, 2003
      (inception)
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    -Contributions
                                                    
                                                    
                                                    157,416
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    157,416Net
    loss
                                                    
                                                    
                                                    (152,274
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (152,274
                                                    )Balances at December 31,
      2003
                                                    
                                                    
                                                    5,142
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    5,142Contributions
                                                    
                                                    
                                                    372,673
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    372,673Draws
                                                    
                                                    
                                                    (70,000
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (70,000
                                                    )Imputed
      interest
                                                    
                                                    
                                                    11,508
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    11,508Net
    loss
                                                    
                                                    
                                                    (166,278
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (166,278
                                                    )Balances at December 31,
      2004
                                                    
                                                    
                                                    153,045
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    153,045Contributions
                                                    
                                                    
                                                    94,766
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    94,766Imputed
      interest
                                                    
                                                    
                                                    5,134
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    5,134Net
    loss
                                                    
                                                    
                                                    (210,929
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (210,929
                                                    )Balances at December 31,
      2005
                                                    
                                                    
                                                    42,016
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    42,016Contributions
                                                    
                                                    
                                                    22,743
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    22,743Net loss from January 1,
      2006 to March 3, 2006
                                                    
                                                    
                                                    (50,495
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (50,495
                                                    )Merger with Mesa Energy,
      Inc. (Co.)
                                                    
                                                    
                                                    (14,264
                                                    )
                                                    
                                                    
                                                    19,286,248
                                                    
                                                    
                                                    
                                                    1,929
                                                    
                                                    
                                                    
                                                    592,311
                                                    
                                                    
                                                    
                                                    (579,976
                                                    )
                                                    
                                                    
                                                    -Fair value of options and
      warrants issued for services
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    19,075
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    19,075Shares issued for
      cash
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,214,484
                                                    
                                                    
                                                    
                                                    122
                                                    
                                                    
                                                    
                                                    265,278
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    265,400Net loss from March 4, 2006
      to December 31, 2006
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (338,074
                                                    )
                                                    
                                                    
                                                    (338,074
                                                    )Balances at December 31,
      2006
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    20,500,732
                                                    
                                                    
                                                    
                                                    2,051
                                                    
                                                    
                                                    
                                                    876,664
                                                    
                                                    
                                                    
                                                    (918,050
                                                    )
                                                    
                                                    
                                                    (39,335
                                                    )Shares issued for
      cash
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    803,079
                                                    
                                                    
                                                    
                                                    80
                                                    
                                                    
                                                    
                                                    208,120
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    208,200Discount
      on convertible debt
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    187,427
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    187,427Net
      loss
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (506,940
                                                    )
                                                    
                                                    
                                                    (506,940
                                                    )Balances at December 31,
      2007
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    21,303,811
                                                    
                                                    
                                                    
                                                    2,131
                                                    
                                                    
                                                    
                                                    1,272,211
                                                    
                                                    
                                                    
                                                    (1,424,990
                                                    )
                                                    
                                                    
                                                    (150,648
                                                    )Shares
      issued for purchase of stock of Poydras Energy
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    2,892,937
                                                    
                                                    
                                                    
                                                    289
                                                    
                                                    
                                                    
                                                    749,711
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    750,000Warrants
      issued with sale of oil and gas property
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    31,071
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    31,071Shares
      issued for legal fees
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    9,643
                                                    
                                                    
                                                    
                                                    1
                                                    
                                                    
                                                    
                                                    3,749
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    3,750Net
      income
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    115,179
                                                    
                                                    
                                                    
                                                    115,179Balances
      at December 31, 2008
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    
                                                    24,206,391
                                                    
                                                    
                                                    $
                                                    2,421
                                                    
                                                    
                                                    $
                                                    2,056,742
                                                    
                                                    
                                                    $
                                                    (1,309,811
                                                    )
                                                    
                                                    $
                                                    749,352
 
  3
  
 MESA
      ENERGY HOLDINGS, INC.(An
      Exploration Stage Company)Consolidated
      Statement of Changes in Members’ and Stockholders’ Equity (Deficit),
      continuedFor
      the Period from Inception (April 25, 2003) to June 30,
  2010(Unaudited)
 
 Members’
                                        Equity
                                      
                                      
                                      Shares
                                      
                                      
                                      Par Value
                                      
                                      
                                      Additional
      Paid-
                                        in Capital
                                      
                                      
                                      Accumulated
                                        Deficit
                                      
                                      
                                      TotalsBalances
      at December 31, 2008
                                      
                                      $
                                      -
                                      
                                      
                                      
                                      24,206,391
                                      
                                      
                                      $
                                      2,421
                                      
                                      
                                      $
                                      2,056,742
                                      
                                      
                                      $
                                      (1,309,811
                                      )
                                      
                                      $
                                      749,352Shares
      issued for warrants held by MEI shareholders
                                      
                                      
                                      -
                                      
                                      
                                      
                                      829,309
                                      
                                      
                                      
                                      83
                                      
                                      
                                      
                                      (83
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Reverse
      merger with Mesa Energy Holdings
                                      
                                      
                                      -
                                      
                                      
                                      
                                      14,000,000
                                      
                                      
                                      
                                      1,400
                                      
                                      
                                      
                                      (1,400
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Share-based
      compensation
                                      
                                      
                                      -
                                      
                                      
                                      
                                      350,000
                                      
                                      
                                      
                                      35
                                      
                                      
                                      
                                      340,965
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      341,000Discount
      on convertible debt
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,530,000
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,530,000Derivative
      liability on convertible debt
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (9,383,380
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (9,383,380
                                      )Net
      loss
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (1,931,539
                                      )
                                      
                                      
                                      (1,931,539
                                      )Balances
      at December 31, 2009
                                      
                                      
                                      -
                                      
                                      
                                      
                                      39,385,700
                                      
                                      
                                      
                                      3,939
                                      
                                      
                                      
                                      (5,457,156
                                      )
                                      
                                      
                                      (3,241,350
                                      )
                                      
                                      
                                      ( 8,694,567
                                      )Share-based
      compensation
                                      
                                      
                                      -
                                      
                                      
                                      
                                      272,900
                                      
                                      
                                      
                                      27
                                      
                                      
                                      
                                      797,902
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      797,929Conversion
      of convertible debt and accrued interest
                                      
                                      
                                      -
                                      
                                      
                                      
                                      473,421
                                      
                                      
                                      
                                      48
                                      
                                      
                                      
                                      185,556
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      185,604Discount
      on convertible debt
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      665,000
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      665,000Derivative
      liability on convertible debt
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (3,311,820
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (3,311,820
                                      )Net
      income
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      6,825,385
                                      
                                      
                                      
                                      6,825,385Balances
      at June 30, 2010
                                      
                                      $
                                      -
                                      
                                      
                                      
                                      40,132,021
                                      
                                      
                                      $
                                      4,014
                                      
                                      
                                      $
                                      (7,120,518
                                      )
                                      
                                      $
                                      3,584,035
                                      
                                      
                                      $
                                      (3,532,469
                                      )
 
 See
accompanying notes to unaudited consolidated financial statements.
 
 
 
  4
  
 MESA
      ENERGY HOLDINGS, INC.(An
      Exploration Stage Company)Consolidated
      Statements of Cash FlowsFor
      the Six Months Ended June 30, 2010 and 2009and
      the Period from Inception (April 25, 2003) to June 30,
2010(Unaudited)For the Six Months Ended
                    June 30, 2010
                  
                  
                  Inception
      to
                    June
      30,2010
                  
                  
                  2009
                  
                  
                  2010CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income (loss)
                  
                  $
                  6,825,385
                  
                  
                  $
                  (1,411,064
                  )
                  
                  $
                  3,584,035Adjustments
      to reconcile net income (loss) to net cash from
                    operating
      activities:Loss
      on sale of oil and gas properties
                  
                  
                  -
                  
                  
                  
                  1,151,997
                  
                  
                  
                  1,151,997Gain
      on change in derivative value
                  
                  
                  (9,020,100
                  )
                  
                  
                  
                  
                  
                  
                  (10,941,800
                  )Gain
      on sale of assets
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,673,620
                  )Dry
      hole cost
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  466,066Imputed
      interest
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  16,641Amortization
      of debt discount
                  
                  
                  665,000
                  
                  
                  
                  -
                  
                  
                  
                  2,382,427Depreciation,
      depletion, amortization, accretion and impairment expense
                  
                  
                  14,356
                  
                  
                  
                  18,739
                  
                  
                  
                  114,791Amortization
      of deferred financing cost
                  
                  
                  72,606
                  
                  
                  
                  -
                  
                  
                  
                  110,803Share-based
      compensation
                  
                  
                  797,929
                  
                  
                  
                  -
                  
                  
                  
                  1,161,754Changes
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  6,857
                  
                  
                  
                  -
                  
                  
                  
                  (22,787
                  )Accounts
      payable and accrued expenses
                  
                  
                  286,880
                  
                  
                  
                  90,743
                  
                  
                  
                  627,744Advances
      from joint interest owners
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  300,000Accrued
      expenses – related parties
                  
                  
                  13,358
                  
                  
                  
                  13,526
                  
                  
                  
                  117,817CASH
      USED IN OPERATING ACTIVITIES
                  
                  
                  (337,729
                  )
                  
                  
                  (136,059
                  )
                  
                  
                  (2,604,132
                  )CASH
      FLOWS FROM INVESTING ACTIVITIESRelease
      of restricted cash
                  
                  
                  20,000
                  
                  
                  
                  -
                  
                  
                  
                  -Payments
      for oil and gas development costs
                  
                  
                  (353,225
                  )
                  
                  
                  (202,088
                  )
                  
                  
                  (2,958,226
                  )Cash
      paid for asset retirement obligations
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (46,494
                  )Cash
      acquired from purchase of Poydras Energy, LLC
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,326Proceeds
      from sale of assets
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,562,500Purchases
      of fixed assets
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (5,203
                  )CASH
      USED IN INVESTING ACTIVITIES
                  
                  
                  (333,225
                  )
                  
                  
                  (202,088
                  )
                  
                  
                  (446,097
                  )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from the sale of stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  473,600Borrowings
      on debt from related parties
                  
                  
                  -
                  
                  
                  
                  26,200
                  
                  
                  
                  723,400Principal
      payments on debt from related parties
                  
                  
                  (43,000
                  )
                  
                  
                  -
                  
                  
                  
                  (472,000
                  )Borrowings
      on debt from third parties, net of financing cost
                  
                  
                  573,361
                  
                  
                  
                  -
                  
                  
                  
                  1,874,179Members
      contributions
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  647,598Members
      distributions
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (70,000
                  )CASH
      PROVIDED BY FINANCING ACTIVITIES
                  
                  
                  530,361
                  
                  
                  
                  26,200
                  
                  
                  
                  3,176,777NET
      CHANGE IN CASH
                  
                  
                  (140,593
                  )
                  
                  
                  (311,947
                  )
                  
                  
                  126,548CASH
      AT BEGINNING OF PERIOD
                  
                  
                  267,141
                  
                  
                  
                  311,947
                  
                  
                  
                  -CASH
      AT END OF PERIOD
                  
                  $
                  126,548
                  
                  
                  $
                  -
                  
                  
                  $
                  126,548
  5
  
 MESA
      ENERGY HOLDINGS, INC.(An
      Exploration Stage Company)Consolidated
      Statements of Cash Flows, continuedFor
      the Six Months Ended June 30, 2010 and 2009and
      the Period from Inception (April 25, 2003) to June 30,
2010(Unaudited)For
      the Six Months Ended
                    June 30, 2010
                  
                  
                  Inception
      to
                    June
      30,2010
                  
                  
                  2009
                  
                  
                  2010Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                  
                  $
                  -
                  
                  
                  $
                  2,618
                  
                  
                  $
                  86,359Cash
      paid for income taxes
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Non-cash
      disclosures:Accrued
      oil and gas acquisition and development cost
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  55,000Sale
      of pipeline right-of-way for payables
                  
                  $
                  -
                  
                  
                  $
                  60,000
                  
                  
                  $
                  60,000Note
      payable issued for purchase of Poydras Energy, LLC
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  100,000Common
      stock issued for purchase of Poydras Energy, LLC
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  750,000Stock
      issued in reverse merger
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,400Warrants
      issued with the sale of oil and gas property
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  31,071Change
      in asset retirement obligation
                  
                  $
                  -
                  
                  
                  $
                  266
                  
                  
                  $
                  47,976Initial
      valuation of derivative liability upon issuance of debt
                  
                  $
                  3,311,821
                  
                  
                  $
                  -
                  
                  
                  $
                  12,695,201Common
      stock issued for conversions of notes payable and accrued
      interest
                  
                  $
                  185,604
                  
                  
                  $
                  -
                  
                  
                  $
                  185,604Accrued
      liability for deferred financing costs
                  
                  $
                  23,665
                  
                  
                  $
                  -
                  
                  
                  $
                  23,665
 See
accompanying notes to unaudited consolidated financial
statements.
  6
  MESA
ENERGY HOLDINGS, INC.
 (An
Exploration Stage Company)
 Notes to
Consolidated Financial Statements
 (Unaudited)
 
 NOTE 1 –
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Organization
and nature of operations
 
 Mesa
Energy, Inc. (“MEI”) is a company whose predecessor entity, Mesa Energy, LLC,
was formed in April 2003 to engage in the oil and gas industry.  MEI’s
primary oil and gas operations have historically been conducted through its
wholly owned subsidiary, Mesa Energy Operating, LLC, a Texas limited liability
company qualified as an operator in Texas, Oklahoma, New York and Wyoming (“Mesa
Operating”).
 
 MEI was
originally incorporated as North American Risk Management Incorporated on
January 24, 2001, in the State of Colorado.  It was organized to
engage in the business of providing insurance to independent and fleet truck
operators.  However, operations ceased after approximately six
months.  On March 3, 2006, MEI was the surviving entity in a merger
with Mesa Energy, LLC, a Texas limited liability company, whose activities
between April 2003 and March 2006 included participation in various drilling
projects, both as operator and as a non-operator, as well as the acquisition of
the Frenchy Springs and Coal Creek acreage positions.  Subsequently,
MEI reincorporated in the State of Nevada by merging with and into Mesa Energy,
Inc., a Nevada corporation, on March 13, 2006.
 
 The
registrant was incorporated in the State of Delaware, as “Mesquite Mining,
Inc.,” on October 23, 2007 to engage in the acquisition and exploration of
mining properties (the “Legacy Business”).  In mid 2009, the
registrant’s Board of Directors decided to redirect the registrant’s efforts
towards identifying and pursuing a new business plan and
direction.  Amid discussions with MEI regarding a potential business
combination, on June 19, 2009, the registrant changed its name to Mesa Energy
Holdings, Inc.
 
 As used
in these notes to consolidated financial statements, references to “the Company”
for periods prior to the closing of the Merger on August 31, 2009, refer to MEI,
a Nevada corporation that was a Pink Sheets company prior to the merger and that
is now our wholly owned subsidiary, and such references for periods subsequent
to the closing of the Merger on August 31, 2009, refer to Mesa Energy Holdings,
Inc., a publicly traded Delaware corporation formerly known as Mesquite Mining,
Inc., together with its subsidiaries, including MEI.
 
 On August
31, 2009, the Company completed a reverse merger transaction (the “Merger”)
pursuant to which a wholly owned subsidiary of Mesa Energy Holdings, Inc. merged
with and into MEI, and MEI, as the surviving corporation, became a wholly owned
subsidiary of Mesa Energy Holdings, Inc.
 
 Immediately
following the Merger, under the terms of a Split-Off Agreement and a General
Release Agreement, the Company transferred all of Mesa Energy Holdings’
pre-Merger operating assets and liabilities to a wholly owned
subsidiary.  Thereafter, pursuant to the Split-Off Agreement, the
Company transferred all of the outstanding shares of capital stock of such
subsidiary to Beverly Frederick, the Company’s pre-Merger majority stockholder,
in exchange for (i) the surrender and cancellation of all 21,000,000 shares of
our common stock held by that stockholder and (ii) certain representations,
covenants and indemnities.
 
 After the
Merger and the split-off, Mesa Energy Holdings, Inc. succeeded to the business
of MEI as its sole line of business, and all of Mesa Energy Holdings, Inc.’s
then-current officers and directors resigned and were replaced by MEI’s officers
and directors.
 
 The
Merger was accounted for as a reverse acquisition and recapitalization of MEI
for financial accounting purposes. Consequently, the assets and liabilities and
the historical operations that are reflected in the Company’s financial
statements for periods prior to the Merger are those of MEI and have been
recorded at the historical cost basis of MEI, and the Company’s consolidated
financial statements for periods after completion of the Merger include both
Mesa Energy Holdings, Inc.’s and MEI’s assets and liabilities, the historical
operations of MEI prior to the Merger and Mesa Energy Holdings, Inc.’s
operations from and after the closing date of the Merger.
 7
 
 On June
18, 2009, Mesa Energy Holdings’ Board of Directors authorized a 14-for-1 forward
split of its common stock, par value $0.0001 per share (the “Common Stock”), in
the form of a stock dividend (the “Stock Split”), which was paid on August 4,
2009, to holders of record on July 20, 2009.  After giving effect to
the Stock Split, but before giving effect to the Merger and other transactions
described below, there were outstanding 35,070,000 shares of Common
Stock.  All share and per share numbers in this Report relating to the
Common Stock prior to the Stock Split have been adjusted to give effect to the
Stock Split unless otherwise stated.  Furthermore, except where the
context otherwise requires, all share and per share numbers in this Report
relating to the common stock of MEI have been adjusted to give effect to the
recapitalization represented by the Merger.
 
 Basis
of financial statement presentation
 
 The
accompanying unaudited interim consolidated financial statements have been
prepared by the Company in accordance with generally accepted accounting
principles for interim financial information.  Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.  The
information furnished in the interim consolidated financial statements includes
normal recurring adjustments and reflects all adjustments, which, in the opinion
of management, are necessary for a fair presentation of such financial
statements.  Operating results for the three and six months ended June
30, 2010 are not necessarily indicative of the results that may be expected for
the full year.  These interim consolidated financial statements should
be read in conjunction with the Company’s most recent audited consolidated
financial statements and notes thereto dated December 31, 2009.
 
 Reclassifications
 
 Certain
reclassifications have been made to amounts in prior periods to conform with the
current period presentation. All reclassifications have been applied
consistently to the periods presented.
 
 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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period.  Actual results could differ from those
estimates.
 
 Principles of
Consolidation
 
 The consolidated financial statements
includethe Company’saccountsincludingthose ofthe Company’swhollyowned subsidiaries.All significant intercompany accounts
and transactions have been eliminated.
 
 Subsequent
Events
 
 The
Company has evaluated all transactions through the financial statement issuance
date for subsequent event disclosure consideration.
 
  8
  Earnings(Loss)Per Share
 
 The Company’searnings(loss)per share is computed by dividing net
income(loss)by the weighted average number of
common shares outstandingduringthe period. Diluted
earnings(loss)per share reflects the potential
dilution of securities, if any, that could share in the earnings of the Company
and is calculated by dividing net income 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. The following is a reconciliation of basic and
diluted earnings per share forthe three and six months ended June 30,2010and 2009:
 
 For the Three Months
      Ended
                  
                  
                  For the Six Months
      EndedJune 30,
                  
                  
                  June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Numerator:Net income (loss) available to
      common shareholders
                  
                  $
                  17,194,475
                  
                  
                  $
                  (1,249,728
                  )
                  
                  $
                  6,825,385
                  
                  
                  $
                  (1,411,064
                  )Effect of common stock
      equivalentsAdd:  interest expense
      on convertible debt
                  
                  
                  52,985
                  
                  
                  
                  -
                  
                  
                  
                  105,609Less:  tax effect of
      decrease in interest expense
                  
                  
                  (18,545
                  )
                  
                  
                  -
                  
                  
                  
                  (36,963
                  )
                  
                  
                  -Net income (loss) adjusted for
      common stock equivalents
                  
                  
                  17,288,915
                  
                  
                  
                  (1,249,728
                  )
                  
                  
                  6,894,031
                  
                  
                  
                  (1,411,064
                  )Denominator:Weighted average shares -
      basic
                  
                  
                  39,813,663
                  
                  
                  
                  24,206,391
                  
                  
                  
                  39,679,629
                  
                  
                  
                  24,206,391Net income (loss) per share –
      basic
                  
                  $
                  0.43
                  
                  
                  $
                  (0.05
                  )
                  
                  $
                  0.17
                  
                  
                  $
                  (0.06
                  )Dilutive effect of common stock
      equivalents:Options
                  
                  
                  183,722
                  
                  
                  
                  -
                  
                  
                  
                  498,240
                  
                  
                  
                  -Convertible
      Debt
                  
                  
                  8,580,000
                  
                  
                  
                  -
                  
                  
                  
                  8,580,000
                  
                  
                  
                  -Denominator:Weighted average shares –
      diluted
                  
                  
                  48,577,384
                  
                  
                  
                  24,206,391
                  
                  
                  
                  48,757,869
                  
                  
                  
                  24,206,391Net income (loss) per share –
      diluted
                  
                  $
                  0.35
                  
                  
                  $
                  (0.05
                  )
                  
                  $
                  0.14
                  
                  
                  $
                  (0.06
                  )
 
 In periods when losses are reported, the
weighted-averagenumber of
common shares outstanding excludes common stock equivalents, because their
inclusion would be anti-dilutive.
 
 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.
 
 NOTE 2
– GOING
CONCERN
 
 The
Company has incurred recurring losses from operations resulting in an
accumulated deficit during the exploration stage of $5,436,065 (excluding a
$9,020,100 gain on change in valuation of derivative liability), has a working
capital deficit at June 30, 2010 of $2,068,718 (comprised primarily of a
$1,753,401 derivative liability) and currently has limited sources of recurring
revenue.  These conditions raise substantial doubt as to the Company’s
ability to continue as a going concern.  To finance the Company’s net
losses and to execute its business plan, the Company has sold debt and equity
securities and officers and directors have funded the Company through the
purchase of notes payable (see Note 4).  There can be no assurance
that the Company can sell stock or debt or that the officers and directors of
the Company will continue or have the ability to make financing available to the
Company in the future.  The officers and directors are under no legal
obligation to provide additional loans to the Company.  If the
officers and directors do not make such loans, the Company cannot create a
source of recurring revenues or that the Company does not receive funds from
other sources, then the Company may be unable to continue to operate as a going
concern.  The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going
concern.
 9
  NOTE 3 –
OIL AND GAS PROPERTIES
 
 The
Company’s oil and gas properties are located in the United States.
 
 The
carrying values, net of depletion, depreciation, and impairment, at June 30,
2010 and December 31, 2009 of the Company’s oil and gas properties
were:
 
 Prospect
                      
                      June 30, 2010
                      
                      
                      December 31, 2009Coal
      Creek Prospect
                      
                      $
                      225,044
                      
                      
                      $
                      223,469Java
      Field
                      
                      
                      860,850
                      
                      
                      
                      520,633Total
                      
                      $
                      1,085,694
                      
                      
                      $
                      744,102
 
 
 Net oil
and gas properties at June 30, 2010 were:
 
 Year
                    Incurred
                  
                  Acquisition
                    Costs
                  
                  
                  Exploration
                    Costs
                  
                  
                  Dry Hole
                    Cost
                  
                  
                  Disposition
                    of assets
                  
                  
                  Depletion,
                    Depreciation,
                    and
                    Impairment
                  
                  
                  Total2007and prior
                  
                  $
                  236,963
                  
                  
                  $
                  458,958
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  (27,140
                  )
                  
                  $
                  668,7812008
                  
                  
                  -
                  
                  
                  
                  1,595,099
                  
                  
                  
                  (466,066
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,129,0332009
                  
                  
                  556,260
                  
                  
                  
                  488,035
                  
                  
                  
                  -
                  
                  
                  
                  (2,090,383
                  )
                  
                  
                  (7,624
                  )
                  
                  
                  (1,053,712
                  )2010
                  
                  
                  -
                  
                  
                  
                  353,226
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (11,634
                  )
                  
                  
                  341,592Total
                  
                  $
                  793,223
                  
                  
                  $
                  2,895,318
                  
                  
                  $
                  (466,066
                  )
                  
                  $
                  (2,090,383
                  )
                  
                  $
                  (46,398
                  )
                  
                  $
                  1,085,694
 
 
 The
Company holds oil and gas lease interests in Oklahoma and New
York.  The Oklahoma leases are classified as “Properties not subject
to amortization” in the Company’s financial statements.  The Company
evaluates each of its properties upon completion of drilling and assessment of
reserves to either classify as “Properties subject to amortization” or impair
the properties.
 
 NOTE 4 –
DEBT - RELATED PARTIES
 
 At June
30, 2010, debt to related parties consisted of unsecured notes payable to
related parties for cash loaned to the Company.  These notes totaling
$451,400 are made to entities owned by the founders and bear interest at a rate
of 6% per annum with principal and interest originally to mature on March 31,
2007, but have been amended to mature on May 31, 2012.  Also, during
the six months ended June 30, 2010, a demand note payable to Randy M. Griffin,
the Company’s CEO, in the amount of $43,000 was repaid.
 
 NOTE 5 –
CONVERTIBLE PROMISSORY NOTES
 
 In 2009,
the Company commenced a private placement (the “2009 Private Placement”) of 10%
Secured Convertible Promissory Notes of the Company (the “Convertible Notes”),
at a purchase price of 100% of face value, which, at the option of the
respective holders, are convertible into shares of Common Stock at a conversion
price of $0.25 per share, subject to adjustment in certain circumstances as provided
therein.  Several closings of the 2009 Private Placement
were held during fiscal 2009 and the first quarter of 2010 in which the Company
sold an aggregate of $1,945,000 principal amount of Convertible Notes (not
including a Convertible Note in the principal amount of $250,000 that was issued
in exchange for a different convertible note of the Company in the same
principal amount) raising net proceeds of $1,624,262 after $320,738 of offering
costs.  The Convertible Notes issued are due 24 months from issuance
(or earlier upon certain events of default) and bear interest at 10% per annum,
payable semi-annually on December 31 and June 30 in each year. Interest will be
paid in shares of common stock valued for this purpose at 90% of the volume
weighted average price of the Common Stock for the ten trading days preceding
but not including the relevant interest payment date.  The Company
shall have the right to redeem from time to time, upon prior notice, all or any
portion of the outstanding principal amount of the Convertible Notes, without
penalty, for 100% of the principal being redeemed plus accrued and unpaid
interest.
 10
 
 The
Convertible Notes contain a standard “blocker” provision so that no holder shall
have the right to convert any portion of its Convertible Notes to the extent
that, after giving effect to such conversion, the holder and its affiliates
would beneficially own in excess of 4.99% of the number of shares of Common
Stock outstanding immediately after giving effect to such
conversion.  By written notice to the Company, a holder may increase
or decrease such percentage to any other percentage, provided that any such
increase will not be effective until the sixty-first (61st) day after such
notice is delivered and such percentage may not, in any event, exceed
9.99%.  All convertible notes above are secured by substantially all
of the assets of the Company.
 
 The
Company determined that the Convertible Notes issued in the 2009 Private
Placement contained provisions that protect holders from declines in the
Company’s stock price that could result in modification of the exercise price
under the conversion feature based on a variable that is not an input to the
fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No.
815–40.  As a result, the exercise price is not indexed to the
Company’s own stock.  The fair value of the conversion feature was
recognized as an embedded derivative instrument and will be measured at fair
value at each reporting period.  The Company measured the fair value
of these instruments as of the date of issuance and recorded an initial
derivative liability of $9,383,380.  The fair values of these
instruments are re-measured each reporting period and a gain or loss is recorded
for the change in fair value.  The Company measured the fair value of
these instruments at June 30, 2010, including issuances in 2010, and recorded a
$9,020,100 unrealized gain on change in derivative value to the statement of
operations for the six months ended June 30, 2010. The Company determined the
fair values of these securities using a binomial valuation model that utilizes
the Cox-Ross-Rubenstein method of formulating the Black-Scholes equation for
determining the theoretical value of convertible notes that contain options of
the underlying common stock of the Company.
 
 Activity
for derivative instrument
during the six months ended June 30, 2010 was as follows:
 
 Balance
      at
                January
      1,
                2010
              
              Initial
      valuation of
                derivative
      liability
                upon
      issuance of
                new
      debt during
                the
      period
              
              Decrease
      in fair value
                of
      derivative liability
              
              Balance
      at
                June
      30, 2010Derivative
      conversion feature
              $
      7,461,680
              
              $
      3,311,820
              
              $
      9,020,100
              
              $
      1,753,401
 
 
 The fair
value of the derivative conversion feature is estimated using the following
principal assumptions for the binomial valuation modelon the dates of initial
valuation:
 
 Date
                  
                  Probability
      of
                    issuance
      of
                    instruments
      at a
                    price
      lower than the
                    conversion
      price
                  
                  Probable
      prices at
                    which
      instruments
                    will
      be issuedSeptember
      2009
                  
                  70%
                  
                  $0.20
      - $0.15November
      2009
                  
                  60%
                  
                  $0.20
      - $0.15December
      2009
                  
                  50%
                  
                  $0.24
      - $0.21Thereafter
                  
                  50%
                  
                  $0.24
      - $0.21
 
 11
 
 Principal
repayment provisions of long-term debt are as follows at June 30,
2010:
  2010
                        
                        $
                        -2011
                        
                        
                        1,480,0002012
                        
                        
                        1,116,400Thereafter
                        
                        
                        -Total
                        
                        $
                        2,596,400
 
 
 NOTE 6 –
COMMITMENTS AND CONTINGENCIES
 
 From time
to time, the Company may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business.  However,
litigation is subject to inherent uncertainties, and an adverse result in these
or other matters that may arise from time to time that may harm the Company’s
business.
 
 Other
than routine litigation arising in the ordinary course of business that the
Company does not expect, individually or in the aggregate, to have a material
adverse effect on the Company, there is no currently pending legal
proceeding.
 
 NOTE 7 –
STOCKHOLDERS’ EQUITY
 
 On March
3, 2006, Mesa Energy, LLC, merged with Mesa Energy, Inc., a Colorado
corporation.  Mesa Energy, Inc. (Colorado) (formerly known as North
American Risk Corporation, Inc.) issued 17,550,486 shares in exchange for all of
the assets and liabilities of Mesa Energy, LLC.
 
 On March
13, 2006, the combined entity merged with Mesa Energy, Inc., a Nevada
corporation (MEI), and MEI issued 1,735,762 shares of common stock on a 1:1
basis to Mesa Energy, Inc. (Colorado).
 
 Neither
new entity had any assets, liabilities or operations.  Both of the
above transactions were accounted for as recapitalizations of MEI.
 
 During
the year ended December 31, 2006, MEI issued 1,214,484 shares of common stock
for cash proceeds of $265,400 in a series of transactions.  MEI also
issued 30,000 warrants for services with an exercise price of $0.50 and an
expiration date of December 15, 2009.  The options and warrants were
valued at $19,075 using the Black-Scholes Option Pricing
Model.  Immediately prior to the closing of the Merger discussed
below, shares of MEI’s common stock were issued in exchange for all outstanding
warrants to purchase shares of MEI’s common stock.
 
 During
the year ended December 31, 2007, MEI issued 803,079 shares of common stock for
cash proceeds of $208,200.
 
 Effective
January 1, 2008, MEI issued 2,892,937 shares of common stock to entities
controlled by David L. Freeman in exchange for a 50% member interest in
Poydras.
 
 On
January 17, 2008, MEI granted 199,470 warrants to the Sharon Wilensky Revocable
Trust, an affiliate of Roky Operating, LLC, as additional consideration in
connection with Roky’s acquisition of a 40% working interest in an oil and gas
property from MEI.  MEI determined the relative fair value of the
warrants under the Black-Scholes valuation model to be $31,071, which was
recorded as additional oil and gas properties in the Main Pass 35 Project. The parameters used in the Black-Scholes
valuation model were:  a risk-free interest rate of 2.46%; the current
stock price on the date of issuance of $0.50 per common share; the exercise
price of the warrants of $0.50 per share of common stock; an expected term of
three years; volatility of 98.65% and an expected dividend yield of
0.0%.  Immediately prior to the closing of the Merger discussed
below, shares of MEI’s common stock were issued in exchange for all outstanding
warrants to purchase shares of MEI’s common stock.
 
 On August
1, 2008, MEI sold and issued 9,643 shares of its restricted common stock to a
third-party consultant at $0.75 per share for total consideration of $3,750 for
consulting services.
 12
 
 Reverse
Merger
 
 On August
31, 2009, Mesa Energy Holdings, Acquisition Sub and MEI, entered into an
agreement and plan of merger and reorganization (the “Merger Agreement”), which
closed on the same date, and pursuant to which Acquisition Sub merged (the
“Merger”) with and into MEI, which became a wholly owned subsidiary of Mesa
Energy Holdings.
 
 Pursuant
to the Merger, Mesa Energy Holdings, Inc. ceased to engage in the acquisition
and exploration of mining properties and acquired the business of MEI to engage
in exploration and production activities in the oil and gas industry, as a
publicly traded company under the name Mesa Energy Holdings, Inc.
 
 At the
closing of the Merger, each of the 12,981,115 shares (25,035,700 after
adjustment for stock splits or reverse merger re-capitalization) of MEI’s common
stock issued and outstanding immediately prior to the closing of the Merger,
included 430,000 shares (829,309 after adjustment for stock splits or reverse
merger re-capitalization) of MEI’s common stock issued in exchange for
outstanding warrants to purchase 430,000 shares of MEI’s common stock, was
converted into 1.9286 shares of Mesa Energy Holdings, Inc.’s Common Stock. As a
result, an aggregate of 25,035,700 shares of Mesa Energy Holdings, Inc.’s common
stock was issued to the holders of MEI’s common stock. MEI did not have any
stock options or other warrants to purchase shares of its capital stock
outstanding at the time of the Merger.  Immediately prior to the
Merger, Mesa Energy Holdings, Inc. had 14,000,000 shares of common stock
outstanding.
 
 Upon the
closing of the Merger, under the terms of a Split-Off Agreement and a General
Release Agreement, the Company transferred all of its pre-Merger operating
assets and liabilities to its wholly owned subsidiary, Mesquite Mining Group,
Inc., a Delaware corporation (“Split-Off Subsidiary”) formed on August 13, 2009.
Thereafter, pursuant to the Split-Off Agreement, the Company transferred all of
the outstanding shares of capital stock of Split-Off Subsidiary to Beverly
Frederick, the pre-Merger majority stockholder of Mesquite Mining (the
“Split-Off”), in consideration of and in exchange for (i) the surrender and
cancellation of an aggregate of all 21,000,000 shares of Common Stock held by
that stockholder and (ii) certain representations, covenants and
indemnities.
 
 Investor
Relations Agreement
 
 In the
Merger Agreement, the Company agreed to enter into an agreement with an investor
relations firm or firms to be identified (the “IR Consultants”) to provide
investor relations services to the Company, pursuant to which the Company will
agree to deliver to the IR Consultants an aggregate of 1,000,000 shares of
Common Stock (the “IR Shares”); as of June 30, 2010, 358,900 of those shares had
been issued to an IR Consultants and the remainder were issued to Gottbetter
& Partners, LLP to hold as escrow agent pursuant to the IR Shares Escrow
Agreement.  The value of the 200,000 shares issued to IR Consultants
for services for the period ended June 30, 2010 was $189,000 based on the grant
date fair value.  The 641,100 IR Shares remaining in escrow will be
valued upon their release from escrow to IR Consultants as services are
performed.
 
 2009
Equity Incentive Plan
 
 Before
the Merger, the Board of Directors of the Company adopted, and the
Company’s majority stockholders approved, the 2009 Equity Incentive Plan (the
“2009 Plan”), which provides for the issuance of incentive awards of up to
5,000,000 shares of Common Stock to officers, key employees, consultants and
directors of the Company and its subsidiaries.  As of June 30, 2010,
options to purchase 1,048,000 shares of our common stock at an exercise price of
$0.25 per share, and awards of 24,000 shares of restricted stock had been
granted under the 2009 Plan.
 
 Immediately
after giving effect to (i) the Stock Split, (ii) the initial closing of the 2009
Private Placement, (iii) the closing of the Merger and (iv) the cancellation of
21,000,000 shares in the Split-Off, there were 40,035,700 shares of common stock
issued or required to be issued, as follows:
  ·
              The
      former MEI stockholders held 25,035,700 shares of Common
      Stock;
  13
  ·
              The
      stockholders of Mesquite Mining prior to the Merger held 14,000,000 shares
      of Common Stock;
 
 ·
              An
      IR Consultant held 150,000 shares of Common Stock;
  and
 
 ·
              850,000
      shares of Common Stock were required to be issued to the escrow agent
      pursuant to an IR Shares Escrow
Agreement.
 
 Additionally,
 
 ·
              The
      investor in the initial closing of the 2009 Private Placement held a
      $500,000 Convertible Note convertible into 2,000,000 shares of Common
      Stock, subject to adjustment in certain circumstances as provided
      therein;
 
 ·
              MEI
      had an outstanding convertible promissory note (the “Old Note”), in the
      principal amount of $250,000, which was convertible into an aggregate of
      964,300 shares of Common Stock, subject to adjustment in certain
      circumstances as provided.·
              the
      2009 Plan authorized issuance of up to 5,000,000 shares of Common Stock as
      incentive awards to executive officers, key employees, consultants and
      directors of the Company and its subsidiaries; however, no awards had been
      granted under the 2009 Plan.
 
 No other
securities convertible into or exercisable or exchangeable for Common Stock
(including options or warrants) were outstanding at such time.
 
 On
November 6, 2009, the $250,000 Old Note was cancelled and replaced with a
$250,000 Convertible Note as part of the 2009 Private
Placement.  Accordingly, such Convertible Note is now convertible at
$0.25 per share.
 
 The
Company conducted additional closings of the 2009 Private Placement (the
“Additional 2009 Closings”) on October 19, 2009 for $250,000, on November 3,
2009 for $250,000, on November 11, 2009 for $100,000, on November 13, 2009 for
$100,000, and on November 25, 2009 for $80,000 for an aggregate principal amount
(including the initial closing, but excluding the Convertible Note issued in
exchange for the Denton Note) of $1,280,000.  The Company conducted
further additional closings of the 2009 Private Placement (the “Additional 2010
Closings”) in January 2010, for $665,000.
 
 On
January 7, 2010, a holder converted an aggregate of $50,000 principal amount of
Convertible Notes, together with $2,731 of interest accrued thereon into an
aggregate of 203,068 shares of Common Stock.  On February 19, 2010,
the Company issued an aggregate of 36,135 shares of Common Stock to convert the
$32,160 of interest accrued through December 31, 2009 on the then outstanding
Convertible Notes.
 
 On March
11, 2010, we issued a total of 850,000 shares of our common stock to Gottbetter
& Partners, LLP to hold as escrow agent pursuant to an IR Shares Escrow
Agreement between us and them.  On the same date, 8,900 of such
shares, valued at $18,334, were released from the escrowed shares to an investor
relations firm for services provided.
 
 On March
17, 2010, we granted Nicholas A. Spano a total of 24,000 shares of restricted
stock under the 2009 Plan in connection with his serving on our Advisory
Board.  The applicable Restricted Stock Agreement provides that such
shares vest and be released from escrow over four vesting periods as services
are provided.  6,000 of such shares, valued at $15,360, vested on the
date of grant.  The remaining 18,000 shares will vest, and be released
from escrow, on each of the first three six-month anniversaries of the date of
grant as services are provided.
 
 We also
entered into a Consultant Agreement, effective as of March 17, 2010, with Mr.
Spano, pursuant to which we agreed to compensate Mr. Spano with a total of
76,000 shares for certain consulting services by issuing him 26,000 shares,
valued at $66,560, immediately, and an additional 25,000 shares on each of July
31, 2010 and November 30, 2010.
 14
 
 On April
1, 2010, Robert C. Avaltroni, former Deputy Commissioner of the Department of
Environmental Protection for New York City, joined the Advisory Board and was
granted the right to receive a total of 24,000 shares of restricted stock under
the 2009 Equity Incentive Plan.  The applicable Restricted Stock
Agreement provides that the common shares vest, and be released, from escrow
over four vesting periods as services are provided.  The first vesting
period occurred on the date of grant and the market value of the 6,000 shares of
common shares released from escrow was $16,020. After June 30, 2010, the
remaining 18,000 common shares will vest, and be released from escrow, in three
six-month periods from the original date of grant as services are
provided.
 
 The
Company also entered into a Consultant Agreement, effective as of April 1, 2010,
with Mr. Avaltroni, pursuant to which the Company agreed to compensate Mr.
Avaltroni a total of 76,000 common shares for certain consulting services, by
issuing him 26,000 common shares immediately, and an additional 25,000 common
shares on July 31, 2010 and November 30, 2010.  The market value of
the 26,000 common shares issued to Mr. Avaltroni pursuant to the Consulting
Agreement on April 1, 2010 was $69,420.
 
 On May
10, 2010, the Company entered into a six-month Consulting Agreement with an IR
Consultant, pursuant to which the Company instructed the escrow agent to release
200,000 common shares, valued at $189,000, of the IR Shares to such IR
Consultant as compensation.
 
 On
June 30, 2010, the Company issued an aggregate of 234,218 shares of Common Stock
to convert $103,499 of accrued interest through June 30, 2010 on the outstanding
Convertible Notes.
 
 NOTE 8 –
STOCK OPTIONS
 
 The Board
of Directors of the Company adopted the 2009 Equity Incentive Plan (the “2009
Plan”), which provides for the issuance of incentive awards of up to 5,000,000
shares of common stock to officers, key employees, consultants and directors of
the Company and its subsidiaries.  As of June 30, 2010, options to
purchase 1,048,000 shares of our common stock at an exercise price of $0.25 per
share, and awards of 48,000 shares of restricted stock had been granted under
the 2009 Plan.
 
 A summary
of the changes in options outstanding during the six months ended June 30, 2010,
is as follows:
 
 Number
      of
                      Shares
                    
                    
                    Weighted
                      Average
                      Exercise
      PriceOutstanding
      at December 31, 2009
                    
                    
                    -Issued
                    
                    
                    1,048,000
                    
                    
                    $
                    0.25Exercised
                    
                    
                    -
                    
                    
                    
                    -Cancelled/Expired
                    
                    
                    -
                    
                    
                    
                    -Outstanding
      at June 30, 2010
                    
                    
                    1,048,000
                    
                    
                    $
                    0.25Exercisable
      at June 30, 2010
                    
                    
                    524,000
                    
                    
                    $
                    0.25
  Options
outstanding and their relative exercise price at June 30, 2010 are as
follows:
 
 Exercise
      price
                          
                          
                          Number
      of
                            options
                          
                          Remaining
      life
                          
                          Aggregate
      Intrinsic
                            Value
      (In-the-
                            money)
      Options$0.25
                          
                          
                          
                          298,000
                          
                          2.76
      years
                          
                          $53,640$0.25
                          
                          
                          
                          500,000
                          
                          4.77
      years
                          
                          90,000$0.25
                          
                          
                          
                          250,000
                          
                          4.83
      years
                          
                          45,000
 
 For the
six months ended June 30, 2010, compensation expense related to outstanding
options of $423,235 was recognized.  As of June 30, 2010, outstanding
options had an intrinsic value of $188,640 and a weighted average remaining
contractual term of 3.97 years.
 15
 
 NOTE 9 –
SUBSEQUENT EVENTS
 
 On July
31, 2010, the Company issued 25,000 shares of Common Stock, valued at $7,250, to
Mr. Avaltroni as the second payment under Mr. Avaltroni’s consulting agreement
with the Company.  On that date, the Company also issued 25,000 shares
of Common Stock, valued at $7,250, to Nicholas A Spano, another member of our
Advisory Board, as the second payment under a similar consulting
agreement.
 
  16
  Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations
 
 The
following discussion and analysis of financial condition and results of
operations contains forward-looking statements that involve risks, uncertainties
and assumptions.  See “Note Regarding Forward-Looking
Statements.”  Our actual results could differ materially from those
anticipated in the forward-looking statements, among other things, as a result
of certain factors discussed in this quarterly report and in our Annual Report
on Form 10-K filed with the SEC on April 15, 2010, including the “Risk Factors”
section thereof.
  Overview
and Going Concern
  North
American Risk Management Incorporated was incorporated on January 24, 2001 in
the State of Colorado to engage in the business of providing insurance to
independent and fleet truck operators.  However, it had no significant
operations, and because its business operations did not commence in a timely
manner, operations ceased after approximately six months.  On February
13, 2006, North American Risk Management Incorporated changed its name to “Mesa
Energy, Inc.”  Then, on March 3, 2006, Mesa Energy, Inc. was the
surviving entity in a merger with Mesa Energy, LLC, a Texas limited liability
company, whose activities between April 2003 and March 2006 included
participation in various drilling projects, both as operator and as a
non-operator, as well as the acquisition of the certain mineral
rights.  On March 13, 2006, Mesa Energy, Inc. formed a wholly owned
subsidiary in the state of Nevada, also named “Mesa Energy, Inc.,” and merged
with and into it in order to change its domicile to Nevada.
  Mesquite
Mining, Inc. was incorporated in the State of Delaware on October 23, 2007 to
engage in the acquisition and exploration of mining properties.  On
June 19, 2009, Mesquite Mining, Inc. amended its Certificate of Incorporation
(i) to change its name from Mesquite Mining, Inc. to Mesa Energy Holdings, Inc.
and (ii) to increase its authorized common stock to 300,000,000 shares, and its
preferred stock to 10,000,000 shares.
  On August
31, 2009, we closed a reverse merger transaction pursuant to which a wholly
owned subsidiary of Mesa Energy Holdings, Inc. merged with and into Mesa Energy,
Inc., and Mesa Energy, Inc., as the surviving corporation, became a wholly owned
subsidiary of Mesa Energy Holdings, Inc. (the “reverse merger”).
  Immediately
following the closing of the reverse merger, under the terms of a Split-Off
Agreement and a General Release Agreement, we transferred all of our pre-merger operating assets
and liabilities to our wholly owned subsidiary, Mesquite Mining Group, Inc.
(“Split-Off Subsidiary”), a Delaware corporation formed on August 13,
2009.  Thereafter, pursuant to the Split-Off Agreement, we transferred
all of the outstanding shares of capital stock of Split-Off Subsidiary to
Beverly Frederick, our pre-reverse merger majority stockholder, in exchange for
(i) the surrender and cancellation of all 21,000,000 shares of our common stock
held by that stockholder and (ii) certain representations, covenants and
indemnities.
  After the
reverse merger and the split-off, Mesa Energy Holdings, Inc.
succeeded to the business of Mesa Energy, Inc. as its sole line of business, and
all of Mesa Energy Holdings, Inc.’s then-current officers and directors resigned
and were replaced by Mesa Energy, Inc.’s officers and directors.
  The
reverse merger was accounted for as a reverse acquisition and recapitalization
of Mesa Energy, Inc. for financial accounting purposes.  Consequently,
the assets and liabilities and the historical operations that are reflected in
our financial statements for periods prior to the reverse merger are those of
Mesa Energy, Inc. and have been recorded at the historical cost basis of Mesa
Energy, Inc., and our consolidated financial statements for periods after
completion of the reverse merger include both Mesa Energy
Holdings, Inc.’s and Mesa Energy, Inc.’s assets and liabilities, the historical
operations of Mesa Energy, Inc. prior to the reverse merger and Mesa Energy
Holdings, Inc.’s operations from the closing date of the reverse
merger.
  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 condition and
results of operations presented herein. The discussion should be read in
conjunction with our unaudited financial statements and related notes and the
other financial information included elsewhere in this report.
 17
  Java
Field Natural Gas Development Project – Wyoming County, New York
 
 On August
31, 2009, the closing date of our reverse merger, 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 for
$440,000.  The acquisition included a 100% working interest in 17
leases held by production covering approximately 3,235 mineral acres, 19
existing natural gas wells, two 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
east of the field.  Our average net revenue interest (NRI) in the
leases is approximately 78%.
 
 The
current production from the Java Field is being sold to a local manufacturing
plant.  Two of the existing wells in the Java Field have never been
hooked up to the pipeline system, and the others had very little maintenance and
management attention in a number of years prior to our acquisition of the
field.  In the 4th quarter of 2009, we initiated efforts to work over
several of the existing wells, replace meters and associated equipment and
improve the operation of the pipeline system.  The local manufacturing
plant has had difficulty maintaining the consistent acquisition of gas in recent
months due to poor economic conditions in its industry, and this has handicapped
our ability to properly clean-up and test our newly re-completed wells as well
as to increase the overall production in the field.  In the 3rd quarter
of 2010, we plan to commence efforts to divert the pipeline system to a new
sales point in order to solve this problem.
  The first
phase of development of the Marcellus Shale was initiated in the fourth quarter
of 2009.  We initially evaluated a number of the existing wells in
order to determine the viability of the re-entry of existing wellbores for
plug-back and re-completion 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.  Both wells were re-completed and fracced in the
2nd
quarter and both wells have been connected to the pipeline
system.  Different methodology was used on each well in order to
obtain the best possible information to help optimize the frac techniques in
future wells.  Based on the results of these re-completions and our
ongoing testing, a second phase of development is planned for the 3rd quarter
that will include the re-completion and fraccing of three additional
wells.  We expect to be able to fine tune the frac techniques on these
three wells and to proceed with the development of our existing acreage position
as well as to pursue additional acreage, either from leasing or from joint
ventures with other operators, late this year or in early 2011.
 
 Coal
Creek Prospect, Sequoyah Co., Oklahoma
 
 In December 2007, we completed a
“farm-out” transaction with Wentworth Operating Company of Edmond, OK
(“Wentworth”), wherein Wentworth acquired our pipeline right-of-way and planned
to construct a natural gas gathering system and approximately three miles of
pipeline to connect the Cook #1 and future wells to an Arkansas Oklahoma Gas
Company (AOG) pipeline.  In addition, Wentworth agreed to fund, drill
and complete the Gipson #1, a direct offset to the Cook #1.  As a
result of amendments to the farm-out agreement with Wentworth, we now own 35% of
the working interest in the Cook #1 and 25% of the working interest in the
Gipson #1, with Wentworth and other industry partners owning the
balance.
 
 The
Gipson #1 was subsequently drilled to a total depth of approximately 3,000 feet
to test not only the Brent Sand but also the Hunton Sand, a gas-bearing sand
widely produced in this area.  Based on the drilling reports and
testing during the drilling of the Gipson #1 well, we believe there is a
substantial quantity of gas in the Hunton Sand zone.  However, the
completion technique used in that zone proved to be ineffective and resulted in
too much water incursion for the well to be economic.  We believe that
adjustments to the completion methodology are likely to result in successful
Hunton Sand wells in the future.
 
 The
Gipson #1 was re-completed in the Brent Sand, both it and the Cook #1 were
connected to the pipeline and initial production began in the third quarter of
2009.
 
 Based on
the performance of the two wells we now believe that the Brent Sand in the field
may be partially depleted.  However, we expect to work with the
operator on this project to pursue further development of additional gas
reserves in the Coal Creek Field later this year.
 18
 
 Going
Concern
  We have
incurred recurring losses from operations resulting in an accumulated deficit
during the exploration stage of $5,436,065 (excluding a $9,020,100 gain on
change in valuation of derivative liability), have a working capital deficit at
June 30, 2010 of $2,068,718 (comprised primarily of a $1,753,401 derivative
liability) and currently have limited sources of recurring
revenue.  These conditions raise substantial doubt as to our ability
to continue as a going concern.  To finance our net losses and to
execute our business plan, we sold stock and our officers and directors funded
us through notes payable (see Note 4).  There can be no assurance that
we can sell stock or debt or that our officers and directors will continue or
have the ability to continue to make financing available to us in the
future.  Our officers and directors are under no legal obligation to
provide additional loans to us.  In the event that our officers cannot
make such loans, that we cannot create a source of recurring revenues or that we
do not receive funds from other sources, we may be unable to continue to operate
as a going concern.  Our financial statements do not include any
adjustments that might be necessary if we are unable to continue as a going
concern.
  Adjusted
EBITDA as a Non-GAAP Performance Measure
  In
evaluating our business, management believes earnings before interest,
amortization of financing costs, taxes, depreciation, depletion, amortization
and accretion of abandonment liabilities, 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 loss in accordance with GAAP to our
Adjusted EBITDA for the three and six-month periods ending June 30, 2010 and
2009:
  
  
 
 For the Three Months
      Ended
                      
                      
                      For the Six Months
      Ended2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Net
      Income (Loss)
                      
                      $
                      17,194,475
                      
                      
                      $
                      (1,249,728
                      )
                      
                      $
                      6,825,385
                      
                      
                      $
                      (1,411,064
                      )Add
      Back:Interest
      expense, net
                      
                      
                      59,706
                      
                      
                      
                      14,415
                      
                      
                      
                      783,631
                      
                      
                      
                      28,644Amortization
      of deferred financing costs
                      
                      
                      37,154
                      
                      
                      
                      -
                      
                      
                      
                      72,523
                      
                      
                      
                      -Depreciation,
      depletion, accretion and impairment
                      
                      
                      7,178
                      
                      
                      
                      18,665
                      
                      
                      
                      14,356
                      
                      
                      
                      18,739Gain
      on change in derivative value
                      
                      
                      (18,045,075
                      )
                      
                      
                      -
                      
                      
                      
                      (9,020,100
                      )
                      
                      
                      -Stock
      based compensation
                      
                      
                      488,649
                      
                      
                      
                      -
                      
                      
                      
                      797,929
                      
                      
                      
                      -Adjusted
      EBITDA
                      
                      $
                      (257,913
                      )
                      
                      $
                      (1,216,648
                      )
                      
                      $
                      (526,276
                      )
                      
                      $
                      (1,363,681
                      )
  19
 Results
of Operations
 
 We are an
exploration stage company and have generated minimal revenues from operations to
date.
 
 Comparison
of Three Months Ended June 30, 2010 and 2009
 
 Revenues
 
 We
generated minimal revenues of $9,463 for the three months ended June 30, 2010
while we generated no revenues for the three months ended June 30,
2009.  This revenue represents revenue from the existing producing
wells in the Java Field in Wyoming County, New York.
 
 Operating
Expenses
 
 We
incurred operating expenses of $764,618 for the three months ended June 30,
2010, as compared to $1,242,980 for the three months ended June 30,
2009.  These expenses consisted of rent, exploration costs, legal and
professional fees, depreciation and related expenses and administrative fees
incurred in connection with the day to day operation of our
business.  The decrease of $478,362 was due, in part, to the loss on
the sale of Poydras Energy, LLC in 2009 of $1,151,997.  Also,
operating expenses increased in the period by approximately $250,000 in legal
and professional fees in connection with our financing efforts and a $210,586
increase in non-cash stock option expense during the 2010 period.
 
 Interest
Expense
  Interest
expense was $96,860 for the three months ended June 30, 2010, as compared to
interest expense of $14,415 for the three months ended June 30, 2009, an
increase of $82,445. The difference was due to additional interest on debt and
$40,138 of amortization of deferred financing costs for our 2009 Private
Placement.
 
 Loss
on Change in Derivative Value
 
 The
noncash gain on change in derivative value of $18,045,075 for the three months
ended June 30, 2010 compared with zero for the comparable period of 2009
represents the change in potential liability for issuing shares with a higher
value than the conversion price upon conversion of convertible debt into common
stock.  The gain on derivative value is driven primarily by the
decrease in the trading price of our common stock during the three months ended
June 30, 2010.
 
 Net
Income/Loss
 
 Our net
income for the three months ended June 30, 2010 was $17,194,475, comprised
primarily of the noncash gain on change in derivative liability of
$18,045,075.  Net loss for the three months ended June 30, 2009 was
$1,249,728.
 
 Comparison
of Six Months Ended June 30, 2010 and 2009
 
 Revenues
 
 We
generated minimal revenues of $19,280 for the six months ended June 30, 2010
while we generated no revenues for the six months ended June 30,
2009.  This revenue represents revenue from the existing producing
wells in the Java Field in Wyoming County, New York.
 
 Operating
Expenses
 
 We
incurred operating expenses of $1,361,554 for the six months ended June 30,
2010, as compared to $1,390,662 for the six months ended June 30,
2009.  These expenses consisted of rent, exploration costs, legal and
professional fees, depreciation and related expenses and administrative fees
incurred in connection with the day to day operation of our
business.  The decrease of $29,108 was due, in part, to the loss on
the sale of Poydras Energy, LLC in 2009 of $1,151,997.  Also,
operating expenses increased in the period by approximately $510,000 in legal
and professional fees in connection with our financing efforts and a $423,235
increase in non-cash stock option expense in the 2010 period.
 20
 
 Interest
Expense
  Interest
expense was $856,155 for the six months ended June 30, 2010, as compared to
interest expense of $28,644 for the six months ended June 30, 2009, an increase
of $827,511. The difference was due primarily to additional debt and the
amortization of the debt discount of $665,000 arising from the initial
derivative valuation for debt issuances during the current period and $72,606 of
deferred financing costs for our 2009 Private Placement.
 
 Gain
on Change in Derivative Value
 
 The
noncash gain on the change in derivative value of $9,020,100 for the six months
ended June 30, 2010 compared with zero for the comparable period of 2009
represents the change in potential liability for issuing shares with a higher
value than the conversion price upon conversion of convertible debt into common
stock.  The gain on the derivative value is driven primarily by the
decrease in the trading price of our common stock during the six months ended
June 30, 2010.
 
 Net
Income
 
 Our net
income for the six months ended June, 30 2010 was $6,825,385, comprised
primarily of the noncash gain on the change in derivative liability of
$9,020,100.  Net loss for the six months ended June 30, 2009 was
$1,411,064.
 
 Liquidity
and Capital Resources
 
 Overview
 
 Due to
our brief history and historical operating losses, our operations have not been
a source of liquidity, and our sources of liquidity primarily have been
debt and proceeds of the sale of MEI common stock and working interests in oil
and gas properties. Although we have begun to generate minimal revenues from the
sale of natural gas from our wells in the Java Field and the Coal Creek
Prospect, there can be no assurances that we will be able to increase or
maintain production or that we will be able to generate sufficient liquidity
from the sale of our natural gas to fund our operations. If we cannot generate
revenues from the sale of our natural gas, our business, results of operations,
liquidity and financial condition may suffer materially.
 
 Various
factors outside of our control, including the price of oil and natural gas,
overall market and economic conditions, the downturn and volatility in the US
equity markets and the trading price of our common stock may limit our ability
to raise the capital needed to execute our plan of operations. We recognize that
the US economy is currently experiencing a period of uncertainty and that the
capital markets have been depressed from recent levels. We also recognize that
the price of oil and natural gas has decreased significantly during the last 20
months and that natural gas has yet to fully recover to previous levels. If the
price of natural gas remains depressed and the markets remain volatile, we
expect that these or other factors could adversely affect our ability to raise
additional capital.  If we are unable to raise sufficient additional
capital, our short-term or long-term liquidity and our ability to execute our
plan of operations will be materially impaired.
 
 During
our 2009 fiscal year, we conducted closings (the “2009 Closings”) of a private
placement (the “2009 Private Placement”) of our 10% Secured Convertible
Promissory Notes (the “Convertible Notes”), at a purchase price equal to the
principal amount thereof, for an aggregate gross amount (excluding the
Convertible Note in the principal amount of $250,000 issued in exchange for a
different convertible promissory note of equal principal amount) of
$1,280,000.  The Convertible Notes are, at the option of the holder,
convertible into shares of our common stock at a conversion price of $0.25 per
share, subject to adjustment in certain circumstances as provided in the
Convertible Notes.
  During
the quarter ended March 31, 2010, we conducted further closings (the “Additional
2010 Closings”) of the 2009 Private Placement on January 15, 2010, for $615,000,
and on January 25, 2010, for $50,000.  We paid an aggregate of $24,150
cash placement fees in connection with the Additional 2010
Closings.
 21
  On
January 7, 2010, a holder converted an aggregate of $50,000 principal amount of
Convertible Notes, together with $2,731 of interest accrued thereon into an
aggregate of 203,068 shares of Common Stock.  On February 19, 2010,
the Company issued an aggregate of 36,135 shares of Common Stock to convert the
$32,160 of interest accrued through December 31, 2009 on the then outstanding
Convertible Notes.
 
 On
January 20, 2010, we repaid the $43,000 remaining balance owed to Mr. Griffin
for loans made to us after our reverse merger.
  We
applied the remaining proceeds from the 2009 Private Placement towards the
implementation of our plan for the development of the Java Field and for general
working capital purposes.  The initial phase of development of the
Java Field included efforts to enhance the existing production as well as
testing of the Marcellus Shale by re-entering two existing wells.
  Additional
capital of approximately $1,500,000 will be required to fund the second phase of
development of the Java Field property and we expect to raise that capital
through additional sales of equity or debt securities in the third quarter of
2010.  There can be no assurance, however, that such financing will be
available to us or, if it is available, that it will be available on terms
acceptable to us or that it will be sufficient to fund our needs.  If
we are unable to obtain this financing, we may not be able to proceed with the
second phase of development of the Java Field or meet our ongoing operational
working capital needs.
  As of
June 30, 2010, we had a working capital deficit of $2,068,718 as compared to a
working capital deficit of $7,518,536 as of December 31, 2009.  The
decrease in the working capital deficit was primarily attributable to our gain
on change in derivative value of $9,020,100 for the six months ended June 30,
2010 and the initial derivative liability on the capital raised in the quarter
ended June 30, 2010 of $3,311,820.  Our current assets decreased by
$113,164 for the period ended June 30, 2010, as compared to the period ended
December 31, 2009. This decrease in current assets was due to the decrease in
cash from operations in the second quarter of 2010.
  Cash
and Accounts Receivable
  At June
30, 2010, we had cash and cash equivalents of $126,548, compared to $267,141 at
December 31, 2009.  Cash decreased by $140,593 primarily from
operations in the first six months of 2010.
 
 Liabilities
  Accounts
payable and accrued expenses increased by $182,939 to $515,677 at June 30, 2010,
from $332,738 at December 31, 2009. The increase was attributable to the
additional legal and professional fees associated with the 2009 Private
Placement.
 
 As of
June 30, 2010, the outstanding balance of principal on debt was $2,596,400 a net
increase of $572,000 from the outstanding balance of $2,024,400 as of December
31, 2009. This net increase was primarily due to gross proceeds of $665,000 that
we received from the 2009 Private Placement in the first quarter of
2010.
  Notes
payable to related parties decreased $43,000 from $43,000 on December 31, 2009
to $0 on June 30, 2010 as a result of the repayment of a loan from our
CEO.
 
 Derivative
liability decreased by $5,708,279 as a result of the combination of an increase
in our recorded derivative liability associated with the valuation of new debt
issuances of $3,311,820 and the gain on change in derivative value of $9,020,100
for the six months ended June 30, 2010.
 
 Cash
Flows
  For the
six months ended June 30, 2010, the net cash used in operating activities of
$337,729 reflected working capital requirements to fund operating, general and
administrative activities and the completion of our 2009 Private
Placement.  The net cash used by operating activities was $136,059 for
the six months ended June 30, 2009.
 22
 
 For the
six months ended June 30, 2010, net cash used in investing activities was
$333,225 compared to net cash used in investing activities of $202,088 for the
same period in 2009. The principal investing activity in the first six months of
2010 related to the payment of $353,225 of oil and gas development costs in the
period. The principal investing activity in the first three months of 2009
related to payment of $202,088 of oil and gas development costs in the
period.
  For the
six months ended June 30, 2010, net cash provided by financing activities was
$530,361, compared to net cash provided by financing activities of $26,200 for
the six months ended June 30, 2009, primarily as a result of proceeds received
from issuance of debt from the 2009 Private Placement for the six months ended
June 30, 2010.
 
 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
applicable.
 
 Item
4T.  Controls and Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange
Act of 1934 as a process designed by, or under the supervision of, the company's
principal executive and principal financial officers and effected by our board
of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America and includes those
policies and procedures that:
 
 -
              Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect transactions and dispositions of our
  assets;
 
 -
              Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with accounting
      principles generally accepted in the United States of America and that our
      receipts and expenditures are being made only in accordance with
      authorizations of our management and directors;
  and
 
 -
              Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a material effect on our financial
statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.  All internal control systems,
no matter how well designed, have inherent limitations.  Therefore,
even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and
presentation.  Because of the inherent limitations of internal
control, there is a risk that material misstatements may not be prevented or
detected on a timely basis by internal control over financial
reporting.  However, these inherent limitations are known features of
the financial reporting process.  Therefore, it is possible to design
into the process safeguards to reduce, though not eliminate, this
risk.
 
 As of
June 30, 2010, our management assessed the effectiveness of our internal control
over financial reporting based on the criteria for effective internal control
over financial reporting established in Internal Control–Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and SEC guidance on conducting such assessments. Based on that evaluation, they
concluded that, during the fiscal quarter ended
 23
 June 30,
2010, such internal controls and procedures were not effective to detect the
inappropriate application of US GAAP rules as more fully described
below.  This was due to deficiencies that existed in the design or
operation of our internal controls over financial reporting that adversely
affected our internal controls and that may be considered to be material
weaknesses.
 
 These
matters involving internal controls and procedures that our management
considered to be material weaknesses under the standards of the Public Company
Accounting Oversight Board were:  (1) our lack of a functioning audit
committee which could result in ineffective oversight in the establishment and
monitoring of required internal controls and procedures; (2) we had not
developed and effectively communicated to our employees our accounting policies
and procedures, resulting in inconsistent application of such policies and
procedures in our financial statements in 2009; (3) inadequate segregation of
duties consistent with control objectives; and (4) ineffective controls over
period end financial disclosure and reporting processes.  The
aforementioned material weaknesses were identified by our Chief Executive
Officer in connection with the review of our financial statements as
of
 June 30,
2010.
 
 Management
believes that the material weaknesses set forth above did not have an effect on
our financial results.  However, management believes that the lack of
a functioning audit committee could result in ineffective oversight in the
establishment and monitoring of required internal controls and procedures, which
could result in a material misstatement in our financial statements in future
periods.
 
 Management's
Remediation Initiatives
 
 Management
is evaluating the process to address the material weaknesses,
including:
 
 (a)
              considering
      the engagement of consultants to assist in ensuring that accounting
      policies and procedures are consistent across the organization and that we
      have adequate control over financial statement
  disclosures;
 
 (b)
              increasing
      our workforce in preparation for exiting the exploration stage and
      beginning operations; and
 
 (c)
              hiring
      an experienced Chief Financial
Officer.
 
 We
anticipate that these initiatives will be at least partially, if not fully,
implemented by December 31, 2010.  Additionally, we plan to test our
updated controls and remediate our deficiencies by December 31,
2010.
 
 Changes
in Internal Controls over Financial Reporting
 
 Except as
described below, there was no change in our internal controls over financial
reporting that occurred during the period covered by this report, which has
materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.
 
 In
January 2010, James J. Cerna, Jr., Fred B. Zaziski and Kenneth T. Hern joined
our Board of Directors, resulting, as of January 27, 2010, in our Board of
Directors being comprised of a majority of independent directors.
 
 
  24
  PART
II – OTHER INFORMATION
 
 Item
1A. Risk Factors.
 
 The
risk factors facing our company have not changed materially from those set forth
in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December
31, 2009, as filed with the SEC on April 15, 2010, except that we are adding the
following risk factor to supplement the risk factors in our Annual
Report.
  
 Pending
New York legislative initiatives and environmental studies of the effect of
hydraulic fracturing may limit our exploration and developmental efforts in the
Marcellus Shale in New York
 
 The New
York Department of Environmental Conservation is currently engaged in an
environmental review of the impacts of hydraulic fracturing in the Marcellus
shale in New York.  Additionally, bills have been introduced in the New
York State legislature, that, if enacted, could result in the imposition of a
moratorium on hydraulic fracturing operations in the Marcellus shale.  The
imposition of such a moratorium or any negative outcome of an environmental
study leading to restrictions, limitations or prohibitions on hydraulic
fracturing in New York could limit our exploration and developmental efforts in
the Marcellus shale.  This could have a material adverse effect on our
business, financial condition and results of operations and our ability to
execute our business plan.
 
 Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 On April
1, 2010, we granted Robert C. Avaltroni a total of 24,000 shares of restricted
common stock under the 2009 Plan in connection with his serving on our Advisory
Board.  The applicable Restricted Stock Agreement provides that the
shares vest and be released from escrow over four vesting periods as services
are provided.  The first vesting period occurred on the date of grant
and the market value of the 6,000 shares released from escrow was
$16,020.  After June 30, 2010, the remaining 18,000 shares will vest,
and be released from escrow, on each of the first three six-month anniversaries
of the date of grant as services are provided.
 
 We also
entered into a Consultant Agreement, effective as of April 1, 2010, with Mr.
Avaltroni, pursuant to which we agreed to compensate Mr. Avaltroni with a total
of 76,000 shares of our common stock for certain consulting services by issuing
him 26,000 shares immediately, and an additional 25,000 shares on each of July
31, 2010 and November 30, 2010.
 
 On May
10, 2010, we entered into a six-month Consulting Agreement with an IR
Consultant, pursuant to which we instructed the escrow agent to release 200,000
shares of our common stock, valued at $189,000, of the IR Shares to such IR
Consultant as compensation.
 
 On
June 30, 2010, we issued an aggregate of 234,218 shares of our common stock to
convert $103,499 of accrued interest through June 30, 2010 on the outstanding
Convertible Notes.
 
 Subsequent
Event
 
 On July
31, 2010, we issued 25,000 shares of our common stock, valued at $7,250, to Mr.
Avaltroni as the second payment under Mr. Avaltroni’s consulting agreement with
us.  On that date, we also issued 25,000 shares of our common stock,
valued at $7,250, to Nicholas A Spano, another member of our Advisory Board, as
the second payment under a similar consulting agreement.
  We have
determined that the various issuances of our securities described herein are
exempt from registration under the Securities Act of 1933, as amended, in
reliance on Section 4(2) thereof and/or Regulation D or Regulation S promulgated
thereunder.  The investors represented their status as sophisticated
investors and/or as non-U.S. persons, as well as their intention to acquire the
securities (and any securities issuable upon conversion or exercise thereof) for
investment only and not with a view to or for sale in connection with any
distribution thereof.  Moreover, appropriate legends have been affixed
to the securities (or, in the case of securities issuable upon conversion or
exercise of other securities, will be affixed to the share certificates
therefore).  Moreover, each investor either received adequate
information about us or had access to such information.
 25
 
 Item
3.  Other Information
 
 Reference
is hereby made to our Current Report on Form 8-K filed with the SEC on August
13, 2010.
 
 
  26
  Item
6.  Exhibits
 
 Exhibit
      No.
              Description
 
  31.1
              Certification
      of Principal Executive Officer, pursuant to SEC Rules 13a-14(a) and
      15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002
  31.2
              Certification
      of Principal Financial Officer, pursuant to SEC Rules 13a-14(a) and
      15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act
      of 2002
  32.1
              Certification
      of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350,
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002*
  32.2
              Certification
      of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350,
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002*
  ____________________
 * 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
to the extent that the Registrant specifically incorporates it by
reference.
 
 
 
  27
  SIGNATURES
 
 In
accordance with the requirements of the Exchange Act, the Registrant has caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 
 MESA
      ENERGY HOLDINGS, INC.Date:  August
      16, 2010
              By:
              /s/ Randy M. GriffinName:
              Randy
      M .GriffinTitle:
              Chief
      Executive Officer  (principal executive
  officer)
 
 
 Date:  August
      16, 2010
              By:
              /s/ Ray L. UnruhName:
              Ray
      L. UnruhTitle:
              Acting
      Chief Financial Officer
                (principal
      financial and accounting
officer)
  28