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 March 31, 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(Do
      not check if a smaller
              reporting
      company)





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 40,574,611 shares of the registrant’s common stock, par value $0.0001 per
share, outstanding as of May May 12, 2010.








MESA
ENERGY HOLDINGS, INC.




TABLE
OF CONTENTS




PagePart
      I Financial InformationItem
      1
                  Financial
      StatementsConsolidated
      Balance Sheets as of March 31, 2010 and December 31, 2009
      (Unaudited)
                  1Consolidated
      Statements of Operations for the three months ended March 31, 2010 and the
      period from Inception (April 25, 2003) to March 31, 2010
      (Unaudited)
                  2Consolidated
      Statement of Changes in Members’ and Stockholders’ Equity (Deficit) for
      the period from Inception (April 25, 2003) to March 31, 2010
      (Unaudited)
                  3Consolidated
      Statements of Cash Flows for the three months ended March 31, 2010 and
      2009 and the period from Inception (April 25, 2003) to March 31, 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
                  22Part
      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)





March 31, 2010
                
                
                December 31, 2009ASSETSCurrent
      assetsCash
      and cash equivalents
                
                $
                509,951
                
                
                $
                267,141Restricted
      cash
                
                
                -
                
                
                
                20,000Accounts
      receivable – oil and gas
                
                
                3,887
                
                
                
                5,515Deferred
      financing cost, current
                
                
                141,476
                
                
                
                114,591Prepaid
      expenses
                
                
                17,877
                
                
                
                24,126TOTAL
      CURRENT ASSETS
                
                
                673,191
                
                
                
                431,373Oil
      and gas properties, using successful efforts accountingProperties
      not subject to amortization, less accumulated impairment of $27,140
      and $27,140, respectively
                
                
                204,281
                
                
                
                185,777Properties
      subject to amortization, less accumulated depletion of $2,568 and
      $1,411, respectively
                
                
                96,045
                
                
                
                74,984Pipeline
      property, less accumulated depreciation of $10,873
      and  $6,213 respectively
                
                
                361,921
                
                
                
                366,581Property
      and equipment, less accumulated depreciation of $0 and $0,
      respectively
                
                
                116,937
                
                
                
                116,760Net
      oil and gas properties
                
                
                779,184
                
                
                
                744,102Furniture
      and equipment, less accumulated depreciation of $5,125 and $5,051,
      respectively
                
                
                78
                
                
                
                152Deferred
      financing cost , net of accumulated amortization of  $73,566
      and $38,197, respectively
                
                
                105,696
                
                
                
                76,394Prepaid
      asset retirement cost
                
                
                40,000
                
                
                
                40,000TOTAL
      ASSETS
                
                $
                1,598,149
                
                
                $
                1,292,022LIABILITIES
      AND STOCKHOLDERS’ DEFICITCurrent
      liabilitiesAccounts
      payable-trade
                
                $
                42,922
                
                
                $
                86,433Accrued
      expenses
                
                
                308,918
                
                
                
                246,305Accrued
      expenses-related parties
                
                
                111,137
                
                
                
                104,458Deposits
                
                
                33
                
                
                
                8,033Notes
      payable-related parties
                
                
                -
                
                
                
                43,000Derivative
      liability
                
                
                19,798,476
                
                
                
                7,461,680TOTAL
      CURRENT LIABILITIES
                
                
                20,261,486
                
                
                
                7,949,909Non-current
      liabilitiesLong-term
      debt-related parties
                
                
                451,400
                
                
                
                451,400Convertible
      note payable
                
                
                2,145,000
                
                
                
                1,530,000Asset
      retirement obligations
                
                
                56,567
                
                
                
                55,280TOTAL
      LIABILITIES
                
                
                22,914,453
                
                
                
                9,986,589Stockholders’
      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, 39,664,803
      and 39,385,700 shares issued and outstanding, respectively
                
                
                3,967
                
                
                
                3,939Additional
      paid-in capital
                
                
                (7,709,834
                )
                
                
                (5,457,156
                )Accumulated
      deficit during the exploration stage
                
                
                (13,610,437
                )
                
                
                (3,241,350
                )TOTAL
      STOCKHOLDERS’ DEFICIT
                
                
                (21,316,304
                )
                
                
                (8,694,567
                )TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICIT
                
                $
                1,598,149
                
                
                $
                1,292,022





See
accompanying notes to unaudited consolidated financial
statements.


1





MESA
ENERGY HOLDINGS, INC.


(An
Exploration Stage Company)


Consolidated
Statements of Operations


For the
Three  Months Ended March 31, 2010 and 2009


and the
Period from Inception (April 25, 2003) to March 31, 2010


(Unaudited)





For the Three Months Ended
                        March 31,
                      
                      
                      Inception to
                        March 31,2010
                      
                      
                      2009
                      
                      
                      2010Revenues
                      
                      $
                      9,817
                      
                      
                      $
                      -
                      
                      
                      $
                      26,456Operating
      expensesExploration
      cost
                      
                      
                      15,476
                      
                      
                      
                      56,068
                      
                      
                      
                      498,642Dry
      hole cost
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      466,066Depreciation,
      depletion, amortization, accretion, and impairment
                      
                      
                      7,178
                      
                      
                      
                      74
                      
                      
                      
                      107,613General
      and administrative expenses
                      
                      
                      574,281
                      
                      
                      
                      91,540
                      
                      
                      
                      3,267,109Loss
      on sale of Poydras Energy, LLC
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,151,997Gain
      on sale of oil and gas properties
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,673,620
                      )Total
      operating expenses
                      
                      
                      569,935
                      
                      
                      
                      147,682
                      
                      
                      
                      3,817,807Income
      (loss) from operations
                      
                      
                      (587,118
                      )
                      
                      
                      (147,682
                      )
                      
                      
                      (3,791,351
                      )Other
      income (expenses)Interest
      expense
                      
                      
                      (759,294
                      )
                      
                      
                      (14,229
                      )
                      
                      
                      (2,759,260
                      )Interest
      income
                      
                      
                      2,300
                      
                      
                      
                      575
                      
                      
                      
                      26,320Loss
      on change of derivative value
                      
                      
                      (9,024,975
                      )
                      
                      
                      -
                      
                      
                      
                      (7,103,275
                      )Other
      income (expense)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      17,129Total
      other expense
                      
                      
                      (9,781,969
                      )
                      
                      
                      (13,654
                      )
                      
                      
                      (9,819,086
                      )Net
      income (loss)
                      
                      $
                      (10,369,087
                      )
                      
                      $
                      (161,336
                      )
                      
                      $
                      (13,610,437
                      )Net
      income (loss) per share:Basic
      and diluted
                      
                      $
                      (0.26
                      )
                      
                      $
                      (0.01
                      )Weighted
      average number of shares outstanding:Basic
      and diluted
                      
                      
                      39,542,929
                      
                      
                      
                      24,202,727





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 March 31, 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),
continued


For the
Period from Inception (April 25, 2003) to March 31, 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
                        
                        
                        -
                        
                        
                        
                        39,900
                        
                        
                        
                        4
                        
                        
                        
                        309,276
                        
                        
                        
                        -
                        
                        
                        
                        309,280Conversion
      of convertible debt
                        
                        
                        -
                        
                        
                        
                        239,203
                        
                        
                        
                        24
                        
                        
                        
                        84,867
                        
                        
                        
                        -
                        
                        
                        
                        84,891Discount
      on convertible debt
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (2,646,821
                        )
                        
                        
                        -
                        
                        
                        
                        (2,646,821
                        )Net
      loss
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (10,369,087
                        )
                        
                        
                        (10,369,087
                        )Balances
      at March  31, 2010
                        
                        $
                        -
                        
                        
                        
                        39,664,803
                        
                        
                        $
                        3,967
                        
                        
                        $
                        (7,709,834
                        )
                        
                        $
                        (13,610,437
                        )
                        
                        $
                        (21,316,304
                        )





See
accompanying notes to unaudited consolidated financial
statements.


4





MESA
ENERGY HOLDINGS, INC.


(An
Exploration Stage Company)


Consolidated
Statements of Cash Flows


For the
Three Months Ended March 31, 2010 and 2009


and the
Period from Inception (April 25, 2003) to March 31, 2010


(Unaudited)





For the Three Months Ended
                  March 31, 2010
                
                
                Inception to
                  March 31,2010
                
                
                2009
                
                
                2010CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                
                $
                (10,369,087
                )
                
                $
                (161,336
                )
                
                $
                (13,610,437
                )Adjustments
      to reconcile net loss to net cash from operating
    activities:Loss
      on sale of oil and gas properties
                
                
                -
                
                
                
                -
                
                
                
                1,151,997Loss
      on change in derivative
                
                
                9,024,975
                
                
                
                
                
                
                
                7,103,275Gain
      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
                
                
                7,178
                
                
                
                74
                
                
                
                107,613Amortization
      of deferred financing cost
                
                
                35,369
                
                
                
                -
                
                
                
                73,566Share-based
      compensation
                
                
                309,280
                
                
                
                -
                
                
                
                673,105Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                7,882
                
                
                
                -
                
                
                
                (21,759
                )Accounts
      payable and accrued expenses
                
                
                45,991
                
                
                
                339,949
                
                
                
                386,851Advances
      from joint interest owners
                
                
                -
                
                
                
                -
                
                
                
                300,000Accrued
      expenses – related parties
                
                
                6,679
                
                
                
                -
                
                
                
                111,137CASH
      PROVIDED BY (USED IN) OPERATING ACTIVITIES
                
                
                (266,733
                )
                
                
                178,687
                
                
                
                (2,533,138
                )CASH
      FLOWS FROM INVESTING ACTIVITIESRelease
      of restricted cash
                
                
                20,000
                
                
                
                -
                
                
                
                -Payments
      for oil and gas development costs
                
                
                (40,901
                )
                
                
                (433,712
                )
                
                
                (2,645,900
                )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
                
                
                (20,901
                )
                
                
                (433,712
                )
                
                
                (133,771
                )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from the sale of stock
                
                
                -
                
                
                
                -
                
                
                
                473,600Borrowings
      on debt from related parties
                
                
                -
                
                
                
                -
                
                
                
                723,400Principal
      payments on debt from related parties
                
                
                (43,000
                )
                
                
                -
                
                
                
                (472,000
                )Borrowings
      on debt from third parties, net of financing cost
                
                
                573,444
                
                
                
                -
                
                
                
                1,874,262Members
      contributions
                
                
                -
                
                
                
                -
                
                
                
                647,598Members
      distributions
                
                
                -
                
                
                
                -
                
                
                
                (70,000
                )CASH
      PROVIDED BY FINANCING ACTIVITIES
                
                
                530,444
                
                
                
                -
                
                
                
                3,176,860NET
      CHANGE IN CASH
                
                
                242,810
                
                
                
                (255,025
                )
                
                
                509,951CASH
      AT BEGINNING OF PERIOD
                
                
                267,141
                
                
                
                311,947
                
                
                
                -CASH
      AT END OF PERIOD
                
                $
                509,951
                
                
                $
                56,922
                
                
                $
                509,951


5





MESA
ENERGY HOLDINGS, INC.


(An
Exploration Stage Company)


Consolidated
Statements of Cash Flows, continued


For the
Three Months Ended March 31, 2010 and 2009


and the
Period from Inception (April 25, 2003) to March 31, 2010


(Unaudited)





For the Three Months Ended
                  March 31, 2010
                
                
                Inception to
                  March 31,2010
                
                
                2009
                
                
                2010Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                
                $
                -
                
                
                $
                -
                
                
                $
                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
                
                $
                -
                
                
                $
                -
                
                
                $
                60,000Note
      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
                
                $
                -
                
                
                $
                -
                
                
                $
                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
                
                $
                84,891
                
                
                $
                -
                
                
                $
                84,891





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 private Nevada corporation 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 months ended March 31,
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.





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 include the Company’s accounts including those
of the Company’s wholly owned subsidiaries.  All significant
intercompany accounts and transactions have been eliminated.


8


Earnings
(Loss) Per Share





The
Company’s earnings (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding during the 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 for
the three months ended March 31, 2010 and 2009:





For the Three Months EndedMarch31,2010
                    
                    
                    2009Numerator:Net
      income (loss) available to common shareholders
                    
                    $
                    (10,369,087
                    )
                    
                    $
                    (161,336
                    )Denominator:Weighted
      average shares - basic
                    
                    
                    39,542,929
                    
                    
                    
                    24,202,727Net
      income (loss) per share – basic
                    
                    $
                    (0.26
                    )
                    
                    $
                    (0.01
                    )Dilutive
      effect of common stock equivalents:Warrants
                    
                    
                    -
                    
                    
                    
                    -Convertible
      Debt
                    
                    
                    -
                    
                    
                    
                    -Denominator:Weighted
      average shares – diluted
                    
                    
                    39,542,929
                    
                    
                    
                    24,202,727Net
      income (loss) per share – diluted
                    
                    $
                    (0.26
                    )
                    
                    $
                    (0.01
                    )





In
periods when losses are reported, the weighted-average number 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 $13,610,437 (including a
$7.1 million loss on change in valuation of derivative liability), has a working
capital deficit at March 31, 2010 of $19,588,295 (comprised primarily of a $19.8
million 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 March 31,
2010 and December 31, 2009 of the Company’s oil and gas properties
were:





Prospect
                      
                      March 31, 2010
                      
                      
                      December 31, 2009Coal
      Creek Prospect
                      
                      $
                      225,044
                      
                      
                      $
                      223,469Java
      Field
                      
                      
                      554,140
                      
                      
                      
                      520,633Total
                      
                      $
                      779,184
                      
                      
                      $
                      744,102





Net oil
and gas properties at March 31, 2010 were:





Year
                    Incurred
                  
                  Acquisition
                    Costs
                  
                  
                  Exploration
                    Costs
                  
                  
                  DryHole
                    Cost
                  
                  
                  Disposition
                    ofassets
                  
                  
                  Depletion,
                    Depreciation,
                    and
                    Impairment
                  
                  
                  Total2007
      and 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
                  
                  
                  -
                  
                  
                  
                  40,899
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (5,817
                  )
                  
                  
                  35,082Total
                  
                  $
                  793,223
                  
                  
                  $
                  2,582,991
                  
                  
                  $
                  (466,066
                  )
                  
                  $
                  (2,090,383
                  )
                  
                  $
                  (40,581
                  )
                  
                  $
                  779,184





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 March
31, 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 quarter ended March 31, 2010, a note payable to Randy M. Griffin, the
Company’s CEO, in the amount of $43,000 was retired.





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 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 at December 31, 2009, and
recorded $1,921,700 unrealized gain on change in derivative value to the
statement of operations for the year ended December 31, 2009.  The
Company measured the fair value of these instruments at March 31, 2010,
including issuances in 2010, and recorded $9,024,975 unrealized loss on change
in derivative value to the statement of operations for the period ended March
31, 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 three months ended March 31, 2010 was as
follows:





Balance at
                    January 1,
                    2010
                  
                  
                  Initial valuation of
                    derivative liability
                    upon issuance of
                    new debt during
                    the period
                  
                  
                  Increase in fair value
                    of derivative liability
                  
                  
                  Balance at
                    March 31,
                    2010Derivative
      conversion feature
                  
                  
                  7,461,680
                  
                  
                  
                  3,311,821
                  
                  
                  
                  9,024,975
                  
                  
                  
                  19,798,477





The fair
value of the derivative conversion feature is estimated using the following
principal assumptions for the binomial valuation model on 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 March 31,
2009:




2010
                  
                  $
                  -2011
                  
                  
                  2,145,0002012
                  
                  
                  451,400Thereafter
                  
                  
                  -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.





Except
for the matter described below, 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 and, as far as the Company is aware, no
governmental authority is contemplating any proceeding to which the Company is a
party or to which any of the Company’s properties is subject.




Shallow Draft Elevating Boats, Inc.
vs. Poydras Energy, LLC, Poydras Energy Partners, LLC, Mesa Energy, Inc. and
David Freeman:In connection with its previous ownership of Poydras
Energy, LLC, MEI has been named in a legal action by a Poydras vendor regarding
approximately $114,000 in unpaid invoices.  The case was filed on June 22,
2009, in the 25th
Judicial District Court of Plaquemines Parish, Louisiana, by Shallow Draft
Elevating Boats, Inc., seeking to perfect a lien against various wells in the
Main Pass 35 project.  These invoices are the responsibility of
Poydras.  In the agreement to sell Poydras to St. Francisville, which
closed June 1, 2009, St. Francisville agreed to fully indemnify MEI against any
claims related to Poydras.  The Company believes that St. Francisville
has filed all appropriate responses to the legal action on our behalf and is
handling the case as appropriate.  The Company does not believe there is
any merit to the claim as it relates to MEI but will continue to monitor the
proceedings.





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.


12





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.





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 March 31, 2010, 158,900 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 8,900 shares issued to IR Consultants for
services for the period ended March 31, 2010 was $18,334 based on the grant date
fair value.  The 841,100 IR Shares remaining in escrow will be valued
upon their release from escrow to IR Consultants as services are
performed.


13





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 March 31, 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;





·
            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 $767 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
were released from the escrowed shares to an investor relations firm for
services provided.


14





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 vested on the date of grant and
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
immediately, and an additional 25,000 shares on each of July 31, 2010 and
November 30, 2010.





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 March 31, 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.





A summary
of the changes in options outstanding during the three months ended March 31,
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 March 31, 2010
                    
                    
                    1,48,000
                    
                    
                    $
                    0.25





Options
outstanding and their relative exercise price at March 31, 2010 are as
follows:





Exercise Price
                                      
                                      
                                      Number of
                                        shares
                                      
                                      Remaining
                                        life
                                      
                                      Aggregate Intrinsic
                                        Value (In-the-
                                        money) Options$
                                      0.25
                                      
                                      
                                      
                                      298,000
                                      
                                      2.76
      years
                                      
                                      $
                                      652,620$
                                      0.25
                                      
                                      
                                      
                                      500,000
                                      
                                      4.77
      years
                                      
                                      $
                                      1,095,000$
                                      0.25
                                      
                                      
                                      
                                      250,000
                                      
                                      4.83
      years
                                      
                                      $
                                      547,500





As of
March 31, 2010, compensation expense related to outstanding options of $211,586
was recognized.  As of March 31, 2010, outstanding options had an
intrinsic value of $2,295,120 and a weighted average remaining contractual term
of 4.2 years.





NOTE 9 –
SUBSEQUENT EVENTS





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. 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.


15





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 $66,750.





On May
10, 2010, the Company entered into a six month Consulting Agreement with an IR
Consultant, pursuant to which the Company shall instruct the escrow agent to
release 200,000 of the IR Shares to such IR Consultant.





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.


16


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.




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 19
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%.  We began receiving revenues for the
field on October 20, 2009 for the September 2009 production month.





The
current minimal 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 are believed to have
had very little maintenance and management attention in a number of
years.  In the fourth quarter of 2009, we initiated efforts to work
over several of the existing wells, replace meters and associated equipment and
adjust the pipeline system which, we expect, should increase existing production
levels.




The first
phase of development of the Marcellus Shale was also 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.  The frac for both wells
has been designed, permits have been obtained and we have commenced operations
on the Reisdorf Unit #1.  Based on the results of these planned
re-completions and our ongoing testing, a second phase of development may be
planned to include the drilling of up to 80 Marcellus Shale wells on our
existing acreage as well as on additional acreage to be leased for future
development.





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.


17





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.





Going
Concern




We have
incurred recurring losses from operations resulting in an accumulated deficit
during the exploration stage of $13,610,437 and have a working capital deficit
of $19,588,295 at March 31, 2010 (comprised primarily of a $19.8 million
derivative liability), and we 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-month periods ending March 31, 2010 and
2009:




March 31, 2010
                        
                        
                        March 31, 2009Net
      loss
                        
                        $
                        (10,369,087
                        )
                        
                        $
                        (161,336
                        )Add
      Back:Interest
      expense, net
                        
                        
                        723,925
                        
                        
                        
                        14,229Amortization
      of deferred financing costs
                        
                        
                        35,369
                        
                        
                        
                        -Income
      tax expense
                        
                        
                        -
                        
                        
                        
                        -Depreciation,
      depletion, accretion and impairment
                        
                        
                        7,178
                        
                        
                        
                        74Loss
      on change in derivative value
                        
                        
                        9,024,975
                        
                        
                        
                        -(Gain)/loss
      on sales of assets
                        
                        
                        -
                        
                        
                        
                        -Stock
      based compensation
                        
                        
                        309,280
                        
                        
                        
                        -Adjusted
      EBITDA
                        
                        $
                        (268,360
                        )
                        
                        $
                        (147,033
                        )


18




Results
of Operations





We are an
exploration stage company and have generated minimal revenues from operations to
date.





Comparison
of Three Months Ended March 31, 2010 and 2009





Revenues





We
generated minimal revenues of $9,817 for the three months ended March 31, 2010
while we generated no revenues for the three months ended March 31,
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 $596,935 for the three months ended March 31,
2010, as compared to $147,682 for the three months ended March 31,
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 increase of $449,253 was due to an increase of
approximately $250,000 in legal and professional fees in connection with our
financing efforts and a $211,000 non-cash stock option expense in the 2010
period.





Interest
Expense




Interest
expense was $759,294 for the three months ended March 31, 2010, as compared to
interest expense of $14,229 for the three months ended March 31, 2009, an
increase of $745,065. The difference was due to additional debt and the
amortization of the debt discount of $665,000 associated with debt discount
arising from the initial derivative valuation for debt issuances during the
current period and $35,369 of deferred financing costs for our 2009 Private
Placement.





Loss
on Change in Derivative Value





The
noncash loss on change in derivative value of $9,024,975 for the three months
ended March 31, 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 loss on derivative value is driven primarily by the
increase in the trading price of our common stock during the three months ended
March 31, 2010.





Net
Loss





Our net
loss for the three months ended March 31, 2010 was $10,369,087, comprised
primarily of the noncash loss on change in derivative liability of
$9,024,975.  Net loss for the three months ended March 31, 2009 was
$161,336.





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 interest in
properties we have acquired. 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.


19





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.




On
January 7, 2010, a holder converted an aggregate of $50,000 principal amount of
Convertible Notes, together with $767 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 will
apply 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 includes efforts to enhance the existing production as well as
testing of the Marcellus Shale by re-entering an existing well.  That
effort is ongoing.




Additional
capital of approximately $4,000,000 will be required to fund the second phase of
development of the Java Field property.  In addition, our business
plan calls for the acquisition of additional acreage as well as a producing
property.  We plan to raise approximately $8,000,000 to $10,000,000 of
capital to address those needs and hope to raise that capital through additional
sales of equity or debt securities in the second 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
March 31, 2010, we had a working capital deficit of $19,588,295 as compared to a
working capital deficit of $7,518,536 as of December 31, 2009.  The
increase in working capital deficit was primarily attributable to our loss on
change in derivative value of $9,024,975 for the three months ended March 31,
2010 and the initial derivative liability on the capital raised in the quarter
of $3,311,821.  Our current assets increased by $241,818 for the
period ended March 31, 2010, as compared to the period ended December 31, 2009.
This increase in current assets was due to the increase cash from the $665,000
2009 Private Placement received in the first quarter of 2010.


20




Cash
and Accounts Receivable




At March
31, 2010, we had cash and cash equivalents of $509,951, compared to $267,141 at
December 31, 2009.  Cash increased by $242,810 primarily from funds
from the 2009 Private Placement received in the first quarter of
2010.





Liabilities




Accounts
payable and accrued expenses increased by $19,102 to $351,840 at March 31, 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
March 31, 2010, the outstanding balance of principal and accrued interest 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 March 31, 2010 as a result of the repayment of a loan from our
CEO.





Derivative
liability increased by $12,336,796 as a result of the increase in our recorded
derivative liability associated with the valuation of new debt issuances of
$3,311,821 and the loss on change in derivative value of $9,024,975 for the
three months ended March 31, 2010.





Cash
Flows




For the
three months ended March 31, 2010, the net cash used in operating activities of
$266,733 reflected working capital requirements to fund operating, general and
administrative activities and the completion of our 2009 Private
Placement.  The net cash provided by operating activities was $178,687
for the three months ended March 31, 2009.





For the
three months ended March 31, 2010, net cash used in investing activities was
$20,901 compared to net cash used in investing activities of $433,712 for the
same period in 2009. The principal investing activity in the first three months
of 2010 related to the payment of $40,901 of oil and gas development costs in
the period. The principal investing activity in the first three months of 2009
related to payment of $433,712 of oil and gas development costs in the
period.




For the
three months ended March 31, 2010, net cash provided by financing activities was
$530,444, compared to net cash used by financing activities of $0 for the three
months ended March 31, 2009, primarily as a result of proceeds received from
issuance of debt from the 2009 Private Placement for the three months ended
March 31, 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.


21





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
March 31, 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 March 31, 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 March
31, 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:


22


(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.





PART
II – OTHER INFORMATION





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





In
January 2010, we conducted several closings (the “Additional 2010 Closings”) of
our private placement offering, commenced in 2009 (the “2009 Private
Placement”), of 10% Secured Convertible Promissory Notes (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 our common stock at a
conversion price of $0.25 per share, subject to adjustment in certain
circumstances as provided therein.   We raised aggregate gross
proceeds of $665,000 from the Additional 2010 Closings of our 2009 Private
Placement.  We paid an aggregate of $24,150 cash placement fees in
connection with the Additional 2010 Closings.





In
January 2010, we issued an aggregate of 239,203 shares of our common stock upon
the conversion of principal and accrued interest on Convertible Notes totaling
$84,891.





From
January 4, 2010 through January 27, 2010, we granted an aggregate of 1,048,000
options with an exercise price of $0.25 a share under our 2009 Equity Incentive
Plan (the “2009 Plan”).





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
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 vested on the date of grant and
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
immediately, and an additional 25,000 shares on each of July 31, 2010 and
November 30, 2010.


23





On April
1, 2010, we granted Robert C. Avaltroni 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 the
shares vest and be released from escrow over four vesting periods as services
are provided.  6,000 of such shares vested on the date of grant, and
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 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.





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.





Item
6.  Exhibits





Exhibit No.
                    
                    Description31.1
                    
                    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
      200231.2
                    
                    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
      200232.1
                    
                    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.





24


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:  May
      17, 2010
              By:
              /s/ Randy M. GriffinName:   Randy
      M .Griffin
                Title:     Chief
      Executive Officer  (principal
                executive
      officer)





Date:  May
      17, 2010
              By:
              /s/ Ray L. UnruhName:   Ray
      L. Unruh
                Title:     Acting
      Chief Financial Officer
                (principal
      financial and accounting
officer)


25