UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934



For the Quarterly Period Ended September
30, 2012



or



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

ACT OF 1934



For the Transition Period from _________
to _________



Commission file number: 000-53972



MESA ENERGY HOLDINGS, INC.

(Exact name of registrant as specified
in its charter)



|Delaware                                                                       |  | 26-1324237                          
|------------------------------------------------------------------------------ |  | ------------------------------------
|(State or other jurisdiction of incorporation
        or
        organization) |  | (I.R.S. Employer Identification No.)



5220 Spring Valley Road, Suite 615

Dallas, Texas 75254

(Address of principal executive offices)
(zip code)



(972) 490-9595

(Registrant’s telephone number, including
area code)



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. YesxNo ̈



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). YesxNo ̈



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 companyx



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



As of November 13, 2012, there were 84,330,769 shares of
the registrant’s common stock outstanding.











INDEX TO FINANCIAL STATEMENTS



|                                                                                                                  | Page
|----------------------------------------------------------------------------------------------------------------- | ----
|PART I. FINANCIAL INFORMATION                                                                                     |     
|                                                                                                                  |     
|Item 1. Financial Statements                                                                                      |     
|Consolidated Balance Sheets (Unaudited) as of September 30, 2012 and December 31, 2011                            | 1   
|                                                                                                                  |     
|Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2012 and 2011 | 3   
|                                                                                                                  |     
|Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2012 and 2011           | 4   
|                                                                                                                  |     
|Notes to Consolidated Financial Statements (Unaudited)                                                            | 6   
|                                                                                                                  |     
|Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations                     | 15  
|                                                                                                                  |     
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                | 21  
|                                                                                                                  |     
|Item 4. Controls and Procedures                                                                                   | 21  
|                                                                                                                  |     
|PART II. OTHER INFORMATION                                                                                        |     
|                                                                                                                  |     
|Item 1. Legal Proceedings                                                                                         | 22  
|                                                                                                                  |     
|Item 1A. Risk Factors                                                                                             | 22  
|                                                                                                                  |     
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                               | 22  
|                                                                                                                  |     
|Item 3. Defaults Upon Senior Securities                                                                           | 22  
|                                                                                                                  |     
|Item 4. Mine Safety Disclosures                                                                                   | 22  
|                                                                                                                  |     
|Item 5. Other Information                                                                                         | 22  
|                                                                                                                  |     
|Item 6. Exhibits                                                                                                  | 23  
|                                                                                                                  |     
|Signatures                                                                                                        | 24  











PART I – FINANCIAL INFORMATION



Item 1.  Consolidated Interim Financial Statements



MESA ENERGY HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)



|                                                                                                             |  | September 30, 2012 |            |  | December 31, 2011 |  
|------------------------------------------------------------------------------------------------------------ |  | ------------------ | ---------- |  | ----------------- | -
|                                                                                                             |  |                    |            |  |                   |  
|ASSETS                                                                                                       |  |                    |            |  |                   |  
|Current assets:                                                                                              |  |                    |            |  |                   |  
|Cash and cash equivalents                                                                                    |  | $                  | 2,857,685  |  |                   | $
|Accounts receivable – oil and gas                                                                            |  |                    | 1,832,355  |  |                   |  
|Accounts receivable – other                                                                                  |  |                    | 157,819    |  |                   |  
|Derivative assets, commodity contracts                                                                       |  |                    | 111,300    |  |                   |  
|Deferred financing costs – current net of accumulated amortization of $10,142 and $0, respectively           |  |                    | 41,365     |  |                   |  
|Deferred tax asset                                                                                           |  |                    | 6,643      |  |                   |  
|Prepaid advances for oil and gas development                                                                 |  |                    | 281,061    |  |                   |  
|Prepaid expenses                                                                                             |  |                    | 76,820     |  |                   |  
|TOTAL CURRENT ASSETS                                                                                         |  |                    | 5,365,048  |  |                   |  
|                                                                                                             |  |                    |            |  |                   |  
|Oil and gas properties, successful efforts accounting:                                                       |  |                    |            |  |                   |  
|Proved properties subject to amortization – net                                                              |  |                    | 7,146,351  |  |                   |  
|Unproved properties not subject to amortization                                                              |  |                    | 766,513    |  |                   |  
|Support facilities and equipment – net                                                                       |  |                    | 2,105,480  |  |                   |  
|Land                                                                                                         |  |                    | 48,345     |  |                   |  
|Oil and gas properties – net                                                                                 |  |                    | 10,066,689 |  |                   |  
|                                                                                                             |  |                    |            |  |                   |  
|Property and equipment – net                                                                                 |  |                    | 227,685    |  |                   |  
|Deferred tax asset – noncurrent                                                                              |  |                    | 2,825,689  |  |                   |  
|Deferred financing cost – noncurrent, net of accumulated amortization of $316,374 and $287,943, respectively |  |                    | —          |  |                   |  
|Derivative assets, commodity contracts – noncurrent                                                          |  |                    | —          |  |                   |  
|Deposit on asset retirement obligations                                                                      |  |                    | 640,000    |  |                   |  
|Other assets                                                                                                 |  |                    | 4,013      |  |                   |  
|                                                                                                             |  |                    |            |  |                   |  
|TOTAL ASSETS                                                                                                 |  | $                  | 19,129,124 |  |                   | $



See accompanying notes to unaudited consolidated
financial statements.



1







MESA ENERGY HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Continued)



|                                                                                                                                      |  | September 30, 2012 |            |  | December 31, 2011 |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- |  | ----------------- | -
|                                                                                                                                      |  |                    |            |  |                   |  
|LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                  |  |                    |            |  |                   |  
|Current liabilities:                                                                                                                  |  |                    |            |  |                   |  
|Accounts payable – trade                                                                                                              |  | $                  | 898,548    |  |                   | $
|Revenue payable                                                                                                                       |  |                    | 560,930    |  |                   |  
|Accrued expenses                                                                                                                      |  |                    | 306,375    |  |                   |  
|Accrued expenses – related parties                                                                                                    |  |                    | 54,840     |  |                   |  
|Deferred tax liability                                                                                                                |  |                    | 23,431     |  |                   |  
|Notes payable – current                                                                                                               |  |                    | 71,834     |  |                   |  
|TOTAL CURRENT LIABILITIES                                                                                                             |  |                    | 1,915,958  |  |                   |  
|                                                                                                                                      |  |                    |            |  |                   |  
|Note payable – noncurrent                                                                                                             |  |                    | 5,195,963  |  |                   |  
|Convertible notes payable, net of discount                                                                                            |  |                    | —          |  |                   |  
|Derivative liability – noncurrent                                                                                                     |  |                    | 112,164    |  |                   |  
|Deferred tax liability - noncurrent                                                                                                   |  |                    | 47,790     |  |                   |  
|Asset retirement obligations                                                                                                          |  |                    | 3,458,506  |  |                   |  
|TOTAL LIABILITIES                                                                                                                     |  |                    | 10,730,381 |  |                   |  
|                                                                                                                                      |  |                    |            |  |                   |  
|Commitments and contingencies                                                                                                         |  |                    |            |  |                   |  
|                                                                                                                                      |  |                    |            |  |                   |  
|Stockholders’ equity:                                                                                                                 |  |                    |            |  |                   |  
|Preferred stock, par value $0.0001, 10,000,000 shares authorized, -0- shares issued and outstanding                                   |  |                    | —          |  |                   |  
|Common stock, par value $0.0001, 300,000,000 shares authorized, 83,930,769 and 79,531,616 shares issued and outstanding, respectively |  |                    | 8,393      |  |                   |  
|Additional paid-in capital (deficiency)                                                                                               |  |                    | 753,820    |  |                   |  
|Retained earnings                                                                                                                     |  |                    | 7,636,530  |  |                   |  
|TOTAL  STOCKHOLDERS’ EQUITY                                                                                                           |  |                    | 8,398,743  |  |                   |  
|                                                                                                                                      |  |                    |            |  |                   |  
|TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                            |  | $                  | 19,129,124 |  |                   | $



See accompanying notes to unaudited consolidated
financial statements.



2







MESA ENERGY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                                                    |  | For the Three Months Ended |            |   | For the Nine Months Ended |  
|----------------------------------------------------------------------------------- |  | -------------------------- | ---------- | - | ------------------------- | -
|                                                                                    |  | September 30,              |            |   | September 30,             |  
|                                                                                    |  | 2012                       |            |   | 2011                      |  
|                                                                                    |  |                            |            |   | (Restated)                |  
|                                                                                    |  |                            |            |   |                           |  
|Revenue                                                                             |  | $                          | 3,235,366  |   |                           | $
|                                                                                    |  |                            |            |   |                           |  
|Operating expenses:                                                                 |  |                            |            |   |                           |  
|Lease operating expenses                                                            |  |                            | 1,548,851  |   |                           |  
|Environmental remediation expenses                                                  |  |                            | —          |   |                           |  
|Exploration costs                                                                   |  |                            | 137,090    |   |                           |  
|Depletion, depreciation, accretion and impairment expenses                          |  |                            | 361,484    |   |                           |  
|Gain on sale of oil and gas properties                                              |  |                            | —          |   |                           |  
|Loss on settlement of asset retirement obligations                                  |  |                            | —          |   |                           |  
|General and administrative expenses                                                 |  |                            | 834,953    |   |                           |  
|Total operating expense                                                             |  |                            | 2,882,378  |   |                           |  
|                                                                                    |  |                            |            |   |                           |  
|Income (loss) from operations                                                       |  |                            | 352,988    |   |                           |  
|                                                                                    |  |                            |            |   |                           |  
|Other income (expense):                                                             |  |                            |            |   |                           |  
|Interest income                                                                     |  |                            | 1,991      |   |                           |  
|Interest expense                                                                    |  |                            | (143,940   | ) |                           |  
|Realized gain on commodity contracts                                                |  |                            | 117,741    |   |                           |  
|Unrealized gain (loss) on change in fair value of derivatives – commodity contracts |  |                            | (862,306   | ) |                           |  
|Loss on change in fair value of derivatives  – convertible debt                     |  |                            | (17,714    | ) |                           |  
|Gain on settlement of debt                                                          |  |                            | —          |   |                           |  
|Loss on extinguishment of debt                                                      |  |                            | —          |   |                           |  
|Other income (expense)                                                              |  |                            | (1,485     | ) |                           |  
|                                                                                    |  |                            |            |   |                           |  
|Total other income (expense)                                                        |  |                            | (905,713   | ) |                           |  
|                                                                                    |  |                            |            |   |                           |  
|Net income (loss) before income taxes                                               |  |                            | (552,725   | ) |                           |  
|Income tax benefit (expense)                                                        |  |                            | 195,850    |   |                           |  
|Net income (loss)                                                                   |  | $                          | (356,875   | ) |                           | $
|                                                                                    |  |                            |            |   |                           |  
|Net income (loss) per common share:                                                 |  |                            |            |   |                           |  
|Basic                                                                               |  | $                          | (0.00      | ) |                           | $
|Diluted                                                                             |  | $                          | (0.00      | ) |                           | $
|                                                                                    |  |                            |            |   |                           |  
|Weighted average number of common shares outstanding:                               |  |                            |            |   |                           |  
|Basic                                                                               |  |                            | 84,842,165 |   |                           |  
|Diluted                                                                             |  |                            | 84,842,165 |   |                           |  



See accompanying notes to unaudited consolidated
financial statements.



3







MESA ENERGY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                   |  | For the Nine Months Ended September 30, |           
|---------------------------------------------------------------------------------- |  | --------------------------------------- | ----------
|                                                                                   |  | 2012                                    |           
|                                                                                   |  |                                         |           
|CASH FLOWS FROM OPERATING ACTIVITIES                                               |  |                                         |           
|Net income                                                                         |  | $                                       | 164,687   
|Adjustments to reconcile net income to net cash provided by operating activities:  |  |                                         |           
|Depletion, depreciation, accretion and impairment expense                          |  |                                         | 1,215,448 
|Deferred income taxes                                                              |  |                                         | 272,164   
|Share-based compensation                                                           |  |                                         | 273,478   
|Gain on sale of oil and gas properties                                             |  |                                         | —         
|Realized loss on settlement of asset retirement obligations                        |  |                                         | 116,394   
|Amortization of debt discount charged to interest expense                          |  |                                         | 4,279     
|Amortization of deferred financing costs                                           |  |                                         | 38,573    
|Induced debt conversion expense charged to interest expense                        |  |                                         | —         
|Shares issued for continuation of loan guarantees charged to interest expense      |  |                                         | —         
|Gain on conversion of accounts payable to common stock                             |  |                                         | —         
|Unrealized gain (loss) on change in fair value of derivatives – commodity contract |  |                                         | 938,606   
|Loss on change in fair value of derivatives – convertible debt                     |  |                                         | 536,422   
|Changes in operating assets and liabilities:                                       |  |                                         |           
|Accounts receivable – oil and gas                                                  |  |                                         | 627,905   
|Accounts receivable – other                                                        |  |                                         | (99,001   
|Prepaid expenses and other assets                                                  |  |                                         | (263,294  
|Accounts payable and accrued expenses                                              |  |                                         | (855,717  
|Revenue payable                                                                    |  |                                         | (235,291  
|Accrued expenses – related parties                                                 |  |                                         | —         
|CASH PROVIDED BY OPERATING ACTIVITIES                                              |  |                                         | 2,734,653 
|                                                                                   |  |                                         |           
|CASH FLOWS FROM INVESTING ACTIVITIES                                               |  |                                         |           
|Cash received for sale of oil and gas properties                                   |  |                                         | —         
|Cash paid for acquisition and development of oil and gas properties                |  |                                         | (2,024,024
|Cash paid to settle asset retirement obligation for oil and gas properties         |  |                                         | (255,751  
|Cash paid for purchase of support facilities and equipment                         |  |                                         | (249,993  
|Cash paid for purchase of furniture, fixtures, and equipment                       |  |                                         | (67,710   
|CASH USED IN INVESTING ACTIVITIES                                                  |  |                                         | (2,597,478
|                                                                                   |  |                                         |           
|CASH FLOWS FROM FINANCING ACTIVITIES                                               |  |                                         |           
|Installment payment on purchase of software                                        |  |                                         | (11,375   
|Proceeds from sale of stock                                                        |  |                                         | —         
|Proceeds from borrowings on debt                                                   |  |                                         | 11,224    
|Principal payments on notes payable                                                |  |                                         | (461,731  
|Principal payments on debt – related party                                         |  |                                         | —         
|CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                    |  |                                         | (461,882  
|                                                                                   |  |                                         |           
|NET CHANGE IN CASH                                                                 |  |                                         | (324,707  
|CASH AT BEGINNING OF PERIOD                                                        |  |                                         | 3,182,392 
|CASH AT END OF PERIOD                                                              |  | $                                       | 2,857,685 



See accompanying notes to unaudited consolidated
financial statements.



4







MESA ENERGY HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Continued)



|                                                                                                                |  | For the Nine Months Ended September 30, |        
|--------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | -------
|                                                                                                                |  | 2012                                    |        
|                                                                                                                |  |                                         |        
|SUPPLEMENTAL DISCLOSURES                                                                                        |  |                                         |        
|Cash paid for interest                                                                                          |  | $                                       | 346,345
|Cash paid for income taxes                                                                                      |  | $                                       | 37,000 
|                                                                                                                |  |                                         |        
|NON-CASH INVESTING AND FINANCING TRANSACTIONS                                                                   |  |                                         |        
|Prepaid insurance financed with a note payable                                                                  |  | $                                       | 89,631 
|Software purchased with installment payments                                                                    |  | $                                       | 136,500
|Additional paid-in-capital realized as the result of settlement of derivative liability from conversion of debt |  | $                                       | 649,505
|Common stock issued for the purchase of Tchefuncte Natural Resources, LLC                                       |  | $                                       | —      
|Common stock issued to settle debt                                                                              |  | $                                       | —      
|Debt discount                                                                                                   |  | $                                       | —      
|Common stock issued for the conversion of notes payable and accrued interest                                    |  | $                                       | 466,019
|Promissory note exchanged for convertible debt, net of discount                                                 |  | $                                       | —      



See accompanying notes to these unaudited
consolidated financial statements.



5







MESA ENERGY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



NOTE 1 – ORGANIZATION AND SIGNIFICANT
ACCOUNTING POLICIES



Organization



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



Mesa Midcontinent, LLC, (“MMC”)
is a wholly owned subsidiary of MEI. MMC owns unproved leasehold acreage in Garfield and Major Counties, Oklahoma. See Note 5 for
more information on the acquisition of unproved leasehold acreage.



Basis of Presentation



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



Principles of Consolidation



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



Use of Estimates



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



Concentration of Credit Risk



Financial instruments that potentially
subject the Company to a concentration of credit risk include cash and cash equivalents. The Company had cash deposits of $634,308
in excess of the FDIC’s current insured limit on interest bearing accounts of $250,000 as of September 30, 2012. The Company
has not experienced any losses on its deposits of cash and cash equivalents.



Reclassifications



Certain reclassifications have been made
to amounts in prior periods to conform with the current period presentation. All reclassifications have been applied consistently
to the periods presented.



6







Earnings (Loss) Per Share



The Company’s earnings per share
are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings
per share reflects the potential dilution of securities, if any, that could share in the earnings of the Company and are calculated
by dividing net 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, unvested restricted
stock grants, warrants, and convertible debt. The following is a reconciliation of the numerator and denominator used for the computation
of basic and diluted net income per common share:



|                                                                                      |  | For the Three Months Ended September 30, |            |   | For the Nine Months Ended September 30, |  
|------------------------------------------------------------------------------------- |  | ---------------------------------------- | ---------- | - | --------------------------------------- | -
|                                                                                      |  | 2012                                     |            |   | 2011                                    |  
|Numerator:                                                                            |  |                                          |            |   |                                         |  
|Net income (loss) available to stockholders                                           |  | $                                        | (356,875   | ) |                                         | $
|Basic net income allocable to participating securities (1)                            |  |                                          | 6,282      |   |                                         |  
|Basic net income (loss) available to stockholders                                     |  |                                          | (350,593   | ) |                                         |  
|Impact of assumed conversions-interest expense, net of income taxes                   |  |                                          | —          |   |                                         |  
|Income (loss) available to stockholders assuming conversion of convertible debentures |  | $                                        | (356,875   | ) |                                         | $
|                                                                                      |  |                                          |            |   |                                         |  
|Denominator:                                                                          |  |                                          |            |   |                                         |  
|Weighted average number of common shares – Basic                                      |  |                                          | 84,842,165 |   |                                         |  
|Effect of dilutive securities (2) :                                                   |  |                                          |            |   |                                         |  
|Options and warrants                                                                  |  |                                          | —          |   |                                         |  
|Convertible promissory notes                                                          |  |                                          | —          |   |                                         |  
|Restricted stock granted                                                              |  |                                          | —          |   |                                         |  
|Weighted average number of common shares – Diluted                                    |  |                                          | 84,842,165 |   |                                         |  
|                                                                                      |  |                                          |            |   |                                         |  
|Net income (loss) per common share:                                                   |  |                                          |            |   |                                         |  
|Basic                                                                                 |  | $                                        | (0.00      | ) |                                         | $
|Diluted                                                                               |  | $                                        | (0.00      | ) |                                         | $



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



| | (2) | For the three months ended September 30, 2012, vested stock options representing 1,403,000 shares
and 500,000 vested warrants were antidilutive and excluded from the dilutive share calculation.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Recently Issued Accounting Pronouncements



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



Subsequent Events



The Company has evaluated all subsequent
events from September 30, 2012 through the issuance date of the consolidated financial statements for subsequent event disclosure
consideration.



NOTE 2 – ACQUISITION OF TCHEFUNCTE
NATURAL RESOURCES, LLC.



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



7







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



|                                                               |  | For the Three Months Ended |            |  | For the Nine Months Ended |  
|-------------------------------------------------------------- |  | -------------------------- | ---------- |  | ------------------------- | -
|                                                               |  | September 30, 2011         |            |  | September 30, 2011        |  
|                                                               |  |                            |            |  | (Restated)                |  
|Revenue                                                        |  | $                          | 3,196,569  |  |                           | $
|Net income                                                     |  | $                          | 1,357,420  |  |                           | $
|                                                               |  |                            |            |  |                           |  
|Net income per common share – basic                            |  | $                          | 0.02       |  |                           | $
|Net income per common share – diluted                          |  | $                          | 0.02       |  |                           | $
|                                                               |  |                            |            |  |                           |  
|Weighted average number of common shares outstanding – basic   |  |                            | 75,546,389 |  |                           |  
|Weighted average number of common shares outstanding – diluted |  |                            | 81,846,389 |  |                           |  



NOTE 3 – FAIR VALUE MEASUREMENTS



The following tables set forth by level
within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis
as of September 30, 2012 and December 31, 2011.



|                                                |  | September 30, 2012 |    
|----------------------------------------------- |  | ------------------ | ---
|                                                |  | Carrying Value     |    
|                                                |  |                    |    
|                                                |  |                    |    
|Derivative liability – commodity contracts, net |  | $                  | 864



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



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



NOTE 4 – COMMODITY DERIVATIVE INSTRUMENTS



The Company has commodity derivative instruments
for which it determined the fair value using period-end closing oil and gas prices, interest rates and volatility factors for the
periods under each contract as of September 30, 2012. The details of the derivative instruments are summarized below:



Costless Gas Collar



|                     |  |               |  | Average         |             |  |            |  
|-------------------- |  | ------------- |  | --------------- | ----------- |  | ---------- | -
|Production Period    |  | Total Volume  |  | Floor / Ceiling |             |  | Fair Value |  
|Sep 2012-Dec 2012(1) |  | 132,000 MMBtu |  | $               | 2.50 / 3.50 |  |            | $
|Jan 2013-Dec 2013(1) |  | 230,000 MMBtu |  | $               | 2.50 / 4.50 |  |            | $



Gas Fixed Price Swaps



|                     |  |              |  | Average     |      |  |            |  
|-------------------- |  | ------------ |  | ----------- | ---- |  | ---------- | -
|Production Period    |  | Total Volume |  | Fixed Price |      |  | Fair Value |  
|Jan 2013-Jul 2013(2) |  | 70,000 MMBtu |  | $           | 4.00 |  |            | $



8







Oil Fixed Price Swaps



|                      |  |              |  | Average     |        |  |            |  
|--------------------- |  | ------------ |  | ----------- | ------ |  | ---------- | -
|Production Period     |  | Total Volume |  | Fixed Price |        |  | Fair Value |  
|Oct 2012-Dec 2012 (3) |  | 3,000 Bbls   |  | $           | 100.30 |  |            | $
|Oct 2012-Dec 2012     |  | 10,500 Bbls  |  | $           | 114.50 |  |            | $
|Jan 2013-Jul 2013     |  | 18,900 Bbls  |  | $           | 114.90 |  |            | $



Average Price Oil Collar





|                     |  |              |  | Average         |          |  |            |  
|-------------------- |  | ------------ |  | --------------- | -------- |  | ---------- | -
|Production Period    |  | Total Volume |  | Floor / Ceiling |          |  | Fair Value |  
|Oct 2012-Jan 2013(4) |  | 14,175 Bbls  |  | $               | 80 / 100 |  |            | $
|Jan 2013-Feb 2013    |  | 6,525 Bbls   |  | $               | 80 / 100 |  |            | $
|Feb 2013-Aug 2013    |  | 24,708 Bbls  |  | $               | 80 / 100 |  |            | $
|Aug 2013-Feb 2014    |  | 40,908 Bbls  |  | $               | 80 / 100 |  |            | $
|Feb 2014-Jul 2014    |  | 39,424 Bbls  |  | $               | 80 / 100 |  |            | $





| | (1) | Costless gas collar entered into on June 26, 2012.
| | --- | --------------------------------------------------

| | (2) | Fixed price swap is the remaining put of July 25, 2011 costless gas collar unwound on June 26,
2012.
| | --- | ----------------------------------------------------------------------------------------------------

| | (3) | Crude oil swap entered into on January 6, 2012.
| | --- | -----------------------------------------------

| | (4) | Average price collar entered into on July 19, 2012.
| | --- | ---------------------------------------------------



The Company elected not to apply hedge
accounting to these derivatives. At September 30, 2012, the Company recognized a short-term derivative asset of $111,300, a short
term derivative liability of $0, and a long-term derivative liability of $112,164, with the $862,306 decrease in fair value reported
in other income (expense) as unrealized loss on derivative instruments for the three months ended September 30, 2012 and a $938,606
decrease in fair value reported in other income (expense) as an unrealized loss on derivative instruments for the nine months ended
September 30, 2012. Net realized gains of $117,741 and $363,733 from settlements of these derivatives have been reported in other
income (expense) as realized gain on commodity contracts during the three and nine months ended September 30, 2012, respectively.



NOTE 5 – PROPERTY, PLANT AND EQUIPMENT



Oil and Gas Properties



All of the Company’s oil and gas
properties at September 30, 2012 and December 31, 2012 were located in the United States.



The carrying value of the Company’s
oil and gas properties by field, net of depletion and impairment, at September 30, 2012 and December 31, 2011 were:



|                     |  | September 30, |           |  | December 31, |  
|-------------------- |  | ------------- | --------- |  | ------------ | -
|Property             |  | 2012          |           |  | 2011         |  
|                     |  |               |           |  |              |  
|Lake Hermitage Field |  | $             | 3,297,925 |  |              | $
|Valentine Field      |  |               | 1,389,631 |  |              |  
|La Rose Field        |  |               | 1,480,479 |  |              |  
|Bay Batiste Field    |  |               | 995,073   |  |              |  
|Manila Village Field |  |               | —         |  |              |  
|Java Field           |  |               | —         |  |              |  
|Turkey Creek Field   |  |               | 749,756   |  |              |  
|Total                |  | $             | 7,912,864 |  |              | $



Net oil and gas properties at September
30, 2012 were:



|Year Incurred  |  | Acquisition Costs |           |  | Exploration and Development Costs |   |           | Dry Hole Costs |  |   | Disposition of Assets |   |  | Depletion, Amortization, and Impairment |            |   | Total |  
|-------------- |  | ----------------- | --------- |  | --------------------------------- | - | --------- | -------------- |  | - | --------------------- | - |  | --------------------------------------- | ---------- | - | ----- | -
|2010 and prior |  | $                 | 754,878   |  |                                   | $ | 2,947,554 |                |  | $ | (466,066              | ) |  | $                                       | (2,090,383 | ) |       | $
|2011           |  |                   | 7,334,184 |  |                                   |   | 621,053   |                |  |   | —                     |   |  |                                         | —          |   |       |  
|2012           |  |                   | 749,756   |  |                                   |   | 1,274,268 |                |  |   | —                     |   |  |                                         | —          |   |       |  
|Total          |  | $                 | 8,838,818 |  |                                   | $ | 4,842,875 |                |  | $ | (466,066              | ) |  | $                                       | (2,090,983 | ) |       | $



9







During the nine months ended September
30, 2012, the Company began a leasing and acreage acquisition program in Major and Garfield Counties, Oklahoma, spending $749,576
on 1,700 net mineral acres, with the intent of initiating a drilling program in the Mississippian Limestone in the first quarter
of 2013. On August 29, 2012, the Company entered into a Farmout Agreement with 20/20 Oil & Gas, Inc. whereby we acquired approximately
1,760 acres of leases that are held by production (HBP). The Company refers to its acreage position in Major and Garfield Counties,
Oklahoma, as the Turkey Creek Field.



Also during the nine months ended September
30, 2012, the Company recompleted three wells in the Lake Hermitage Field and spent $1,274,268 on development activities which
included $147,404 to upgrade its processing facility in the LaRose Field to better enable gas lift of the MR FEE 852 as well as
to provide excess capacity for processing of third party production and $142,768 for permitting and other work preparatory to the
drilling of seven new wells in the Lake Hermitage Field.



In July 2012, the Company elected to participate
in the drilling and completion of the PPCO #1 sidetrack well in the Valentine Field. The Company has a 15% working interest in
the well which is operated by an unaffiliated company. The operator commenced this operation early in the fourth quarter of 2012.
The Company advanced $281,061 for tangible and intangible drilling costs, and has agreed to advance an additional $131,175 should
the sidetrack merit completion.



During the nine months ended September
30, 2012, the Company plugged and abandoned two wells, the Southdown 2D and the LLDSB #7, retiring their costs comprising, solely,
asset retirement costs for the Southdown 2D well and asset retirement costs and intangible drilling costs for the LLDSB #7. Costs
of the LLDSB #7 well were retired after an unsuccessful attempt to convert it to a salt water disposal well resulted in an oil
spill for which the Company incurred $244,237 of environmental remediation expense in addition to the expense of plugging and abandoning
the well and recognized a loss on the settlement of the asset retirement obligation of $116,394.



Support Facilities and Equipment



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



|                                      |  | Useful Lives |      |  | September 30, |   |           | December 31, | 
|------------------------------------- |  | ------------ | ---- |  | ------------- | - | --------- | ------------ | 
|                                      |  | (Years)      |      |  | 2012          |   |           | 2011         | 
|                                      |  |              |      |  |               |   |           |              | 
|Tank batteries                        |  |              | 7-12 |  |               | $ | 772,431   |              | 
|Production facilities                 |  |              | 7    |  |               |   | 52,786    |              | 
|Production equipment                  |  |              | 7    |  |               |   | 1,005,990 |              | 
|Field offices                         |  |              | 20   |  |               |   | 267,089   |              | 
|Crew boat                             |  |              | 7    |  |               |   | 57,835    |              | 
|Asset retirement cost                 |  |              | 7    |  |               |   | 256,363   |              | 
|Subtotal                              |  |              |      |  |               |   | 2,412,494 |              | 
|Accumulated depreciation              |  |              |      |  |               |   | (307,014  | )            | 
|Support facilities and equipment, net |  |              |      |  |               | $ | 2,105,480 |              | 



Property and Equipment



|                                        |  | Useful Lives |    |  | September 30, |   |         | December 31, | 
|--------------------------------------- |  | ------------ | -- |  | ------------- | - | ------- | ------------ | 
|                                        |  | (Years)      |    |  | 2012          |   |         | 2011         | 
|                                        |  |              |    |  |               |   |         |              | 
|Office equipment and purchased software |  |              | 3  |  |               | $ | 178,532 |              | 
|Furniture and fixtures                  |  |              | 10 |  |               |   | 51,506  |              | 
|Leasehold improvements                  |  |              | 3  |  |               |   | 8,859   |              | 
|Subtotal                                |  |              |    |  |               |   | 238,897 |              | 
|Accumulated depreciation                |  |              |    |  |               |   | (11,212 | )            | 
|Property and equipment, net             |  |              |    |  |               | $ | 227,685 |              | 



During the nine months
ended September 30, 2012, property and equipment increased $204,210. The increase was the result of software purchased with
installment payments of $136,500 and cash payments of $67,710 for office furniture and equipment.



Support facilities and equipment, office
equipment, purchased software, office furniture and fixtures, and leasehold improvements are depreciated using the straight line
method over their estimated useful lives.



10







NOTE 6 – DEBT



Convertible Promissory Notes



The Company had $0 and $461,740 of convertible
promissory notes outstanding at September 30, 2012 and December 31, 2011, net of unamortized debt discount of $0 and $4,279, respectively.
During the nine months ended September 30, 2012, convertible notes totaling $461,740 were converted into 3,728,153 common shares
of the Company at $0.125 per share. The fair value of the embedded derivative at September 30, 2012 and December 31, 2011 was $0
and $113,083, respectively.



Changes in the fair value of embedded derivative
instruments for the nine months ended September 30, 2012 and the year ended December 31, 2011 were as follows:



|                              |  | January 1, 2012 Derivative Liability |         |  | Conversions and Change in Derivative Liability for Convertible Debt |   |          | (Gain) or Loss |  |   | September 30, 2012 Derivative Liability | 
|----------------------------- |  | ------------------------------------ | ------- |  | ------------------------------------------------------------------- | - | -------- | -------------- |  | - | --------------------------------------- | 
|                              |  |                                      |         |  |                                                                     |   |          |                |  |   |                                         | 
|Derivative conversion feature |  | $                                    | 113,083 |  |                                                                     | $ | (649,505 | )              |  | $ | 536,422                                 | 



|                              |  | January 1, 2011 Derivative Liability |   |  | Conversions and Change in Derivative Liability for Remaining Convertible Debt |   |   | (Gain) or Loss |  |   | December 31, 2011 Derivative Liability | 
|----------------------------- |  | ------------------------------------ | - |  | ----------------------------------------------------------------------------- | - | - | -------------- |  | - | -------------------------------------- | 
|                              |  |                                      |   |  |                                                                               |   |   |                |  |   |                                        | 
|Derivative conversion feature |  | $                                    | — |  |                                                                               | $ | — |                |  | $ | 113,083                                | 



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



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



|                                                 |  | September 30,  2012 |     |  | December 31,  2011 |  
|------------------------------------------------ |  | ------------------- | --- |  | ------------------ | -
|Common stock issuable upon conversion            |  |                     | —   |  |                    |  
|Market price of common stock on measurement date |  |                     | N/A |  |                    | $
|Conversion price                                 |  |                     | N/A |  |                    | $
|Conversion period in years                       |  |                     | N/A |  |                    |  
|Expected volatility                              |  |                     | N/A |  |                    |  
|Expected dividend yield                          |  |                     | N/A |  |                    |  
|Risk free interest rate                          |  |                     | N/A |  |                    |  



Credit Facility and Notes Payable



The Company’s notes payable were
as follows:



|                           |  | September 30, |           |   | December 31, |  
|-------------------------- |  | ------------- | --------- | - | ------------ | -
|                           |  | 2012          |           |   | 2011         |  
|                           |  |               |           |   |              |  
|Credit Facility            |  | $             | 5,195,963 |   |              | $
|Term notes                 |  |               | 71,834    |   |              |  
|Notes payable outstanding  |  |               | 5,267,297 |   |              |  
|Less:  Current maturities  |  |               | (71,834   | ) |              |  
|Notes payable – noncurrent |  | $             | 5,195,963 |   |              | $



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



11







The borrowing base is subject to
two scheduled redeterminations each year. F&M Bank completed its first two scheduled redeterminations pursuant to the
Credit Facility in April 2012 and September 2012 and increased the Company’s borrowing base from $10,500,000 to
$13,500,000 pursuant to the first redetermination and again to $14,500,000 pursuant to the second. The first redetermination
eliminated the Company’s obligation to make the remaining $150,000 Monthly Commitment Reduction payment required prior
to the first redetermination. The second redetermination extended maturity from July 22, 2013 to July 22, 2014. Reporting
requirements, loan covenants and events of default are customary for this type of Credit Facility. The Company was in
compliance with all of the debt covenants as of September 30, 2012.



On August 14, 2012, Tchefuncte Natural
Resources, LLC, repaid $124,518, the principal balance of loans associated with its Lake Hermitage camp and crew boat.



Term notes are associated with a copier
and an insurance contract financed.



NOTE 7 – ASSET RETIREMENT OBLIGATIONS



The following table provides a reconciliation of the changes
in the estimated asset retirement obligations for the nine months ended September 30, 2012 and for the year ended December 31,
2011.



|                                           |  | 2012 |           |   | 2011 |  
|------------------------------------------ |  | ---- | --------- | - | ---- | -
|                                           |  |      |           |   |      |  
|Beginning asset retirement obligations     |  | $    | 3,450,252 |   |      | $
|Obligation assumed from acquisition of TNR |  |      | —         |   |      |  
|Accretion expense                          |  |      | 147,611   |   |      |  
|Sale of property                           |  |      | —         |   |      |  
|Settlement of asset retirement obligations |  |      | (139,357  | ) |      |  
|Ending asset retirement obligations        |  | $    | 3,458,506 |   |      | $



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



NOTE 8 – INCOME TAXES



As of September 30, 2012, the Company has
U.S. net operating loss carry forwards of approximately $3.6 million which begin to expire in 2028. The Company also has tax credit
carry forwards of approximately $35,000 in alternative minimum tax credits which do not expire.



We recognize the financial statement effects
of tax positions when it is more likely than not, based on the technical merits, that the position will be sustained upon examination
by a taxing authority. Recognized tax positions are initially and subsequently measured as the largest amount of tax benefit that
is more likely than not of being realized upon ultimate settlement with a taxing authority. We have not taken a tax position that,
if challenged, would have a material effect on the consolidated financial statements or the effective tax rate for the nine months
ended September 30, 2012.



NOTE 9 – STOCKHOLDERS’ EQUITY



The Company is authorized to issue 300
million shares of common stock with a $0.0001 par value per share and 10 million shares of preferred stock with a $0.0001 par value
per share. At September 30, 2012 and December 31, 2011, the Company had 83,930,769 and 79,531,616 shares issued and outstanding,
respectively. No preferred stock has been issued by the Company.



Stock Options



Options to purchase 530,000 shares of common
stock were granted in 2012 with an estimated fair value of $88,001. The following summarizes the values from and assumptions for
the Black-Scholes option pricing model for stock options issued during the nine months ended September 30, 2012:



12







|Weighted average grant date fair value   |  | $ | 0.19           |  
|---------------------------------------- |  | - | -------------- | -
|Weighted average grant date              |  |   | April 29, 2012 |  
|Weighted average risk-free interest rate |  |   | 0.51           | %
|Expected life (in years)                 |  |   | 5              |  
|Weighted average volatility              |  |   | 145.35         | %
|Expected dividends                       |  | $ | —              |  



The following table summarizes the Company’s employee
stock option activity for the nine months ended September 30, 2012:



|                                  |  | Options |           |   | Weighted Average Exercise Price |   |      | Weighted Average Remaining Contractual Life |  |  | Aggregate Intrinsic Value | 
|--------------------------------- |  | ------- | --------- | - | ------------------------------- | - | ---- | ------------------------------------------- |  |  | ------------------------- | 
|                                  |  |         |           |   |                                 |   |      |                                             |  |  |                           | 
|Outstanding at December 31, 2011  |  |         | 2,228,000 |   |                                 | $ | 0.20 |                                             |  |  |                           | 
|Granted                           |  |         | 530,000   |   |                                 |   | 0.19 |                                             |  |  |                           | 
|Exercised                         |  |         | —         |   |                                 |   | —    |                                             |  |  |                           | 
|Cancelled/Forfeited/Expired       |  |         | (21,000   | ) |                                 |   | 0.17 |                                             |  |  |                           | 
|Outstanding at September 30, 2012 |  |         | 2,737,000 |   |                                 |   | 0.20 |                                             |  |  | 3.1  years                | 
|                                  |  |         |           |   |                                 |   |      |                                             |  |  |                           | 
|Exercisable at September 30, 2012 |  |         | 2,357,000 |   |                                 | $ | 0.20 |                                             |  |  | 2.9  years                | 



Compensation expense related to stock options
of $116,018 and $139,968 was recognized for the nine months ended September 30, 2012 and 2011, respectively. At September 30, 2012,
the Company had $57,857 of unrecognized compensation expense related to outstanding unvested stock options, which will be fully
recognized over the next 1.5 years. No stock options have been exercised. Stock options for 21,000 shares with a fair value of
$2,953 were forfeited on September 30, 2010, resulting in a fair value of stock options issued in 2012 of $85,035.



Restricted Stock



The following table summarizes the Company’s
employee restricted stock activity, including activity for awards not granted under the 2009 Plan, for the nine months ended September
30, 2012:



|                                                 |  | Shares |           |   | Weighted Average Grant Price |  
|------------------------------------------------ |  | ------ | --------- | - | ---------------------------- | -
|Unvested Restricted Shares at December 31, 2011  |  |        | 1,941,000 |   |                              | $
|Granted                                          |  |        | —         |   |                              |  
|Vested and issued                                |  |        | (671,000  | ) |                              |  
|Cancelled/Forfeited/Expired                      |  |        | (200,000  | ) |                              |  
|Unvested Restricted Shares at September 30, 2012 |  |        | 1,070,000 |   |                              | $



At September 30, 2012, the Company had
$130,709 of unrecognized compensation expense related to outstanding restricted stock granted to employees, which is expected to
be recognized over the next year. Compensation expense related to restricted stock grants of $112,037 and $64,713, respectively,
was recognized in the nine months ended September 30, 2012 and 2011.



Warrants



On June 15, 2012, the Company terminated
the consulting agreement previously entered into with Cynergy Advisors, LLC on March 7, 2012, in consideration for which
the Company issued 500,000 cashless warrants which vested immediately and are exercisable at $1 per share for a period of five
years. Each warrant entitles the holder to one share of the Company’s common stock in the event of exercise. The following
summarizes the values from and assumptions for the Black-Scholes option pricing model for warrants issued during the nine months
ended September 30, 2012:



|Grant date fair value                    |  | $ | 45,423        |  
|---------------------------------------- |  | - | ------------- | -
|Grant date                               |  |   | June 26, 2012 |  
|Weighted average risk-free interest rate |  |   | 0.73          | %
|Expected life (in years)                 |  |   | 5             |  
|Weighted average volatility              |  |   | 136.27        | %
|Expected dividends                       |  | $ | —             |  



13







The following table summarizes the Company’s warrant activity
for the nine months ended September 30, 2012:



|                                  |  | Warrants |         |  | Exercise Price |   |      | Remaining Contractual Life |  |  | Aggregate Intrinsic Value | 
|--------------------------------- |  | -------- | ------- |  | -------------- | - | ---- | -------------------------- |  |  | ------------------------- | 
|                                  |  |          |         |  |                |   |      |                            |  |  |                           | 
|Outstanding at December 31, 2011  |  |          | —       |  |                | $ | —    |                            |  |  |                           | 
|Granted                           |  |          | 500,000 |  |                |   | 1.00 |                            |  |  |                           | 
|Exercised                         |  |          | —       |  |                |   | —    |                            |  |  |                           | 
|Cancelled/Expired                 |  |          | —       |  |                |   | —    |                            |  |  |                           | 
|Outstanding at September 30, 2012 |  |          | 500,000 |  |                |   | 1.00 |                            |  |  | 4.7 years                 | 
|                                  |  |          |         |  |                |   |      |                            |  |  |                           | 
|Exercisable at September 30, 2012 |  |          | 500,000 |  |                | $ | 1.00 |                            |  |  | 4.7 years                 | 



Share-based compensation expense related
to the warrants of $45,423 was recognized for the nine months ended September 30, 2012. At September 30, 2012, the Company had
$0 of unrecognized share-based expense related to outstanding warrants. No warrants have been exercised.



NOTE 10 – COMMITMENTS AND CONTINGENCIES



On August 31, 2012, the Company entered
into a contract with a software vendor for an enterprise resource planning (ERP) system with terms that provide for the payment
of $136,500 software license fee in monthly installments over the course of twelve months. The contract specifies twelve equal
monthly payments of $11,375 beginning September 2012. The balance owing under the contract at September 30, 2012, is $125,125.



The software license has been capitalized
and will be amortized over three years beginning at such time as it has been implemented and made ready for its intended use, which
is expected to be January 2013.



NOTE 11 – SUBSEQUENT EVENTS



Pursuant to separation agreements entered
into by the Company with Carolyn M. Greer and Willard Powell, the Company will issue 100,000 shares of restricted common stock
each to Ms. Greer and Mr. Powell on or before November 15, 2012. The Company issued these shares on October 23, 2012 and recorded
their fair value of $36,000 as stock-based compensation expense.



On October 1, 2012, 200,000 shares of restricted
stock with a fair value of $36,000 vested and were issued pursuant to an Employment Services Agreement.



On October 30, 2012, options for 90,000
shares of restricted common stock were awarded to two employees pursuant to the 2009 Equity Incentive Plan as follows:



|Exercise price              |  | $ | 0.17   |  
|--------------------------- |  | - | ------ | -
|Vesting period in years (1) |  |   | 1.92   |  
|Term of options in years    |  |   | 5      |  
|Expected volatility         |  |   | 189.83 | %
|Expected dividend yield     |  |   | 0      | %
|Risk free interest rate     |  |   | 0.78   | %



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



14







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



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



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



Overview



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



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



Producing Fields - Plaquemines and Lafourche
Parishes, Louisiana



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



We believe that by recompleting or otherwise
returning several additional shut-in wells to production, continuing to improve operational efficiencies and continued optimization
of the gas lift systems, significant increases in production can continue to be achieved in these fields. Two wells were successfully
recompleted to uphole zones in the Lake Hermitage Field in the fourth quarter of 2011 with positive results. The recompletion of
three additional wells took place in the second quarter of 2012 and a number of additional recompletions are planned or underway,
both in the Lake Hermitage Field and in the Valentine Field. All of this activity is being funded out of operating cash flow. These
efforts should significantly increase production and proved developed producing (“PDP”) reserves. An extensive geological
and engineering evaluation of the Valentine Field has been completed and a number of additional recompletion and/or drilling opportunities
have been identified. In addition, we have submitted applications for permits to drill the first of our proved undeveloped (“PUD”)
drilling locations in the Lake Hermitage Field and we expect to drill the first of several developmental wells later this year.
We are reviewing a number of deep targets with potential for farm out or joint venture with other operators and continue to evaluate
additional acquisition opportunities in South Louisiana.



Lake Hermitage Field – Plaquemines
Parish, Louisiana



The Company owns a 100% working
interest in each of the eighteen wells in the Lake Hermitage Field. Average net production for the quarter was approximately
160 BOE/D (barrels of oil equivalent per day) from seven producing wells and a total of 3,578 mineral acres is held by
production in the field. The field was shut-in approximately 14 days during the third quarter due to Hurricane Isaac which
passed over the Company’s Louisiana properties from August 25th to 29th. Ten wells are currently shut-in pending
evaluation for workover and/or future recompletion in uphole zones. The LLDSB #1 has been permitted for conversion to a salt
water disposal well which would reduce expenses and allow us to handle more fluid on a daily basis, but the conversion of
this well was delayed due to Hurricane Isaac. We expect to complete this operation along with the replacement of downhole
production and safety equipment in the LLDSB # 3 in the fourth quarter of 2012. There are three processing facilities and
tank batteries in the field. The high gravity crude oil produced at Lake Hermitage is transported out of the field by
barge.



15







We have submitted applications for permits
to drill the first two of our PUD drilling locations in the Lake Hermitage Field and we expect to drill the first of several developmental
wells later this year.



Bay Batiste Field, Plaquemines Parish,
Louisiana



The Company owns an average
61% working interest in seven wells in the Bay Batiste Field. Net daily production prior to Hurricane Isaac was approximately
65 BOE/D from one producing well. The field was shut-in for repairs in late August due to the storm and came back on line in
early November. The other six wells are currently shut-in pending evaluation for future workover or recompletion in uphole
zones. Approximately 74 net mineral acres are held by production by the producing well. The salt water disposal well and
two production facilities have plenty of excess capacity to handle production from recompleted wells or from third
party operators nearby. Access to markets is excellent.



Larose Field – Lafourche Parish,
Louisiana



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



Valentine Field – Lafourche Parish,
Louisiana



The Company owns an average 90% working
interest in forty-four wells in the Valentine Field. Net production is approximately 317 BOE/D from fourteen producing wells, and
approximately 3,082 net mineral acres are held by production in the field. The field was shut-in approximately 8 days during the
third quarter due to Hurricane Isaac. There are four salt water disposal wells in the field and twenty-six wells are currently
shut-in pending evaluation for future workover or recompletion in uphole zones. The processing facilities and tank batteries are
strategically located throughout the field and have plenty of excess capacity. A field operations center is centrally located in
the field. Access to pipelines and crude oil markets is excellent.



An extensive geological and engineering
evaluation of the Valentine Field has been completed and a number of additional recompletion and/or drilling opportunities have
been identified. We expect to recomplete the Valentine #2 in the fourth quarter of 2012 and to pursue additional recompletions
in the field later this year. In addition to numerous recompletion and workover opportunities, there is offset developmental drilling
potential as well as deep gas potential. All of those potential opportunities are currently being evaluated.



In July 2012, the Company elected to participate
in the drilling and completion of the PPCO #1 sidetrack well in the Valentine Field. The Company has a 15% working interest in
the well which is operated by an unaffiliated company. The operator commenced this operation in the third quarter of 2012. The
Company advanced $281,061 for tangible and intangible drilling costs, and has agreed to advance an additional $131,175 should the
sidetrack merit completion.



SE Manila Village Field – Plaquemines
Parish, Louisiana



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



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



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



16







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



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



Mineral Acreage Leasing - Garfield and
Major Counties, Oklahoma



During the current year, we began a leasing
and acreage acquisition program in Major and Garfield Counties, Oklahoma, spending $749,756 on approximately 3,400 net mineral
acres as of September 30, 2012, with the intent of initiating a drilling program in the Mississippian Limestone no later than the
1st quarter of 2013. We are continuing to actively lease additional acreage in the play and to pursue agreements with operators
to acquire acreage that is held by production. Total capital expense required to develop the field will be determined once all
acreage is obtained. We refer to our acreage position in Major and Garfield Counties, OK, as the Turkey Creek Field.



We believe that Oklahoma is a great
place to develop a drilling program. It is relatively close to Dallas, is a very oil friendly state and has good availability
of services and a moderate climate. The Mississippian Limestone in Oklahoma is a proven zone
that has been drilled vertically in that area for many years so there is a lot of data available with no need for seismic.
The emerging horizontal play is sufficiently mature to have big company names and good results, yet it is early enough that
acreage can still be acquired at moderate prices. This is an opportunity to establish a repeatable drilling program in an
area with a high drilling success rate.



The Mississippian Limestone in
the area of interest is at a vertical depth of approximately 7,000 feet and is 300 feet to 500 feet thick. The
Woodford Shale, which would be a secondary objective in any well drilled, is immediately below the Mississippian and is
about 80 feet thick. Early reports indicate that the Woodford is oil bearing and quite productive in the area
of interest. Potential reserves in the Mississippian on a per well basis have been reported to be 200,000 to 400,000
barrels per well. The Woodford would increase the potential reserves recoverable. A multi-stage frac is required using acid,
fresh water and a simple sand proppant. The Mississippian produces some water, so disposal wells will be required. The oil
is light, sweet crude with a gravity of 40 to 45 dg.



Mesa currently
holds leases or farm out agreements on approximately 3,400 net mineral acres in the play and is continuing to lease additional
acreage and to pursue additional farm out agreements.The Company expects to drill its first horizontal well in the play
in the 4th quarter of 2012. The location for this well has been selected, a permit application has been submitted and
well planning is ongoing.Information gained from extensive logging and testing of this well will
be highly beneficial in the planning of future horizontal wells on the acreage.



Adjusted EBITDA as a Non-GAAP Performance
Measure



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



17







The following is a reconciliation of our
net income in accordance with GAAP to our Adjusted EBITDA for the three and nine month periods ending September 30, 2012 and 2011:



|                                                                      |  | For the Three Months  Ended September 30, |           |   | For the Nine Months Ended September 30, |  
|--------------------------------------------------------------------- |  | ----------------------------------------- | --------- | - | --------------------------------------- | -
|                                                                      |  | 2012                                      |           |   | 2011                                    |  
|                                                                      |  |                                           |           |   | (Restated)                              |  
|                                                                      |  |                                           |           |   |                                         |  
|Net income (loss)                                                     |  | $                                         | (356,875  | ) |                                         | $
|                                                                      |  |                                           |           |   |                                         |  
|Adjustments:                                                          |  |                                           |           |   |                                         |  
|Interest (income) expense, net                                        |  |                                           | 141,949   |   |                                         |  
|Depreciation, depletion and accretion expense                         |  |                                           | 361,484   |   |                                         |  
|Gain on settlement of debt                                            |  |                                           | —         |   |                                         |  
|Share-based compensation expense                                      |  |                                           | 76,054    |   |                                         |  
|Unrealized (gain) loss on change in derivatives – commodity contracts |  |                                           | 862,306   |   |                                         |  
|Loss on change in derivatives – convertible debt                      |  |                                           | 17,714    |   |                                         |  
|Income tax expense (benefit)                                          |  |                                           | 195,850   |   |                                         |  
|Adjusted EBITDA                                                       |  | $                                         | 1,298,482 |   |                                         | $



Results of Operations



Quarter Ended September 30, 2012 Compared
to Quarter Ended September 30, 2011



Revenue



Revenues from sales of oil, natural
gas, and natural gas liquids (“NGL”) were $3,235,366 for the three months ended September 30, 2012 as compared to
$2,569,464 for the three months ended September 30, 2011. This increase in revenues reflects the results of stimulation
efforts in the wells acquired from TNR, despite a decrease in expected third quarter production due to Hurricane Isaac, as
a result of which most of our Louisiana wells were shut in from several days to several weeks. Revenues were predominantly
generated from oil sales of $2,744,219, which is 85% of revenue, compared to natural gas sales of $474,725 which was 14% of
revenue. The average price of oil in the third quarter of 2012 and 2011 was $104.33/Bbl and $104.26 respectively. Oil sales
volumes during the third quarter of 2012 and 2011 were 286 Bbls per day and 286 Bbls per day, respectively. Average natural
gas prices decreased by $1.18/Mcf to $3.08/Mcf in the third quarter of 2012 from an average price of $4.26/Mcf in the third
quarter of 2011. Natural gas sales volumes increased during the third quarter of 2012 to 1,678 Mcf per day from 1,282 Mcf per
day during the third quarter of 2011. Included in revenue is a small volume of natural gas liquids comprising less than 1%,
as well as processing income from our Square Mile facility in LaRose Field and transportation income from our Java Field.



Operating expenses



| | · | Lease operating expense. Production
expense increased to $1,548,851 in the three months ended September 30, 2012 from $991,833 in the three months ended September
30, 2011. Higher expense in the third quarter of 2012 as compared to the third quarter of 2011 is the result of $123,384, net of
insurance recovery, incurred in repairs necessitated by damage inflicted by Hurricane Isaac in August 2012 primarily to our Lake
Hermitage and Bay Batiste properties. Additionally, as we acquired our Louisiana properties from TNR on July 22, 2011, we operated
those properties for twenty-one fewer days in the third quarter of 2011 than in the third quarter of 2012. Lease operating expense
for the three months ended September 30, 2012 was $22.26 per BOE and $18.07 per BOE for the three months ended September 30, 2011.
Included in the calculation of lease operating expense for the three months ended September 30, 2011, is the expense associated
with hurricane repairs.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Exploration expense. Exploration
expense increased to $137,090 during the three months ended September 30, 2012 from $27,500 during the three months ended September
30, 2011. This was primarily due to prospecting costs incurred by us in Oklahoma and the payment of surface rentals in Louisiana.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | General and administrative expense.
General and administrative expense increased to $834,953 for the three months ended September 30, 2012 from $692,656 for the three
months ended September 30, 2011. The increase is primarily the result of additional payroll and administrative burdens as additional
employees have been hired, consultants have been engaged, and stock compensation expense has increased since our acquisition of
TNR.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18







| | · | Depreciation, depletion, accretion,
and impairment expense. The decrease in depreciation, depletion, accretion, and impairment expense to $361,484 for the three
months ended September 30, 2012 from $588,709 for the three months ended September 30, 2011 reflects additional reserves at December
31, 2011, from prior reserves at time of the TNR acquisition, used in the calculation of the 2012 depletion factor. Also, the depletable
base was reduced at December 31, 2011, when a significant amount of asset retirement costs were fully amortized.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Operating income. In the three months
ended September 30, 2012, we recognized operating income of $352,988 compared to $286,726 in the three months ended September 30,
2011.



Interest expense. Interest expense
decreased to $143,940 for the three months ended September 30, 2012, from $169,422 for the three months ended September 30, 2011.
The decrease was related primarily to the conversion of convertible notes.



Losses on changes in derivative value.
The unrealized loss on change in fair value of derivatives – commodity contracts for the three months ended September 30,
2012 was $862,306 compared an unrealized gain of $1,380,200 for the three months ended September 30, 2011. Unrealized losses in
the third quarter of 2012 were primarily the result of changes in oil prices relative to the fixed oil prices in our swap derivatives.
The loss on change in fair value of derivatives – convertible debt for the three months ended September 30, 2012 was $17,714
compared to a loss of $78,139 for the three months ended September 30, 2011, respectively. The loss associated with the convertible
debt derivative represents the change in the fair value of the liability for issuing shares with a market value higher than the
strike price upon conversion of convertible debt into common stock. At September 30, 2012, we had no derivative liability associated
with convertible debt as all such debt was converted to the Company’s common stock in 2012.



Realized gain on commodity contracts.
Cash settlements from hedging sales of oil and gas production were $117,741 for the three months ended September 30, 2012 as compared
to $53,092 in the three months ended September 30, 2011. The increase is attributable to additional hedge positions we have put
in place in 2012 and the amount by which the settlement value of puts exceeded the settlement value of calls.



Income tax benefit.Income tax benefit
for the three months ended September 30, 2012 increased to $195,850 from $0 in the three months ended September 30, 2011, due to
our having eliminated our tax valuation account at December 31, 2011, and recognized a deferred tax asset.



Net loss. Net loss for the
three months ended September 30, 2012 was $356,875 ($0.00 per basic and diluted share), compared to net income of $1,473,842
($0.02 per basic and diluted share) for the three months ended September 30, 2011. The decrease in earnings is primarily due
to reduced production and sales from our Louisiana wells shut in for approximately twelve days because of Hurricane Isaac and
the ensuing cleanup expense as well as the higher third quarter 2012 losses on commodity contract derivatives.



Nine months Ended September 30, 2012
Compared to the Nine months Ended September 30, 2011



Revenue



Revenues from sales of oil,
natural gas, and NGL were $11,477,268 for the nine months ended September 30, 2012 as compared to $2,606,517 for the nine
months ended September 30, 2011. This increase in revenues reflects additional sales volumes from producing wells acquired in
the TNR Acquisition and stimulation efforts in the wells acquired, despite a decrease in expected third quarter production
due to Hurricane Isaac, as a result of which most of our Louisiana wells were shut in from several days to several weeks.
Revenues are predominantly generated from oil sales of $9,807,859, which is 85% of revenue, compared to natural gas sales of
$1,576,485, which is 14% of revenue. The average price of oil in the first nine months of 2012 and 2011 was $109.49/Bbl and
$104.26/Bbl, respectively. Oil sales volumes during the first nine months of 2012 were 329 Bbls per day compared to 286 Bbls
per day in 2011. The increase in volumes is attributable to the stimulation efforts in the wells acquired from TNR, despite
2012 containing an additional ten days of production over 2011 less approximately twelve days of wells being shut in due
to Hurricane Isaac. Average natural gas prices decreased $1.80/Mcf to $2.72/Mcf in the third quarter of 2012 from an
average price of $4.52/Mcf in the third quarter of 2011. Natural gas sales volumes increased during the first nine months of
2012 to 2,132 Mcf per day from 972 Mcf per day during the first nine months of 2011, also reflective of our acquisition of
TNR. Included in revenue is a small volume of NGL comprising just under 1% as well as production processing income from our
Square Mile facility and transportation income from our Java Field.



Operating expenses



| | · | Lease operating expense. Production
expense increased to $5,171,819, including $123,384 of expenses associated with cleanup from Hurricane Isaac, in the nine months
ended September 30, 2012 from $1,005,094 in the nine months ended September 30, 2011. Higher expense in the third quarter of 2012
as compared to the third quarter of 2011is the result of the addition of TNR operations in the third quarter of 2011. Lease operating
expense for the nine months ended September 30, 2012 was $20.56 per BOE compared to $17.60 per BOE for the nine months ended September
30, 2011. Included in the calculation of lease operating expense for the nine months ended September 30, 2011, is the expense associated
with hurricane repairs in the third quarter.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Environmental remediation expense.
Environmental remediation expense for the nine months ended September 30, 2012 was $244,237 as compared to $0 for the nine months
ended September 30, 2011 and was incurred in connection with an oil spill which occurred while attempting to convert the LLDSB
#7 well to a salt water disposal well. As a result of the spill and additional complications, the conversion of the well was unsuccessful
and the well was plugged and abandoned.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



19







| | · | Exploration expense.
                                                                                                               Exploration expense increased to $233,089 during the nine months ended September 30, 2012 from $40,303 during the nine months
                                                                                                               ended September 30, 2011. This increase was primarily due to prospecting costs incurred by us in Oklahoma and payment of
                                                                                                               surface rentals in Louisiana.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | General and administrative expense.
General and administrative expense increased to $2,542,226 for the nine months ended September 30, 2012 from $1,042,364 for the
first nine months of 2011. The increase is primarily the result of additional payroll and administrative burdens due to the TNR
acquisition and non-cash stock-based compensation expense of $273,478.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Depreciation, depletion,
                                                                                                               accretion, and impairment expense. The increase in depreciation, depletion, accretion, and impairment expense to
                                                                                                               $1,215,448 for the nine months ended September 30, 2012 from $592,293 for the nine months ended September 30, 2011 reflects
                                                                                                               additional reserves at December 31, 2011, from prior reserves at time of the TNR acquisition, used in the calculation of the
                                                                                                               2012 depletion factor. Also, the depletable base was reduced at December 31, 2011, when a significant amount of asset
                                                                                                               retirement costs were fully amortized. Additionally, the 2012 depletion component reflects a full nine months of production,
                                                                                                               while the September 30, 2011, depletion expense component reflected only 71 production days in 2011.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Loss on settlement of asset retirement
obligation. We recognized a loss of $116,394 for the plugging and abandonment of two wells for the nine months ended September
30, 2012. We incurred no such loss in the nine months ended September 30, 2011, but did have a gain of $17,960 on the sale of our
Coal Creek Property in Oklahoma..
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Operating income. In the nine months
ended September 30, 2012, we recognized operating income of $1,954,055 compared to an operating loss of $55,577 in the nine months
ended September 30, 2011.



Interest expense. For the nine months
ended September 30, 2012 interest expense decreased to $418,078 from $466,458 for the nine months ended September 30, 2011. The
decrease was the result of 2011 induced debt conversion expenses, not incurred in 2012, charged to interest expense, which were
offset by additional interest expense and fees in the first nine months of 2012 related to the Credit Facility with F&M Bank
and as a result of lower 2012 convertible debt balances which were eliminated in the third quarter. The Credit Facility with F&M
Bank was closed during the third quarter of 2011.



Losses on changes in derivative value.
The unrealized loss on change in fair value of derivatives – commodity contracts for the nine months ended September 30,
2012 was $938,606 compared to an unrealized gain of $1,380,200 for the nine months ended September 30, 2011. Unrealized losses
in the nine months ended September 30, 2012 were primarily the result of changes in oil prices relative to the fixed oil prices
in our swap derivatives. Loss on change in fair value of derivatives – convertible debt for the nine months ended September
30, 2012 and 2011 was $536,422 and $214,543, respectively. An unrealized loss associated with the convertible debt derivative represents
the change in the fair value of potential liability for issuing shares with a higher market value than the strike price upon conversion
of convertible debt into common stock. All outstanding convertible debt was converted to common stock in the nine months ended
September 30, 2012.



Realized gain on commodity
contracts. Cash settlements from hedging our sales of oil and gas production were $363,733 for the nine months ended
September 30, 2012 as compared to $53,092 in the nine months ended September 30, 2011. This increase is attributable
to additional hedge positions we have put in place in 2012 and the amount by which the settlement value of puts exceeded
the settlement value of calls.



Income tax expense. Income tax expense
for the nine months ended September 30, 2012 increased to $272,164 from $0 in the nine months ended September 30, 2011, due to
our having taxable income in the nine months ending September 30, 2012, while incurring a net loss for the nine months ended September
2011.



Net income. Our net income for the
nine months ended September 30, 2012 was $164,687 ($0.00 per basic and diluted share), compared to $904,250 ($0.02 per basic and
$0.01 per diluted share) for the nine months ended September 30, 2011. The decrease in net income in the first nine months of 2012
compared to 2011 is due primarily to significantly higher 2012 losses on commodity contract derivatives and losses on convertible
debt derivative liability.



Liquidity and Capital Resources



Overview



As of September 30, 2012, we had working
capital of $3,449,090. As of December 31, 2011, we had working capital of $3,104,453. The increase in the working capital was attributable
to:



| | · | A full nine months of 2012 revenues from
the properties acquired from TNR versus only 71 days of revenue from the TNR properties for the nine months ended September 30,
2011.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20







| | · | A reduction in the current portion of
long term debt due to the elimination of the requirement that we pay the monthly commitment reduction of our long-term note with
F&M Bank upon credit redetermination in the second quarter of 2012, the conversion of all convertible debt to common stock,
and the retirement of loans associated with our Lake Hermitage camp and crew boat.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Cash and Accounts Receivable



At September 30, 2012, we had cash and
cash equivalents of $2,857,685, compared to $3,182,392 at December 31, 2011. Cash decreased by $324,707 due to cash provided by
operations of $2,734,653 offset by cash of $3,059,360 used in investing and financing activities, the latter primarily comprising
debt repayments.



Liabilities



Accounts payable, accrued expenses, revenue
payable, and accrued expenses-related party decreased to $1,820,693 at September 30, 2012, from $2,629,472 at December 31, 2011,
primarily due to a decrease in accounts payable and revenue payable net of an increase of $125,125 in accounts payable comprising
our purchase with payment terms over twelve months for a new enterprise resource planning (ERP) system.



As of September 30, 2012, the outstanding
balance of principal on debt was $5,267,797, a net decrease of $822,616 from the outstanding balance of $6,090,413, as of December
31, 2011. The decrease was primarily due to repayment of $300,000 on the F&M Bank credit facility, the conversion of $461,740
of convertible notes to common stock, and retirement of the loans associated with our Lake Heritage Camp and crew boat during the
nine months ended September 30, 2012.



Cash Flows



For the nine months ended September 30,
2012, the net cash provided by operating activities was $2,734,653, which was used to fund our capital expenditures and credit
facility repayments for the period, compared to $227,858 for the nine months ended September 30, 2011. We expect to fund operations
and the existing capital expenditure budget for the next twelve months out of operating cash flow. However, we are actively pursuing
additional capital to fund an accelerated drilling program.



Off-Balance Sheet Arrangements



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



Item 3.  Quantitative and
Qualitative Disclosures about Market Risk.



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



Item 4. Controls and Procedures



a) Evaluation of disclosure controls
and procedures.



Our management, with the participation
of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures
pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of September 30, 2012. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and
procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating
the benefits of possible controls and procedures relative to their costs.



Based on management’s evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that, as a result of the material weaknesses described below,
as of September 30, 2012, our disclosure controls and procedures are not presently designed at a level to provide reasonable assurance
that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized,
and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified
are:



| | 1. | As of September 30, 2012, we did not adequately segregate, or mitigate the risks associated with,
incompatible functions among personnel to reduce the risk that a potential material misstatement of the financial statements would
occur without being prevented or detected. Accordingly, management concluded that this control deficiency constituted a material
weakness.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



21







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



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



(b) Changes in internal
control over financial reporting.



We have remedied a prior material weakness
in our internal control over financial reporting in that, due to full integration of the TNR acquisition into our accounting processes
and the engagement of our CFO and accounting consultants with appropriate levels of technical accounting knowledge, experience,
and training in the application of U.S. GAAP commensurate with our increased complexity and financial accounting and reporting
requirements, we are able to ensure our financial reporting occurs in a timely manner.



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



In the third quarter of 2012, we hired
an Operations Controller to manage and perform our transactional accounting functions. We also purchased an enterprise resource
planning (ERP) system and are in the process of implementing it.



PART II – OTHER INFORMATION



Item 1. Legal Proceedings



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



Item 1A. Risk Factors



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



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



On September 21, 2012, Brio Capital, L.P.
elected to convert $50,000 of its Convertible Promissory Note resulting in the issuance of 400,000 shares.



The above referenced conversion was
deemed to be exempt under rule 506 of Regulation D under the Securities
Act of 1933, as amended.



Item 3. Defaults Upon Senior Securities



None.



Item 4. Mine Safety Disclosures



Not applicable.



Item 5. Other Information



None.



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Item 6. Exhibits



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



|*** |  | To be furnished by amendment. The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23







|*** |  | To be furnished by amendment. The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



SIGNATURES



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



|                        | MESA ENERGY HOLDINGS, INC.
|----------------------- | --------------------------
|                        |                           
|Date: November 13, 2012 | By:                       
|                        |                           
|                        |                           
|                        |                           
|Date: November 13, 2012 | By:                       
|                        |                           
|                        |                           



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