U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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




For the
quarterly period ended September 30, 2009


OR





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




For the
transition period from ______ to ________





Commission
File Number 333-149338





MESA
ENERGY HOLDINGS, INC.


(Exact
Name of Registrant as Specified in its Charter)





Delaware
                
                1000
                
                98-0506246(State
      of Incorporation)
                
                (Primary
      SIC Number)
                
                (IRS
      Employer ID Number)





5220
Spring Valley Rd


Suite
525


Dallas,
TX 75254


(972)
490-9595


(Address
and telephone number of principal executive offices)





MESQUITE
MINING, INC.


(Former
name, address and former fiscal year, if changed since last report)





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





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





Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
One):




Large accelerated filer  ̈
                        
                        Accelerated filer  ̈
                        
                        Non-accelerated filer  ̈
                        
                        Smaller reporting company þ(Do not check if a smaller
                          reporting company)





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


Yes o No x





There were 40,035,700 shares of Common
Stock outstanding as of November 18, 2009.









MESA ENERGY HOLDINGS,
INC.




TABLE
OF CONTENTS




PagePart
      I Financial InformationItem 1
                                                Financial
      StatementsConsolidated
      Balance Sheets as of September 30, 2009 and December 31, 2008
      (Unaudited)
                                                2Consolidated
      Statements of Operations for the three and nine months ended September 30,
      2009 and the period from Inception (April 25, 2003) to September 30, 2009
      (Unaudited)
                                                3Consolidated
      Statement of Changes in Members’ and Stockholders’ Equity (Deficit) for
      the period from Inception (April 25, 2003) to September 30, 2009
      (Unaudited)
                                                4Consolidated
      Statements of Cash Flows for the nine months ended September 30, 2009 and
      2008 and the period from Inception (April 25, 2003) to September 30, 2009
      (Unaudited)
                                                6Notes
      to the Unaudited Consolidated Financial Statements
                                                8Item 2
                                                Management’s
      Discussion and Analysis or Plan of Operation
                                                17Item 4T
                                                Controls
      and Procedures
                                                21Part
      II Other Information
                                                22Item
      1
                                                Legal
      Proceedings
                                                22Item
      2
                                                Unregistered
      Sales of Equity Securities and Use of Proceeds
                                                23Item
      3
                                                Defaults
      Upon Senior Securities
                                                24Item
      4
                                                Submission
      of Matters to a Vote of Security Holders
                                                24Item
      5
                                                Other
      Information
                                                24Item 6
                                                Exhibits
                                                24Signatures
                                                
                                                26Exhibit
      – Certification of Principal Executive Officer and Principal Financial
      OfficerExhibit
      – Certification of Chief Executive Officer and Chief Financial
      Officer


ii


Statement
Regarding Forward-Looking Information





This
report contains forward-looking statements. All statements other than statements
of historical facts included in this Quarterly Report on Form 10-Q, including
without limitation, statements in this Management’s Discussion and Analysis of
Financial Condition and Results of Operations regarding our financial position,
estimated working capital, business strategy, the plans and objectives of our
management for future operations and those statements preceded by, followed by
or that otherwise include the words “believe”, “expects”, “anticipates”,
“intends”, “estimates”, “projects”, “target”, “goal”, “plans”, “objective”,
“should”, or similar expressions or variations on such expressions are
forward-looking statements. We can give no assurances that the assumptions upon
which the forward-looking statements are based will prove to be correct. Because
forward-looking statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. There are a number of risks, uncertainties and other
important factors that could cause our actual results to differ materially from
the forward-looking statements, including, but not limited to, our inability to
obtain adequate financing, insufficient cash flows and resulting illiquidity,
our inability to expand our business, government regulations, lack of
diversification, volatility in the price of oil and/or natural gas, increased
competition, results of arbitration and litigation, stock volatility and
illiquidity, and our failure to implement our business plans or strategies. A
description of some of the risks and uncertainties that could cause our actual
results to differ materially from those described by the forward-looking
statements in this Quarterly Report on Form 10-Q appears in the section
captioned “Risk Factors” in our Current Report on Form 8-K filed with the
Securities and Exchange Commission (the “SEC”) on September 3, 2009 (the “Merger
Current Report”).




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


iii


Explanatory
Note





On August
31, 2009, Mesa Energy Acquisition Corp., a Nevada corporation formed on August
13, 2009, and a wholly owned subsidiary of Mesa Energy Holdings, Inc. (formerly
known as Mesquite Mining, Inc.), a Delaware corporation, merged with and into
Mesa Energy, Inc., a Nevada corporation formed on March 13, 2006 (“MEI”), with
MEI being the surviving corporation (the “Merger”). As a result of the Merger,
MEI became our wholly-owned subsidiary.  The terms “Mesa Energy,”
“Company,” “we,” “us,” and “our” refer to Mesa Energy Holdings, Inc., and its
wholly-owned subsidiary, MEI, and MEI’s subsidiaries, after giving effect to the
Merger.





Pursuant
to the Merger, we have acquired MEI’s business of exploration and production
activities in the oil and gas industry and are continuing MEI’s business
operations as a publicly-traded company under the name Mesa Energy Holdings,
Inc.





The
Merger was treated as a reverse merger and recapitalization for financial
accounting purposes. MEI is considered the acquirer for accounting purposes, and
our historical financial statements for periods prior to the Merger have been
replaced by the historical financial statements of MEI for periods prior to the
Merger in all subsequent filings with the SEC.





For more
information about the Merger and related transactions and the accounting
treatment thereof, see the Merger Current Report.


iv


PART
I – FINANCIAL INFORMATION





Item
1.  Interim Financial Statements





The
accompanying interim unaudited financial statements of Mesa Energy Holdings,
Inc. are condensed and, therefore, do not include all disclosures normally
required by accounting principles generally accepted in the United States of
America. These statements should be read in conjunction with  MEI’s
most recent audited financial statements for the year ended December 31, 2008
included in a the Current Report on Form 8-K filed with the SEC on September 3,
2009. In the opinion of management, all adjustments necessary for a fair
presentation have been included in the accompanying condensed financial
statements and consist of only normal recurring adjustments. The results of
operations presented in the accompanying condensed financial statements for the
period ended September 30, 2009 are not necessarily indicative of the operating
results that may be expected for the full year ending December 31,
2009.


1


MESA
ENERGY HOLDINGS, INC.


(An
Exploration Stage Company)


Consolidated
Balance Sheets


(Unaudited)





September 30, 2009
                
                
                December 31, 2008ASSETSCurrent
      assetsCash
      and cash equivalents
                
                $
                103,894
                
                
                $
                311,947Accounts
      receivable
                
                
                2,755
                
                
                
                -Restricted
      cash
                
                
                20,000
                
                
                
                20,000Deferred
      financing cost, current
                
                
                70,652
                
                
                
                -TOTAL
      CURRENT ASSETS
                
                
                197,301
                
                
                
                331,947Oil
      and gas properties, using successful efforts accountingProperties
      not subject to amortization, less accumulated impairment of $27,140 and
      $27,140, respectively
                
                
                310,040
                
                
                
                1,709,712Properties
      subject to amortization, less accumulated depletion of $0 and $0,
      respectively
                
                
                220,000
                
                
                
                -Pipeline
      property, less accumulated depreciation of $0 and $0,
      respectively
                
                
                220,000
                
                
                
                -Property
      and equipment, net of accumulated depreciation of $0 and $2,259,
      respectively
                
                
                -
                
                
                
                88,102Net
      oil and gas properties
                
                
                750,040
                
                
                
                1,797,814Furniture
      and equipment, less accumulated depreciation of $4,977 and $4,755,
      respectively
                
                
                226
                
                
                
                448Deferred
      financing cost
                
                
                64,766
                
                
                
                -Prepaid
      expenses
                
                
                272,500
                
                
                
                600,830TOTAL
      ASSETS
                
                $
                1,284,833
                
                
                $
                2,731,039LIABILITIES
      AND STOCKHOLDERS’ EQUITY (DEFICIT)Current
      liabilitiesAccounts
      payable trade
                
                $
                123,227
                
                
                $
                426,791Accrued
      expenses
                
                
                497,620
                
                
                
                18,564Accrued
      expenses-related parties
                
                
                96,882
                
                
                
                75,847Advances
      from joint interest owners
                
                
                -
                
                
                
                300,000Deposits
                
                
                20,000
                
                
                
                30,000Notes
      payable-related parties
                
                
                55,000
                
                
                
                451,400Convertible
      debt
                
                
                250,000
                
                
                
                250,000TOTAL
      CURRENT LIABILITIES
                
                
                1,042,729
                
                
                
                1,552,602Non-current
      liabilitiesLong
      term debt-related parties
                
                
                451,400
                
                
                
                -Note
      payable
                
                
                500,000
                
                
                
                -Asset
      retirement obligations
                
                
                119,462
                
                
                
                429,085TOTAL
      LIABILITIES
                
                
                2,113,951
                
                
                
                1,981,687Stockholders’
      Equity (Deficit)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, 40,035,700 and
      25,035,700 shares issued and outstanding, respectively
                
                
                4,004
                
                
                
                2,504Additional
      paid-in capital
                
                
                2,305,159
                
                
                
                2,056,659Accumulated
      deficit during the exploration stage
                
                
                (3,137,921
                )
                
                
                (1,309,811
                )TOTAL
      STOCKHOLDERS’ EQUITY (DEFICIT)
                
                
                (828,758
                )
                
                
                749,352TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
                
                $
                1,284,833
                
                
                $
                2,731,039





See
accompanying notes to unaudited consolidated financial
statements.


2





MESA
ENERGY HOLDINGS, INC.


(An
Exploration Stage Company)


Consolidated
Statements of Operations


For the
Three and Nine Months Ended September 30, 2009 and 2008


and the
Period from Inception (April 25, 2003) to September 30, 2009


(Unaudited)





For the Three Months Ended
                        September 30,
                      
                      
                      For the Nine Months Ended
                        September 30,
                      
                      
                      Inception to
                        September 30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008
                      
                      
                      2009Revenues
                      
                      $
                      2,755
                      
                      
                      $
                      -
                      
                      
                      $
                      2,755
                      
                      
                      $
                      -
                      
                      
                      $
                      2,755Operating
      expensesExploration
      cost
                      
                      
                      21,417
                      
                      
                      
                      13,385
                      
                      
                      
                      104,540
                      
                      
                      
                      28,677
                      
                      
                      
                      486,405Dry
      hole cost
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      466,066Depreciation,
      depletion, amortization, accretion, and impairment
                      
                      
                      74
                      
                      
                      
                      74
                      
                      
                      
                      18,813
                      
                      
                      
                      222
                      
                      
                      
                      90,629General
      and administrative expenses
                      
                      
                      373,044
                      
                      
                      
                      142,580
                      
                      
                      
                      509,792
                      
                      
                      
                      853,793
                      
                      
                      
                      2,261,910Loss
      on sale of Poydras Energy, LLC
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,151,997
                      
                      
                      
                      -
                      
                      
                      
                      1,151,997Gain
      on sale of oil and gas properties
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,673,620
                      )
                      
                      
                      (1,673,620
                      )Total
      operating expenses
                      
                      
                      394,535
                      
                      
                      
                      156,039
                      
                      
                      
                      1,785,142
                      
                      
                      
                      (790,928
                      )
                      
                      
                      2,783,387Income
      (loss) from operations
                      
                      
                      (391,780
                      )
                      
                      
                      (156,039
                      )
                      
                      
                      (1,782,387
                      )
                      
                      
                      790,928
                      
                      
                      
                      (2,780,632
                      )Other
      income (expenses)Interest
      expense
                      
                      
                      (25,266
                      )
                      
                      
                      (14,327
                      )
                      
                      
                      (53,910
                      )
                      
                      
                      (53,953
                      )
                      
                      
                      (398,383
                      )Interest
      income
                      
                      
                      -
                      
                      
                      
                      9,507
                      
                      
                      
                      617
                      
                      
                      
                      17,708
                      
                      
                      
                      24,020Other
      income (expense)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      7,570
                      
                      
                      
                      1,810
                      
                      
                      
                      17,074Total
      other expense
                      
                      
                      (25,266
                      )
                      
                      
                      (4,820
                      )
                      
                      
                      (45,723
                      )
                      
                      
                      (34,435
                      )
                      
                      
                      (357,289
                      )Net
      income (loss)
                      
                      $
                      (417,046
                      )
                      
                      $
                      (160,859
                      )
                      
                      $
                      (1,828,110
                      )
                      
                      $
                      756,493
                      
                      
                      $
                      (3,137,921
                      )Net
      income (loss) per share:Basic
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.07
                      )
                      
                      $
                      0.03Diluted
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.07
                      )
                      
                      $
                      0.03Weighted
      average number of shares outstanding:Basic
                      
                      
                      30,145,590
                      
                      
                      
                      24,202,727
                      
                      
                      
                      26,738,997
                      
                      
                      
                      24,187,990Diluted
                      
                      
                      30,145,590
                      
                      
                      
                      24,202,727
                      
                      
                      
                      26,738,997
                      
                      
                      
                      25,963,781





See
accompanying notes to unaudited consolidated financial
statements.


3





MESA
ENERGY HOLDINGS, INC.


(An
Exploration Stage Company)


Consolidated
Statement of Members’ and Stockholders’ Equity (Deficit)


For the
Period from Inception (April 25, 2003) to September 30, 2009


(Unaudited)





Common StockMembers’
                                      Equity
                                    
                                    
                                    Shares
                                    
                                    
                                    Par
                                      Value
                                    
                                    
                                    Additional
                                      Paid-in
                                      Capital
                                    
                                    
                                    Accumulated
                                      Deficit
                                    
                                    
                                    TotalsBalances
      at April 25, 2003 (inception)
                                    
                                    $
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -Contributions
                                    
                                    
                                    157,416
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    157,416Net
      loss
                                    
                                    
                                    (152,274
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (152,274
                                    )Balances
      at December 31, 2003
                                    
                                    
                                    5,142
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    5,142Contributions
                                    
                                    
                                    372,673
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    372,673Draws
                                    
                                    
                                    (70,000
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (70,000
                                    )Imputed
      Interest
                                    
                                    
                                    11,508
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    11,508Net
      loss
                                    
                                    
                                    (166,278
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (166,278
                                    )Balances
      at December 31, 2004
                                    
                                    
                                    153,045
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    153,045Contributions
                                    
                                    
                                    94,766
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    94,766Imputed
      Interest
                                    
                                    
                                    5,134
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    5,134Net
      loss
                                    
                                    
                                    (210,929
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (210,929
                                    )Balances
      at December 31, 2005
                                    
                                    
                                    42,016
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    42,016Contributions
                                    
                                    
                                    22,743
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    22,743Net
      loss from January 1, 2006 to March 3, 2006
                                    
                                    
                                    (50,495
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (50,495
                                    )Merger
      with Mesa Energy, Inc. (Co.)
                                    
                                    
                                    (14,264
                                    )
                                    
                                    
                                    19,946,993
                                    
                                    
                                    
                                    1,995
                                    
                                    
                                    
                                    592,245
                                    
                                    
                                    
                                    (579,976
                                    )
                                    
                                    
                                    -Fair
      value of options and warrants issued for services
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    19,075
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    19,075Shares
      issued for cash
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,256,092
                                    
                                    
                                    
                                    126
                                    
                                    
                                    
                                    265,274
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    265,400Net
      loss from March 4, 2006 to December 31, 2006
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (338,074
                                    )
                                    
                                    
                                    (338,074
                                    )Balances
      at December 31, 2006
                                    
                                    
                                    
                                    
                                    
                                    
                                    21,203,085
                                    
                                    
                                    
                                    2,121
                                    
                                    
                                    
                                    876,594
                                    
                                    
                                    
                                    (918,050
                                    )
                                    
                                    
                                    (39,335
                                    )Shares
      issued for cash
                                    
                                    
                                    -
                                    
                                    
                                    
                                    830,593
                                    
                                    
                                    
                                    83
                                    
                                    
                                    
                                    208,117
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    208,200Discount
      on convertible debt
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    187,427
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    187,427Net
      loss
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (506,940
                                    )
                                    
                                    
                                    (506,940
                                    )Balances
      at December 31, 2007
                                    
                                    
                                    -
                                    
                                    
                                    
                                    22,033,678
                                    
                                    
                                    
                                    2,204
                                    
                                    
                                    
                                    1,272,138
                                    
                                    
                                    
                                    (1,424,990
                                    )
                                    
                                    
                                    (150,648
                                    )Shares
      issued for purchase of stock of Poydras Energy
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,992,049
                                    
                                    
                                    
                                    299
                                    
                                    
                                    
                                    749,701
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    750,000Warrants
      issued with sale of oil and gas property
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    31,071
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    31,071Shares
      issued for legal fees
                                    
                                    
                                    -
                                    
                                    
                                    
                                    9,973
                                    
                                    
                                    
                                    1
                                    
                                    
                                    
                                    3,749
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    3,750Net
      income
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    115,179
                                    
                                    
                                    
                                    115,178Balances
      at December 31, 2008
                                    
                                    
                                    -
                                    
                                    
                                    
                                    25,035,700
                                    
                                    
                                    
                                    2,504
                                    
                                    
                                    
                                    2,056,659
                                    
                                    
                                    
                                    (1,309,811
                                    )
                                    
                                    
                                    749,352


4





MESA
ENERGY HOLDINGS, INC.


(An
Exploration Stage Company)


Consolidated
Statement of Members’ and Stockholders’ Equity (Deficit)


For the
Period from Inception (April 25, 2003) to September 30, 2009


(Unaudited)





Members’
                    Equity
                  
                  
                  Shares
                  
                  
                  Par Value
                  
                  
                  Additional
                    Paid-in Capital
                  
                  
                  Accumulated
                    Deficit
                  
                  
                  TotalsBalances at December 31, 2008
                  
                  $
                  -
                  
                  
                  
                  25,035,700
                  
                  
                  $
                  2,504
                  
                  
                  $
                  2,056,659
                  
                  
                  $
                  (1,309,811
                  )
                  
                  $
                  749,352Reverse
      merger with Mesa Energy Holdings
                  
                  
                  -
                  
                  
                  
                  14,000,000
                  
                  
                  
                  1,400
                  
                  
                  
                  (1,400
                  )
                  
                  
                  -
                  
                  
                  
                  -Share-based
      compensation
                  
                  
                  -
                  
                  
                  
                  1,000,000
                  
                  
                  
                  100
                  
                  
                  
                  249,900
                  
                  
                  
                  -
                  
                  
                  
                  250,000Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,828,110
                  )
                  
                  
                  (1,828,110
                  )Balances
      at September 30, 2009
                  
                  $
                  -
                  
                  
                  
                  40,035,700
                  
                  
                  $
                  4,004
                  
                  
                  $
                  2,305,159
                  
                  
                  $
                  (3,137,921
                  )
                  
                  $
                  (828,758
                  )





See
accompanying notes to unaudited consolidated financial
statements.


5





MESA
ENERGY HOLDINGS, INC.


(An
Exploration Stage Company)


Consolidated
Statements of Cash Flows


Nine
Months Ended September 30, 2009 and 2008


and the
Period from Inception (April 25, 2003) to September 30, 2009


(Unaudited)





For the Nine Months Ended
                  September 30, 2009
                
                
                Inception to
                  September 30,2009
                
                
                2008
                
                
                2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income (loss)
                
                $
                (1,828,110
                )
                
                $
                756,493
                
                
                $
                (3,137,921
                )Adjustments
      to reconcile net income (loss) to net cash used byoperating
      activities:Loss
      on sale of oil and gas properties
                
                
                1,151,997
                
                
                
                -
                
                
                
                1,151,997Gain
      on sale of assets
                
                
                -
                
                
                
                (1,673,620
                )
                
                
                (1,673,620
                )Dry
      hole cost
                
                
                -
                
                
                
                -
                
                
                
                466,066Imputed
      interest
                
                
                -
                
                
                
                -
                
                
                
                16,643Amortization
      of debt discount
                
                
                -
                
                
                
                -
                
                
                
                187,427Depreciation,
      depletion, amortization, accretion and impairment expense
                
                
                18,813
                
                
                
                222
                
                
                
                90,629Amortization
      of deferred financing cost
                
                
                5,888
                
                
                
                -
                
                
                
                5,888Share-based
      compensation
                
                
                17,500
                
                
                
                3,750
                
                
                
                40,325Changes
      in operating assets and liabilities:Accounts
      receivable
                
                
                (2,755
                )
                
                
                -
                
                
                
                (2,755
                )Accounts
      payable and accrued expenses
                
                
                565,974
                
                
                
                534,200
                
                
                
                643,739Advances
      from joint interest owners
                
                
                -
                
                
                
                -
                
                
                
                300,000Accrued
      expenses – related parties
                
                
                21,036
                
                
                
                23,944
                
                
                
                96,883CASH
      USED IN OPERATING ACTIVITIES
                
                
                (49,657
                )
                
                
                (355,011
                )
                
                
                (1,814,699
                )CASH
      FLOWS FROM INVESTING ACTIVITIESPayment
      of cash for restricted certificate of deposit
                
                
                -
                
                
                
                -
                
                
                
                (20,000
                )Payments
      for oil and gas development costs
                
                
                (532,089
                )
                
                
                (871,549
                )
                
                
                (2,539,827
                )Cash
      paid for asset retirement obligations
                
                
                (40,000
                )
                
                
                -
                
                
                
                (46,494
                )Cash
      acquired from purchase of Poydras Energy, LLC
                
                
                -
                
                
                
                1,326
                
                
                
                1,326Proceeds
      from sale of assets
                
                
                -
                
                
                
                2,450,000
                
                
                
                2,562,500Purchases
      of fixed assets
                
                
                -
                
                
                
                -
                
                
                
                (5,203
                )CASH
      PROVIDED BY (USED) IN INVESTING ACTIVITIES
                
                
                (572,089
                )
                
                
                1,579,777
                
                
                
                (47,698
                )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from the sale of stock
                
                
                -
                
                
                
                -
                
                
                
                473,600Borrowings
      on debt from related parties
                
                
                55,000
                
                
                
                -
                
                
                
                735,400Principal
      payments on debt from related parties
                
                
                -
                
                
                
                (241,500
                )
                
                
                (429,000
                )Borrowings
      on debt from third parties, net of financing cost
                
                
                358,693
                
                
                
                -
                
                
                
                608,693Members
      contributions
                
                
                -
                
                
                
                -
                
                
                
                647,598Members
      distributions
                
                
                -
                
                
                
                -
                
                
                
                (70,000
                )CASH
      PROVIDED BY (USED) IN FINANCING ACTIVITIES
                
                
                413,693
                
                
                
                (241,500
                )
                
                
                1,966,291NET
      CHANGE IN CASH
                
                
                (208,053
                )
                
                
                983,266
                
                
                
                103,894CASH
      AT BEGINNING OF PERIOD
                
                
                311,947
                
                
                
                27,443
                
                
                
                -CASH
      AT END OF PERIOD
                
                $
                103,894
                
                
                $
                1,010,709
                
                
                $
                103,894




6





MESA
ENERGY HOLDINGS, INC.


(An
Exploration Stage Company)


Consolidated
Statements of Cash Flows, continued


Nine
Months Ended September 30, 2009 and 2008


and the
Period from Inception (April 25, 2003) to September 30, 2009


(Unaudited)





Supplemental
      disclosures of cash flow information:Cash
      paid for interest
                
                $
                2,820
                
                
                $
                30,009
                
                
                $
                86,359Cash
      paid for income taxes
                
                $
                -
                
                
                $
                -
                
                
                $
                -Non-cash
      disclosures:Accrued
      oil and gas acquisition and development cost
                
                $
                110,000
                
                
                $
                101,885
                
                
                $
                110,000Sale
      of pipeline right-of-way for payables
                
                $
                60,000
                
                
                
                -
                
                
                $
                60,000Note
      payable issued for purchase of Poydras Energy, LLC
                
                
                
                
                
                $
                100,000
                
                
                $
                100,000Common
      stock issued for purchase of Poydras Energy, LLC
                
                
                -
                
                
                $
                750,000
                
                
                $
                750,000Stock
      issued in reverse merger
                
                $
                1,400
                
                
                $
                -
                
                
                $
                1,400Stock
      issued for prepaid services
                
                $
                232,500
                
                
                $
                -
                
                
                $
                232,500Warrants
      issued with the sale of oil and gas property
                
                
                -
                
                
                $
                31,071
                
                
                $
                31,071Change
      in asset retirement obligation
                
                $
                114,266
                
                
                $
                -
                
                
                $
                122,506





See accompanying notes to unaudited
consolidated financial statements.




7




MESA
ENERGY HOLDINGS, INC.


(An
Exploration Stage Company)


Notes to
Consolidated Financial Statements


(Unaudited)





NOTE 1 –
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Organization
and nature of operations





We were
incorporated as Mesquite Mining, Inc., in Delaware on October 23,
2007.  Prior to the Merger (as defined below), our business was to
engage in the acquisition and exploration of mining properties.





As
previously reported, on June 19, 2009, we filed a Certificate of Amendment to
our Certificate of Incorporation with the Secretary of State of the State of
Delaware, which (i) changed our name from Mesquite Mining, Inc., to Mesa Energy
Holdings, Inc., and (ii) increased our authorized capital stock from 80,000,000
shares of common stock, par value $0.001, to 300,000,000 shares of common stock,
par value $0.0001, and 10,000,000 shares of preferred stock, par value
$0.0001.





As used
in this Quarterly Report, unless otherwise stated or the context clearly
indicates otherwise, the term “Mesquite Mining” refers to Mesa Energy Holdings,
Inc. (f.k.a. Mesquite Mining, Inc.), before giving effect to the Merger, the
term “MEI” refers to Mesa Energy, Inc., a Nevada corporation incorporated on
March 13, 2006, the term “Mesa Energy Holdings” refers to Mesa Energy Holdings,
Inc., after giving effect to the Merger, and the terms “Company,” “we,” “us,”
and “our” refer to Mesa Energy Holdings, Inc., and its wholly-owned subsidiary,
MEI, and MEI’s subsidiaries, after giving effect to the Merger.





As
previously reported, our Board of Directors authorized a 14-for-1 forward split
of our common stock, par value $0.0001 per share (the “Common Stock”), in the
form of a stock dividend (the “Stock Split”), which was paid on August 4, 2009,
to holders of record on July 20, 2009.  After giving effect to the
Stock Split, but before giving effect to the Merger and other transactions
described below, there were outstanding 35,070,000 shares of Common
Stock.  All share and per share numbers in this Report relating to the
Common Stock prior to the Stock Split have been adjusted to give effect to the
Stock Split unless otherwise stated.





On August
31, 2009, Mesa Energy Acquisition Corp., a Nevada corporation formed on August
13, 2009, and a wholly owned subsidiary of Mesa Energy Holdings (“Acquisition
Sub”), merged with and into MEI (the “Merger”). MEI was the surviving
corporation in the Merger. As a result of the Merger, Mesa Energy Holdings
discontinued its pre-Merger business and acquired the business of MEI, and will
continue the existing business operations of MEI as a publicly-traded company
under the name Mesa Energy Holdings, Inc.





Also on
August 31, 2009, we closed a private placement of $500,000 aggregate principal
amount of Mesa Energy Holdings’ 10% Secured Convertible Promissory Notes (the
“Convertible Notes”), at a purchase price of 100%, which, at the option of the
Holder, are convertible into shares of Common Stock at a conversion price of
$0.25 per share, subject to adjustment in certain circumstances as provided
therein.  This offering (the “PPO”) was exempt from registration under
the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon
the exemptions provided by Regulation D promulgated by the SEC thereunder. The
PPO was sold to “accredited investors,” as defined in Regulation
D.  Additional information concerning the PPO and the terms of the
Convertible Notes is presented below under “Description of
Securities.”





MEI was
originally incorporated as North American Risk Management, Inc.
on  January 24, 2001 in the State of Colorado.  On February
13, 2006, the name was changed to Mesa Energy, Inc.  On March 3, 2006,
Mesa Energy, Inc. was the surviving entity in a merger with Mesa Energy, LLC, a
Texas limited liability company, which was formed April 25, 2003 to serve as an
independent exploration and production company.  Subsequently, the
company was reincorporated in the State of Nevada by merging into Mesa Energy,
Inc., a Nevada corporation on March 13, 2006.  MEI is currently
engaged primarily in the acquisition, development, and rehabilitation of oil and
gas properties.


8





MEI’s
primary oil and gas operations are conducted through our wholly owned
subsidiary, Mesa Energy Operating, LLC, a Texas limited liability company
qualified as an operator in Texas, Oklahoma, New York and
Wyoming.  All significant intercompany accounts and transactions have
been eliminated in consolidation.





Basis
of financial statement presentation





The
accompanying unaudited interim consolidated financial statements have been
prepared by Mesa Energy Holdings in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The information
furnished in the interim consolidated financial statements includes normal
recurring adjustments and reflects all adjustments, which, in the opinion of
management, are necessary for a fair presentation of such financial statements.
These interim consolidated financial statements should be read in conjunction
with MEI’s most recent audited consolidated financial statements and notes
thereto dated December 31, 2008 as filed in our current report on Form 8-K filed
with the Securities and Exchange Commission on September 3, 2009.





Use
of estimates





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period.  Actual results could differ from those
estimates.





Principles of
Consolidation





The
consolidated financial statements include our accounts and those of our
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.





Earnings
(Loss) Per Share





Our
earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the period. Diluted
earnings (loss) per share reflects the potential dilution of securities, if any,
that could share in the earnings of the Company and is calculated by dividing
net income by the diluted weighted average number of common shares. The diluted
weighted average number of common shares is computed using the treasury stock
method for common stock that may be issued for outstanding stock options. The
following is a reconciliation of basic and diluted earnings per share for the
three and nine months ended September 30, 2009 and 2008:





For the Three Months Ended
                    
                    
                    For the Nine Months EndedSeptember 30,
                    
                    
                    September 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Numerator:Net
      income (loss) available to common shareholders
                    
                    $
                    (417,046
                    )
                    
                    $
                    (160,859
                    )
                    
                    $
                    (1,828,110
                    )
                    
                    $
                    786,493Denominator:Weighted
      average shares - basic
                    
                    
                    30,145,590
                    
                    
                    
                    24,202,727
                    
                    
                    
                    26,738,997
                    
                    
                    
                    24,187,990Net
      income (loss) per share – basic
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.07
                    )
                    
                    $
                    0.03Dilutive
      effect of common stock equivalents:Warrants
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    829,298Convertible
      Debt
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    964,300Denominator:Weighted
      average shares – diluted
                    
                    
                    30,145,590
                    
                    
                    
                    24,202,727
                    
                    
                    
                    26,738,997
                    
                    
                    
                    25,981,588Net
      income (loss) per share – diluted
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.07
                    )
                    
                    $
                    0.03




9





All
warrants and convertible debt issued and outstanding were included in the
computation of diluted earnings per share for 2008, and were not applicable for
2009.  In periods when losses are reported, the weighted-average
number of common shares outstanding excludes common stock equivalents, because
their inclusion would be anti-dilutive.





Recently
issued accounting pronouncements





In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles (“SFAS 168” or ASC
105-10). SFAS 168 (ASC 105-10) establishes the Codification as the sole source
of authoritative accounting principles recognized by the FASB to be applied by
all nongovernmental entities in the preparation of financial statements in
conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively effective for
financial statements issued for fiscal years ending on or after September 15,
2009, and interim periods within those fiscal years. The adoption of SFAS 168
(ASC 105-10) on July 1, 2009 did not impact the Company’s results of operations
or financial condition. The Codification did not change GAAP; however, it did
change the way GAAP is organized and presented. As a result, these changes
impact how companies reference GAAP in their financial statements and in their
significant accounting policies. The Company implemented the Codification in
this Report by providing references to the Codification topics alongside
references to the corresponding standards.





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





NOTE 2
– GOING
CONCERN





As
indicated in the accompanying consolidated financial statements, the Company has
incurred recurring losses from operations resulting in an accumulated deficit
during the exploration stage of $3,137,921, has a working capital deficit of
$845,428 and currently has limited source of recurring revenue.  These
conditions raise substantial doubt as to the Company’s ability to continue as a
going concern.  To finance the Company’s net losses, MEI sold stock
and officers and directors funded MEI through notes payable (see Note
4).  There can be no assurance that the Company can sell stock or debt
or that the officers and directors of the Company will continue or have the
ability to make financing available to the Company in the future.  The
officers and directors are under no legal obligation to provide additional loans
to the Company.  In the event that the officers cannot make such
loans; create a source of recurring revenues; or that the Company does not
receive funds from other sources, the Company may be unable to continue to
operate as a going concern.  The financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as
a going concern.




NOTE 3 –
OIL AND GAS PROPERTIES





The
Company’s oil and gas properties are located in the United States.  We
generated revenues of $2,755 for the three-month period ended September 30,
2009.





The
carrying values, net of impairment, at September 30, 2009 and December 31, 2008
of Mesa’s oil and gas properties were:


10





Prospect
                  
                  September 30, 2009
                  
                  
                  December 31, 2008Main
      Pass 35 Project
                  
                  $
                  -
                  
                  
                  $
                  1,462,118Coal
      Creek Prospect
                  
                  
                  196,039
                  
                  
                  
                  206,085International
      Paper #1 (“IP #1”)
                  
                  
                  -
                  
                  
                  
                  129,611Java
      Fields
                  
                  
                  554,001
                  
                  
                  
                  -Total
                  
                  $
                  750,040
                  
                  
                  $
                  1,797,814








Costs
excluded from amortization at September 30, 2009 were:





Year
                  Incurred
                
                Acquisition
                  Costs
                
                
                Exploration
                  Costs
                
                
                Impairment
                
                
                Dry Hole
                  Cost
                
                
                Disposition
                  of assets
                
                
                Total2006
      and prior
                
                $
                236,963
                
                
                $
                421,598
                
                
                $
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                658,5612007
                
                
                -
                
                
                
                37,360
                
                
                
                (27,140
                )
                
                
                -
                
                
                
                -
                
                
                
                10,2202008
                
                
                
                
                
                
                1,595,099
                
                
                
                
                
                
                
                (466,066
                )
                
                
                -
                
                
                
                1,129,0332009
                
                
                554,001
                
                
                
                488,608
                
                
                
                -
                
                
                
                -
                
                
                
                (2,090,383
                )
                
                
                (1,047,774
                )Total
                
                $
                790,964
                
                
                $
                2,542,665
                
                
                $
                (27,140
                )
                
                $
                (466,066
                )
                
                
                (2,090,383
                )
                
                $
                750,040




MEI holds
oil and gas lease interests in Oklahoma and New York.  The Oklahoma
leases are classified as “Properties not subject to amortization” in the
Company’s financial statements.  MEI evaluates each of its properties
upon completion of drilling and assessment of reserves to either classify as
“Properties subject to amortization” or impair the properties.





Main
Pass 35 Project – Plaquemines Parish, Louisiana





On
January 1, 2008, MEI acquired Poydras Energy Partners, LLC, a Louisiana
operating company now known as Poydras Energy, LLC (“Poydras”), along with its
principal asset, the Main Pass 35 Project.  The Project has been shut
down since Hurricane Katrina.  The wells were undamaged but there was
extensive damage to the processing facility.  MEI owned a net working
interest of 30% in the project.





Mesa
expended $1,566,167 in development cost during the year ended December 31, 2008
and $436,037 in additional development costs during the first five months of
2009.  Mesa concluded that it did not have adequate resources to
continue its development of the Main Pass Project and the IP #1
well.  Accordingly, on June 1, 2009, Mesa sold 100% of its member
interest in Poydras to St. Francisville Oil & Gas, LLC (“St.
Francisville”).  St. Francisville agreed to assume all the assets and
related liabilities of the Main Pass 35 Project and the IP #1 well, which
amounted to $2,627,655 of assets and $1,475,658 of liabilities.  Mesa
recognized a loss of $1,151,997 on the transaction as detailed in the table
below.





Assets
      assumed by purchaser (St. Francisville):Oil
      and gas properties
                    
                    $
                    2,026,825Prepaid
      asset retirement cost
                    
                    
                    600,830Total
      assets assumed
                    
                    
                    2,627,655Liabilities
      assumed by purchaser:Accounts
      payable
                    
                    
                    733,178Recompletion
      deposits
                    
                    
                    300,000Asset
      retirement obligation
                    
                    
                    442,480Total
      liabilities assumed
                    
                    
                    1,475,658Loss
      on sale of Poydras Energy, LLC
                    
                    $
                    (1,151,997
                    )





11





Coal
Creek Prospect, Sequoyah Co., Oklahoma





In
December 2007, MEI completed a “farm-out” transaction with Wentworth Operating
Company of Edmond, OK (“Wentworth”), wherein Wentworth acquired MEI’s pipeline
right-of-way and planned to construct a natural gas gathering system and
approximately three miles of pipeline to connect the Cook #1 and future wells to
an Arkansas Oklahoma Gas Company (AOG) pipeline.  In addition,
Wentworth agreed to fund, drill and complete the Gipson #1, a direct offset to
the Cook #1.





Wentworth
made an advance deposit of $30,000 against the acquisition price of $60,000 for
the pipeline right-of-way with the balance payable out of net proceeds from the
initial gas sales from Cook #1 and Gipson #1.  The pipeline work has
been completed and Wentworth has been assigned their interest in the acreage per
agreement. Further development of up to five additional offset drilling
locations is dependent upon the results of the Cook #1 and Gipson #1
wells.





In
December 2008, a decision was made for the Gipson #1 well to be drilled to a
depth to test the Hunton zone, and, accordingly, the agreement with Wentworth
was amended and Wentworth would fund 100% of the drilling costs to the casing
point on the Gipson #1 well.  The costs are now being borne by the
parties per their respective working interests. Estimated billed completion
prepayment funds for the Gipson #1 were sent from Mesa to Wentworth in March
2009, less $30,000 owed by Wentworth on the pipeline right of ways. Both the
Cook #1 and the Gipson #1 have been connected to the pipeline and receipt of
revenues will begin before the end of 2009.





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





On August
31, 2009, we acquired the Java Field, a natural gas development project in
Wyoming County in western New York for $440,000.  The acquisition
includes a 100% working interest in 17 leases held by production covering
approximately 3,235 mineral acres, 19 existing natural gas wells, two tracts of
land totaling approximately 36 acres and two pipeline systems, including a 12.4
mile pipeline and gathering system that serves the existing field as well as a
separate 2.5 mile system located northeast of the field.  Our average
net revenue interest (NRI) in the leases is approximately 78%.  We
began receiving revenues for the field on October 20, 2009 for the September
2009 production month.





NOTE 4 –
DEBT - RELATED PARTIES





At
September 30, 2009, debt to related parties consisted of note payables to
related parties for cash loaned to MEI.  These notes totaling $451,400
are to entities owned by the founders and bear interest at a rate of 6% per
annum with principal and interest originally to mature on March 31, 2007 but
have been amended to mature on May 31, 2012.  Also, during the nine
months ended September 30, 2009, proceeds in the amount of $55,000 were received
by MEI as an additional loan from a related party.





NOTE 5 –
CONVERTIBLE PROMISSORY NOTE





During
2006, MEI borrowed $250,000 under a convertible note from a private investor and
consultant to MEI.  This note bore interest at 12% per annum and
matured on September 30, 2007, but was extended until September 29,
2009.  The note provided the investor the right to convert any or all
of the outstanding debt to MEI common shares, at $0.50 per share, any time prior
to the maturity date.  Attached to the note were three year warrants
for 300,000 common shares of MEI stock exercisable at $0.50 per share with an
expiration date of September 29, 2009.  These warrants were converted
to 578,580 shares of the Company’s Common Stock on a cashless basis upon the
closing of the Merger on August 31, 2009.





On August
31, 2009, the Company completed a private placement of $500,000 aggregate
principal amount of MEI Energy Holdings’ 10% Secured Convertible Promissory
Notes, at a purchase price of 100%, which, at the option of the holder, are
convertible into shares of Common Stock at a conversion price of $0.25 per
share, subject to adjustment in certain circumstances as provided
therein.


12


The
Company has evaluated the terms of the $250,000 convertible note and attached
warrants in accordance with “EITF 98-5 and EITF 00-27” or ASC
470-20.  The relative fair value of the warrants under the
Black-Scholes option pricing model was $93,713, which was recorded as a debt
discount on the convertible note and amortized using the effective interest
method over the term of the note.  The parameters used in the
Black-Scholes valuation model were: a risk-free interest rate of 4.62%; the
current stock price on the date of issuance of $0.50 per common share; the
exercise price of the warrants of $0.50 per share of Common Stock; an expected
term of three years; volatility of 214.54% and an expected dividend yield of
0.0%.  The Company also determined that the issuance of the warrants
created a beneficial conversion feature.  The Company recorded a
discount of $93,714 to reflect the value of the beneficial conversion feature on
the convertible debt on the date of issuance.  Utilizing the effective
interest method, the value of the beneficial conversion feature has been
completely amortized through the maturity date of the debt in accordance with
EITF 00-27 or ASC 470-10.
 
 NOTE 6 –
ASSET RETIREMENT OBLIGATIONS
 
 Asset
retirement obligation balances as September 30, 2009 and December 31, 2008
consisted of:
 
 September 30, 2009
                              
                              
                              December
      31, 2008Asset
      retirement obligations at beginning of the period
                              
                              $
                              429,085
                              
                              
                              
                              9,357Obligation
      assumed from acquisition of Poydras
                              
                              
                              -
                              
                              
                              
                              389,677Obligation
      relieved from sale of Poydras
                              
                              
                              (442,480
                              )
                              
                              
                              -Payment
      of obligation for plugged wells
                              
                              
                              -
                              
                              
                              
                              (6,494
                              )Obligation
      for asset retirement of Java Fields
                              
                              
                              114,000
                              
                              
                              
                              -Accretion
      expense
                              
                              
                              18,591
                              
                              
                              
                              36,545Revision
      in cost estimates
                              
                              
                              266
                              
                              
                              
                              -Asset
      retirement obligations at end of the period
                              
                              $
                              119,462
                              
                              
                              
                              429,085
 
 Prepaid
asset retirement cost of $600,830 represents the amount previously paid in cash
to the state of Louisiana based on an estimate using present values to plug and
abandon the Main Pass prospect.  The asset retirement liability was
calculated as the prepaid cost of $600,830 adjusted to future cost using an
inflation factor over the projected life of the Main Pass
prospect.  The adjusted future cash flows were then discounted using a
present value factor resulting in the $399,034 asset retirement liability. The
total prepaid asset retirement cost of $600,830 and the related asset retirement
obligation was transferred on June 1, 2009, to the buyer with the transfer of
all the assets and liabilities of Poydras.
 
 NOTE 7 –
COMMITMENTS AND CONTINGENCIES
 
 From time
to time, the Company may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm the business.
  Except
for the matter described below, the Company is currently not aware of any
pending legal proceedings to which the Company is a party or of which any of the
Company’s property is the subject, nor is the Company aware of any such
proceedings that are contemplated by any governmental authority. Although there
can be no assurance as to the ultimate outcome, MEI has denied liability in the
case pending against it, and the Company intends to defend vigorously such case.
Based on information currently available, the Company believes the amount, or
range, of reasonably possible losses in connection with the action against MEI
will not be material to the Company’s consolidated financial condition or cash
flows. However, losses may be material to the Company’s operating results for
any particular future period, depending on the level of income for such
period.
  13
  Shallow Draft
Elevating Boats, Inc. vs. Poydras Energy, LLC, Poydras Energy Partners, LLC,
Mesa Energy, Inc. and David Freeman:In connection with its previous
ownership of Poydras Energy, LLC, MEI has been named in a legal action by a
Poydras vendor regarding approximately $114,000 in unpaid invoices.  The
case was filed on June 22, 2009, in the 25th
Judicial District Court of Plaquemines Parish, Louisiana, by Shallow Draft
Elevating Boats, Inc., seeking to perfect a lien against various wells in the
Main Pass 35 project.  These invoices are the responsibility of
Poydras.  In the agreement to sell Poydras to St. Francisville, which
closed June 1, 2009, St. Francisville agreed to fully indemnify MEI against any
claims related to Poydras.  The Company believes that St. Francisville
has filed all appropriate responses to the legal action on our behalf and is
handling the case as appropriate.  The Company does not believe there is
any merit to the claim as it relates to MEI but will continue to monitor the
proceedings.
 
 NOTE 8 –
STOCKHOLDERS’ EQUITY
 
 On March
3, 2006, Mesa Energy, LLC, merged with Mesa Energy, Inc., a Colorado
corporation.  Mesa Energy, Inc. (Colorado) (formerly known as North
American Risk Corporation, Inc.) issued 18,151,764 shares in exchange for all of
the assets and liabilities of Mesa Energy, LLC.
 
 On March
13, 2006, the combined entity merged with Mesa Energy, Inc., a Nevada
corporation (MEI), and MEI issued 1,795,229 shares of common stock on a 1:1
basis to Mesa Energy, Inc. (Colorado).
 
 Neither
new entity had any assets, liabilities or operations.  Both of the
above transactions were accounted for as recapitalizations of MEI.
 
 During
the year ended December 31, 2006, MEI issued 1,256,092 shares of common stock
for cash proceeds of $265,400 in a series of transactions.  MEI also
issued 30,000 warrants for services with an exercise price of $0.50 and an
expiration date of December 15, 2009.  The options and warrants were
valued at $19,075 using the Black-Scholes Option Pricing Model.
 
 During
the year ended December 31, 2007, MEI issued 830,593 shares of common stock for
cash proceeds of $208,200.
 
 Effective
January 1, 2008, MEI issued 2,992,049 shares of common stock to entities
controlled by David L. Freeman in exchange for a 50% member interest in
Poydras.
 
 On
January 17, 2008, MEI granted 199,470 warrants to the Sharon Wilensky Revocable
Trust, an affiliate of Roky Operating, LLC, as additional consideration in
connection with Roky’s acquisition of a 40% working interest in an oil and gas
property from MEI.  MEI determined the relative fair value of the
warrants under the Black-Scholes valuation model to be $31,071, which was
recorded as additional oil and gas properties in the Main Pass 35
Project.  The parameters used in the Black-Scholes valuation model
were:  a risk-free interest rate of 2.46%; the current stock price on
the date of issuance of $0.50 per common share; the exercise price of the
warrants of $0.50 per share of common stock; an expected term of three years;
volatility of 98.65% and an expected dividend yield of 0.0%.
 
 On July
31, 2008, MEI filed a Form 1-A and Offering Circular with the SEC with the
intent to raise a maximum of $4,925,000.  The initial sale of units
(based on sale of the maximum number of units being offered) would generate
$475,000 with the balance to come from warrants with a series of expiration
dates spread over one year from the date of the initial
offering.  This proposed offering was abandoned before it went
effective.
 
 On August
1, 2008, MEI sold and issued 9,973 shares of its restricted common stock to a
third-party consultant at $0.75 per share for total consideration of $3,750 in
connection with his consulting services to MEI related to the proposed Reg A
stock offering referenced above.
 
 On August
31, 2009, Mesa Energy Holdings, Acquisition Sub and MEI, entered into an
agreement and plan of merger and reorganization (the “Merger Agreement”), which
closed on the same date, and pursuant to which Acquisition Sub merged with and
into MEI, which became a wholly-owned subsidiary of Mesa Energy
Holdings.
  14
  Pursuant
to the Merger, we ceased to engage in the acquisition and exploration of mining
properties and acquired the business of MEI to engage in exploration and
production activities in the oil and gas industry, as a publicly-traded company
under the name Mesa Energy Holdings, Inc.
 
 At the
closing of the Merger, each of the 12,981,115 shares of MEI’s common stock
issued and outstanding immediately prior to the closing of the Merger, including
430,000 shares of MEI’s common stock issued upon the closing of the Merger in
exchange for outstanding warrants to purchase 430,000 shares of MEI’s common
stock, was converted into 1.9286 shares of our Common Stock. As a result, an
aggregate of 25,035,700 shares of our Common Stock was issued to the holders of
MEI’s common stock. MEI did not have any stock options or other warrants to
purchase shares of its capital stock outstanding at the time of the
Merger
 
 Upon the
closing of the Merger, under the terms of a Split-Off Agreement and a General
Release Agreement, the Company transferred all of its pre-Merger operating
assets and liabilities to its wholly-owned subsidiary, Mesquite Mining Group,
Inc., a Delaware corporation (“Split-Off Subsidiary”) formed on August 13, 2009.
Thereafter, pursuant to the Split-Off Agreement, the Company transferred all of
the outstanding shares of capital stock of Split-Off Subsidiary to Beverly
Frederick, a pre-Merger stockholder of Mesquite Mining (the “Split-Off”), in
consideration of and in exchange for (i) the surrender and cancellation of an
aggregate of 21,000,000 shares of Common Stock held by that stockholder and (ii)
certain representations, covenants and indemnities.
 
 Investor
Relations Agreement
 
 In the
Merger Agreement, the Company agreed to enter into an agreement with an investor
relations firm or firms to be identified (the “IR Consultants”) to provide
investor relations services to the Company, pursuant to which the Company will
agree to deliver to the IR Consultants an aggregate of 1,000,000 shares of
Common Stock (the “IR Shares”); 70,000 of those shares have been issued to an IR
Consultant, and 930,000 have been issued and are being held in escrow pursuant
to an IR Shares Escrow Agreement with Gottbetter & Partners, LLP, as escrow
agent. The shares issued and held in the escrow account for IR Consultants’
future services are initially valued at $0.25 per share or
$232,500.  The Company has recorded the 930,000 shares as prepaid
expense as of September 30, 2009.
 
 2009
Equity Incentive Plan
 
 Before
the Merger, the Board of Directors of the Company adopted, and the
Company’s majority stockholders approved, the 2009 Equity Incentive Plan (the
“2009 Plan”), which provides for the issuance of incentive awards of up to
5,000,000 shares of Common Stock to officers, key employees, consultants and
directors of the Company and its subsidiaries. No awards have been granted under
the 2009 Plan.
 
 Immediately
after giving effect to (i) the Stock Split, (ii) the PPO, (iii) the closing of
the Merger and (iv) the cancellation of 21,000,000 shares in the Split-Off,
there were 40,035,700 issued and 39,105,700 outstanding shares of Common Stock,
as follows:
  ·
              The
      former MEI stockholders held 25,035,700 shares of Common
      Stock;
  ·
              The
      stockholders of Mesquite Mining prior to the Merger held 14,000,000 shares
      of Common Stock;
 
 ·
              An
      IR Consultant held 70,000 shares of Common Stock;
  and
 
 ·
              930,000
      shares of Common Stock have been issued and are being held in escrow for
      IR Consultants pursuant to an IR Shares Escrow Agreement with Gottbetter
      & Partners, LLP, as escrow
agent.
 
 Additionally,
 
 ·
              The
      investors in the PPO held Convertible Notes convertible into 2,000,000
      shares of Common Stock, subject to adjustment in certain circumstances as
      provided therein;
 
 ·
              MEI’s
      outstanding convertible promissory note in the principal amount of
      $250,000 was convertible into an aggregate of 964,300 shares of Common
      Stock, subject to adjustment in certain circumstances as provided therein;
      and
  15
 
 ·
              the
      2009 Plan authorized issuance of up to 5,000,000 shares of Common Stock as
      incentive awards to executive officers, key employees, consultants and
      directors of the Company and its subsidiaries; no awards have been granted
      under the 2009 Plan.
 
 No other
securities convertible into or exercisable or exchangeable for Common Stock
(including options or warrants) are outstanding.
 
 NOTE 9 –
SUBSEQUENT EVENTS
 
 On
November 6, 2009, the $250,000 convertible promissory note held by Denton
Management Company was cancelled and replaced with a $250,000 convertible
secured promissory note as part of the PPO. Accordingly, this note is now
convertible at $0.25 per share.
  On
November 6, 2009, $50,000 that had been advanced as a deposit to the seller of
the Java Field by Sycamore Resources, Inc., a company owned by our CEO, Randy M.
Griffin (“Sycamore”), was reimbursed by the Company to
Sycamore.  Also, on November 6, 2009, $18,500 in loans made to the
Company by Randy M. Griffin after the Merger was repaid by the
Company.
 We
conducted additional closings of the 2009 Private Placement on October 19, 2009
for $250,000, on November 3, 2009 for $250,000, on November 11, 2009 for
$100,000, and on November 13, 2009 for $100,000, for an aggregate principal
amount (including the initial closing) of $1,200,000.  We paid a one
percent (1%) placement agent fee to a registered broker-dealer in connection
with the sale of Convertible Notes in the additional
closings.
  16
  Item
2.  Management’s Discussion and Analysis or Plan of
Operation
 
 Background
and Recent Developments
 
 This
management’s discussion and analysis contains forward-looking statements that
involve risks and uncertainties, such as statements of our plans, objectives,
expectations and intentions. Any statements that are not statements of
historical fact are forward-looking statements. When used, the words “believe,”
“plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like,
and/or future tense or conditional constructions (“will,” “may,” “could,”
“should,” etc.), or similar expressions, identify certain of these
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties that could cause actual results or events to differ
materially from those expressed or implied by the forward-looking statements in
this quarterly report. Our actual results and the timing of events could differ
materially from those anticipated in these forward-looking statements as a
result of several factors. We do not undertake any obligation to update
forward-looking statements to reflect events or circumstances occurring after
the date of this quarterly report. Please see “Forward-Looking Statements” above
for a discussion of the uncertainties, risks and assumptions associated with
these forward-looking statements.
  As the
result of the Merger and the change in business and operations of the Company
from engaging in the acquisition and exploration of mining properties to
engaging in exploration and production activities in the oil and gas industry, a
discussion of the past financial results of Mesquite Mining is not pertinent,
and the historical financial results of MEI, the accounting acquirer prior to
the Merger, are considered the historical financial results of the
Company.
 
 The
following discussion highlights the principal factors that have affected our
financial condition as well as our liquidity and capital resources for the
periods described and provides information which management believes is relevant
for an assessment and understanding of the statements of financial condition and
results of operations presented herein. The discussion should be read in
conjunction with our unaudited financial statements and related notes and the
other financial information included elsewhere in this report.
 
 We were
incorporated in the State of Delaware on October 23, 2007.  We were
formed to engage in the business of acquisition, exploration and development of
natural resource properties (the “Legacy Business”).
 
 By
written consent dated June 18, 2009 our Board of Directors (the “Board”)
authorized us to declare a fourteen for one (14 for 1) forward stock split (the
“Stock Split”) on each share of our Common Stock issued and outstanding at the
close of business on July 20, 2009, in the form of a stock dividend. The Stock
Split was deemed by the Board to be advisable and in our best interest and in
the best interest of our stockholders. The payment date and the effective date
for the Stock Split was July 23, 2009.
 
 On June
19, 2009, we amended our Articles of Incorporation (i) to change our name from
Mesquite Mining, Inc. to Mesa Energy Holdings, Inc. and (ii) to increase our
authorized common stock to 300,000,000 shares, $0.0001 par value per share (the
“Common Stock”), and our preferred stock to 10,000,000 shares, $0.0001 par value
per share.
 
 On August
31, 2009, we closed the Merger pursuant to which MEI became our wholly owned
operating subsidiary.  Concurrent with the Merger closing, we spun-off
the Legacy Business.  These transactions are more fully discussed in
the Merger Current Report filed on Form 8-K on September 3, 2009.
 
 The
Java Field
 
 Also 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.  This acquisition included a 100% working
interest in 17 leases held by production covering approximately 3,235 mineral
acres, 19 existing natural gas wells, two tracts of land totaling approximately
36 acres and two pipeline systems, including a 12.4 mile pipeline and gathering
system that serves the existing field as well as a separate 2.5 mile system
located north of the field.  Our average net revenue interest (NRI) in
the leases is approximately 78%.
  17
  The
current minimal production from the Java Field is being sold to a local
manufacturing plant.  Two of the existing wells in the Java Field have
never been hooked up to the pipeline system, and the others are believed to have
had very little attention in a number of years.  Beginning in the
fourth quarter of 2009, we intend to work over several of the existing wells and
set compression in the field which, we expect, should substantially increase
existing production levels.
 
 A second
phase of development is intended to include an evaluation of a number of the
existing wells in order to determine the viability of the re-entry of an
existing wellbore for plug-back and “fracing1” of the Marcellus Shale
as opposed to the drilling of a new well.  The fracing will be
designed by service providers in conjunction with our consulting engineers, and
this evaluation will be designed to gather as much information as
possible.  Based on our level of success with the work-overs and the
specific results of our testing, a third phase of development will be planned to
include the drilling of up to 80 Marcellus Shale wells on our existing acreage
as well as on additional acreage to be leased for future
development.
 
 Cold
Creek Prospect
 
 The Coal
Creek Prospect is our developmental prospect targeting the Brent Sand, a shallow
gas reservoir present in the Arkoma Basin of eastern Oklahoma.  We
have approximately 677 gross acres under lease near the town of Muldrow,
Oklahoma.  This acreage includes two test wells, the Cook #1 well and
the Gipson #1 well, both of which have been completed and tested and recently
hooked up to a third party pipeline.  We expect to begin receiving
revenues from these two wells during the fourth quarter of 2009.
 
 Going
Concern
  As
indicated in the accompanying consolidated financial statements, we have
incurred recurring losses from operations resulting in an accumulated deficit of
$3,137,921.  These conditions raise substantial doubt as to our
ability to continue as a going concern.  To finance our net losses,
MEI sold stock and officers and directors funded MEI through notes
payable.  There can be no assurance that we can sell stock or debt or
that the officers and directors will continue or have the ability to continue to
make financing available to us in the future.  Our officers and
directors are under no legal obligation to provide additional loans to
us.  In the event that our officers cannot make such loans; that we
cannot create a source of recurring revenues; or that we do not receive funds
from other sources, we may be unable to continue to operate as a going
concern.  Our financial statements do not include any adjustments that
might be necessary if we are unable to continue as a going concern.
  Results
of Operations
 
 Three
Months Ended September 30, 2009 Compared with Three Months Ended September 30,
2008
 
 We are an
exploration stage company and have generated minimal revenues from operations to
date.
 
 Revenues
 
 We
generated minimal revenues of $2,755 for the three month period ended September
30, 2009 while we generated no revenues for the three month period ended
September 30, 2008.  This revenue figure represents one month’s
revenue from the existing producing wells in the Java Field in Wyoming County,
New York.
 
 Operating
Expenses
 
 We
incurred operating expenses of $394,535 for the three months ended September 30,
2009 as opposed to $156,039 for the three months ended September 30,
2008.  These expenses consisted of rent, exploration costs, legal and
professional fees, depreciation and related expenses and administrative fees
incurred in connection with the day to day operation of our
business.  The increase of $238,496 over the periods was due to an
increase of legal and professional fees incurred in connection with the
Merger.
  
 1 The term
“fracing” refers to hydraulic fracturing of oil or gas wells, in which a slurry
of sand and chemicals is injected into the rock formation at high pressure. The
fracing fluid weakens and fractures the surrounding rock, making it more
permeable and thus easier to pump the oil or gas from the
well.
  18
  Interest
Income and Expense
  Interest
expense was $25,266 for the three months ended September 30, 2009, as compared
to interest expense of $14,327 for the three months ended September 30, 2008, an
increase of $10,939. The difference was due to additional debt and the
amortization of the deferred financing cost for our 2009 Private Placement
(discussed below).  The difference in interest income for the same
periods was related to the significant cash associated with MEI’s sale of the
Main Pass 35 Project.
 
 Net
Loss
 
 Our net
loss for the three months ended September 30, 2009 was $417,046.  Net
loss for the three months ended September 30, 2008 was $160,859.
 
 Nine
Months Ended September 30, 2009 Compared with Nine Months Ended September 30,
2008
 Revenues
 
 We
generated minimal revenues of $2,755 for the nine month period ended September
30, 2009 while we generated no revenues for the nine month period ended
September 30, 2008.  This revenue figure represents one month’s
revenue from the existing, producing wells in the Java Field in Wyoming County,
New York.
 
 Operating
Expenses
 
 We
incurred operating expenses of $1,785,142 for the nine months ended September
30, 2009 as opposed to a net gain of $790,928 for the nine months ended
September 30, 2008.  These expenses consisted of rent, exploration
costs, legal and professional fees, depreciation and related expenses and
administrative fees incurred in connection with the day to day operation of our
business.   The primary difference over the two nine-month
periods was due to a gain on the sale of the Main Pass 35 Project in
2008.
 
 Interest
Income and Expense
  Interest
expense was $53,910 for the nine months ended September 30, 2009, as compared to
interest expense of $53,953 for the nine months ended September 30, 2008, a
decrease of $43. The difference in interest income for the same periods was
related to the significant cash associated with the sale of the Main Pass 35
Project.
 
 Net
Loss
 
 Our net
loss for the nine months ended September 30, 2009 was $1,828,110.  Net
income for the nine months ended September 30, 2008 was $756,493.
 
 Liquidity
and Capital Resources
 
 Overview
 
 Due to
our brief history and historical operating losses, our operations have not been
a source of liquidity, and our sources of liquidity primarily have been
debt and proceeds of the sale of MEI common stock and working interest in
properties we have acquired. Although we have begun to generate minimal revenues
from the sale of natural gas from our wells in the Java Field and we expect to
begin generating revenues from the sale of natural gas from our Coal Creek
Prospect wells in the fourth quarter of 2009, there can be no assurances that we
will be successful in reaching this milestone in a timely fashion or that we
will be able to generate sufficient liquidity from the sale of our natural gas
to fund our operations. If we cannot generate revenues from the sale of our
natural gas, our business, results of operations, liquidity and financial
condition may suffer materially.
  19
  Various
factors outside of our control, including the price of oil and natural gas,
overall market and economic conditions, the downturn and volatility in the US
equity markets and the trading price of our common stock may limit our ability
to raise the capital needed to execute our plan of operations. We recognize that
the US economy is currently experiencing a period of uncertainty and that the
capital markets have been depressed from recent levels. We also recognize that
the price of oil and natural gas has decreased significantly during the last
several months and that natural gas, unlike oil, has yet to recover. If the
price of natural gas remains depressed and the markets remain volatile, we
realize that these or other factors could adversely affect our ability to raise
additional capital. As a result of an inability to raise additional capital, our
short-term or long-term liquidity and our ability to execute our plan of
operations could be significantly impaired.
 
 Through
November 20, 2009, we have raised $1,200,000 from the sale of our Convertible
Notes in our 2009 Private Placement (discussed below).  The proceeds
from the initial closing of the 2009 Private Placement allowed us to complete
the Merger and acquire the Java Field.  We will apply the proceeds
from the remaining closings of the 2009 Private Placement towards the
implementation of our plan for the development of the Java Field and for general
working capital purposes.  We will require total funding of $1,000,000
to $1,500,000 to provide the capital for the initial phase of development of the
Java Field, as well as the general and administrative capital needs of the
Company through the first quarter of 2010. The initial phase of development of
the Java Field will include an attempt to enhance the existing production in the
Java Field as well as testing of the Marcellus Shale, either by re-entering an
existing well or by drilling a new well. That effort will begin prior to the end
of 2009 subject to the availability of funds. Additional capital of
approximately $10,000,000 will be required to fund the second phase of
development of the Java Field property, and we plan to raise that capital
through additional sales of equity or debt securities in the fourth quarter of
2009 or the first quarter of 2010. There can be no assurance, however, that such
financing will be available to us or, if it is available, that it will be
available on terms acceptable to us and that it will be sufficient to fund our
needs. If we are unable to obtain this financing, we may not be able to proceed
with the second phase of development of the Java Field or meet our ongoing
operational working capital needs.
 
 As of
September 30, 2009, we had a working capital deficit of $845,428 as compared to
a working capital deficit of $1,220,655 as of December 31, 2008. The reduction
in working capital deficit was primarily attributable to our sale of Poydras
Energy, LLC (“Poudras”) and the reduction in accounts payable associated
therewith. Our current assets decreased by $134,646 for the period ended
September 30, 2009, as compared to the period ended December 31, 2008. This
decrease in current assets was also attributable to the sale of Poydras as well
as a reduction of cash balances during the period.
  As of
September 30, 2009, the outstanding balance of principal and accrued interest on
debt was $1,377,448 a net increase of $600,200 from the outstanding balance of
$777,247 as of December 31, 2008. This net increase was primarily due to accrued
interest as well as additional loans from our CEO to fund ongoing operations and
the $500,000 that we received upon the initial closing of the 2009 Private
Placement.
  Cash
and Accounts Receivable
  At
September 30, 2009, we had cash and cash equivalents in the bank of $103,894, as
opposed to $311,947 at December 31, 2008.  Cash decreased by $208,053
to $103,894 at September 30, 2009 compared to December 31, 2008 primarily due to
expenditures for the Main Pass Project prior to it disposition and normal
general and administrative expenses of the Company.
  Liabilities
  Accounts
payable and accrued expenses increased by $175,492 to $620,847 at September 30,
2009, from $445,355 at December 31, 2008. The increase was attributable to the
additional legal and professional fees associated with the Merger.
  The
outstanding balance of $250,000 in convertible debt did not change in the nine
months ended September 30, 2009. Notes payable to related parties increased
$55,000 from $451,400 on December 31, 2008 to $506,400 on September 30, 2009 as
a result of loans from our CEO.
  Cash
Flows
  For the
nine months ended September 30, 2009, the net cash used by operating activities
of $49,657 reflected working capital requirements to fund operating, general and
administrative activities and our completion of the Merger.  The net
cash used by operating activities was $355,011 for the nine months ended
September 30, 2008.
  20
  For the
nine months ended September 30, 2009, net cash used by investing activities was
$572,089 compared to net cash provided by investing activities of $1,579,777 for
the same period in 2008. The principal investing activity in the first nine
months of 2009 related to the payment of $532,089 of oil and gas development
costs in the first nine months of 2009 while principal investing activity in the
first nine months of 2008 related to proceeds of $2,450,000 from the sale of a
working interest in the Main Pass 35 Project.
  For the
nine months ended September 30, 2009, net cash provided by financing activities
was $413,693, compared to net cash used by financing activities of $241,500 for
the nine months ended September 30, 2008, primarily as a result principal
payments made on debt from related parties for 2008, compared to proceeds
received from issuance of debt for the nine months ended September 30, 2009 to
fund ongoing operations.
 Subsequent
Events
 
 On
November 6, 2009, we repaid Sycamore Resources, Inc., a company owned by our
CEO, Randy M. Griffin (“Sycamore”), $50,000 that Sycamore had advanced as a
deposit to the seller of the Java Field.  Also, on November 6, 2009,
we repaid $18,500 to Mr. Griffin against loans made to the Company by Mr.
Griffin after the Merger.
 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
4T.  Controls and Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange
Act of 1934 as a process designed by, or under the supervision of, the company's
principal executive and principal financial officers and effected by the
company's board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America and
includes those policies and procedures that:
 
 -
              Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of the assets of the
      company;
 
 -
              Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with accounting
      principles generally accepted in the United States of America and that
      receipts and expenditures of the company are being made only in accordance
      with authorizations of management and directors of the company;
      and
 
 -
              Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the company's assets that
      could have a material effect on the financial
  statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. All internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Because of the inherent
limitations of internal control, there is a risk that material misstatements may
not be prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known features of
the financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this
risk.
  21
  As of
September 30, 2009, management assessed the effectiveness of our internal
control over financial reporting based on the criteria for effective internal
control over financial reporting established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") and SEC guidance on conducting such assessments. Based on
that evaluation, they concluded that, during the period covered by this report,
such internal controls and procedures were not effective to detect the
inappropriate application of US GAAP rules as more fully described below. This
was due to deficiencies that existed in the design or operation of our internal
controls over financial reporting that adversely affected our internal controls
and that may be considered to be material weaknesses.
 
 The
matters involving internal controls and procedures that our management
considered to be material weaknesses under the standards of the Public Company
Accounting Oversight Board were: (1) lack of a functioning audit committee due
to a lack of a majority of independent members and a lack of a majority of
outside directors on our board of directors, resulting in ineffective oversight
in the establishment and monitoring of required internal controls and
procedures; (2) inadequate segregation of duties consistent with control
objectives; and (3) ineffective controls over period end financial disclosure
and reporting processes primarily due to limited financial accounting staff
resources. The aforementioned material weaknesses were identified by our Chief
Executive Officer in connection with the review of our financial statements as
of September 30, 2009.
 
 Management
believes that the material weaknesses set forth in items (2) and (3) above did
not have an effect on our financial results. However, management believes that
the lack of a functioning audit committee and the lack of a majority of outside
directors on our board of directors results in ineffective oversight in the
establishment and monitoring of required internal controls and procedures, which
could result in a material misstatement in our financial statements in future
periods.
 
 Management's
Remediation Initiatives
 
 In an
effort to remediate the identified material weaknesses and other deficiencies
and enhance our internal controls, we have initiated, or plan to initiate, the
following series of measures:
 
 We will
create a position to segregate duties consistent with control objectives and
will increase our personnel resources and technical accounting expertise within
the accounting function when funds are available to us. And, we plan to appoint
one or more outside directors to our board of directors who shall be appointed
to an audit committee resulting in a fully functioning audit committee who will
undertake the oversight in the establishment and monitoring of required internal
controls and procedures such as reviewing and approving estimates and
assumptions made by management when funds are available to us.
 
 Management
believes that the appointment of one or more outside directors, who shall be
appointed to a fully functioning audit committee, will remedy the lack of a
functioning audit committee and a lack of a majority of outside directors on our
Board.
 
 We
anticipate that these initiatives will be at least partially, if not fully,
implemented by December 31, 2009. Additionally, we plan to test our updated
controls and remediate our deficiencies by December 31, 2009.
 
 Changes
in Internal Controls over Financial Reporting
 
 There was
no change in our internal controls over financial reporting that occurred during
the period covered by this report, which has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting.
 
 PART
II – OTHER INFORMATION
 
 Item
1. Legal Proceedings
 
 From time to time, we may become involved in various lawsuits and
legal proceedings which arise in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in these
or other matters may arise from time to time that may harm
business.
  22
  Except
for the matter described below, we are currently not aware of any pending legal
proceedings to which we are a party or of which any of our property is the
subject, nor are we aware of any such proceedings that are contemplated by any
governmental authority. Although there can be no assurance as to the ultimate
outcome, we have denied liability in the case pending against us, and we intend
to defend vigorously such case. Based on information currently available, we
believe the amount, or range, of reasonably possible losses in connection with
the action against us not to be material to our consolidated financial condition
or cash flows. However, losses may be material to our operating results for any
particular future period, depending on the level of income for such
period.
  Shallow Draft
Elevating Boats, Inc. vs. Poydras Energy, LLC, Poydras Energy Partners, LLC,
Mesa Energy, Inc. and David Freeman:In connection with its previous
ownership of Poydras Energy, LLC, MEI has been named in a legal action by a
Poydras vendor regarding approximately $114,000 in unpaid invoices.  The
case was filed on June 22, 2009, in the 25th
Judicial District Court of Plaquemines Parish, Louisiana, by Shallow Draft
Elevating Boats, Inc., seeking to perfect a lien against various wells in the
Main Pass 35 project.  These invoices are the responsibility of
Poydras Energy, LLC.  In the agreement to sell Poydras to St. Francisville
Oil & Gas, LLC, which closed June 1, 2009, St. Francisville agreed to fully
indemnify MEI by against any claims related to Poydras Energy,
LLC.  We believe that St. Francisville has filed all appropriate
responses to the legal action on our behalf and is handling the case as
appropriate.  We do not believe there is any merit to the claim as it
relates to MEI but will continue to monitor the situation.
 
 Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 On August
31, 2009, we conducted an initial closing of our a private placement (the “2009
Private Placement”) of $500,000 aggregate principal amount of 10% Secured
Convertible Promissory Notes (the “Convertible Notes”), at a purchase price of
100%, which, at the option of the holder, are convertible into shares of our
common stock at a conversion price of $0.25 per share, subject to adjustment in
certain circumstances as provided in the Convertible Notes.  We did not pay
a placement agent fee in connection with this initial
closing.
 
 We
conducted additional closings (the “Additional Closings”) of the 2009 Private
Placement on October 19, 2009, for $250,000, on November 4, 2009, for $250,000,
on November 11, 2009, for $100,000, and on November 13, 2009, for $100,000, for
an aggregate gross amount (including the initial closing) of
$1,200,000.  We paid a one percent (1%) placement agent fee to a
registered broker-dealer in connection with the sale of the Convertible Notes in
the Additional Closings.
 
 On
November 6, 2009, a private investor holding MEI’s 12% convertible note in the
principal amount of $250,000 exchanged that note for $250,000 principal amount
of the Convertible Notes under the terms of the 2009 Private
Placement.  No placement agent fees were paid in connection with this
exchange.
  23
 Item
3.  Defaults Upon Senior Securities
 
 None.
 
 Item
4.  Submission of Matters to a Vote of Security Holders
 
 None.
 
 Item
5.  Other Information
 
 None.
 
 Item
6.  Exhibits
  Exhibit No.
                                    
                                    Description2.1*
                                    
                                    Agreement
      and Plan of Merger and Reorganization, dated as of August 31, 2009, by and
      among Mesa Energy Holdings, Inc., Mesa Energy Acquisition Corp. and Mesa
      Energy, Inc.2.2*
                                    
                                    Articles
      of Merger3.3*
                                    
                                    Restated
      Bylaws of the Registrant10.1*
                                    
                                    Split-Off
      Agreement, dated as of August 31, 2009, by and among Mesa Energy Holdings,
      Inc., Mesquite Mining Group, Inc., and Beverly Frederick10.2*
                                    
                                    General
      Release Agreement, dated as of August 31, 2009, by and among Mesa Energy
      Holdings, Inc., Mesquite Mining Group, Inc., and Beverly
      Frederick10.3*
                                    
                                    Form
      of Lock-Up Agreement between Mesa Energy Holdings, Inc. and the officers,
      directors and employees party thereto10.4*
                                    
                                    Form
      of No Short Selling Agreement between Mesa Energy Holdings, Inc. and the
      officers, directors and stockholders party thereto10.5*
                                    
                                    IR
      Shares Escrow Agreement, dated as of August 31, 2009, between Mesa Energy
      Holdings, Inc. and Gottbetter & Partners, LLP, as escrow
      agent10.6*
                                    
                                    Form
      of Subscription Agreement between Mesa Energy Holdings, Inc. and the
      investors party thereto10.7*
                                    
                                    Form
      of Secured Convertible Promissory Note of Mesa Energy Holdings,
      Inc.10.8*
                                    
                                    Form
      of Subsidiary Guaranty among Mesa Energy, Inc., Mesa Energy Operating, LLC
      and the investors party thereto10.9*
                                    
                                    Security
      Agreement, dated as of August 31, 2009, among Mesa Energy Holdings, Inc.,
      Mesa Energy, Inc., Mesa Energy Operating, LLC, the investors party thereto
      and Collateral Agents, LLC10.10*
                                    
                                    Escrow
      Agreement, dated as of August 31, 2009, among Mesa Energy Holdings, Inc.,
      the investors party thereto and Grushko & Mittman, P.C.10.11*
                                    
                                    Agreement
      for Purchase of Oil, Gas and Mineral Leases, dated September 17, 2004,
      between Wentworth Operating Company to Mesa Energy, LLC10.12*
                                    
                                    Promissory
      Note, dated April 1, 2005, issued by Mesa Energy, Inc. to Cherokee
      Financial Corporation10.13*
                                    
                                    Promissory
      Note, dated April 1, 2005, issued by Mesa Energy, Inc. to Sycamore
      Resources, Inc. (f/k/a Falcon Petroleum, Inc.)10.14*
                                    
                                    Convertible
      Promissory Note, dated September 29, 2006, issued by Mesa Energy, Inc. to
      Denton Management Company LLC10.15*
                                    
                                    Amendment
      to Convertible Promissory Note, dated August 19, 2009, between Mesa
      Energy, Inc. to Denton Management Company LLC10.16*
                                    
                                    Promissory
      Note, dated February 27, 2007, issued by Mesa Energy, Inc. to Randy
      Griffin10.17*
                                    
                                    Spring
      Valley Center Office Lease, dated June 1, 2007, between Spring Valley
      Center, LLP and Mesa Energy, Inc.10.18*
                                    
                                    Amendment
      to Coal Creek Prospect purchase agreement, dated March 31, 2009, between
      Mesa Energy, Inc. and Wentworth Operating Company31.1
                                    
                                    Certification
      of Principal Executive Officer, pursuant to SEC Rules 13a-14(a) and
      15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act
      of 200231.2
                                    
                                    Certification
      of Principal Financial Officer, pursuant to SEC Rules 13a-14(a) and
      15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act
      of 200232.1
                                    
                                    Certification
      of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350,
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002**32.2
                                    
                                    Certification
      of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350,
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002**
 
 *   
Incorporated by reference to the Registrant’s Form 8-K filed
with the SEC on September 3, 2009.
  ** This
certification is being furnished and shall not be deemed “filed” with the SEC
for purposes of Section 18 of the Exchange Act, or otherwise subject to the
liability of that section, and shall not be deemed to be incorporated by
reference into any filing under the Securities Act or the Exchange Act, except
to the extent that the Registrant specifically incorporates it by
reference.
 
 24
 In
reviewing the agreements included as exhibits to this Form 10-Q, please remember
that they are included to provide you with information regarding their terms and
are not intended to provide any other factual or disclosure information about
the Company or the other parties to the agreements. The agreements may contain
representations and warranties by each of the parties to the applicable
agreement. These representations and warranties have been made solely for the
benefit of the parties to the applicable agreement and:
  ·
              should
      not in all instances be treated as categorical statements of fact, but
      rather as a way of allocating the risk to one of the parties if those
      statements prove to be inaccurate;
 
 ·
              have
      been qualified by disclosures that were made to the other party in
      connection with the negotiation of the applicable agreement, which
      disclosures are not necessarily reflected in the
  agreement;
 
 ·
              may
      apply standards of materiality in a way that is different from what may be
      viewed as material to you or other investors;
  and
 
 ·
              were
      made only as of the date of the applicable agreement or such other date or
      dates as may be specified in the agreement and are subject to more recent
      developments.
  Accordingly,
these representations and warranties may not describe the actual state of
affairs as of the date they were made or at any other time. Additional
information about the Company may be found elsewhere in this Form 10-Q and the
Company’s other public filings, which are available without charge through the
SEC’s website at http://www.sec.gov.
See “Available Information.”
  25
  SIGNATURES
 
 In
accordance with the requirements of the Exchange Act, the Registrant has caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 Date:  November
      23, 2009
                  MESA
      ENERGY HOLDINGS, INC.By:
                  
                  /s/ Randy M. GriffinName:
                  Randy
      M .GriffinTitle:
                  Chief
      Executive Officer
 
 By:
                  
                  /s/ Ray L. UnruhName:
                  Ray
      L. UnruhTitle:
                  Acting
      Chief Financial
Officer
  26