UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



(Mark One)

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

ACT OF 1934



For the Quarterly Period Ended September
30, 2011



or



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

ACT OF 1934



For the Transition Period from _________
to _________



Commission file number: 000-53972



MESA ENERGY HOLDINGS, INC.

(Exact name of registrant as specified in
its charter)



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



5220 Spring Valley Road, Suite 525

Dallas, Texas 75254



(Address of principal executive offices) (zip
code)



(972) 490-9595

(Registrant’s telephone number, including
area code)



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



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



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



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



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



As of February 14, 2012, there were 79,531,324 shares of the
registrant’s common stock outstanding.











MESA ENERGY HOLDINGS, INC.



TABLE OF CONTENTS



|PART I.  | FINANCIAL INFORMATION |                                                                                                                                            
|-------- | --------------------- | -------------------------------------------------------------------------------------------------------------------------------------------
|         |                       |                                                                                                                                            
|         | ITEM 1                | Financial Statements                                                                                                                       
|         |                       | Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010 (Unaudited)                                                     
|         |                       |                                                                                                                                            
|         |                       | Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010 (Unaudited)                          
|         |                       |                                                                                                                                            
|         |                       | Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the Period from December 31, 2010 to September 30, 2011 (Unaudited)
|         |                       |                                                                                                                                            
|         |                       | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010 (Unaudited)                                    
|         |                       |                                                                                                                                            
|         |                       | Notes to Consolidated Financial Statements (Unaudited)                                                                                     
|         |                       |                                                                                                                                            
|         | ITEM 2.               | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                                      
|         |                       |                                                                                                                                            
|         | ITEM 3.               | Quantitative and Qualitative Disclosures about Market Risk                                                                                 
|         |                       |                                                                                                                                            
|         | ITEM 4.               | Controls and Procedures                                                                                                                    
|         |                       |                                                                                                                                            
|PART II. | OTHER INFORMATION     |                                                                                                                                            
|         |                       |                                                                                                                                            
|         | ITEM 1.               | Legal Proceedings                                                                                                                          
|         | ITEM 1A.              | Risk Factors                                                                                                                               
|         | ITEM 2.               | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                
|         | ITEM 3.               | Defaults Upon Senior Securities                                                                                                            
|         | ITEM 4.               | (Reserved)                                                                                                                                 
|         | ITEM 5.               | Other Information                                                                                                                          
|         | ITEM 6.               | Exhibits                                                                                                                                   
|         |                       |                                                                                                                                            
|         | SIGNATURES            | 33                                                                                                                                         



2







PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements



MESA ENERGY HOLDINGS,
INC.

Consolidated Balance Sheets

(Unaudited)



|                                                                                                                                                        |  | September 30, 2011 |            |   | December 31, 2010 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ---------- | - | ----------------- | -
|Assets                                                                                                                                                  |  |                    |            |   |                   |  
|                                                                                                                                                        |  |                    |            |   |                   |  
|Current Assets                                                                                                                                          |  |                    |            |   |                   |  
|Cash and cash equivalents                                                                                                                               |  | $                  | 970,052    |   |                   | $
|Accounts receivable                                                                                                                                     |  |                    | 2,569,820  |   |                   |  
|Derivative assets - current                                                                                                                             |  |                    | 789,219    |   |                   |  
|Deferred financing costs - current                                                                                                                      |  |                    | 53,070     |   |                   |  
|Prepaid expenses                                                                                                                                        |  |                    | 32,883     |   |                   |  
|TOTAL CURRENT ASSETS                                                                                                                                    |  |                    | 4,415,044  |   |                   |  
|                                                                                                                                                        |  |                    |            |   |                   |  
|Oil and gas properties, using successful efforts accounting:                                                                                            |  |                    |            |   |                   |  
|Properties not subject to amortization, less accumulated impairment of $0 and $247,500                                                                  |  |                    | —          |   |                   |  
|Proved properties subject to amortization. Less accumulated depletion depreciation, amortization, and impairment of $544,503 and $519,116, respectively |  |                    | 8,148,789  |   |                   |  
|Support facilities and equipment less accumulated depreciation of $40,933 and $0, respectively                                                          |  |                    | 1,832,519  |   |                   |  
|Land                                                                                                                                                    |  |                    | 48,345     |   |                   |  
|Net oil and gas properties                                                                                                                              |  |                    | 10,029,653 |   |                   |  
|                                                                                                                                                        |  |                    |            |   |                   |  
|Property and equipment less accumulated depreciation of $2,646 and $0                                                                                   |  |                    | 87,326     |   |                   |  
|Deferred financing cost - noncurrent                                                                                                                    |  |                    | 39,802     |   |                   |  
|Derivative assets - noncurrent                                                                                                                          |  |                    | 590,981    |   |                   |  
|Deposit on asset retirement obligations                                                                                                                 |  |                    | 640,000    |   |                   |  
|Other assets                                                                                                                                            |  |                    | 5,000      |   |                   |  
|                                                                                                                                                        |  |                    |            |   |                   |  
|TOTAL ASSETS                                                                                                                                            |  | $                  | 15,807,806 |   |                   | $
|                                                                                                                                                        |  |                    |            |   |                   |  
|LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                                   |  |                    |            |   |                   |  
|                                                                                                                                                        |  |                    |            |   |                   |  
|Current Liabilities                                                                                                                                     |  |                    |            |   |                   |  
|Accounts payable - trade                                                                                                                                |  | $                  | 897,034    |   |                   | $
|Revenue payable                                                                                                                                         |  |                    | 344,497    |   |                   |  
|Accrued expenses                                                                                                                                        |  |                    | 367,511    |   |                   |  
|Accrued expenses-related parties                                                                                                                        |  |                    | 77,995     |   |                   |  
|Notes payable - related parties                                                                                                                         |  |                    | —          |   |                   |  
|Notes payable - current                                                                                                                                 |  |                    | 772,647    |   |                   |  
|Convertible notes payable - current                                                                                                                     |  |                    | —          |   |                   |  
|TOTAL CURRENT LIABILITIES                                                                                                                               |  |                    | 2,459,684  |   |                   |  
|                                                                                                                                                        |  |                    |            |   |                   |  
|Non-current liabilities                                                                                                                                 |  |                    |            |   |                   |  
|Long term debt-related parties                                                                                                                          |  |                    | —          |   |                   |  
|Notes payable - noncurrent                                                                                                                              |  |                    | 5,160,033  |   |                   |  
|Convertible notes payable, net of discount                                                                                                              |  |                    | 823,564    |   |                   |  
|Derivative liability - noncurrent                                                                                                                       |  |                    | 214,543    |   |                   |  
|Asset retirement obligations                                                                                                                            |  |                    | 3,393,988  |   |                   |  
|                                                                                                                                                        |  |                    |            |   |                   |  
|TOTAL LIABILITIES                                                                                                                                       |  |                    | 12,051,812 |   |                   |  
|                                                                                                                                                        |  |                    |            |   |                   |  
|Stockholders’ 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, 76,444,649 and 40,232,021 shares issued and outstanding, respectively                   |  |                    | 7,645      |   |                   |  
|Additional paid-in capital                                                                                                                              |  |                    | (1,139,597 | ) |                   |  
|Retained earnings                                                                                                                                       |  |                    | 4,887,946  |   |                   |  
|TOTAL  STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                                                   |  |                    | 3,755,994  |   |                   |  
|                                                                                                                                                        |  |                    |            |   |                   |  
|TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                                    |  | $                  | 15,807,806 |   |                   | $



See accompanying notes to unaudited consolidated
financial statements.



3







MESA ENERGY HOLDINGS, INC.



Consolidated Statements of Operations

For the Three and Nine Months Ended September
30, 2011 and 2010

(Unaudited)



|                                                                   |  | For the Three Months Ended |            |   | For the Nine Months Ended |  
|------------------------------------------------------------------ |  | -------------------------- | ---------- | - | ------------------------- | -
|                                                                   |  | September 30,              |            |   | September 30,             |  
|                                                                   |  | 2011                       |            |   | 2010                      |  
|                                                                   |  |                            |            |   |                           |  
|Revenues                                                           |  | $                          | 3,277,650  |   |                           | $
|                                                                   |  |                            |            |   |                           |  
|Operating Expenses                                                 |  |                            |            |   |                           |  
|Lease operating expense                                            |  |                            | 988,808    |   |                           |  
|Exploration cost                                                   |  |                            | 27,500     |   |                           |  
|Depreciation, depletion, amortization, accretion and impairment    |  |                            | 636,109    |   |                           |  
|General and administrative expense                                 |  |                            | 692,656    |   |                           |  
|Gain on sale of oil and gas properties                             |  |                            | (17,960    | ) |                           |  
|Total operating expenses                                           |  |                            | 2,327,113  |   |                           |  
|                                                                   |  |                            |            |   |                           |  
|Income (loss) from operations                                      |  |                            | 950,537    |   |                           |  
|                                                                   |  |                            |            |   |                           |  
|Other Income (Expenses)                                            |  |                            |            |   |                           |  
|Interest income                                                    |  |                            | 376        |   |                           |  
|Interest expense                                                   |  |                            | (169,422   | ) |                           |  
|Gain (loss) on change in derivative value –  derivative instrument |  |                            | 1,380,200  |   |                           |  
|Gain (loss) on change in derivative value – convertible debt       |  |                            | (78,139    | ) |                           |  
|Gain on settlement of debt                                         |  |                            | -          |   |                           |  
|Loss on extinguishment of debt                                     |  |                            | -          |   |                           |  
|Other income                                                       |  |                            | 54,101     |   |                           |  
|Total other income (expense)                                       |  |                            | 1,187,116  |   |                           |  
|                                                                   |  |                            |            |   |                           |  
|Net income                                                         |  | $                          | 2,137,653  |   |                           | $
|                                                                   |  |                            |            |   |                           |  
|Net income per share:                                              |  |                            |            |   |                           |  
|Basic                                                              |  | $                          | 0.03       |   |                           | $
|Diluted                                                            |  | $                          | 0.03       |   |                           | $
|                                                                   |  |                            |            |   |                           |  
|Weighted average number of common shares outstanding:              |  |                            |            |   |                           |  
|Basic                                                              |  |                            | 72,479,866 |   |                           |  
|Diluted                                                            |  |                            | 81,311,627 |   |                           |  



See accompanying notes to unaudited consolidated
financial statements.



4







MESA ENERGY HOLDINGS, INC.

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

For the Period from December 31, 2010 to
September 30, 2011

(Unaudited)



|                                                                  |  |              |            |  |         |   |       | Additional |  |   |            |   |  |       |          
|----------------------------------------------------------------- |  | ------------ | ---------- |  | ------- | - | ----- | ---------- |  | - | ---------- | - |  | ----- | ---------
|                                                                  |  | Common Stock |            |  | Paid-in |   |       |            |  |   |            |  
|                                                                  |  |              |            |  | Par     |   |       | Capital    |  |   | Retained   |   |  |       |          
|                                                                  |  | Shares       |            |  | Value   |   |       | (Deficit)  |  |   | Earnings   |   |  | Total |          
|                                                                  |  |              |            |  |         |   |       |            |  |   |            |   |  |       |          
|Balances at December 31, 2010                                     |  |              | 40,232,021 |  |         | $ | 4,023 |            |  | $ | (6,786,915 | ) |  | $     | 3,319,885
|                                                                  |  |              |            |  |         |   |       |            |  |   |            |   |  |       |          
|Shares issued for cash                                            |  |              | 320,000    |  |         |   | 32    |            |  |   | 39,968     |   |  |       | -        
|                                                                  |  |              |            |  |         |   |       |            |  |   |            |   |  |       |          
|Share-based compensation                                          |  |              | 680,000    |  |         |   | 70    |            |  |   | 183,465    |   |  |       | -        
|                                                                  |  |              |            |  |         |   |       |            |  |   |            |   |  |       |          
|Shares issued to settle debt                                      |  |              | 1,200,000  |  |         |   | 120   |            |  |   | 234,330    |   |  |       |          
|                                                                  |  |              |            |  |         |   |       |            |  |   |            |   |  |       |          
|Conversion of convertible debt and accrued interest               |  |              | 11,746,628 |  |         |   | 1,174 |            |  |   | 2,101,414  |   |  |       | -        
|                                                                  |  |              |            |  |         |   |       |            |  |   |            |   |  |       |          
|Common shares issued to induce debt conversion                    |  |              | 1,036,000  |  |         |   | 103   |            |  |   | 111,871    |   |  |       | -        
|                                                                  |  |              |            |  |         |   |       |            |  |   |            |   |  |       |          
|Shares issued for acquisition of Tchefuncte Natural Resources LLC |  |              | 21,200,000 |  |         |   | 2,120 |            |  |   | 2,965,880  |   |  |       | -        
|                                                                  |  |              |            |  |         |   |       |            |  |   |            |   |  |       |          
|Shares issued in exchange for personal guarantees on debt         |  |              | 30,000     |  |         |   | 3     |            |  |   | 4,647      |   |  |       | -        
|                                                                  |  |              |            |  |         |   |       |            |  |   |            |   |  |       |          
|Debt discount                                                     |  |              | -          |  |         |   | -     |            |  |   | 5,743      |   |  |       | -        
|                                                                  |  |              |            |  |         |   |       |            |  |   |            |   |  |       |          
|Net income                                                        |  |              | -          |  |         |   | -     |            |  |   | -          |   |  |       | 1,568,061
|                                                                  |  |              |            |  |         |   |       |            |  |   |            |   |  |       |          
|Balances at September 30, 2011                                    |  |              | 76,444,649 |  |         | $ | 7,645 |            |  | $ | (1,139,597 | ) |  | $     | 4,887,946



See accompanying notes to unaudited consolidated
financial statements



5







MESA ENERGY HOLDINGS, INC.

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2011
and 2010

(Unaudited)



|                                                                                             |  | For the Nine Months Ended |           
|-------------------------------------------------------------------------------------------- |  | ------------------------- | ----------
|                                                                                             |  | September 30,             |           
|                                                                                             |  | 2011                      |           
|CASH FLOWS FROM OPERATING ACTIVITIES                                                         |  |                           |           
|Net income                                                                                   |  | $                         | 1,568,061 
|                                                                                             |  |                           |           
|Adjustments to reconcile net income to net cash provided by (used for) operating activities: |  |                           |           
|Depreciation, depletion, amortization, accretion and impairment expense                      |  |                           | 639,693   
|Share-based compensation                                                                     |  |                           | 183,535   
|Gain on sale of assets                                                                       |  |                           | (17,960   
|Amortization of debt discount charged to interest expense                                    |  |                           | 788       
|Amortization of deferred financing cost                                                      |  |                           | 145,557   
|Induced debt conversion expense                                                              |  |                           | 111,974   
|Shares issued for continuation of loan guarantees charged to interest expense                |  |                           | 4,650     
|Unrealized gain on change in derivative value – derivative instrument                        |  |                           | (1,380,200
|Unrealized gain (loss) on change in derivative value – conversion features                   |  |                           | 214,543   
|Gain on settlement of debt                                                                   |  |                           | (223,736  
|Changes in operating assets and liabilities:                                                 |  |                           |           
|Accounts receivable                                                                          |  |                           | (1,826,178
|Prepaid and other assets                                                                     |  |                           | (17,243   
|Accounts payable and accrued expenses                                                        |  |                           | 598,373   
|Revenue payable                                                                              |  |                           | 212,023   
|Accrued expenses – related party                                                             |  |                           | 13,978    
|CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES                                             |  |                           | 227,858   
|                                                                                             |  |                           |           
|CASH FLOWS FROM INVESTING ACTIVITIES                                                         |  |                           |           
|Release of restricted cash                                                                   |  |                           | -         
|Cash received for sale of oil and gas property                                               |  |                           | 17,960    
|Cash paid for acquisition of TNR, net of cash acquired                                       |  |                           | (4,809,368
|Cash paid for acquisition and development of oil and gas properties                          |  |                           | (198,205  
|Purchase of fixed assets                                                                     |  |                           | (3,771    
|CASH USED FOR INVESTING ACTIVITIES                                                           |  |                           | (4,993,384
|                                                                                             |  |                           |           
|CASH FLOWS FROM FINANCING ACTIVITIES                                                         |  |                           |           
|Proceeds from issuance of stock                                                              |  |                           | 40,000    
|Proceeds from borrowings on debt, net of financing costs                                     |  |                           | 5,713,086 
|Proceeds from borrowings on debt – related party                                             |  |                           | -         
|Principal payments on long-term notes payable                                                |  |                           | (2,604    
|Principal payments on debt – related party                                                   |  |                           | (21,000   
|CASH PROVIDED BY FINANCING ACTIVITIES                                                        |  |                           | 5,729,482 
|                                                                                             |  |                           |           
|NET CHANGE IN CASH                                                                           |  |                           | 963,956   
|CASH AT BEGINNING OF PERIOD                                                                  |  |                           | 6,096     
|CASH AT END OF PERIOD                                                                        |  | $                         | 970,052   
|                                                                                             |  |                           |           
|Supplemental disclosures of cash flow information:                                           |  |                           |           
|Cash paid for interest                                                                       |  | $                         | 54,558    
|Cash paid for income taxes                                                                   |  | $                         | -         
|                                                                                             |  |                           |           
|NON-CASH TRANSACTIONS                                                                        |  |                           |           
|Common stock issued for purchase of Tchefuncte Natural Resources, LLC                        |  | $                         | 2,968,000 
|Derivative liability                                                                         |  | $                         | -         
|Common stock issued for the conversion of notes payable and accrued interest                 |  | $                         | 2,040,282 
|Promissory note and accrued interest exchanged for convertible note                          |  | $                         | 41,019    
|Debt discount                                                                                |  | $                         | 5,743     
|Common stock issued to settle debt                                                           |  | $                         | 234,450   



See accompanying notes to unaudited consolidated
financial statements.



6







MESA ENERGY HOLDINGS, INC.

Notes to Consolidated Financial Statements

(Unaudited)



NOTE 1 – ORGANIZATION AND SIGNIFICANT
ACCOUNTING POLICIES



Organization



Mesa Energy, Inc. (“MEI”) is a
wholly owned subsidiary of Mesa Energy Holdings, Inc. (the “Company”). MEI’s predecessor entity, Mesa Energy,
LLC, was formed in April 2003 as an exploration and production company in the oil and gas industry. MEI’s primary oil and
gas operations have historically been conducted through its wholly owned subsidiary, Mesa Energy Operating, LLC (“Mesa Operating”).
Mesa Operating is a qualified operator in the states of Texas, Oklahoma, and Wyoming. MEI is a qualified operator in the State
of New York. On July 22, 2011, MEI acquired Tchefuncte Natural Resources, LLC (“TNR”). TNR owns interests in 80 wells
and related surface production equipment in five fields located in Plaquemines and Lafourche Parishes in Louisiana. At September
30, 2011, those properties were being operated by Tchefuncte Natural Resources, LLC (“TNR”), a wholly-owned subsidiary
of MEI.The operator of all operated properties in Louisiana changed
to Mesa Gulf Coast, LLC, a wholly owned subsidiary of MEI in October 2011. Our operating entities have historically employed, and
will continue in the future to employ, on an as-needed basis, the services of drilling contractors, other drilling related vendors,
field service companies and professional petroleum engineers, geologists and land men as required in connection with future drilling
and production operations.



Basis of Presentation



The accompanying unaudited interim consolidated
financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United
States and the rules of the Securities and Exchange Commission. and should be read in conjunction with the audited consolidated
financial statements and notes thereto contained in the Company’s latest annual report filed with the SEC on Form 10-K. In
the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial
position and the results of operations for the interim periods presented have been reflected herein. The results of operations
for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the unaudited interim
consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial
statements for fiscal year 2010, as reported in the Form 10-K, have been omitted.



Exploration Stage Company



The Company was previously in the exploration
state in accordance with SEC guidance and Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic No 915 – Development Stage Entities. During the nine months ended September 30, 2011, the Company
exited the exploration stage upon the acquisition of TNR.



Reclassifications



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



Use of estimates



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



Principles of Consolidation



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



7







Deferred Financing Costs



Financing costs are deferred and amortized over the financing period
using the effective interest rate method.



Fair Value of Financial Instruments



The Company adopted the framework for measuring
fair value that establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level
1 measurements) and lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy
are described below:



| | Level 1: | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities
occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
| | -------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Level 2: | Quoted prices in markets that are not active, or inputs which are observable, either directly or
indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that
the Company values using observable market data. Substantially all of these inputs are observable in the marketplace throughout
the term of the derivative instruments, can be derived from observable data, or supported by observable levels at which transactions
are executed in the marketplace.
| | -------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Level 3: | Measured based on prices or valuation models that require inputs that are both significant to the
fair value measurement and less observable from objective sources (i.e. supported by little or no market activity). The Company’s
valuation models are primarily industry standard models.  Level 3 instruments include derivative warrant instruments. 
The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level
2.
| | -------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company’s assessment of the significance
of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets
and liabilities and their placement within the fair value hierarchy levels. The estimated fair value of the derivative warrant
instruments was calculated using a modified lattice valuation model (See Note 9).



Earnings Per Share



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



Recently issued accounting pronouncements



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



Subsequent Events



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



8







NOTE 2 – ACQUISITION OF TCHEFUNCTE NATURAL
RESOURCES, LLC.



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



a) in exchange for all of the issued and outstanding members’
interests of TNR (20 million shares),

b) for the retirement of notes payable in the amount of
$150,000 (1.2 million shares),

c) the selling members retained an overriding royalty
interest on each lease owned by TNR and on each lease acquired pursuant to the acquisition of Samson equal to the difference between
a 75% net revenue interest (“NRI”) (on an 8/8ths basis) and the current NRI, not to exceed 3%.



Immediately prior to the acquisition of TNR, on July 22, 2011, TNR
completed the acquisition of properties in four fields in south Louisiana (the “Samson Properties”) from Samson Contour
Energy E&P, LLC (“Samson”) for a total purchase price, net of post-closing adjustments, of $4,936,231. TNR used
net cash of $5,371,525 from MEI’s Loan Agreement with The F&M Bank & Trust Company and $300,000 provided by the selling
members of TNR and Mesa’s CEO to fund the initial purchase price for the Samson Properties of $5,071,525 and to fund $600,000,
representing a portion of the obligations for the Site Specific Trust Accounts (“SSTAs”), for asset retirement liability
on wells owned and operated by Samson. TNR received a post-closing payment from Samson of $735,294 for adjustments to the purchase
price resulting in a net purchase price of $4,936,231.



In addition, on July 26, 2011, the selling members agreed to continue
to provide personal guarantees on the notes for the boat and camp (see Note 9 –Debt) in exchange for an additional 30,000
shares of Mesa’s stock valued at $4,650 based on the closing price of Mesa’s stock on July 26, 2011.



The acquisition price was allocated to the assets acquired and liabilities
assumed based upon their estimated fair values. The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition.



|Assets acquired:                             |  |   |            | 
|-------------------------------------------- |  | - | ---------- | 
|Cash                                         |  | $ | 562,157    | 
|Receivables                                  |  |   | 735,294    | 
|Other current assets                         |  |   | 16,890     | 
|Total current assets                         |  |   | 1,314,341  | 
|                                             |  |   |            | 
|Oil and gas properties                       |  |   | 10,436,372 | 
|Properties and equipment                     |  |   | 28,368     | 
|Deposit on asset retirement obligation       |  |   | 600,000    | 
|Total assets acquired                        |  |   | 12,379,081 | 
|                                             |  |   |            | 
|Liabilities assumed:                         |  |   |            | 
|Accounts payable and accrued liabilities     |  |   | 638,075    | 
|Note Payable                                 |  |   | 139,321    | 
|Asset retirement obligations                 |  |   | 3,262,160  | 
|Total liabilities assumed                    |  |   | 4,039,556  | 
|                                             |  |   |            | 
|Net assets acquired                          |  | $ | 8,339,525  | 
|                                             |  |   |            | 
|Consideration paid:                          |  |   |            | 
|Common stock issued valued at 0.14 per share |  |   | 2,968,000  | 
|Note payable - F&M Bank                      |  |   | 5,371,525  | 
|Total consideration paid                     |  | $ | 8,339,525  | 



9







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



|                                              |  | Nine Months Ended  |            |  | Nine Months Ended  |  
|--------------------------------------------- |  | ------------------ | ---------- |  | ------------------ | -
|                                              |  | September 30, 2011 |            |  | September 30, 2010 |  
|Revenues                                      |  | $                  | 9,351,196  |  |                    | $
|Net income                                    |  | $                  | 4,577,583  |  |                    | $
|Net loss per share – basic                    |  | $                  | 0.08       |  |                    | $
|Net loss per share – diluted                  |  | $                  | 0.07       |  |                    | $
|Weighted average shares outstanding -basic    |  |                    | 70,838,920 |  |                    |  
|Weighted average shares outstanding – diluted |  |                    | 76,375,521 |  |                    |  



NOTE 3 – DERIVATIVE INSTRUMENTS



On August 9, 2011, the Company entered into a derivative instrument
risk management agreement in the form of costless collars (“Collars”). The Collar program covers natural gas commodity
for a two year period commencing in August 2011. Collars are option positions established by selling calls and purchasing puts.
The calls establish a maximum price (ceiling), and the puts establish a minimum price (floor) that will be received for volumes
under contract. The Collars are indexed to New York Mercantile Exchange prices.



On August 9, 2011, the Company entered into a derivative instrument
risk management agreement in the form of a fixed oil price swap agreement (“Swaps”). The fixed-price Swaps establish
a set price the Company will receive for volumes under contract. This agreement covers oil to be produced for a two year period
and commenced in August of 2011.

On September 12, 2011, the Company entered into a derivative
instrument risk management agreement in the form of basis swaps in order to hedge locational basis risk. This agreement hedges
the risk associated with the price differential between the delivery point of the oil volumes hedged and the actual delivery point
at which the Company’s oil is priced. This program covers oil to be produced for a one year period commencing in October
2011. The basis swaps are indexed to prices from the New York Mercantile Exchange and Light Louisiana Sweet First Contract Month.



The details as of September 30, 2011 are summarized below:



Costless Collars



|                  |  |  |                    |                      |  |               |  |               | Weighted      |  |   |             | 
|----------------- |  |  | ------------------ | -------------------- |  | ------------- |  | ------------- | ------------- |  | - | ----------- | 
|                  |  |  |                    |                      |  |               |  |               | Average       |  |   |             | 
|Production Period |  |  | Type of Instrument |                      |  | Total Volumes |  |               | Floor/Ceiling |  |   | Fair Value  | 
|8/2011-7/2013     |  |  |                    | Costless Gas Collars |  |               |  | 300,000 MMBtu |               |  | $ | 4.00 / 5.75 | 



Fixed Price Swaps





|                  |  |  |                    |                       |  |              |  |             | Average     |  |   |            | 
|----------------- |  |  | ------------------ | --------------------- |  | ------------ |  | ----------- | ----------- |  | - | ---------- | 
|Production Period |  |  | Type of Instrument |                       |  | Total Volume |  |             | Fixed Price |  |   | Fair Value | 
|8/2011-12/2011    |  |  |                    | Oil Fixed Price Swaps |  |              |  | 21,500 Bbls |             |  | $ | 115.40     | 
|1/2012-12/2012    |  |  |                    | Oil Fixed Price Swaps |  |              |  | 42,000 Bbls |             |  | $ | 114.50     | 
|1/2013-7/2013     |  |  |                    | Oil Fixed Price Swaps |  |              |  | 18,900 Bbls |             |  | $ | 114.90     | 



Basis Swaps





|Production Period |  |  | Type of Instrument |                 |  | Total Volume |  |             | Basis Price |  |   | Fair Value | 
|----------------- |  |  | ------------------ | --------------- |  | ------------ |  | ----------- | ----------- |  | - | ---------- | 
|10/2011-9/2012    |  |  |                    | Oil Basis Swaps |  |              |  | 12,000 Bbls |             |  | $ | 20.00      | 



10







The Company has elected not to apply hedge
accounting to the derivatives. As of September 30, 2011, the Company recognized a short term derivative asset of $789,219 and a
long-term derivative asset of $590,981, with the change in fair value reflected in unrealized gain or loss on change in derivative
value - derivative instruments.



In addition to the Collars, Swaps, and Basis
Swaps, we have derivatives associated with the value of the conversion features related to convertible debt which is discussed
more fully in Note 8 - Convertible Promissory Notes.



NOTE 4 - OIL AND GAS PROPERTIES



The Company’s proved oil and gas properties
at September 30, 2011, are located in the United States.



The carrying values, net of depletion, depreciation,
amortization, and impairment, at September 30, 2011, and December 31, 2010, of the Company’s oil and gas properties were:



|Prospect                                   |  | September 30, 2011 |           |  | December 31, 2010 |  
|------------------------------------------ |  | ------------------ | --------- |  | ----------------- | -
|Coal Creek Prospect                        |  | $                  | -         |  |                   | $
|Java Field                                 |  |                    | -         |  |                   |  
|Lake Hermitage Field                       |  |                    | 2,790,180 |  |                   |  
|Bay Batiste, La Rose, and Valentine Fields |  |                    | 5,358,609 |  |                   |  
|Total                                      |  | $                  | 8,148,789 |  |                   | $



Net proved oil and gas properties at September
30, 2011 were:



|               |  |             |           |  |             |   |           |             |  |   |          |  |  |             |          |   | Depletion,    |   |            |       | 
|-------------- |  | ----------- | --------- |  | ----------- | - | --------- | ----------- |  | - | -------- |  |  | ----------- | -------- | - | ------------- | - | ---------- | ----- | 
|               |  |             |           |  |             |   |           |             |  |   |          |  |  |             |          |   | Depreciation, |   |            |       | 
|               |  |             |           |  |             |   |           |             |  |   |          |  |  |             |          |   | Amortization  |   |            |       | 
|Year           |  | Acquisition |           |  | Exploration |   |           | Development |  |   | Dry Hole |  |  | Disposition |          |   | and           |   |            |       | 
|Incurred       |  | Costs       |           |  | Costs       |   |           | Costs       |  |   | Cost     |  |  | of assets   |          |   | Impairment    |   |            | Total | 
|               |  |             |           |  |             |   |           |             |  |   |          |  |  |             |          |   |               |   |            |       | 
|2009 and prior |  | $           | 754,878   |  |             | $ | 2,542,092 |             |  | $ | -        |  |  | $           | (466,066 | ) |               | $ | (2,090,383 | )     | 
|2010           |  |             | -         |  |             |   | 405,462   |             |  |   | -        |  |  |             | -        |   |               |   | -          |       | 
|2011           |  |             | 8,495,085 |  |             |   | 82,534    |             |  |   | 115,673  |  |  |             | -        |   |               |   | -          |       | 
|Total          |  | $           | 9,249,963 |  |             | $ | 3,030,088 |             |  | $ | 115,673  |  |  | $           | (466,066 | ) |               | $ | (2,090,383 | )     | 



The Company holds oil and gas lease interests
in Louisiana and New York.   The Company evaluates each of its properties upon completion of drilling and assessment
of reserves to either classify as “Properties subject to amortization” or impair the properties.



The Company sold its Coal Creek prospect on
September 26, 2011 for total consideration of $17,960 and recognized a gain on sale of $17,960 as the properties were fully impaired
in prior periods.



NOTE 5 – SUPPORT FACILITIES AND EQUIPMENT



The Company owns support facilities and equipment
which serve its oil and gas production activities. These classes of properties and equipment, together with their estimated useful
lives, comprise:



|                                            |  |       |    |  | September 30, |   |           | December 31, | 
|------------------------------------------- |  | ----- | -- |  | ------------- | - | --------- | ------------ | 
|                                            |  | Years |    |  | 2011          |   |           | 2010         | 
|                                            |  |       |    |  |               |   |           |              | 
|Tank batteries                              |  |       | 7  |  |               | $ | 400,000   |              | 
|Production equipment                        |  |       | 7  |  |               |   | 950,000   |              | 
|Valentine field office                      |  |       | 20 |  |               |   | 150,000   |              | 
|Lake Hermitage field office                 |  |       | 20 |  |               |   | 117,089   |              | 
|Asset retirement cost                       |  |       | 7  |  |               |   | 256,363   |              | 
|                                            |  |       |    |  |               |   | 1,873,452 |              | 
|Accumulated depreciation                    |  |       |    |  |               |   | (40,933   | )            | 
|Total support facilities and equipment, net |  |       |    |  |               | $ | 1,832,519 |              | 



11







NOTE 6 – PROPERTY AND EQUIPMENT



Major classes of depreciable property and equipment,
together with their estimated useful lives, comprise:



|                                        |  |       |    |  | September 30, |   |        | December 31, | 
|--------------------------------------- |  | ----- | -- |  | ------------- | - | ------ | ------------ | 
|                                        |  | Years |    |  | 2011          |   |        | 2010         | 
|                                        |  |       |    |  |               |   |        |              | 
|Office equipment and purchased software |  |       | 3  |  |               | $ | 16,388 |              | 
|Furniture and fixtures                  |  |       | 10 |  |               |   | 15,749 |              | 
|Boat                                    |  |       | 7  |  |               |   | 57,835 |              | 
|                                        |  |       |    |  |               |   | 89,972 |              | 
|Accumulated depreciation                |  |       |    |  |               |   | (2,646 | )            | 
|Total property and equipment, net       |  |       |    |  |               | $ | 87,326 |              | 



NOTE 7 – DEBT - RELATED PARTIES



On June 14, 2011, the Company executed an agreement
with Cherokee Financial Corp. (owned by Ray L. Unruh) wherein Cherokee agreed to accept payment in common stock for the outstanding
balance of principal and accrued interest on its long-term note receivable from the Company. A total of 2,249,722 shares, with
a fair market value of $314,961, were issued in full payment of outstanding principal of $213,400 and accrued interest of $67,815.



On July 11, 2011 and July 27, 2011, the Company
made payments totaling $93,000 to its CEO as payment in full of the principal balance of all outstanding notes payable to him.
Accrued interest of $3,520 remains outstanding on the notes. $74,478 of accrued interest remains outstanding on a note payable
to Sycamore Resources, Inc., an entity controlled by the CEO. The principal balance of that note in the amount of $238,000 was
converted to the Company’s common stock in June 2011.



NOTE 8 – CONVERTIBLE PROMISSORY NOTES



In 2009 and 2010, the Company commenced a series
of private placements (the “PPO”) of 10% Secured Convertible Promissory Notes of the Company (the “Convertible
Notes”), at a purchase price of 100% of face value, which, at the option of the respective holders, were convertible into
shares of common stock at a conversion price of $0.25 per share, subject to adjustment in certain circumstances as provided therein.  Several
closings of the PPO were held in which the Company sold an aggregate of $1,945,000 principal amount of Convertible Notes (not including
the Convertible Note in the principal amount of $250,000 that was issued in exchange for the Denton Note) raising net proceeds
of $1,624,180 after $320,820 of offering costs.  Each of the Convertible Notes issued are due 24 months from issuance
(or earlier upon certain events of default) and bear interest at 10% per annum, payable semi-annually on December 31 and June 30
in each year. Interest will be paid in shares of the common stock valued for this purpose at 90% of the volume weighted average
price of the common stock for the ten trading days preceding but not including the relevant interest payment date.  The
Company shall have the right to redeem from time to time, upon prior notice, all or any portion of the outstanding principal amount
of the Convertible Notes, without penalty, for 100% of the principal being redeemed plus accrued and unpaid interest.



The Convertible Notes contain a standard “blocker”
provision so that no holder shall have the right to convert any portion of its Convertible Notes to the extent that, after giving
effect to such conversion, the holder and its affiliates would beneficially own in excess of 4.99% of the number of shares of common
stock outstanding immediately after giving effect to such conversion.  By written notice to the Company, a holder may
increase or decrease such percentage to any other percentage, provided that any such increase will not be effective until the sixty-first
(61st) day after such notice is delivered and such percentage may not, in any event, exceed 9.99%.  Pursuant to Omnibus
Waiver and Modification Agreements provided the Company by the holders of convertible notes, all convertible notes are subordinated
to the interests of F&M Bank in the assets of the Company. Please see Note 9 for additional discussion on the F&M Bank
facility.



12









The Company determined that the Convertible
Notes issued in the 2009 and 2010 Private Placements contained provisions that protect holders from declines in the Company’s
stock price that could result in modification of the exercise price under the conversion feature based on a variable that is not
an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815–40.  As
a result, the exercise price is not indexed to the Company’s own stock.  The fair value of the conversion feature
was recognized as an embedded derivative instrument and will be measured at fair value at each reporting period.  The
Company measured the fair value of these instruments as of the date of issuance and recorded an initial derivative liability of
$9,383,380 during the year ended December 31 2009 and $3,311,821 during the year ended December 31, 2010.  The fair values
of these instruments are re-measured each reporting period and a gain or loss is recorded for the change in fair value.



On May 11, 2011, the remaining convertible
debt holders agreed to extend the maturity date of their outstanding note balance to July 31, 2013 and amend the conversion price
of $0.25 to $0.125 per share. The Company determined that this event constituted an extinguishment of debt. Deferred financing
costs of $17,620 related to the Convertible Notes were charged to the loss on extinguishment of debt. It was also determined that
the reduction of the conversion price created an embedded derivative, originally valued at zero at May 11, 2011, and valued at
September 30, 2011 at $214,543. As of September 30, 2011 and December 31, 2010, the remaining outstanding balance of Convertible
Notes from the 2009 and 2010 offerings was $787,500 and $2,145,000, respectively.



The Company measured the fair value of these
instruments at September 30, 2011 and December 31, 2010 and determined the conversion feature had a value of $214,543 and $0, respectively.  For
the nine months ended September 30, 2011 and 2010, the Company recorded an unrealized loss of $214,543 and a gain of $10,718,777
on the change in derivative value related to the conversion features, respectively, to the statement of operations. The Company
determined the fair values of these securities using a binomial valuation model that utilizes the Cox-Ross-Rubenstein method of
formulating the Black-Scholes equation for determining the theoretical value of convertible notes that contain options of the underlying
common stock of the Company.



Activity for derivative instrument during the
nine months ended September 30, 2011 was as follows:



|                              |  | Balance at January 1, 2011 |   |  | Activity during the period |   |   | Increase in fair value of derivative liability |  |   | Balance at September 30, 2011 | 
|----------------------------- |  | -------------------------- | - |  | -------------------------- | - | - | ---------------------------------------------- |  | - | ----------------------------- | 
|                              |  |                            |   |  |                            |   |   |                                                |  |   |                               | 
|Derivative conversion feature |  | $                          | - |  |                            | $ | - |                                                |  | $ | 214,543                       | 



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



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





|                                                                           |  | September 30, 2011 |          
|-------------------------------------------------------------------------- |  | ------------------ | ---------
|Common stock issuable upon conversion                                      |  |                    | 6,300,000
|Market price of common stock on measurement date, per posted closing price |  | $                  | 0.150    
|Conversion price                                                           |  | $                  | 0.12     
|Conversion period in years                                                 |  |                    | 2        
|Expected volatility                                                        |  |                    | 168.9    
|Expected dividend yield                                                    |  |                    | 0        
|Risk free interest rate                                                    |  |                    | 0.57     





13







Activity for derivative instruments during the nine months ended
September 30, 2010 was as follows:



|                              |  | Balance at January 1, 2010 |           |  | Activity during the period |   |           | Decrease in fair value of derivative liability |  |   | Balance at September 30, 2010 | 
|----------------------------- |  | -------------------------- | --------- |  | -------------------------- | - | --------- | ---------------------------------------------- |  | - | ----------------------------- | 
|Derivative conversion feature |  | $                          | 7,461,680 |  |                            | $ | 3,311,821 |                                                |  | $ | 10,718,777                    | 



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



|Date           |  | Probability of issuance of 
instruments at a price lower than the conversion price |    |   | Probable prices at which instruments will be issued | 
|-------------- |  | ---------------------------------------------------------------------------------- | -- | - | --------------------------------------------------- | 
|               |  |                                                                                    |    |   |                                                     | 
|September 2009 |  |                                                                                    | 70 | % |                                                     | 
|November 2009  |  |                                                                                    | 60 | % |                                                     | 
|December 2009  |  |                                                                                    | 50 | % |                                                     | 
|Thereafter     |  |                                                                                    | 50 | % |                                                     | 



On January 3, 2011, an aggregate of 1,459,267
shares of common stock was issued to convert $108,082 of accrued interest on the Convertible Notes.



Between January 14, 2011 and March 25, 2011,
a total of $1,295,000 in Convertible Notes were converted to 5,180,000 common shares at $0.25 per share plus a 20% premium in shares,
or 1,036,000 common shares, per agreement with note holders.  Interest expense of $111,974 was recorded for the 1,036,000
of premium shares issued to note holders to induce conversion.  In addition, 120,063 shares were issued in payment of
$13,321 in interest accrued from January 1, 2011 to the date of conversion.  No gain or loss on derivative liabilities
was recorded as a result of this conversion as the conversion features had no value on the dates of conversion.



In addition, on June 16, 2011, convertible
notes in the amounts of $20,621 and $20,398 were issued in exchange for an existing $40,000 short term note, plus accrued interest.
As of September 30, 2011, there was unamortized debt discount of $4,955 for these convertible notes.



The convertible notes are convertible at any
time at a conversion price of $0.125 per share. The net outstanding convertible note balance at September 30, 2011, is $823,564.



NOTE 9 – DEBT



On July 22, 2011,
Mesa Energy, Inc. (“MEI”), a wholly-owned subsidiary of the Company, entered into a $25 million senior secured revolving
line of credit facility (“Credit Facility") with F&M Bank and Trust Company (“F&M Bank”). The maturity
date of the credit agreement is July 22, 2013. The interest rate is the F&M Bank Base Rate plus 1% subject to a floor of 5.75%.
At present, interest is accruing at 5.75% and is paid monthly. A 2.00% annual fee is applicable to the letters of credit drawn
under the Credit Facility.



The Credit Facility
provided financing for the acquisition of TNR, working capital for field enhancements, and general corporate purposes. The Credit
Facility is subject to an initial borrowing base of $10,500,000 which was fully utilized by the Company with the completion of
the acquisition of TNR. The Company obtained letters of credit in the amount of $4,704,037 that were provided to the State of Louisiana
to secure asset retirement obligations associated with the properties. $5,693,106 was funded to MEI to complete the transaction,
provide working capital for field enhancements and for general corporate purposes. The remaining $102,857 is a loan origination
fee which will be amortized over the life of the loan. The borrowing base is subject to two scheduled redeterminations each year.
Loans made under this credit facility are secured by TNR’s proved producing reserves (“PDP”) as well as guarantees
provided by the Company, MEI, and the Company’s other wholly-owned subsidiaries. Monthly Commitment Reductions are initially
set at $150,000 beginning November 22, 2011 and continuing until the first redetermination on or about April 1, 2012. Future principal
reduction requirements, if any, will be determined concurrently with each semi-annual reserve redetermination. Reporting requirements,
loan covenants and events of default are as customary for this type of Credit Facility. The Company believes it was in compliance
with all of the debt covenants as of September 30, 2011.



14







The Credit Facility
required that 50% of the projected production from the properties be hedged for 24 months at $100 per barrel or above as described
more fully in Note 3. On July 25, 2011, we initiated Swaps on oil as required with 4,300 barrels of oil per month hedged at $115.40
per barrel for the remainder of 2011. We also initiated Costless Collars on 17,500 Mmbtu of natural gas with a $4.00/Mmbtu floor
and a $5.75/Mmbtu ceiling for the remainder of 2011, as well as an oil basis swap through the third quarter of 2012 on 12,500 barrels
of oil at a basis price of $20 per barrel.



On April 21, 2011,
TNR issued a note pursuant to a Business Loan Agreement with Resource Bank for the purchase of a boat to use to transport work
crews (“Boat Loan”). On May 18, 2011, TNR issued a note pursuant to a Multiple Indebtedness Mortgage Agreement with
Resource Bank for land and building (“Land & Building Loan”) to use as a field operations facility. These notes
are personally guaranteed by the former members of TNR. On July 22, 2011, the Company assumed Boat Loan and Land & Building
Loan in conjunction with the Company’s acquisition of TNR.



Term of the Boat Loan
and Land & Building Loan was as follows:



|Loan Terms           |  | Date |           |  | Maturity |  |           | Rate |  |  | Balance at 
September 30, 2011 |  
|-------------------- |  | ---- | --------- |  | -------- |  | --------- | ---- |  |  | ------------------------------ | -
|Boat Loan            |  |      | 4/21/2011 |  |          |  | 4/21/2014 |      |  |  | 6.50                           | %
|Land & Building Loan |  |      | 5/18/2011 |  |          |  | 5/18/2014 |      |  |  | 6.25                           | %



The payments on the
Boat Loan are $1,320 per month and are allocated between principal and interest. The payments on the Land & Building Loan are
$736 per month, allocated between principal and interest, with a balloon payment of $92,523 due on the final payment date of May
18, 2014.



Principal repayment provisions for all long-term debt, including
convertible and related party debt, are as follows at September 30, 2011:



|Year ending December 31, |  | Amount |          
|------------------------ |  | ------ | ---------
|2011                     |  | $      | 304,007  
|2012                     |  |        | 466,655  
|2013                     |  |        | 5,892,285
|2014                     |  |        | 98,252   
|2015                     |  |        | -        
|Total                    |  | $      | 6,761,199



NOTE 10 – ASSET RETIREMENT OBLIGATION



Asset retirement obligation balances as September
30, 2011 and 2010 comprised:



|                                                        |  | Nine Months Ended September 30, |          
|------------------------------------------------------- |  | ------------------------------- | ---------
|                                                        |  | 2011                            |          
|Asset retirement obligations at beginning of the period |  | $                               | 80,217   
|Addition to asset retirement obligation                 |  |                                 | 3,262,160
|Accretion expense                                       |  |                                 | 51,611   
|Asset retirement obligations at end of the period       |  | $                               | 3,393,988



As a result of the TNR acquisition on July
22, 2011, the Company assumed approximately $2,427,164 of undiscounted asset retirement obligations associated with the former
TNR properties. In addition, as a result of TNR’s acquisition of additional oil and gas properties immediately prior to the
Company’s acquisition of TNR, the Company became subject to additional asset retirement obligations and was required to provide
letters of credit in the aggregate amount of $4,704,037 from its credit facility with F&M Bank supporting these obligations
in addition to a $600,000 deposit placed with the State of Louisiana Department of Natural Resources, Office of Conservation.



15







NOTE 11 – COMMITMENTS AND CONTINGENCIES



From time to time, the Company may become involved
in various lawsuits and legal proceedings which arise in the ordinary course of business.  However, litigation is subject
to inherent uncertainties, and an adverse result in these or other matters that may arise from time to time that may harm the Company’s
business.



Other than routine litigation arising in the
ordinary course of business that the Company does not expect, individually or in the aggregate, to have a material adverse effect
on the Company, there are currently no pending legal proceedings.



On September 30, 2011, the Company entered
into Restricted Stock Grant Agreements with Carolyn M. Greer, W. Willard Powell, David L. Freeman, Ray L. Unruh and Rachel L. Dillard
as well as our three independent board members and a consultant. The Restricted Stock Grant Agreements provide for restricted stock
grants totaling 1,140,000 common shares valued at $171,000 to become vested over a 24-month period, as follows except for Ray L
Unruh:



|Vesting Date       |  | Percentage of Grant to Vest |   
|------------------ |  | --------------------------- | --
|December 30, 2011  |  |                             | 10
|March 30, 2012     |  |                             | 20
|September 30, 2012 |  |                             | 20
|March 30, 2013     |  |                             | 20
|September 30, 2013 |  |                             | 30



The shares noted as vesting on December 31,
2011 did vest and were issued in January 2012. No stock compensation expense associated with these shares was recorded during the
nine months ended September 30, 2011.



The first tranche of the Restricted Stock Grant
to Ray L. Unruh does not vest until March 2012 and other tranches will vest in percentages as reported in the table above.



NOTE 12.   FAIR VALUE MEASUREMENTS



The following table sets forth, by level within
the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring
basis as of September 30, 2011:



|Description                                       |  | Quoted Prices In Active Markets for Identical Assets (Level 1) |   |  | Significant Other Observable Inputs (Level 2) |   |           | Significant Unobservable Inputs (Level 3) |  |   | Total Carrying Value | 
|------------------------------------------------- |  | -------------------------------------------------------------- | - |  | --------------------------------------------- | - | --------- | ----------------------------------------- |  | - | -------------------- | 
|Derivative assets – derivative instrument         |  | $                                                              | - |  |                                               | $ | 1,380,200 |                                           |  | $ | -                    | 
|Derivative liabilities – convertible note feature |  |                                                                | - |  |                                               |   | -         |                                           |  |   | 214,543              | 



NOTE 13 – STOCKHOLDERS’ EQUITY



On January 3, 2011, an aggregate of 1,459,267
shares of common stock was issued to convert $108,082 of accrued interest on the Convertible Notes for the period July 1, 2010
to December 31, 2010.



Between January 14, 2011 and March 25, 2011,
a total of $1,295,000 in Convertible Notes were converted to 5,180,000 common shares at $0.25 per share plus a 20% premium in shares,
or 1,036,000 common shares, per agreement with note holders.  Interest expense of $111,974 was recorded for the 1,036,000
of premium shares issued to note holders to induce conversion.  In addition, 120,063 shares were issued in payment of
$13,321 in interest accrued from January 1, 2011 to the date of conversion.



16







On March 1, 2011, the Company issued Robert
C. Avaltroni a total of 6,000 shares of restricted stock, with a fair market value of $1,140, under his Advisory Board agreement
entered into on April 1, 2010.



On March 18, 2011, the Company issued Nicholas
A. Spano a total of 12,000 shares of restricted stock, with a fair market value of $2,280, under his Advisory Board agreement entered
into on March 17, 2010 above.  In September 2011, the Company issued Nicholas A. Spano additional 6,000 shares of restricted
stock under the same Advisory Board agreement. The shares issued were valued at $16, 500. The 6,000 shares vested in September
2011 were released from escrow subsequently after September 30, 2011.



On April 1, 2011, the Company issued 6,000
shares of common stock, with a fair market value of $840, to Mr. Avaltroni as the third payment under Mr. Avaltroni’s advisory
board agreement with the Company.  The remaining 6,000 shares vested and were released from escrow on October 1, 2011.



On June 2, 2011, the Company entered into an
accounting consulting agreement with BlackBriar to provide accounting services for the Company. Services will be provided for 3
months, until September 2, 2011, at a rate of $10,000 per month. In addition, upon completion of the services on September 2, 2011,
the Company issued BlackBriar 200,000 shares of common stock with a fair market value of $24,000.



On June 13, 2011, the Company sold 320,000
shares of restricted common stock to two of its Directors, Jim Cerna and Ray Unruh, for total proceeds of $40,000 in cash.



On June 14, 2011, the Company executed an agreement
with Cherokee Financial Corp. (owned by Ray L. Unruh) wherein Cherokee agreed to accept payment in restricted common stock for
the outstanding balance of principal and accrued interest on its long term note receivable from the Company.  A total
of 2,249,722 shares, with a fair market value of $314,961, were issued in full payment of outstanding principal of $213,400 and
accrued interest of $67,815.  Also on June 14, 2011, the Company executed an agreement with Sycamore Resources, Inc.
(owned by Randy M. Griffin, our CEO) to convert the note payable owed to Sycamore to common stock.  A total of 1,904,000
shares, with a fair market value of $266,560, were issued in full payment of the outstanding principal of $238,000.



On June 16, 2011, the Company entered into
a settlement agreement with Gottbetter & Partners, LLP (“GP”) wherein GP agreed to accept 1,200,000 shares of restricted
common stock, with a fair market value of $171,000, as payment in full of the outstanding balance of $455,861 in accrued legal
fees owed to GP for legal work performed in 2010 and 2011.   The shares were issued on June 17, 2011.  Accordingly,
the Company recorded a gain on settlement of debt of $284,861.



On June 30, 2011, the Company granted Randy
M. Griffin, its Chief Executive Officer, options to purchase 1,000,000 shares of common stock out of the Employee Stock Option
Plan at an exercise price of $0.15 per share with an expiration date of June 30, 2016, said options being exercisable at any time
after June 30, 2012.  The options were valued at $137,878 and were granted to Mr. Griffin as a bonus for the provision
of his personal private risk capital and his efforts in support of the acquisition of TNR.



On June 30, 2011, the Company issued an aggregate
of 333,576 shares of common stock to convert $42,151 of accrued interest through June 30, 2011 on the outstanding Convertible Notes.



On June 30, 2011, the Company entered into
an agreement with David Donahue to issue 50,000 shares of common stock, with a fair value of $6,320, as payment in full for the
outstanding balance owed for accounting services in the amount of $7,500.



In July 2011, the Company issued 21,200,000
shares of common stock, with a fair value of $2,968,000, to the former members of Tchefuncte Natural Resources, LLC, in purchase
of their membership interests in TNR. The Company also issued the same former members an additional 30,000 shares of common stock
with a fair value of $4,650 in exchange for their continued guarantee of the camp and boat loans (see Note 9 – Debt).



17







On August 1, 2011, the Company entered into
a consulting agreement with SNK Consulting Services, LLC to provide Investor Relations and Public Relations services for the Company.Services
will be provided for 12 months, until July 31, 2012, at a rate of $1,500 per month; in addition, the Company agreed to issue 100,000
shares of common stock, with fair value of $15,500, to SNK concurrently with the execution of the agreement.



On September 2, 2011, the Company entered into
an agreement with BlackBriar Advisors, LLC to issue 200,000 shares of common stock, with a fair value of $24,000, as payment for
accounting services provided.



On September 9, 2011, 541,100 shares of common
stock were returned to the Company from GP for shares held in escrow. These shares were cancelled upon receipt.



On September 15, 2011, the Company entered
into an agreement with Mundial Financial Group, LLC to issue 200,000 shares of common stock, with a fair value of $24,000, as payment
in full for financial advisory services to be provided to the Company.



On September 15, 2011, Whalehaven Capital Fund,
Ltd. elected to convert $62,500 of its Convertible Note resulting in the issuance of 500,000 shares of common stock.



On September 19, 2011, the Company entered
into an Employment Agreement with Rachel L. Dillard to serve as the Chief Financial Officer of the Company.  The Employment
Agreement, as amended, provided for a restricted stock grant of 1,000,000 shares to vest over a 24 month period with the initial
100,000 shares, valued at $16,437 based on grant date market price, to be vested commensurate with the execution of the agreement.
The grant date fair value of the restricted stock grant was $150,000, of which $17,308 was recognized as stock based compensation
during the three and nine months ended September 30, 2011.



NOTE 14 – STOCK-BASED COMPENSATION



The Board of Directors of the Company previously
adopted the 2009 Equity Incentive Plan (the “2009 Plan”), which provides for the issuance of incentive awards of up
to 5,000,000 shares of common stock to officers, key employees, consultants and directors of the Company and its subsidiaries.  As
of September 30, 2011, options to purchase 1,048,000 shares of our common stock at an exercise price of $0.25 per share, options
to purchase 1,180,000 shares at $0.15 per share and awards of 2,140,000 shares of restricted stock had been granted under the 2009
Plan.



A summary of the changes in options outstanding
during the nine months ended September 30, 2011 is as follows:



|                                  |  | Number of Shares |           |  | Weighted Average Exercise Price |  
|--------------------------------- |  | ---------------- | --------- |  | ------------------------------- | -
|Outstanding at December 31, 2010  |  |                  | 1,048,000 |  |                                 | $
|Issued                            |  |                  | 1,180,000 |  |                                 | $
|Exercised                         |  |                  | -         |  |                                 |  
|Cancelled/Expired                 |  |                  | -         |  |                                 |  
|Outstanding at September 30, 2011 |  |                  | 2,228,000 |  |                                 | $
|Exercisable at September 30, 2011 |  |                  | 860,500   |  |                                 | $



Options outstanding and their relative exercise prices at September
30, 2011 are as follows:



|Exercise price |  | Number of options |           |  | Remaining life |  |            | Aggregate Intrinsic Value (In-the- money) Options | 
|-------------- |  | ----------------- | --------- |  | -------------- |  | ---------- | ------------------------------------------------- | 
|$0.25          |  |                   | 298,000   |  |                |  | 1.26 years |                                                   | 
|$0.25          |  |                   | 750,000   |  |                |  | 3.33 years |                                                   | 
|$0.15          |  |                   | 1,000,000 |  |                |  | 4.75 years |                                                   | 
|$0.15          |  |                   | 180,000   |  |                |  | 5.00 years |                                                   | 



For the nine months ended September 30, 2011,
compensation expense of $139,968 related to outstanding options was recognized, and $130,966 of compensation expense remained to
be amortized.  As of September 30, 2011, the outstanding options had no intrinsic value and weighted average remaining
contractual terms of 3.81 years.

18







For the nine months ended September 30, 2011,
aggregate stock compensation expense of $64,713 related to the issuance of restricted stock grants was recognized, and $147,388
of compensation expense remained to be amortized over a two year period.



NOTE 15 – SUBSEQUENT EVENTS



Subsequent to September 30, 2011, 2,900,000 shares were issued for
$362,500 of convertible debt; 81,967 shares of common stock were issued as stock compensation to an employee; and 99,000 shares
of stock under the 2009 Equity Incentive Plan.



19







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



This report contains forward-looking statements.
All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including without limitation,
statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding our financial
position, estimated working capital, business strategy, the plans and objectives of our management for future operations and those
statements preceded by, followed by or that otherwise include the words “believe,” “expects,” “anticipates,”
“intends,” “estimates,” “projects,” “target,” “goal,” “plans,”
“objective,” “should” or similar expressions or variations on such expressions are forward-looking statements.
We can give no assurances that the assumptions upon which the forward-looking statements are based will prove to be correct. Because
forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or
implied by the forward-looking statements. There are a number of risks, uncertainties and other important factors that could cause
our actual results to differ materially from the forward-looking statements, including, but not limited to, our inability to obtain
adequate financing, insufficient cash flows and resulting illiquidity, our inability to expand our business, government regulations,
lack of diversification, volatility in the price of oil and/or natural gas, increased competition, results of arbitration and litigation,
stock volatility and illiquidity, 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 amended Annual Report
on Form 10-K/A filed with the Securities and Exchange Commission (the “SEC”) on July 22, 2011.



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



Overview



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



Corporate History



We were incorporated in the State of Delaware
on October 23, 2007 as Mesquite Mining, Inc. to engage in the acquisition and exploration of mining properties. In 2009 we determined
to redirect our business focus and on June 19, 2009, we changed our name to Mesa Energy Holdings, Inc. (“the Company”)
in contemplation of a reverse triangular merger with Mesa Energy, Inc., a Nevada corporation (“MEI”), which we completed
on August 31, 2009. MEI was originally formed in 2001 as North American Risk Management Incorporated, a Colorado corporation, to
provide insurance to truck operators. In March 2006, having ceased its former operations, it merged with Mesa Energy, LLC, a Texas
limited liability company, and reincorporated in Nevada. Mesa Energy, LLC’s activities between April 2003 and March 2006
included participation in various drilling projects, both as operator and as a non-operator.



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.



Company Operations



Producing Fields - Plaquemines and Lafourche
Parishes, Louisiana



20







On July 22, 2011, MEI completed the acquisition
of Tchefuncte Natural Resources, LLC (“TNR”), a Louisiana operator. Immediately prior MEI’s closing of the TNR
acquisition, TNR completed the acquisition of properties in four fields in south Louisiana from Samson Contour Energy E & P,
LLC (“Samson”). TNR, now a wholly owned subsidiary of MEI, owns 100% working interest in the Lake Hermitage Field in
Plaquemines Parish, Louisiana along with various working interests in producing properties in the four fields acquired from Samson
in Plaquemines and Lafourche Parishes, Louisiana.



The total net mineral acreage held by production
in the five fields is approximately 7,189 acres.



We believe that
by recompleting or otherwise returning several additional shut-in wells to production, improving operational efficiencies and optimization
of the gas lift system, a significant additional increase in production can be achieved in these fields. Early efforts in this
regard have been very promising and additional efforts are underway. An extensive geological and engineering evaluation of all
properties in these fields is in progress. We have established a budget of approximately $1,350,000 to be funded out of cash flow
and spent on recompletions and other field enhancements in the next twelve months and expect those efforts to significantly increase
production and PDP reserves. In addition, our technical team has discovered and is in the process of refining a number of proved
undeveloped (“PUD”) drilling locations as well as deep targets with potential for farm out or joint venture with other
operators. We are also reviewing a number of other oil and gas properties in the area and hope to complete additional acquisitions
of this nature in the next twelve months.



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



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



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



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



Coal Creek Prospect, Sequoyah Co., Oklahoma
– Sale of Interest



Because the Coal Creek property no longer fit
our strategic direction, management made a determination to sell our interest in this property. Our Board of Directors approved
an agreement entered into on September 8, 2011 with Wentworth Operating Company pursuant to which we sold and assigned to Wentworth
all of our leasehold and working interests in our Gipson #1 and Cook #1 wells for the sum of $17,960.



21







Adjusted EBITDA as a Non-GAAP Performance
Measure



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



The following is a reconciliation of our net
income in accordance with GAAP to our Adjusted EBITDA for the three and nine-month periods ending September 30, 2011 and 2010:



|                                                           |  | For the Three Months Ended |            |   | For the Nine Months Ended |  
|---------------------------------------------------------- |  | -------------------------- | ---------- | - | ------------------------- | -
|                                                           |  | 2011                       |            |   | 2010                      |  
|Net Income                                                 |  | $                          | 2,137,653  |   |                           | $
|Add Back:                                                  |  |                            |            |   |                           |  
|Interest expense, net                                      |  |                            | 169,422    |   |                           |  
|Amortization of deferred financing costs                   |  |                            | 27,625     |   |                           |  
|Depreciation, depletion, accretion and impairment          |  |                            | 636,109    |   |                           |  
|Gain on change in derivative value - derivative instrument |  |                            | (1,380,200 | ) |                           |  
|Loss on change in derivative - convertible debt            |  |                            | 78,139     |   |                           |  
|Gain on settlement of debt                                 |  |                            | -          |   |                           |  
|Stock based compensation                                   |  |                            | 99,916     |   |                           |  
|Adjusted EBITDA                                            |  | $                          | 1,768,664  |   |                           | $



Results of Operations



Quarter Ended September 30, 2011 Compared
to Quarter Ended September 30, 2010



Revenues



Revenues from sales of oil and natural gas
were $3,277,650 in the third quarter of 2011 as compared to $16,718 in the third quarter of 2010. This increase in revenues reflects
an increase in sales volumes as a result of additional producing wells resulting from the Company’s acquisition of TNR. It
also reflects an increase in average natural gas prices to $4.51/Mcf in the third quarter of 2011 from an average price of $4.42/Mcf
in the third quarter of 2010. The average price of oil in the third quarter of 2011 was $108.76/Bbl. The Company had no prior oil
production or sales. Natural gas sales volumes increased during the third quarter of 2011 to 998 Mcf per day from 49 Mcf per day
during the third quarter of 2010. Oil sales volumes increased during the third quarter of 2011 to 377 Bbls per day from 0 Bbls
per day during the third quarter of 2010. The increase in volumes is also attributable to the addition of producing properties
resulting from the Company’s acquisition of TNR.





22







Operating Expenses



| | · | Production expense.Production
expense increased to $988,808 in the third quarter of 2011 from $0 in the third quarter of 2010. This increase is due to the acquisition
of TNR.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Exploration Expense. Exploration
expense increased to $27,500 during the three months ended September 30, 2011 from $11,177 during the three months ended September
30, 2010. This increase was attributable to delay rentals associated with the acquisition of TNR.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | General and Administrative Expense.
The increase in general and administrative expense to $692,656 for the three months ended September 30, 2011 from $415,487 for
the three months ended September 30, 2010 primarily reflects additional payroll burden due to the acquisition of TNR, stock-based
compensation, and professional fees associated with the acquisition of TNR.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Depreciation, depletion, amortization,
and accretion expense. The increase in depreciation, depletion, amortization, and accretion expense to $636,109 for the three
months ended September 30, 2011 from $55,204 for the three months ended September 30, 2010 reflects the substantial increase in
volumes of oil and natural gas produced as a result of the Company’s acquisition of TNR and increased capital investment
in oil and gas properties depreciated on a units of production basis; the addition of production support facilities and equipment
through the TNR acquisition, depreciated on a straight line basis; and the increase in the discounted value of the asset retirement
obligation due to the TNR acquisition, accreted in accordance with its discount rate.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Gain on sale of oil and gas properties.
We recognized a gain of $17,960 on the sale of our Coal Creek Property in Oklahoma.
| | - | ---------------------------------------------------------------------------------------------------------------------------



Operating Income.As a result of the
above described revenues and expenses, we produced operating income of $950,537 in the third quarter of 2011 as compared to an
operating loss of $465,150 in the third quarter of 2010.



Interest Expense



Interest expense increased to $169,422 for
the three months ended September 30, 2011, from $119,133 for the three months ended September 30, 2010. This was primarily a result
of third quarter 2011 borrowings against the F&M Bank credit facility used to acquire TNR and amortization of associated deferred
financing costs.



Gain on Change in Derivative Value



The noncash gain on change in derivative value
– derivative instrument for the three months ended September 30, 2011 and September 30, 2010 was $1,380,200 and $0, respectively.  The
change in noncash gain in derivative value - derivative instrument represents the implementation of our hedging program in the
third quarter of 2011 as required by covenants underlying our credit facility with F&M Bank. The noncash loss on change in
derivative value – convertible debt of $78,139 for the three months ended September 30, 2011 and the noncash gain of $1,698,677
represented the change in potential liability for issuing shares with a higher value than the conversion price upon conversion
of convertible debt into common stock.



Other Income



Cash settlements from hedging our sales of
oil and gas production were $54,101 in the third quarter of 2011 as compared to $0 in the third quarter of 2010. The increase is
attributable to our hedging program, implemented in accordance with covenants associated with our credit facility from F&M
Bank.



Net Income



Our net income for the three months ended September
30, 2011 and September 30, 2010 was $2,137,653 ($.03 per basic and diluted share) and $1,114,484 ($0.03 per share basic and $0.02
per share diluted), respectively, due to significantly increased third quarter 2011 operating income over third quarter 2010 operating
income, despite the 2011 decrease in noncash gain on derivative value in the third quarter of 2011 as compared to the noncash gain
on derivative value in the third quarter of 2010.





23









Comparison of Nine Months Ended September
30, 2011 and 2010





Revenues



Revenues from sales of oil and natural
gas were $3,314,703 in the nine months ended September 30, 2011 as compared to $35,999 for the nine months ended September 30,
2010. This increase in revenues reflects an increase in sales volumes as a result of additional producing wells resulting from
the Company’s acquisition of TNR. It also reflects an increase in average natural gas prices to $4.81/Mcf during the nine
months ended September 30, 2011 from an average price of $4.47/Mcf during the nine months ended September 30, 2010. The average
price of oil during the nine months ended September 30, 2011 was $108.76. The Company had no oil production or sales prior to
the third quarter of 2011. Natural gas sales volumes increased during the nine months ended September 30, 2011 to 972 Mcf per
day from 26 Mcf per day during the nine months ended September 30, 2010. Oil sales volumes increased during the nine months ended
2011 to 377 Bbls per day from 0 Bbls per day during the nine months ended September 30, 2010. The increase in volumes is also
attributable to the addition of producing properties resulting from the Company’s acquisition of TNR in the third quarter
of 2011 which included the addition of oil production.



Operating Expenses



| | · | Production expense.Production
expense increased to $1,002,069 during the nine months ended September 30, 2011 from $0 during the nine months ended September
30, 2010. This increase is due to the acquisition of TNR.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Exploration expense. Exploration
expense increased to $40,303 during the nine months ended September 30, 2011 from $35,139 during the nine months ended September
30, 2010. This increase was primarily attributable to delay rentals associated with the acquisition of TNR, and, secondarily to
exploration costs incurred in the first quarter of 2011 associated with a potential acquisition that we decided not to pursue.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | General and Administrative Expense.
The decrease in general and administrative expense to $1,042,364 during the nine months ended September 30, 2011 from $1,738,723
during the nine months ended September 30, 2010 primarily reflects reduced share based compensation associated with stock options
and reduced legal and other professional fees, net of additional payroll burden due to the acquisition of TNR.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Depreciation, depletion, amortization,
and accretion expense. The increase in depreciation, depletion, amortization, and accretion expense to $639,693 for the nine
months ended September 30, 2011 from $69,560 for the nine months ended September 30, 2010 reflects the substantial increase in
volumes of oil and natural gas produced as a result of the Company’s acquisition of TNR and increased capital investment
in oil and gas properties depreciated on a units of production basis; the addition of support facilities and equipment through
the TNR acquisition, depreciated on a straight line basis, and the increase in the discounted value of the asset retirement obligation
due to the TNR acquisition, accreted in accordance with its discount rate.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Gain on sale of oil and gas properties.
We recognized a gain of $17,960 on the sale of our Coal Creek Property in Oklahoma.
| | - | ---------------------------------------------------------------------------------------------------------------------------



Operating Income.As a result of the
above described revenues and expenses, we produced operating income of $608,234 during the nine months ended September 30, 2011
as compared to an operating loss of $1,807,423 during the nine months ended September 30, 2010.



Interest Expense



Interest expense decreased to $466,458 for
the nine months ended September 30, 2011 from $975,288 for the nine months ended September 30, 2010. The decrease was due primarily
to the conversion of $1,357,500 of convertible notes and $451,400 of notes payable to related parties into restricted common stock
during the nine months ended September 30, 2011, thereby reducing the interest expense, net of an increase in interest expense
associated with borrowings under our credit facility with F&M Bank for the acquisition of TNR.



Gain on Change in Derivative Value



The noncash gain on the change in derivative
value – derivative instrument increased to $1,380,200 during the nine months ended September 30, 2011 from $0 for the nine
months ended September 30, 2010. The change in noncash gain in derivative value – derivative instrument of $1,380,200 represents
the implementation of our hedging program in the third quarter of 2011 as required by covenants underlying our credit facility
with F&M Bank. The noncash loss on the change in derivative value of $214,543 and the gain of $10,718,777 were associated with
the derivative underlying the conversion of notes payable to common shares.



Gain on settlement of accounts payable.During the nine months ended September 30, 2011, we recognized a gain of $223,736 on settlement of accounts payable to vendors.
This event occurred in the second quarter of 2011.



24









Other Income



Cash settlements from hedging our sales of
oil and gas production were $54,136 during the nine months ended September 30, 2011 as compared to $0 during the nine months ended
September 30, 2010. The increase is attributable to our hedging program, implemented in the third quarter of 2011 in accordance
with covenants associated with our credit facility from F&M Bank. We had no hedging revenue prior to the third quarter of 2011.



Net Income



Our net income for the nine months ended September
30, 2011 and September 30, 2010 was $1,568,061 ( earnings of $0.03 per basic and diluted share) and $7,939,869 (earnings of $0.20
per share basic and $0.16 diluted), respectively, due to the 2011 decrease in noncash gain on derivative over that of 2010, despite
significantly increased 2011 operating income over that of 2010.



Liquidity and Capital Resources



Overview



As of September 30, 2011 we had working capital
of $1,955,360. As of December 31, 2010, we had a working capital deficit of $2,344,735. The increase in the working capital was
attributable to:



| | · | Increased cash and accounts receivable
from revenues created by the addition of producing properties from the acquisition of TNR;
| | - | ---------------------------------------------------------------------------------------------------------------------------------

| | · | The conversion of $1,357,500 of short-term
convertible debt and $451,400 of related party notes payable to common stock.
| | - | ------------------------------------------------------------------------------------------------------------------------



Our current assets increased by $4,261,298
during the nine months ended September 30, 2011.



The following recent events which took place
since January 1, 2011 have improved our liquidity and capital resources:



| | · | On June 13, 2011, we sold 320,000 shares of restricted common stock to two of our Directors, Jim
Cerna and Ray Unruh, for a total of $40,000 in cash;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On June 14, 2011, we executed an agreement with Cherokee Financial Corp. (owned by Ray L. Unruh)
wherein Cherokee agreed to accept payment in restricted common stock for the outstanding balance of principal and accrued interest
on its long term note receivable.  A total of 2,249,722 shares, with a fair market value of $314,961, were issued in
full payment of outstanding principal of $213,400 and accrued interest of $67,815.  Also on June 14, 2011, we executed
an agreement with Sycamore Resources, Inc. (owned by Randy M. Griffin, our CEO) to convert the note payable owed to Sycamore to
common stock.  A total of 1,904,000 shares, with a fair market value of $266,560, were issued in full payment of the
outstanding principal of $238,000;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On June 16, 2011, we entered into a settlement agreement with Gottbetter & Partners, LLP (“GP”)
wherein GP agreed to accept 1,200,000 shares of restricted common stock, with a fair market value of $171,000, as payment in full
of the outstanding balance of $455,861 in accrued legal fees owed to GP for legal work performed in 2010 and 2011;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On June 16, 2011, we entered into an Exchange Agreement wherein Whalehaven Capital Fund, Ltd. agreed
to exchange its promissory note with a principal balance of $40,000 plus $1,019 in accrued interest for two convertible debentures
totaling $41,019.  These convertible debentures have a maturity date of July 31, 2013 and are convertible at any time
at a conversion price of $0.125.  The note will bear interest at 6% per annum payable in cash or shares at maturity;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On July 22, 2011, we acquired TNR, which has, in the third quarter, substantially increased our
operating income and cash flow.
| | - | -------------------------------------------------------------------------------------------------------------------------------



25







| | · | On July 22, 2011, we entered into the Loan Agreement with F&M (discussed below), which provides us additional working capital
for field enhancements and other drilling opportunities.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On September 8, 2011 we sold to Wentworth all of our leasehold and working interests in our Gipson #1 and Cook #1 wells comprising
our Coal Creek Project in Sequoyah County, Oklahoma, for the sum of $17,960.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Cash and Accounts Receivable



At September 30, 2011, we had cash and cash
equivalents of $970,052, compared to $6,096 at December 31, 2010.  Cash increased by $963,956 primarily due to increased
revenues received on production of wells acquired with our purchase of TNR, net of expenses paid during the period.



Liabilities



Accounts payable and accrued expenses increased
by $709,556 to $1,687,037 at September 30, 2011, from $977,481 at December 31, 2010, primarily due to increased lease operating
and capital expenditure activity associated with additional wells acquired with the purchase of TNR.



As of September 30, 2011, the outstanding balance
of principal on debt, net of discount, was $6,756,244, a net increase of $4,118,844 from the outstanding balance of $2,637,400
as of December 31, 2010. This net increase was primarily due to borrowings from our credit facility with F&M Bank for the acquisition
of TNR net of (i) the decrease in convertible notes payable resulting from the conversion of $1,357,500 of debt to common stock
and the extinguishment and re-recognition of the debt associated with the remaining convertible notes, which created a derivative
liability with a balance of $214,543 at September 30, 2011 and (ii) the decrease in notes payable to related parties due to the
conversion of $451,400 to common stock. In addition, notes payable to related parties of $21,000 outstanding on December 31, 2010
were reduced to zero by September 30, 2011.



Cash Flows



For the nine months ended September 30, 2011,
the net cash provided by operating activities was $227,858.



Loan Agreement with F&M Bank & Trust
Company



On July 22, 2011, Mesa Energy, Inc. (“MEI”),
our wholly owned subsidiary, entered into a loan agreement (the “Loan Agreement”) by and among MEI, TNR, Mesa Gulf
Coast, LLC (“MGC”) and The F&M Bank & Trust Company (“F&M”) with respect to a $25,000,000 senior
secured revolving line of credit facility (the “Credit Facility”) provided by F&M to Mesa.  The Loan
Agreement provides for a revolving loan in the maximum amount of $25,000,000, together with a letter of credit facility not to
exceed 50% of the borrowing base (as defined below).



The Credit Facility is subject to an initial
borrowing base of $10,500,000 which was fully utilized by MEI concurrently with the completion of the TNR acquisition. Of this
initial borrowing base, we obtained letters of credit in the amount of $4,704,037 that were provided to the State of Louisiana
to secure plugging obligations associated with the TNR properties. The remaining $5,693,106 was funded to MEI to complete the TNR
acquisition, provide working capital for field enhancements and for general corporate purposes. The borrowing base, which refers
to the designated loan value (as calculated by F&M) of the discounted present value of future net income accruing to our oil
and gas properties, is subject to two scheduled redeterminations each year. If the borrowing base is redetermined to be higher
than the current $10,500,000, we may increase our loans outstanding under the Credit Facility up to that new higher limit.



The Loan Agreement contains customary covenants
including, but not limited to, a (i) maximum funded debt to EBITDA ratio, and (ii) minimum interest coverage ratio. The maturity
date of any outstanding loans under the Credit Facility is July 22, 2013.  We may repay outstanding amounts under the
line of credit at any time, without penalty.



26







Loans under the Credit Facility bear interest
at a floor rate of five and three-quarters percent (5.75%) per annum.  Interest is paid on a monthly basis.  Letters
of credit under the Credit Facility carry a two percent (2.00%) per annum fee, plus a $500 additional fee per letter. We paid a
loan origination fee of $52,500 and agreed to pay a fee equal to one half of one percent (0.50%) of any increase in the Borrowing
Base. Monthly principal reductions are initially set at $150,000 beginning November 22, 2011 and continuing until the first redetermination
date on or about April 1, 2012. Future principal reduction requirements, if any, will be determined concurrently with each semi-annual
reserve redetermination.



We expect to fund operations and the capital
expenditure budget for the next twelve months out of cash flow and, absent another significant acquisition, do not anticipate the
need for additional sources of capital.



Off-Balance Sheet Arrangements



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



Critical Accounting Policies and Estimates



Our discussion of our financial condition and results of operations
is based on the information reported in our financial statements. The preparation of our financial statements requires us to make
assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure
of contingent assets and liabilities as of the date of our financial statements. We base our assumptions and estimates on historical
experience and other sources that we believe to be reasonable at the time. Actual results may vary from our estimates due to changes
in circumstances, weather, politics, global economics, mechanical problems, general business conditions and other factors. Our
significant accounting policies are described in Note 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES to our financial
statements included in this Quarterly Report 	and the audited consolidated financial statements and notes thereto contained
in the Company’s latest annual report filed with the SEC on Form 10-K. We have outlined below certain of these policies that
have particular importance to the reporting of our financial condition and results of operations and that require the application
of significant judgment by our management.



Key Definitions

Proved reserves, as defined by the SEC, are the estimated
quantities of crude oil, condensate, natural gas and natural gas liquids that geological and engineering data demonstrate with
reasonable certainty are recoverable in future years from known reservoirs under existing economic and operating conditions. Valuations
include consideration of changes in existing prices provided only by contractual arrangements, but not on escalations based upon
future conditions. Prices do not include the effect of derivative instruments, if any, entered into by us.



Proved developed reserves are those reserves expected to be recovered
through existing equipment and operating methods. Additional oil and gas volumes expected to be obtained through the application
of fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery
would be included as proved developed reserves only after testing of a pilot project or after the operation of an installed program
has confirmed through production response that increased recovery will be achieved.



Proved undeveloped reserves are those reserves that are expected
to be recovered from new wells on non-drilled acreage, or from existing wells where a relatively major expenditure is required
for recompletion. Reserves on non-drilled acreage are limited to those drilling units offsetting productive units that are reasonably
certain of production when drilled. Proved reserves for other non-drilled units are claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive formation.



Estimation of Reserves

Volumes of reserves are estimates that, by their nature,
are subject to revision. The estimates are made using all available geological and reservoir data as well as production performance
data. There are numerous uncertainties in estimating crude oil and natural gas reserve quantities, projecting future production
rates and projecting the timing of future development expenditures. Natural gas and oil reserve engineering must be recognized
as a subjective process of estimating underground accumulations of natural gas and oil that cannot be measured in an exact way.
Estimates of independent engineers that we use may differ from those of other engineers. The accuracy of any reserve estimate is
a function of the quantity and quality of available data and of engineering and geological interpretation and judgment. Accordingly,
future estimates are subject to change as additional information becomes available.



27







The most critical estimate we make is the engineering estimate of
proved oil and gas reserves. This estimate affects the application of the successful efforts method of accounting, the calculation
of depreciation, depletion and amortization of oil and gas properties and the estimate of any impairment of our oil and gas properties.
It also affects the estimated lives used to determine asset retirement obligations. In addition, the estimates of proved oil and
gas reserves are the basis for the annual year end disclosure of the related standardized measure of discounted future net cash
flows.



Revenue Recognition

Oil and gas revenues are recognized when production is sold
to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred. We did not have any material
imbalance position in terms of natural gas volumes or values at September 30, 2011.



Successful Efforts Accounting

We utilize the successful efforts method to account for
our natural gas and oil operations. Under this method, all costs associated with natural gas and oil lease acquisitions, successful
exploratory wells and all development wells are capitalized. Development costs of producing properties are amortized on a units-of-production
basis over the remaining life of proved developed producing reserves, and leasehold costs associated with producing properties
are amortized on a units-of-production basis over the remaining life of all proved reserves associated with the leases on which
producing properties are drilled. Unproved leasehold costs are capitalized pending the results of exploration efforts. Exploration
costs, including geological and geophysical expenses, exploratory dry holes and delay rentals, are expensed when incurred.

Impairment of Properties



We review our proved properties for potential impairment at the
well level when management determines that events or circumstances indicate that the recorded carrying value of any of the properties
may not be recoverable. Such events include a projection of future natural gas and oil reserves that will be produced from a well,
the timing of this future production, future costs to produce the natural gas and oil, and future inflation levels. If the carrying
amount of an asset exceeds the sum of the discounted estimated future net cash flows, we recognize impairment expense equal to
the difference between the carrying value and the fair market value of the asset, which is estimated to be the expected discounted
value of future net cash flows from reserves, without the application of any estimate of risk. We cannot predict the amount of
impairment charges that may be recorded in the future. Unproved leasehold costs are reviewed periodically and impairment is recognized
to the extent, if any, that the cost of the property has been impaired.



Derivatives



All derivative instruments are recorded on the balance sheet at
their fair value. Changes in the fair value of each derivative are recorded each period in current period earnings.



We do not apply hedge accounting, as our hedging program is designed
only to comply with covenants underlying our credit facility with F&M Bank and not as a formal risk management program, and
we do not monitor the effectiveness of the hedge. Realized gains and losses (i.e., cash settlements) are recorded in other income
and expense in the Statement of Operations. Similarly, changes in the fair value of the derivative instruments are recorded as
unrealized gains or losses in the Statement of Operations.



Stock-Based Compensation

Compensation expense has been recorded for grants of restricted
common stock and options based on the fair value of the common stock on the measurement date. FASB ASC Topic No. 718-10 establishes
standards for transactions in which an entity obtains employee services in share-based payment transactions. The guidance requires
that the fair value of such equity instruments be recognized as expense in the historical financial statements as services are
performed. Standards of accounting for transactions in which an entity exchanges its equity instruments for goods and services
by a consultant or contractor are further governed by FASB ASC Topic No. 505-50 by which the grant is measured at the fair value
of the stock exchanged and the associated expense is recorded according to the category of the good or service rendered.



28







Item 3.  Quantitative and Qualitative
Disclosures about Market Risk.



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



Item 4.  Controls and Procedures



a) Evaluation of disclosure controls and
procedures.



Our management, with the participation of our
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant
to Rule 13a-15 under the Securities Exchange Act of 1934 as of September 30, 2011. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and
procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating
the benefits of possible controls and procedures relative to their costs.



Based on our evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that, as a result of the material weaknesses described below, as of September 30,
2011, our disclosure controls and procedures are not designed at a reasonable level to provide reasonable assurance that information
we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. The material weaknesses, which relate to internal control over financial reporting, that were identified are:



| | a) | As of September 30, 2011, we did not adequately segregate or mitigate the risks associated with
incompatible functions among personnel to reduce the risk that a potential material misstatement of the financial statements would
occur without being prevented or detected. Accordingly, management concluded that this control deficiency constituted a material
weakness.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | As of September 30, 2011, we had insufficient personnel with an appropriate level of technical
accounting knowledge, experience, and training in the application of US GAAP commensurate with our increased complexity and our
financial accounting and reporting requirements to ensure that financial reporting occurs in a timely manner. This was primarily
a result of the Company’s acquisition of TNR and the resulting need to perform purchase accounting and prepare and file Form
8-K/A which also resulted in a delay in preparing this Quarterly Report on Form 10-Q. Accordingly, management concluded that this
control deficiency constituted a material weakness.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We are committed to improving our accounting
and financial reporting functions. As part of this commitment, we are considering the engagement of additional employees and/or
consultants to assist in ensuring that accounting policies and procedures are applied and that we have adequate control over financial
statement preparation. disclosures, and timely filing of reports.



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



(b) Changes in internal control over financial
reporting.



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



29







Effective September 19, 2011, we hired Rachel
L. Dillard as our new Chief Financial officer.  Ms. Dillard has extensive knowledge and experience in the E&P sector
of the oil and gas industry as well as a broad knowledge of public company accounting.



Effective July 22, 2011, we continued the engagement
of the third party accounting firm that was performing the oil and gas transactional accounting for TNR before we acquired it;
however, we have not transferred the transactional accounting of Mesa Energy, Inc., to that firm and are evaluating the costs and
benefits to us of maintaining and expanding the accounting duties of that firm versus bringing that function in house to our Dallas
office.



Other than these events, there were no changes
in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule
13a-15 or Rule 15d-15 that materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.



30







PART II – OTHER INFORMATION



Item 1. Legal Proceedings



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



Item 1A. Risk Factors



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



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



On August 1, 2011, we entered into a 12 month
consulting agreement with SNK Consulting Services, LLC (“SNK”) for the provision of investor relations and public relations
services for us.As partial compensation to SNK for these services, weissued 100,000 restricted shares
of our common stock to SNK following execution of the agreement.



On September 2, 2011, the Company entered into
an agreement with Mundial Financial Group, LLC to issue 200,000 shares of common stock, with a fair value of $24,000, as payment
in full for financial advisory services to be provided to the Company.



On September 15, 2011, Whalehaven Capital Fund,
Ltd. Elected to convert $62,500 of its Convertible Promissory Note resulting in the issuance of 500,000 shares.



On September 19, 2011, the Company entered
into an Employment Agreement with Rachel L. Dillard to serve as the Chief Financial Officer of the Company. The Employment Agreement,
as amended, provided for a restricted stock grant of 1,000,000 shares to become vested over a 24 month period with the initial
100,000 shares to be vested commensurate with the execution of the agreement.



On October 4, 2011, Chestnut Ridge Partners,
LP elected to convert $62,500 of its Convertible Promissory Note resulting in the issuance of 500,000 shares.



On October 19, 2011, Whalehaven Capital Fund,
Ltd. elected to convert an additional $62,500 of its Convertible Promissory Note resulting in the issuance of 500,000 shares.



On November 7, 2011, Whalehaven Capital Fund,
Ltd. elected to convert an additional $62,500 of its Convertible Promissory Note resulting in the issuance of 500,000 shares.



On November 11, 2011, Chestnut Ridge Partners,
LP elected to convert an additional $62,500 of its Convertible Promissory Note resulting in the issuance of 500,000 shares.



On November 28, 2011, Whalehaven Capital Fund,
Ltd. elected to convert an additional $112,500 of its Convertible Promissory Note resulting in the issuance of 900,000 shares.



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



Item 3. Defaults Upon Senior Securities



None.



31







Item 4. Reserved

Item 5. Other Information.



(a) Form 8-K Information



On September 19, 2011 we appointed Rachel L.
Dillard as our Chief Financial Officer.  Ms. Dillard will be receiving annual compensation of $112,000 during the first
year of employment (subject to adjustments thereafter).  Our Board of Directors authorized the issuance to Ms. Dillard
of 1,000,000 shares of restricted common stock pursuant to our 2009 Equity Incentive Plan, which will vest in the listed amounts
on the following dates, provided she fulfills the service obligation required for vesting by being employed by us at each date:
100,000 shares on September 19, 2011; 200,000 on April 1, 2012; 200,000 on October 1, 2012; 200,000 shares on April 1, 2013; and
300,000 shares on October 1, 2013.



(b) Director Nomination Procedures



We do not have a standing nominating committee
nor are we required to have one. We do not have any established procedures by which security holders may recommend nominees to
our Board of Directors, however, any suggestions on directors, and discussions of board nominees in general, is handled by the
entire Board of Directors.



Item 6. Exhibits



|        |  | SEC Report |  |                                                                                                                                                                       
|------- |  | ---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Reference  |  |                                                                                                                                                                       
|No.     |  | Number     |  | Description                                                                                                                                                           
|        |  |            |  |                                                                                                                                                                       
|31.01   |  | *          |  | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|        |  |            |  |                                                                                                                                                                       
|31.02   |  | *          |  | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|        |  |            |  |                                                                                                                                                                       
|32.01   |  | *          |  | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                
|        |  |            |  |                                                                                                                                                                       
|32.02   |  | *          |  | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                
|        |  |            |  |                                                                                                                                                                       
|101 INS |  | **         |  | XBRL Instance Document***                                                                                                                                             
|101 SCH |  | **         |  | XBRL Schema Document***                                                                                                                                               
|101 CAL |  | **         |  | XBRL Calculation Linkbase Document***                                                                                                                                 
|101 LAB |  | **         |  | XBRL Labels Linkbase Document***                                                                                                                                      
|101 PRE |  | **         |  | XBRL Presentation Linkbase Document***                                                                                                                                
|101 DEF |  | **         |  | XBRL Definition Linkbase Document***                                                                                                                                  



| | * | Filed herewith.
| | - | ---------------



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



32







SIGNATURES



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



|                        | MESA ENERGY HOLDINGS, INC. |                                                                                       
|----------------------- | -------------------------- | --------------------------------------------------------------------------------------
|                        |                            |                                                                                       
|Date: February 14, 2012 | By:                        | /s/ RANDY M. GRIFFIN                                                                  
|                        |                            | Randy M. Griffin                                                                      
|                        |                            | Chief Executive Officer (Principal Executive Officer)                                 
|                        |                            |                                                                                       
|Date: February 14, 2012 | By:                        | /s/ RACHEL L. DILLARD                                                                 
|                        |                            | Rachel L. Dillard                                                                     
|                        |                            | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)





33