UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10 – Q


(Mark
One)


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





For
the quarterly period ended March 31, 2010





or




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





For
the transition period from ____________ to ________________





Commission
file number: 000-52782




Southfield
      Energy Corporation(Exact
      name of registrant as specified in its
charter)




Nevada
                
                20-5361270(State
      or other jurisdiction of incorporation or
                  organization)
                
                (IRS
      Employer Identification
No.)




1240
      Blalock Rd., Suite 150
                Houston,
      Texas 77005(Address
      of principal executive
offices)




(713)
      266-3700(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 is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (Check one).





Large
      accelerated filer  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer  ̈
            Smaller
      reporting company 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 May
14, 2010 there were 7,410,000 shares of the issuer’s common stock, par value
$0.001, outstanding.





SOUTHFIELD
ENERGY





FORM
10-Q


FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2010


TABLE
OF CONTENTS





PAGESpecial
      Note Regarding Forward Looking Information
                  2PART
      I - FINANCIAL INFORMATIONItem
      1.
                  Unaudited
      Financial Statements
                  3Item
      2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  14Item
      3.
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  21Item
      4T.
                  Controls
      and Procedures
                  21PART
      II - OTHER INFORMATIONItem
      1.
                  Legal
      Proceedings
                  22Item
      1A.
                  Risk
      Factors
                  22Item
      2.
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  31Item
      3.
                  Defaults
      Upon Senior Securities
                  31Item
      4.
                  Submission
      of Matter to a Vote of Security Holders
                  31Item
      5.
                  Other
      Information
                  31Item
      6.
                  Exhibits
                  31SIGNATURES
                  32




SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS





To the
extent that the information presented in this Quarterly Report on Form 10-Q for
the quarter ended March 31, 2010 discusses financial projections, information or
expectations about our products or markets, or otherwise makes statements about
future events, such statements are forward-looking.  We are making
these forward-looking statements in reliance on the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995.  Although we
believe that the expectations reflected in these forward-looking statements are
based on reasonable assumptions, there are a number of risks and uncertainties
that could cause actual results to differ materially from such forward-looking
statements. These risks and uncertainties are described, among other places in
this Quarterly Report, in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations”.





In
addition, we disclaim any obligations to update any forward-looking statements
to reflect events or circumstances after the date of this Quarterly
Report.  When considering such forward-looking statements, you should
keep in mind the risks referenced above and the other cautionary statements in
this Quarterly Report.


2


PART
1 – FINANCIAL INFORMATION





ITEM
1. FINANCIAL STATEMENTS




PAGEUnaudited
      Balance Sheets as of March, 31 2010 and December 31, 2009
                  4Unaudited
      Statements of Operations for the three months ended March 31, 2010 and
      2009
                  5Unaudited
      Statements of Cash Flows for the three months ended March 31, 2010 and
      2009
                  6Unaudited
      Statement of Stockholders’ Deficit
                  7Notes
      to Unaudited Financial Statements
                  8


3





SOUTHFIELD
ENERGY CORPORATION


BALANCE
SHEETS


As
of March 31, 2010 and December 31, 2009


(Unaudited)





March
                            
                            
                            December31, 2010
                            
                            
                            31, 2009ASSETSCurrent
      Assets:Cash
                            
                            $
                            8,819
                            
                            
                            $
                            68,826Accounts
      Receivable
                            
                            
                            13,548
                            
                            
                            
                            13,006TOTAL
      CURRENT ASSETS
                            
                            
                            22,367
                            
                            
                            
                            81,832Property
      & Equipment:Oil
      & Gas, on the basis of successful efforts accountingGross
      Proved Properties
                            
                            
                            346,199
                            
                            
                            
                            346,199Less:
      Accumulated Depletion and Depreciation
                            
                            
                            (89,679
                            )
                            
                            
                            (85,179
                            )Net
      Proved Properties
                            
                            
                            256,520
                            
                            
                            
                            261,020Other
      Long Term Assets:Gross
      Capitalized Loan and Convertible Debenture Costs
                            
                            
                            416,852
                            
                            
                            
                            413,002Less:
      Accumulated Amortization
                            
                            
                            (314,567
                            )
                            
                            
                            (284,942
                            )Net
      Capitalized Loan and Convertible Debenture Costs
                            
                            
                            102,285
                            
                            
                            
                            128,060Available
      for Sale Securities
                            
                            
                            -
                            
                            
                            
                            345,595Less:
      Valuation Allowance
                            
                            
                            -
                            
                            
                            
                            (279,345
                            )Net
      (market value)
                            
                            
                            -
                            
                            
                            
                            66,250TOTAL
      ASSETS
                            
                            $
                            381,172
                            
                            
                            $
                            537,162LIABILITIES
      AND STOCKHOLDERS' DEFICITLIABILITIES:Current
      Liabilities:Accounts
      Payable
                            
                            $
                            93,134
                            
                            
                            $
                            72,272Accrued
      interest on Convertible Debentures
                            
                            
                            219,520
                            
                            
                            
                            198,649Current
      portion of Convertible Debentures Payable
                            
                            
                            224,000
                            
                            
                            
                            190,000Short
      term notes payable to related parties
                            
                            
                            3,900
                            
                            
                            
                            -TOTAL
      CURRENT LIABILITIES
                            
                            
                            540,554
                            
                            
                            
                            460,921Long
      Term Liabilities:Convertible
      Debentures Payable
                            
                            
                            1,656,000
                            
                            
                            
                            1,684,000TOTAL
      LONG TERM LIABILITIES
                            
                            
                            1,656,000
                            
                            
                            
                            1,684,000TOTAL
      LIABILITIES
                            
                            
                            2,196,554
                            
                            
                            
                            2,144,921STOCKHOLDERS'
      DEFICIT:Common
      stock, $0.001 par value; 50,000,000 sharesauthorized,
      7,410,000 and 7,410,000 issued andoutstanding
      at 3/31/10 and 12/31/09, respectively
                            
                            
                            7,410
                            
                            
                            
                            7,410Additional
      Paid-in Capital
                            
                            
                            99,373
                            
                            
                            
                            99,373Deficit
      accumulated during the development stage
                            
                            
                            (24,718
                            )
                            
                            
                            (24,718
                            )Accumulated
      deficit
                            
                            
                            (1,897,447
                            )
                            
                            
                            (1,689,824
                            )TOTAL
      STOCKHOLDERS' DEFICIT
                            
                            
                            (1,815,382
                            )
                            
                            
                            (1,607,759
                            )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
                            
                            $
                            381,172
                            
                            
                            $
                            537,162





*See
accompanying notes to the financial statements.


4




SOUTHFIELD
ENERGY CORPORATION


STATEMENTS
OF OPERATIONS


For
the three months ended March 31, 2010 and 2009


(Unaudited)




March
                        
                        
                        March31, 2010
                        
                        
                        31, 2009REVENUES:Oil
      and Gas Production
                        
                        $
                        25,368
                        
                        
                        $
                        12,568EXPENSES:Production
      Costs
                        
                        
                        3,610
                        
                        
                        
                        7,671Severance
      & Ad Valorem
                        
                        
                        1,789
                        
                        
                        
                        1,390DD&A
                        
                        
                        4,500
                        
                        
                        
                        8,549Unsuccessful
      Exploration Costs
                        
                        
                        -
                        
                        
                        
                        30,933Amortization
      of Loan and Convertible Debenture Costs
                        
                        
                        29,625
                        
                        
                        
                        31,346General
      and Administrative Expenses
                        
                        
                        141,504
                        
                        
                        
                        103,464TOTAL
      OPERATING EXPENSES
                        
                        
                        181,028
                        
                        
                        
                        183,353OPERATING
      LOSS
                        
                        
                        (155,660
                        )
                        
                        
                        (170,785
                        )Other
      Income (Expense)Interest
      Income
                        
                        
                        3
                        
                        
                        
                        69Loss
      on Sale of Securities
                        
                        
                        (654
                        )
                        
                        
                        -Interest
      Expense
                        
                        
                        (51,312
                        )
                        
                        
                        (42,358
                        )Total
      Other Expenses
                        
                        
                        (51,963
                        )
                        
                        
                        (42,289
                        )Net
      loss from continuing operations
                        
                        $
                        (207,623
                        )
                        
                        $
                        (213,074
                        )Net
      income from discontinued operations
                        
                        $
                        -
                        
                        
                        $
                        2,124Net
      Loss
                        
                        $
                        (207,623
                        )
                        
                        $
                        (210,950
                        )Other
      Comprehensive Loss:Unrealized
      loss on available for sale securities
                        
                        
                        -
                        
                        
                        
                        (126,000
                        )Total
      Comprehensive Loss
                        
                        $
                        (207,623
                        )
                        
                        $
                        (336,950
                        )Weighted
      average common shares outstanding
                        
                        
                        7,410,000
                        
                        
                        
                        7,410,000Net
      Loss per common share from continuing operations (Basic &
      Diluted)
                        
                        $
                        (0.03
                        )
                        
                        $
                        (0.03
                        )Net
      Income per common share from discontinued operations (Basic &
      Diluted)
                        
                        $
                        0.00
                        
                        
                        $
                        0.00Basic
      and diluted net loss per common share
                        
                        $
                        (0.03
                        )
                        
                        $
                        (0.03
                        )





*See
accompanying notes to the financial statements.


5





SOUTHFIELD
ENERGY CORPORATION


STATEMENTS
OF CASH FLOWS


For
the three months ended March 31, 2010 and 2009


(Unaudited)




March
                              
                              
                              March31, 2010
                              
                              
                              31, 2009Cash
      Flows From Operating ActivitiesNet
      loss from continuing operations
                              
                              $
                              (207,623
                              )
                              
                              $
                              (213,074
                              )Net
      income from discontinued operations
                              
                              
                              -
                              
                              
                              
                              2,124Net
      loss
                              
                              
                              (207,623
                              )
                              
                              
                              (210,950
                              )Adjustments
      to reconcile net loss to net cash used byby
      operating activitiesLoss
      on sale of AFS - Securities
                              
                              
                              654
                              
                              
                              
                              -Amortization
      of Loan & Convertible Debenture Costs
                              
                              
                              29,625
                              
                              
                              
                              31,346Depreciation,
      Depletion and Amortization
                              
                              
                              4,500
                              
                              
                              
                              11,931Changes
      in operating assets and liabilities:A/P
      and Accrued expenses
                              
                              
                              41,733
                              
                              
                              
                              22,974Receivables
                              
                              
                              (542
                              )
                              
                              
                              45,492Prepaid
      Expenses
                              
                              
                              -
                              
                              
                              
                              30,933Net
      cash used by operating activities
                              
                              $
                              (131,653
                              )
                              
                              $
                              (68,274
                              )Cash
      Flows From Investing ActivitiesCapitalized
      Investment in Proved Leaseholds
                              
                              
                              -
                              
                              
                              
                              (76,035
                              )Sale
      of AFS - Securities
                              
                              
                              65,596
                              
                              
                              
                              -Net
      cash (used) provided by investing activities
                              
                              $
                              65,596
                              
                              
                              $
                              (76,035
                              )Cash
      Flows From Financing ActivitiesDeferred
      financing costs
                              
                              
                              (3,850
                              )
                              
                              
                              (33,932
                              )Convertible
      Debentures Payable
                              
                              
                              35,000
                              
                              
                              
                              240,000Repayment
      of Convertible Debentures Payable
                              
                              
                              (29,000
                              )
                              
                              
                              -Short
      term notes payable
                              
                              
                              3,900
                              
                              
                              
                              -Net
      cash provided from financing activities
                              
                              $
                              6,050
                              
                              
                              $
                              206,068Net
      change in cash
                              
                              
                              (60,007
                              )
                              
                              
                              61,759Cash,
      beginning of period
                              
                              
                              68,826
                              
                              
                              
                              123,104Cash,
      end of period
                              
                              $
                              8,819
                              
                              
                              $
                              184,863Supplemental
      disclosure of non-cash items:Unrealized
      loss on available for sale securities
                              
                              $
                              -
                              
                              
                              $
                              (126,000
                              )Income
      taxes paid in cash
                              
                              $
                              -
                              
                              
                              $
                              -Interest
      expense paid in cash
                              
                              $
                              23,542
                              
                              
                              $
                              20,439





*See
accompanying notes to the financial statements.




6




SOUTHFIELD
ENERGY CORPORATION


STATEMENT
OF CHANGES IN STOCKHOLDERS' DEFICIT


For
the three months ended March 31, 2010


(Unaudited)




DeficitAccumulated
                    
                    
                    
                    
                    
                    AccumulatedDuring
                    
                    
                    
                    
                    
                    OtherCommon Stock
                    
                    
                    
                    
                    
                    Development
                    
                    
                    Accumulated
                    
                    
                    ComprehensiveShares
                    
                    
                    Amount
                    
                    
                    APIC
                    
                    
                    Stage
                    
                    
                    Deficit
                    
                    
                    Income
                    
                    
                    TotalBalance
      December 31, 2009
                    
                    
                    7,410,000
                    
                    
                    $
                    7,410
                    
                    
                    $
                    99,373
                    
                    
                    $
                    (24,718
                    )
                    
                    $
                    (1,689,824
                    )
                    
                    $
                    -
                    
                    
                    $
                    (1,607,759
                    )Net
      Loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (207,623
                    )
                    
                    
                    -
                    
                    
                    
                    (207,623
                    )Balance
      March 31, 2010
                    
                    
                    7,410,000
                    
                    
                    $
                    7,410
                    
                    
                    $
                    99,373
                    
                    
                    $
                    (24,718
                    )
                    
                    $
                    (1,897,447
                    )
                    
                    $
                    -
                    
                    
                    $
                    (1,815,382
                    )





*See
accompanying notes to the financial statements.


7





SOUTHFIELD
ENERGY CORPORATION


NOTES
TO FINANCIAL STATEMENTS


(Unaudited)





NOTE
1 – Nature of Operations





SOUTHFIELD
ENERGY CORPORATION (the "Company" or “Southfield”), is an oil and gas investment
company.  It invests in the exploration, development, and production
of oil & gas in the United States.  The focus of its activity is
in Texas, Louisiana, and Oklahoma. The Company intends to invest its funds
primarily as a working interest owner, royalty interest owner or mineral lease
owner. Generally, the Company will be a minority owner in each well. The Company
expects most of its investments to range from 5-25% of the total investment
required for any given project, and anticipates that its investment in each
project will range from $50,000 to $250,000.





NOTE
2 – Basis of Presentation





The
accompanying unaudited financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission,
and U.S. GAAP. The information furnished for the three months ended March 31,
2010 includes normal recurring adjustments and reflects all adjustments which,
in the opinion of management, are necessary for a fair presentation of such
financial statements.





Because
the Aldwell Unit was sold with an effective date of September 1, 2009, the
accompanying unaudited financial statements for the three months ended March 31,
2010 and March 31, 2009 have been presented with the financial results from the
Aldwell Unit in discontinued operations. All of the revenues and expenses
associated with the Aldwell Unit prior to September 1, 2009 were part of our
continuing operations at the time. However, subsequent to the sale, we separated
the financial results of the Aldwell Unit from the continuing operations in 2009
and reclassified them into discontinued operations so that the impact of the
sale of the Aldwell Unit can be compared across periods. All assets and
liabilities of the Aldwell Unit have also been segregated from continuing
operations on the balance sheet as of December 31, 2009.





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





NOTE
3 – Reclassification





Certain
items from the March 31, 2009 statements of operations have been reclassified to
conform with the three months ended March 31, 2010 financial statement
presentation. There is no effect on net income, cash flows or stockholders’
equity as a result of these reclassifications.





NOTE
4 – Going Concern





These
financial statements have been prepared on a going concern basis and do not
include any adjustments to the measurement and classification of the recorded
asset amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company has
experienced losses and incurred negative cash flows from operations since
inception. The Company’s ability to realize its assets and discharge its
liabilities in the normal course of business is dependent upon continued
support. The Company is currently attempting to obtain additional financing
through its offering of three year notes to continue its operations. In order to
raise additional equity capital, the Company has also registered its equity and
is pursuing quotation of its common stock on the OTC Bulletin Board. However,
there can be no assurance that the Company will obtain sufficient additional
funds from these sources.





These
conditions cause substantial doubt about the Company’s ability to continue as a
going concern. A failure to continue as a going concern would require that
stated amounts of assets and liabilities be reflected on a liquidation basis
that could differ from the going concern basis.





NOTE
5 - Summary of Significant Accounting Policies





Oil and Gas Properties (Successful
Efforts): The Company follows the successful efforts method of accounting
for oil and gas property acquisition, exploration, development and production
activities.


8





Capitalization Policies: Oil
and gas property acquisition costs, exploration well costs, and development
costs are capitalized as incurred. Net capitalized costs of unproved property
and exploration well costs are reclassified as proved property and well costs
when related proved reserves are found. If an exploration well is unsuccessful
in finding proved reserves, the capitalized well costs are charged to
exploration expense. Other exploration costs, including geological and
geophysical costs and the costs of carrying unproved property are charged to
exploration expense as incurred. Costs to operate and maintain wells and field
equipment are expensed as incurred.





Sales and Retirement
Policies: Gains and losses on the sale or abandonment of oil and gas
properties are generally reflected in income. Costs of retired equipment, net of
salvage value, are usually charged to accumulated amortization. As of March 31,
2010 and December 31, 2009, management has determined that the asset retirement
obligation related to the plugging and abandonment of wells is immaterial
individually and to the financial statements taken as a whole.  As
such, no asset retirement obligation is recorded in the statements
presented.  Management will review the potential obligation on an
on-going basis and will record the obligation in the period it becomes material,
either individually or in aggregate, to the financial statements.





Impairment Policies:
Long-lived assets used in operations are assessed for impairment whenever
changes in facts and circumstances indicate a possible significant deterioration
in the future cash flows expected to be generated by an asset group. Oil and gas
producing assets are evaluated for impairment at least annually at the end of
every year. If, upon review, the sum of the undiscounted pretax cash flows are
less than the carrying value of the asset group, the carrying value is written
down to the estimated fair value. Individual assets are grouped for impairment
purposes at the lowest level for which there are identifiable cash flows that
are largely independent of the cash flows of other groups of assets – generally
on a field-by-field basis. The fair value of impaired assets is determined based
on quoted market prices in active markets, if available, or upon the present
values of the expected future cash flows using discount rates commensurate with
the risks involved in the asset group. Long-lived assets committed by management
for disposal are accounted for at the lower of amortized cost or fair value less
cost to sell.





Earnings Per Share:
Southfield’s net
income/loss per share has been calculated by dividing the net income/
loss for the period by the weighted average number of shares
outstanding. Since all potentially dilutive securities would be considered
anti-dilutive, the basic loss per share equals the fully diluted loss per
share.  Earnings per share from discontinued operations for the three
months ended March 31, 2010 is $.00 and net loss per share from continuing
operations for the three months ended March 31, 2010 is ($.03).  For
the three months ended March 31, 2009, net income per share for discontinued
operations and net loss per share from continuing operations were $0.00 and
($0.03), respectively.





Deferred Financing Costs:
Southfield incurred deferred financing costs in connection with raising capital
through the sale of debentures. The costs have been capitalized as incurred and
amortized over the three year life of the debentures using the effective
interest method.  The net costs capitalized as of December 31, 2009
are $128,060 and the net costs capitalized as of March 31, 2010 are
$102,285.





Stock Based Compensation: On
January 1, 2006, the Company adopted the FASB standard which requires the
measurement and recognition of compensation expense for all share-based awards
made to employees and directors, including employee stock options and shares
issued through its employee stock purchase plan, based on estimated fair values.
In March 2005, the Securities and Exchange Commission issued a bulletin related
to the aforementioned FASB standard.  The Company’s financial
statements reflect the impact of this standard.





Fair Value of Financial
Instruments: Southfield includes fair value information in the Notes to
the Financial Statements when the fair value of its financial instruments can be
determined and is different from the carrying amounts reflected in the
accompanying statements. Southfield generally assumes that the carrying amounts
of cash, accounts receivable, accounts payable, accrued expenses, short-term
debt and long-term debt approximate fair value. For non-current financial
instruments, Southfield uses quoted market prices or, to the extent that there
are no available quoted market prices, market prices for similar instruments.
Management believes that the carrying amounts of the financial instruments are
fairly represented in the financial statements.


9





We
adopted the Financial Accounting Standards Board’s (FASB) standard on fair value
measurements at inception. The standard defines fair value, establishes a
framework for measuring fair value and expands disclosure of fair value
measurements. The standard applies under other accounting pronouncements that
require or permit fair value measurements and accordingly, does not require any
new fair value measurements. It clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. As
such, fair value is a market-based measurement that should be determined based
on assumptions that market participants would use in pricing an asset or
liability. As a basis for considering such assumptions, the standard established
a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value as follows.





 ̈
            Level 1. Observable inputs such
      as quoted prices in active
markets;





 ̈
            Level 2. Inputs, other than the
      quoted prices in active markets, that are observable either directly or
      indirectly; and





 ̈
            Level 3. Unobservable inputs in
      which there is little or no market data, which require the reporting
      entity to develop its own
assumptions.





The
following table presents assets that are measured and recognized at fair value
as of December 31, 2009 and for the twelve months then ended on a recurring
basis:




12/31/2009
                
                
                
                
                
                
                
                
                
                
                TotalRealized (Loss
                  due to
                
                
                Total
                  UnrealizedDescription
                
                Level 1
                
                
                Level 2
                
                
                Level 3
                
                
                valuation)
                
                
                (Loss)Available for Sale Securities
                
                $
                66,250
                
                
                $
                -
                
                
                $
                -
                
                
                $
                (279,345
                )
                
                $
                -Totals
                
                $
                66,250
                
                
                $
                -
                
                
                $
                -
                
                
                $
                (279,345
                )
                
                $
                -




Due to
the sale of all available for sale securities during the first quarter of 2010,
the Company held no assets that required measurement and recognition at fair
value on a recurring basis as of March 31, 2010.




Use of Estimates: The
preparation of financial statements in conformity with 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 reported amounts of
revenues and expenses during the reporting period. Southfield’s most significant
financial estimates are based on the valuation of remaining proved oil and gas
reserves, impairment of its long-lived assets, valuation of its assets using
successful efforts accounting, and revenue recognition. Because of the nature of
these estimates and the nature of exploration, development and production of oil
and gas reserves, actual results could differ from these estimates and losses
and reductions in value could occur. These possible losses and reductions in
values which have not been reflected in the accompanying financial statements
could be material to the Company’s revenues/earnings or losses and stockholders’
deficit. Due to the nature of the Company’s business plan to acquire additional
properties to explore for oil and gas reserves, additional losses and reductions
in value of the Company may occur in the future both related to properties
currently being developed and new properties not yet acquired and those amounts
could be substantial with respect to the Company’s financial position and
operations. To be successful, the Company must acquire properties that result in
significant amounts of recoverable amounts of oil and gas reserves and be
successful in the marketing of those reserves over a long period of time in
order to pay its acquisition, development, production and operating costs, to
cover its credit and debt obligations, and to provide a return to its
shareholders.





Concentrations of Credit
Risk: Financial instruments that may potentially subject the Company to
concentration of risk in the future consist primarily of cash which will be
placed with high credit quality financial institutions at amounts that may at
times exceed FDIC limits.





Accounts Receivable: Accounts
receivable represent the amounts due from the sale of oil and gas. Based on
collections history and review of accounts receivable aging, management does not
believe that any allowance for doubtful accounts is necessary as of March 31,
2010 or December 31, 2009.





Revenue Recognition:
Southfield recognizes oil, gas and natural gas condensate revenue in the period
of delivery. Settlement for oil sales occurs 30 days after the oil has been
sold; and settlement for gas sales occurs 60 days after the gas has been sold.
Southfield recognizes revenue when an arrangement exists, the product or service
has been provided, the sales price is fixed or determinable, and collectability
is reasonably assured.


10





Cash and Cash Equivalents:
Southfield considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents at March 31, 2010 and December 31, 2009 were $8,819 and $68,826,
respectively.





Investments: We account for
securities available for sale in accordance with Financial Accounting Standards
Board (“FASB”) guidance regarding accounting for certain investments in debt and
equity securities, which requires that available-for-sale and trading securities
be carried at fair value. Unrealized gains and losses deemed to be temporary on
available-for-sale securities are reported as other comprehensive income (“OCI”)
within stockholders’ deficit. Realized gains and losses and decline in value
deemed to be other than temporary on available-for-sale securities are included
in “(Gain) loss on short- and long-term investments” and “Other income” on our
consolidated statements of operations. Trading gains and losses also are
included in “(Gain) loss on short- and long-term investments.” Fair value of the
securities is based upon quoted market prices in active markets or estimated
fair value when quoted market prices are not available. The cost basis for
realized gains and losses on available-for-sale securities is determined on a
specific identification basis. We classify our securities available-for-sale as
short- or long-term based upon management’s intent and ability to hold these
investments. In addition, throughout 2009, the FASB issued various authoritative
guidance and enhanced disclosures regarding fair value measurements and
impairments of securities which helps in determining fair value when the volume
and level of activity for the asset or liability have significantly decreased
and identifying transactions that are not orderly.





Recent
Accounting Pronouncements





On
January 1, 2009, the FASB issued a new accounting standard related to the
disclosure of derivative instruments and hedging activities.  This
standard expanded the disclosure requirements about an entity’s derivative
financial instruments and hedging activities including qualitative disclosures
about objectives and strategies for issuing derivatives, quantitative
disclosures about fair value amounts of any gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in
derivative instruments. Southfield had no instruments that fell within the scope
of this pronouncement as of March 31, 2010.





Effective
January 1, 2009, a new accounting standard was issued related to determining
whether an instrument (or an embedded feature) is indexed to an entity’s own
stock, which would qualify as a scope exception from hedge
accounting.  Southfield had no instruments that fell within the scope
of this pronouncement as of March 31, 2010.





In August
2009, the FASB issued an amendment to the accounting standards related to the
measurement of liabilities that are recognized or disclosed at fair value on a
recurring basis.  This standard clarifies how a company should measure
the fair value of liabilities and that restrictions preventing the transfer of a
liability should not be considered as a factor in the measurement of liabilities
within the scope of this standard.  This standard is effective on
October 1, 2009.  Southfield had no instruments that fell within the
scope of this pronouncement as of March 31, 2010.





In
October 2009, the FASB issued an amendment to the accounting standards related
to the accounting for revenue in arrangements with multiple deliverables
including how the arrangement consideration is allocated among delivered and
undelivered items of the arrangement.  Among the amendments, this
standard eliminates the use of the residual method for allocating arrangement
consideration and requires an entity to allocate the overall consideration to
each deliverable based on an estimated selling price of each individual
deliverable in the arrangement in the absence of having vendor-specific
objective evidence or other third party evidence of fair value of the
undelivered items.  This standard also provides further guidance on
how to determine a separate unit of accounting in a multiple-deliverable revenue
arrangement and expands the disclosure requirements about the judgments made in
applying the estimated selling price method and how those judgments affect the
timing or amount of revenue recognition.  This standard, which
Southfield is currently assessing the impact of, will become effective for the
Company on January 1, 2011.


11





In
October 2009, the FASB issued an amendment to the accounting standards related
to certain revenue arrangements that include software elements. This standard
clarifies the existing accounting guidance such that tangible products that
contain both software and non-software components that function together to
deliver the product’s essential functionality, shall be excluded from the scope
of the software revenue recognition accounting standards. Accordingly, sales of
these products may fall within the scope of other revenue recognition accounting
standards or may now be within the scope of this standard and may require an
allocation of the arrangement consideration for each element of the arrangement.
This standard, which Southfield is currently assessing the impact of, will
become effective for the Company on January 1, 2011.





NOTE
6 - Related Party Transactions





On March
24, 2010, Ben Roberts and Tyson Rohde each made loans to the Company for $1,300.
The loans have been evidenced by short terms notes due in 90 days with no
accompanying interest. No interest was imputed for these loans because the
expense is immaterial to the financial statements. The loans are general
obligations of the Company and do not contain any first liens on the Company’s
assets or liquidation preferences.





The total
rent expense for each of the three months ended March 31, 2010 and March 31,
2009 was $9,183. After taking into account comparable rents in the immediate
area, the rent paid by Southfield is a fair market value.





NOTE
7 – Convertible Debentures Payable





We have
retained the services of MMR Investment Bankers, Inc. to represent the Company
in a Debenture offering of $10 million. We also engaged Sunflower
Management Group, a third party administrator for interest payments and
technical compliance with the repayment requirements of the Debentures that have
been sold.





MMR
Investment Bankers, Inc. has created an account to reserve from the gross
offering proceeds the first six months of interest payments due to any investor.
Sunflower Management Group is managing the interest reserve account and is
responsible for accruing and funding interest to investors as it becomes due. As
of March 31, 2010 and December 31, 2009, the Company has $1,880,000 and
$1,874,000 of three-year convertible Debentures outstanding, respectively. The
Debentures bear interest at a rate of 10% and mature three years from the date
of purchase.





The
investors may elect to have simple interest paid on a monthly basis, or may have
the interest compounded semiannually and paid at maturity. The investors may
convert the face value of the Debenture to common stock in the Company at any
time during the term of the Debenture at a conversion price of $5.00 per
share.  The company has the right to call for the conversion of the
Debentures when the common stock of the Company trades on a public market for
twenty (20) consecutive days at a price higher than $7.50 per share and upon
notice, unless the Debenture holder elects not to accept the conversion
offer.





The
Company reviewed accounting literature related to embedded derivatives and
beneficial conversion features and its application to the Company’s convertible
debentures. The Company concluded that there is not a derivative or beneficial
conversion option associated with the debentures that is in-the-money and
therefore the Company is not required to calculate the intrinsic value of such
conversion option.





Maturities
of the notes over the next five years for the twelve months ending March 31are
as follows:




2011
              
              
              2012
              
              
              2013
              
              
              2014
              
              
              2015$
              224,000
              
              
              $
              674,000
              
              
              $
              580,000
              
              
              $
              317,000
              
              
              $
              85,000





NOTE
8 – Acquisitions & Capital Investments





In 2009,
the Company successfully drilled the C-34 and C-35 wells located on the Mary
King Estell Lease and invested approximately $61,395 and $61,916, respectively.
The remainder of the capital investment in proved leaseholds was in the Aldwell
Unit for roughly $5,785. This capital investment was used to drill and complete
new wells and to recomplete existing production wells to enhance production in
the field. The Company did not make any capital investments in oil and gas
projects in the first quarter of 2010.


12





NOTE
9 – Available for Sale Securities





In 2008
the Company invested approximately $510,000 in the common stock of Meridian
Resources, a publicly traded exploration and production company on the New York
Stock Exchange listed under the symbol TMR. As of December 31, 2008 the value of
the stock declined significantly consistent with the overall stock market at
that time. As of December 31, 2009, the Company determined the decline in the
value of the stock to be other than temporary according to the applicable SEC
Staff Accounting Bulletin. Due to this determination, the difference between the
cost of the securities and the market value was recorded as a loss on the income
statement for the twelve months ended December 31, 2009, rather than in other
comprehensive income. The impairment expense was $279,345 for the twelve months
ended December 31, 2009.





On
January 4, 2010, we sold our remaining 250,000 shares of common stock in
Meridian Resources Corporation and realized an approximate loss of $654 based on
an average cost basis. We no longer have an equity investment in Meridian
Resources or any other corporation. We do not have any current plans, proposals
or arrangements, written or otherwise, to make any equity investment in Meridian
Resources Corporation or any other company.





NOTE
10 – Discontinued Operations





On August
12, 2009, the Company sold its interest in the Aldwell Unit to the operator of
the unit, Mariner Energy Inc., for $300,000.  Southfield divested the
asset through an intermediary that charged the company 6% of the sales price to
list the property, find qualified buyers and execute the sale. The effective
date of the sale is September 1, 2009.  The carrying amount of the
Aldwell Unit at the time of the sale was $132,012 less depreciation, depletion,
and amortization of $6,146. Revenue from the Aldwell Unit for the three months
ended March 31, 2009 was $8,821. Net income from the Aldwell Unit for the three
months ended March 31, 2009 was $2,124.




NOTE
11 – Non-cash Compensation





There
have been no additional issuances of equity for the three months ended March 31,
2010.





NOTE
12 – Depletion and Depreciation





DD&A expense
from continuing operations decreased from $8,549 to $4,500 during the three
months ended March 31, 2009 and 2010, respectively. This was due to a decrease
in our capitalized expenses in proved properties and a lower depletion rate of
our production in 2010 as compared to 2009. Depreciation, depletion and
amortization have been calculated using the units of production
method.





NOTE
13 – Capitalized Expenses





The
Company is capitalizing expenses related to the Debenture Offering and
amortizing them over the three year life of the Debentures according to the
effective interest method. The gross capitalized loan and debenture costs were
$416,852 and $413,002 as of March 31, 2010 and December 31, 2009, respectively.
The accumulated amortization was $314,567 and $284,942; and the net capitalized
loan and debenture costs were $102,285 and $128,060 for the same periods
respectively.





NOTE
14 – Impairment of Proved Properties





The
Company analyzed its proved oil and gas properties located in the Mary King
Estell lease as of December 31, 2009. The estimated undiscounted net cash flows
provided in the December 31, 2009 reserve report was greater than the carrying
value of the assets, therefore no impairment was necessary. An impairment
analysis was not conducted as of March 31, 2010 as there were no impairment
indicators to necessitate an analysis.




13




NOTE
15 – Commitments and Contingencies





Litigation





In the
normal course of business, the Company may become subject to lawsuits and other
claims and proceedings. Such matters are subject to uncertainty and outcomes are
not predictable with assurance. Management is not aware of any pending or
threatened lawsuits or proceedings which would have a material effect on the
Company’s financial position, liquidity, or results of operations.





Concentrations





The
Company’s sales are dependent upon the performance of its producing wells and
our ability to successfully partner with high quality oil and gas operators; any
impacts to this industry could have a significant impact to the Company. For the
quarter ended March 31, 2010, the Mary King Estell represented 100% of the total
revenues of the Company and 100% of the accounts receivable. The Company
generally does not require collateral to support accounts receivable or
financial instruments subject to credit risk.





NOTE
16 – Oil and Gas Properties





As of the
date of this report and as of March 31, 2010, the Company owned non-operated
working interests in five wells in the Mary King Estell Lease which is operated
by Durango Resources. According to the reserve analysis conducted by Netherland,
Sewell and Associates, Inc., and the Company’s estimate of future income taxes,
the estimated discounted net cash flow after taxes was $457,500 as of December
31, 2009. Because of our significant net loss carryforward, we do not expect to
pay any federal income taxes on future net revenues provided from our Mary King
Estell production, and therefore the pre-tax and after-tax estimate of
discounted future net cash flows are both $457,000.





NOTE
17 – Supplementary Financial Information on Oil and Natural Gas Exploration,
Development and Production Activities (unaudited).





Summary
of general presentation and assumptions used in our Reserve
Analysis





As of
March 31, 2010, the Company’s disclosure of supplementary financial information
on oil and natural gas exploration, development, and production activities is
consistent with that discussed in Note 17 of its financial statements contained
in the annual report on Form 10-K for the fiscal year ended December 31,
2009.





NOTE
18 – Subsequent Events





On April
26, 2010 Ben Roberts, Tyson Rohde, and Goldbridge Consulting each made loans to
the Company for $2,633. The loans have been evidenced by short term notes that
mature 30 days from issuance with no accompanying interest.





ITEM 2.
            MANAGEMENT’S DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





The
following discussion and analysis should be read in conjunction with the
financial statements and related notes included elsewhere in this disclosure.
The following discussion and analysis contains forward-looking statements that
reflect our future plans, estimates, beliefs and expected performance. The
forward-looking statements are dependent upon events, risks and uncertainties
that may be outside our control. Our actual results could differ materially from
those discussed in these forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, the volatility
of oil, NGL and gas prices, production timing and volumes, estimates of proved
reserves, operating costs and capital expenditures, economic and competitive
conditions, regulatory changes and other uncertainties, as well as those factors
discussed below and elsewhere in this prospectus, particularly in “Risk Factors”
and “Cautionary Statement Regarding Forward-Looking Statements,” all of which
are difficult to predict. As a result of these risks, uncertainties and
assumptions, the forward-looking events discussed may not
occur.


14





Overview




Southfield
Energy Corporation, a Nevada corporation formed in July 2005, is a Houston,
Texas based company engaged in the investment in acquisition, exploration and
development of moderate risk, oil and gas wells in the United
States.  The Company’s core strategy is to earn revenue from existing
non-operated working interests while investing in new opportunities to increase
our oil and gas production and reserves; primarily through acquisitions of
existing production and working interest investments in drilling programs of
experienced and successful oil and gas operators active in Texas, Louisiana and
Oklahoma.





Recent
Developments





Durango
Resources





Since
partnering with Durango Resources, we have participated in the drilling and
completion of five commercially viable oil and gas wells on the Mary King Estell
lease in the Richard King Field in Nueces County, Texas. All of the wells were
drilled to depths less than 6,500 feet, and are currently producing natural gas
at various rates. We have not made any unsuccessful investments in this field
and have thus far completed all of the wells that we have drilled. These wells
produce gas from the Frio formation and constitute all of our
revenues.  Our share of production from these wells was 5,970 barrels
of oil equivalent in 2008 and 4,057 barrels of oil equivalent in 2009. We did
not drill any new wells with Durango in the first quarter of 2010. However,
Durango Resources has identified additional drilling locations that are adjacent
to our current producing wells and has plans for additional drilling over the
next twelve to twenty four months.  We anticipate investing in
additional wells with Durango should the opportunity arise.




Aldwell
Unit





From
January 1, 2009 through August 31, 2009 the pro rata portion of production net
to our working interest from the Aldwell Unit was 792 barrels of oil equivalent.
Effective September 2009, we sold our assets located in the Aldwell Unit to
Mariner Energy, Inc., the operator, for approximately $300,000, excluding a six
percent sales commission.  The Aldwell Unit accounted for
approximately 20% of our oil and natural gas revenue for the year ended December
31, 2008 and the nine months ended September 30, 2009.  As such, for
the three months ending March 31, 2010, our revenues were derived entirely from
our Richard King Field properties.





Equity
Investment





In
September and October 2008, we purchased an aggregate of 350,000 shares of
common stock of Meridian Resources Corporation, an exploration and production
company whose shares trade on the New York Stock Exchange under the ticker
symbol “TMR.” As of December 31, 2008, we incurred an unrealized holding loss of
$325,465 on our investment. As of December 31, 2008, the net market value of our
TMR investment was $199,500, comprising approximately 22.2% of total assets. In
June 2009, we sold an aggregate of 100,000 shares of common stock of Meridian
Resources Corporation and realized a loss of $134,096. As of December 31, 2009
we determined the decline in value of the Meridian shares to be other than
temporary. Based on this determination the shares were adjusted to their market
value as of December 31, 2009 of $66,250. The difference between the cost and
market value of the shares was recorded as impairment expense for $279,345. On
January 4, 2010, we sold our remaining 250,000 shares of common stock in
Meridian Resources Corporation and realized an approximate loss of $654 based on
an average cost basis. We no longer have an equity investment in Meridian
Resources or any other corporation. We do not have any current plans, proposals
or arrangements, written or otherwise, to make any equity investment in Meridian
Resources Corporation or any other company.


Results
of Operation





Three Months Ended March 31,
2010 Compared to March 31, 2009


Production.  Our
average monthly production decreased from approximately 426 Barrels of Oil
Equivalent (“BOE”) in the first quarter of 2009 to 227 BOE in the first quarter
of 2010. The decrease in our production was a result of the natural production
decline of the Durango wells as well as the loss of production from the Aldwell
Unit due to its divestiture.


15





Revenues and production. The following table illustrates the primary components of revenues,
production volumes and realized prices for the periods noted.





For the three months ended 3/31/2009
                
                
                For the three months ended 3/31/2010Production
                  (BOE)
                
                
                Avg. Price
                  per BOE ($)
                
                
                Total
                  Revenues ($)
                
                
                Production
                  (BOE)
                
                
                Avg. Price
                  per BOE ($)
                
                
                Total
                  Revenues ($)Aldwell Unit
                
                
                286
                
                
                
                30.84
                
                
                
                8,821
                
                
                
                -
                
                
                
                -
                
                
                
                -Richard
      King
                
                
                994
                
                
                
                12.64
                
                
                
                12,568
                
                
                
                682
                
                
                
                37.20
                
                
                
                25,368TOTAL
                
                
                1,280
                
                
                
                16.71
                
                
                
                21,389
                
                
                
                682
                
                
                
                37.20
                
                
                
                25,368





Revenues.
  Revenues from continuing operations increased from $12,568 to
$25,368 for the three months ended March 31, 2010, as compared to the three
months ended March 31, 2009, due to an increase in oil and gas prices.
Production realized from the Aldwell Unit decreased by 286 barrels of oil
equivalent (BOE) over the periods due to its sale and; and production in the
Richard King Field decreased from 994 BOE to 682 BOE. Additionally, the average
price per BOE increased from $16.71 to $37.18 for the three months ended March
31, 2009 to 2010, respectively.





Production.   Our
average monthly production decreased from 331 Barrels of Oil Equivalent (“BOE”)
in the first quarter of 2009 to 227 BOE in the first quarter of 2010. Most wells
produce at higher initial rates and their production declines as they deplete
over time. Our monthly production decreased for two reasons. First, our operator
choked back the production from the Mary King Estell Lease to retain some of our
gas to sell at higher prices. Second, we sold the Aldwell Unit for a profit to
create additional liquidity for operating expenses and debt
service.




Production costs.
  Production costs, which includes lease operating expenses and
excludes severance and ad valorem taxes, decreased from $7,671 to $3,610
during the three months ended March 31, 2009 and 2010, respectively. 
Because of increases in oil and gas prices and decreases in our production
costs, our production costs from continuing operations as a percentage of
revenue decreased from 61% to 14% for the respective periods.





Depreciation, depletion and
amortization (“DD&A”) expense.   DD&A expense from
continuing operations decreased from $8,549 to $4,500 during the three
months ended March 31, 2009 and 2010, respectively.  This was due
to a decrease in our capitalized expenses in proved properties and a lower
depletion rate of our production in 2010 as compared to 2009.





G&A expense.
  Our general and administrative expense was $103,464 and $141,504 for
the three months ended March 31, 2009 and 2010, respectively. These expenses
include rent, office expenses, travel expenses, salaries for employees,
consulting expenses, legal and accounting expenses and benefits for employees.
This increase can be attributed primarily to increases in the following: legal
and accounting expenses, consulting expenses, salaries, office supplies,
insurance premiums, utilities and miscellaneous expenses. Many of the above
expenses increased in connection with filing a registration statement with the
Securities and Exchange Commission and becoming a publicly reporting
company.




Income taxes.
  Southfield experienced losses for the quarters ended March 31, 2009
and 2010 and therefore was not subject to federal income taxes.


16





Liquidity
and Capital Resources




Historically,
we have financed our operations through the sale of debt and equity securities
and cash generated from operations.  As of March 31, 2010 we had
$8,819 of cash and cash equivalents, a working capital deficit of $518,187 and a
total stockholders’ deficit of $1,815,382.  Our expenses exceeded our
revenues for the three months ended March 31, 2010; thus, we incurred a net
operating loss of $155,660.





We will
need to raise money through our registered offering of 3 Year Notes to fund our
business plan and support our operations after April
1, 2010.  The length of time we are able to operate is contingent
on the amount of money we raise through our Offering.  We offer no
assurance that we will be able to raise any amount of money through the
Offering.  To the extent we are able to raise an amount of money in
the Offering to cover our operating expenses; we plan to invest the proceeds in
additional working interests in existing oil and gas production as well as new
oil and gas wells.  Because our proved reserves and production decline
continually over time, we will need to make additional investments in oil and
gas projects to sustain our level of revenue. Our financial statements for the
three months ended March 31, 2010 includes a going concern
note.  Although we have successfully funded our operations to date by
attracting investors to our equity and debt, there is no assurance that our
capital raising efforts will be able to attract additional necessary capital for
our operations.  If we are unable to obtain additional funding for
operations at any time now or in the future, we may not be able to continue
operations as proposed, requiring us to modify our business plan, curtail
various aspects of our operations, sell our assets or cease operations and file
for bankruptcy.





The
accompanying financial statements have been prepared assuming that Southfield
will continue as a going concern. As shown in the accompanying financial
statements, we had negative cash flows from operations of $131,653 and $68,274
for the three months ended March 31, 2010 and 2009. These conditions raise
substantial doubt as to our ability to continue as a going concern. The
financial statements do not include any adjustments that might be necessary if
we are unable to continue as a going concern. Management intends to finance
these deficits by selling 3 Year Notes and seeking additional outside financing
through either debt or sales of its common stock.





Maturities
of the notes over the next five years for the twelve months ending March 31 are
as follows:




2011
              
              
              2012
              
              
              2013
              
              
              2014
              
              
              2015$
              224,000
              
              
              $
              674,000
              
              
              $
              580,000
              
              
              $
              317,000
              
              
              $
              85,000





Currently,
the Company does not have sufficient cash to meet its short term and long term
debt obligations. Without substantial capital investment from issuances of debt
and/or equity, the Company will not be able to meet its obligations. The Company
has registered its common stock with the Securities and Exchange Commission and
is pursuing the quotation of its common stock on the OTC Bulletin Board to raise
additional equity capital for the business.




Cash Flows




Operating activities. Net
cash used in operating activities for the three months ended March 31, 2010 as
compared to the three months ended March 31, 2009 was $131,653 and $68,274,
respectively. We incurred a loss on the sale of available for sale securities of
$654; amortization of loan and debenture costs of $29,625; depreciation,
depletion and amortization costs from continuing operations of $4,500; an
increase in cash flows from accounts payable and accrued expenses of $41,733;
and a decrease in cash flow from receivables of $542, respectively. Accounts
payable increased primarily from legal and accounting expenses related to the
registration of our 3 Year Notes and public reporting requirements.




Investing
activities.  Net cash provided / (used) in investing activities
for the three months ended March 31, 2010 as compared to the three months ended
March 31, 2009 was $65,596 and $(76,035), respectively. We did not make any
capital investments in proved leaseholds during the period. The primary reason
for the increase in cash flows from investing activities was due to the sale of
available for sale securities which accounted for $65,596 of cash provided by
investing activities.





Financing
activities.  Net cash provided from financing activities for
the three months ended March 31, 2010 as compared to the three months ended
March 31, 2009 was $6,050 and $206,068, respectively. This change was primarily
due to a decrease in debenture sales from $240,000 to $35,000 for the respective
periods. We also repaid 29,000 of debentures in the first quarter of
2010.


17


Outlook





Significant
factors that may impact future commodity prices include developments in the
issues currently impacting the Middle East, Africa and South America in general;
the extent to which members of the Organization of Petroleum Exporting Countries
(“OPEC”) and other oil exporting nations are able to continue to manage oil
supply through export quotas; and overall North American gas supply and demand
fundamentals, including the impact of increasing liquefied natural gas (“LNG”)
deliveries to the United States and political and regulatory changes by the U.S.
government.  Generally, the prices for any commodity that we produce
will approximate market prices in the geographic region of the
production.





Our
future oil and gas reserves, production, cash flow and ability to make principal
and interest payments on our debt obligations depend on our success in producing
our current reserves efficiently and acquiring additional proved reserves
economically.  We expect to pursue acquisitions of producing oil and gas
properties, invest in working interests in new wells and to acquire lease rights
and royalty rights to oil and gas properties.





Off-Balance
Sheet Arrangements





We have
no significant off-balance sheet arrangements that have or are reasonably likely
to have a current or future affect on our financial condition, revenues or
expense, results of operations, liquidity, capital expenditures or capital
resources that are material to our stakeholders.





Contractual
Obligations




Payments Due By PeriodContractual Obligations
                                        at March 31, 2010
                                      
                                      Total
                                      
                                      
                                      Less than
                                        1 year
                                      
                                      
                                      1-3 years
                                      
                                      
                                      3-5 years
                                      
                                      
                                      More than
                                        5 yearsConvertible Debentures
                                      
                                      $
                                      1,880,000
                                      
                                      
                                      $
                                      224,000
                                      
                                      
                                      $
                                      1,571,000
                                      
                                      
                                      $
                                      85,000
                                      
                                      
                                      $
                                      0Short
      term notes payable
                                      
                                      $
                                      3,900
                                      
                                      
                                      $
                                      3,900
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0Total
                                      
                                      $
                                      1,883,900
                                      
                                      
                                      $
                                      227,900
                                      
                                      
                                      $
                                      1,571,000
                                      
                                      
                                      $
                                      85,000
                                      
                                      
                                      $
                                      0





Critical
Accounting Estimates





We
prepared our financial statements in accordance with GAAP.  GAAP represents
a comprehensive set of accounting and disclosure rules and requirements, the
application of which requires management judgments and estimates including, in
certain circumstances, choices between acceptable GAAP alternatives. Following
is a discussion of our most critical accounting estimates, judgments and
uncertainties that are inherent in the application of GAAP.





Asset retirement obligations.
  We have obligations to remove tangible equipment and facilities and
to restore land at the end of oil and gas production operations. Our removal and
restoration obligations are primarily associated with plugging and abandoning
wells. Estimating the future restoration and removal costs is difficult and
requires management to make estimates and judgments because most of the removal
obligations are many years in the future and contracts and regulations often
have vague descriptions of what constitutes removal. Asset removal technologies
and costs are constantly changing, as are regulatory, political, environmental,
safety and public relations considerations.


18





Inherent
in the present value calculation are numerous assumptions and judgments
including the ultimate settlement amounts, inflation factors, credit adjusted
discount rates, timing of settlement and changes in the legal, regulatory,
environmental and political environments. Changes in any of these estimates can
result in revisions to the estimated asset retirement obligation. Revisions to
the estimated asset retirement obligation are recorded with an offsetting change
to the carrying amount of the related oil and gas properties, resulting in
prospective changes to depletion and accretion expense. Because of the
subjectivity of assumptions and the relatively long life of most of our oil and
gas properties, the costs to ultimately retire these assets may vary
significantly from our estimates. Based on our calculation as of March 31, 2010
the asset retirement obligation liability was immaterial to the financial
statements. We will continually evaluate this liability and record it, if and
when it becomes material.





Successful efforts method of
accounting.   We utilize the successful efforts method of
accounting for oil and gas producing activities as opposed to the full cost
method. The critical difference between the successful efforts method of
accounting and the full cost method is as follows: under the successful efforts
method, exploratory dry holes and geological and geophysical exploration costs
are charged against earnings during the periods in which they occur, whereas,
under the full cost method of accounting, such costs and expenses are
capitalized as assets, pooled with the costs of successful wells and charged
against the earnings of future periods as a component of depletion
expense.





Proved reserve estimates.
  Estimates of our proved reserves included in this prospectus are
prepared in accordance with GAAP and SEC guidelines. The accuracy of a reserve
estimate is a function of:





•
            The quality and quantity of
      available data;





•
            The interpretation of that
      data;





•
            The accuracy of various mandated
      economic
assumptions; and





•
            the judgment of the persons
      preparing the estimate.





Estimates
of proved reserves materially impact depletion expense. If the estimates of
proved reserves decline, the rate at which we recognize depletion expense will
increase, reducing future net income. Such a decline may result from lower
market prices, which may make it uneconomical to drill for and produce higher
cost fields. In addition, a decline in proved reserve estimates may impact the
outcome of our assessment of our proved properties for impairment.





Impairment of proved oil and gas
properties.   We review our proved properties to be held and
used whenever management determines that events or circumstances indicate that
the recorded carrying value of the properties may not be recoverable. Management
assesses whether or not an impairment provision is necessary based upon its
outlook of future commodity prices and net cash flows that may be generated by
the properties and if a significant downward revision has occurred to the
estimated proved reserves. If the sum of the undiscounted future net cash flows
of a proved producing property is less than the carrying value of the proved
producing property, then an impairment is made to reduce the value at which
those assets are carried on our balance sheet.





Environmental contingencies.
  Our management makes judgments and estimates in recording
liabilities for ongoing environmental remediation. Actual costs can vary from
such estimates for a variety of reasons. Environmental remediation liabilities
are subject to change because of changes in laws and regulations, developing
information relating to the extent and nature of site contamination and
improvements in technology. Under GAAP, a liability is recorded for these
types of contingencies if we determine the loss to be both probable and
reasonably estimable.


19





New
Accounting Pronouncements





We
adopted the Financial Accounting Standards Board’s (FASB) Standard related to
fair value measurement at inception. The standard defines fair value,
establishes a framework for measuring fair value and expands disclosure of fair
value measurements. The standard applies under other accounting pronouncements
that require or permit fair value measurements and accordingly, does not require
any new fair value measurements. The standard clarifies that fair value is an
exit price, representing the amount that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants. As such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would use in pricing an
asset or liability. As a basis for considering such assumptions, the standard
established a three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value as follows.





•
            Level 1. Observable inputs such
      as quoted prices in active
markets;





•
            Level 2. Inputs, other than the
      quoted prices in active markets, that are observable either directly or
      indirectly; and





•
            Level 3. Unobservable inputs in
      which there is little or no market data, which require the reporting
      entity to develop its own
assumptions.





Recently Issued Accounting
Pronouncements


On
January 1, 2009, the FASB issued a new accounting standard related to the
disclosure of derivative instruments and hedging activities.  This
standard expanded the disclosure requirements about an entity’s derivative
financial instruments and hedging activities including qualitative disclosures
about objectives and strategies for issuing derivatives, quantitative
disclosures about fair value amounts of any gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in
derivative instruments. Southfield had no instruments that fell within the scope
of this pronouncement as of March 31, 2010.





Effective
January 1, 2009, a new accounting standard was issued related to determining
whether an instrument (or an embedded feature) is indexed to an entity’s own
stock, which would qualify as a scope exception from hedge
accounting.  Southfield had no instruments that fell within the scope
of this pronouncement as of March 31, 2010.





In August
2009, the FASB issued an amendment to the accounting standards related to the
measurement of liabilities that are recognized or disclosed at fair value on a
recurring basis.  This standard clarifies how a company should measure
the fair value of liabilities and that restrictions preventing the transfer of a
liability should not be considered as a factor in the measurement of liabilities
within the scope of this standard.  This standard is effective on
October 1, 2009.  Southfield had no instruments that fall within the
scope of this pronouncement as of March 31, 2010.





In
October 2009, the FASB issued an amendment to the accounting standards related
to the accounting for revenue in arrangements with multiple deliverables
including how the arrangement consideration is allocated among delivered and
undelivered items of the arrangement.  Among the amendments, this
standard eliminates the use of the residual method for allocating arrangement
consideration and requires an entity to allocate the overall consideration to
each deliverable based on an estimated selling price of each individual
deliverable in the arrangement in the absence of having vendor-specific
objective evidence or other third party evidence of fair value of the
undelivered items.  This standard also provides further guidance on
how to determine a separate unit of accounting in a multiple-deliverable revenue
arrangement and expands the disclosure requirements about the judgments made in
applying the estimated selling price method and how those judgments affect the
timing or amount of revenue recognition.  This standard, which
Southfield is currently assessing the impact of, will become effective for the
Company on January 1, 2011.





In
October 2009, the FASB issued an amendment to the accounting standards related
to certain revenue arrangements that include software elements. This standard
clarifies the existing accounting guidance such that tangible products that
contain both software and non-software components that function together to
deliver the product’s essential functionality, shall be excluded from the scope
of the software revenue recognition accounting standards. Accordingly, sales of
these products may fall within the scope of other revenue recognition accounting
standards or may now be within the scope of this standard and may require an
allocation of the arrangement consideration for each element of the arrangement.
This standard, which Southfield is currently assessing the impact of, will
become effective for the Company on January 1, 2011.


20





In
May 2008, the FASB issued an amendment to the accounting standards related
to the hierarchy of GAAP. The standard identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (“GAAP”)
in the United States (the GAAP hierarchy). The standard becomes effective 60
days following the SEC’s approval of the Public Company Accounting Oversight
Board (“PCAOB”) amendment to AU Section 411, “The Meaning of Present Fairly
in Conformity With Generally Accepted Accounting Principles” and is not expected
to have a significant impact on our financial statements.





Plan
of Operation





Over the
next twelve months we intend to develop the following initiatives:




Financing





We
anticipate raising $10 million in debt financing over the next 12-24 months
through the sale of 3 Year Notes as described in our S-1 filing. In addition to
the sale of 3 Year Notes, we anticipate raising additional equity capital
provided that the terms and conditions for the placement of such funding is
based upon an equity valuation and underwriting fees that are amenable to our
board of directors.




Revenue
Generation





We intend
to invest the predominance of the gross proceeds from the issuance of the $10
million in 3 Year Notes into oil and gas projects. We expect these to include a
combination of acquisitions of proved producing properties with drilling or
recompletion upside and investment in exploratory and development drilling
programs. After the deployment of this capital, we expect our production,
reserves, revenues and cash flow to increase substantially.




ITEM 3.
            QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET
RISK





A smaller
reporting company is not required to provide the information required by this
item.





ITEM 4T.
            CONTROLS AND
      PROCEDURES





Evaluation
of Disclosure Controls and Procedures





We
carried out an evaluation, under the supervision and with the participation of
our management, including our principal executive officer and principal
financial officer, of the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based
upon that evaluation, our principal executive officer and principal financial
officer concluded that, as of the end of the period covered in this report, our
disclosure controls and procedures were not effective to ensure that information
required to be disclosed in reports filed under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the required time
periods and is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure.





Our
management, including our principal executive officer and principal financial
officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all error or fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints
and the benefits of controls must be considered relative to their costs. Due to
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. To address the material weaknesses, we performed
additional analysis and other post-closing procedures in an effort to ensure our
consolidated financial statements included in this annual report have been
prepared in accordance with generally accepted accounting principles.
Accordingly, management believes that the financial statements included in this
report fairly present in all material respects our financial condition, results
of operations and cash flows for the periods presented.


21





Material
Weakness in Internal Control.





A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company's annual or interim financial
statements will not be prevented or detected on a timely basis. We have
identified the following material weaknesses.





1.) As of
March 31, 2010, we did not maintain effective controls over the control
environment. Specifically we have not developed and effectively communicated to
our employees its accounting policies and procedures. This has resulted in
inconsistent practices. Further, the Board of Directors does not currently have
any independent members and no director qualifies as an audit committee
financial expert as defined in Item 407(d)(5)(ii) of Regulation S-B. Since
these entity level programs have a pervasive effect across the organization,
management has determined that these circumstances constitute a material
weakness.





2.) As of
March 31, 2010, we did not maintain effective controls over financial
statement disclosure. Specifically, controls were not designed and in place to
ensure that all disclosures required were originally addressed in our financial
statements. Accordingly, management has determined that this control deficiency
constitutes a material weakness.





Because
of these material weaknesses, management has concluded that the Company did not
maintain effective internal control over financial reporting as of
March 31, 2010, based on the criteria established in "Internal
Control-Integrated Framework" issued by the COSO.





Changes
in Internal Control over Financial Reporting





There
have been no changes in internal controls or in other factors that could
significantly affect these controls subsequent to the date of our internal
controls evaluation for the previously filed annual report on Form 10-K,
including any corrective actions with regards to significant deficiencies and
material weaknesses.





PART
II – OTHER INFORMATION





ITEM 1.
            LEGAL
      PROCEEDINGS





In the
ordinary course of our business, we may from time to time become subject to
routine litigation or administrative proceedings which are incidental to our
business. We are not a party to nor are we aware of any existing, pending or
threatened lawsuits or other legal actions involving us.





ITEM 1A.
            RISK
      FACTORS





An investment in our common stock or
debt involves a high degree of risk. You should carefully consider the following
risk factors, other information included in this annual report and information
in our other periodic reports filed with the SEC.The risk factors set forth below are
not the only risks that may affect our business. Our business could also be
impacted by additional risks not currently known to us or that we currently deem
to be immaterial. If
any of the following risks actually occur, our business, financial condition or
results of operations could be materially and adversely affected,and you could lose part or all of
your investment.





Risks
Related to Our Business





We may not have
sufficient cash flow from operations to pay interest on debt
when due or to repay principal upon maturity. Reductions in cash flow from
operations could adversely affect holders of our debt or
equity.





Revenue
and profit from oil and gas is uncertain.  Prices may drop lower than they
are today.  We expect to invest in working interests in new oil and gas
wells.  These investments may not be profitable and we may lose our entire
investment.  Oil and gas properties are depleting assets and we will have
to successfully continue to find additional oil and gas to offset the natural
decline of producing wells in which we own an interest.  These
uncertainties are a material risk of investing in oil and gas and may materially
affect our ability to make interest payments when due and to repay principal
upon maturity. They may also cause a reduction in the value of our
equity.


22





The
amount of cash we actually generate will depend upon numerous factors related to
our business including, among other things:





•
            the
      amount of oil and gas our operators
produce;





•
            the
      prices at which our operators sell our oil and gas
    production;





•
            the
      level of our operating costs, including fees and reimbursement of expenses
      expended to operate the company and to compensate its management team,
      board of directors and employees;





•
            our
      ability to replace declining
reserves;





•
            prevailing
      economic conditions;





•
            the
      level of competition we face;





•
            fuel
      conservation measures and alternate fuel
      requirements; and





•
            government
      regulation and taxation.





In
addition, the actual amount of cash that we will have available to make payments
on the principal and interest on our debt will depend on other factors,
including:





•
              the
      level of our expenditures for acquisitions of additional oil and gas
      investments;





•
            our
      ability to make borrowings or to raise additional capital in the
      future;





•
            sources
      of cash used to fund acquisitions;





•
            debt
      service requirements of  our debt or future financing
      agreements;





•
            fluctuations
      in our working capital needs;





•
            general
      and administrative expenses;





•
              timing
      and collectability of any
receivables; and





•
            the
      amount of cash reserves established by our management team for the proper
      conduct of our business.





All of
our current revenues are generated by our interest in the Richard King
Field.  Delays or interruptions in our interests in the Richard King Field
natural gas and production operations including, but not limited to, the failure
of third parties on which we rely to provide key services, could negatively
impact our revenues.





As of
March 31, 2010, 100% of our oil and natural gas properties were derived from the
Richard King Field. Should the production in this field decrease at a rate
faster than anticipated, our revenues and cash flow to make payments on our debt
could be adversely affected. In connection with the Richard King Field, we have
partnered with Durango Resources Corporation as operator.  The failure of
Durango Resources to perform its duties as operator in the Richard King Field
could prevent us from generating revenues.  In addition, events referred to
as force majeure, such as an act of God, act of a public enemy, fire, flood,
lightning, etc. could prevent us from generating revenues.


23





Our
business may be harmed by failures of third party operators on which we
rely.





Our
ability to manage and mitigate the various risks associated with our operations
in Nueces County, Texas, is limited since we rely on third parties to operate
our projects. We are a non-operating interest owner in our properties. With
respect to our non-operated working interests, we have entered into agreements
with third party operators for the conduct and supervision of drilling,
completion and production operations.  In the event that commercial
quantities of oil and natural gas are discovered on one of our properties, the
success of the oil and natural gas operations on that property depends in large
measure on whether the operator of the property properly performs its
obligations.  The failure of such operators and their contractors to
perform their services in a proper manner could result in materially adverse
consequences to the owners of interests in that particular property, including
us.





We
cannot control activities on properties we do not operate. Our inability to fund
required capital expenditures with respect to non-operated properties may result
in a reduction or forfeiture of our interests in those properties.





Other
companies operated all of our production as of March 31, 2010. We have limited
ability to exercise influence over operations for these properties or their
associated costs. Our dependence on the operator and other working interest
owners for these projects and our limited ability to influence operations and
associated costs could prevent the realization of our targeted returns on
capital with respect to exploration, exploitation, development or acquisition
activities. The success and timing of exploration, exploitation and development
activities on properties operated by others depend upon a number of factors
determined by the operator, including:





•
            the
      timing and amount of capital
expenditures;





•
            the
      operator's expertise and financial
resources;





•
            approval
      of other participants in drilling wells;
and





•
            selection
      of drilling, completion and production
  equipment.





Where we
are not the majority owner or operator of a particular oil and natural gas
project, we may have no control over the timing or amount of capital
expenditures associated with the project.  If we are not willing and able
to fund required capital expenditures relating to a project when required by the
majority owner or operator, our interests in the project may be reduced or
forfeited.





Because oil and
gas properties are depleting
assets we must
drill new
wells or make acquisitions
in order to maintain our production and reserves and sustain our payments of
principal and interest to our debt holders over time.
Failure to do this could adversely affect investments in our debt or
equity.





Producing
oil and gas reservoirs are characterized by declining production rates.
 Because our reserves and production decline continually over time, we will
need to drill additional wells or make acquisitions to sustain revenue over
time. We may be unable to accomplish this if:





•
            Sellers
      do not agree to sell any assets to
us;





•
            we
      are unable to identify attractive drilling or acquisition opportunities in
      our area of operations;





•
            we
      are unable to agree on investment terms or a purchase price for assets
      that are attractive to us; or





•
            we
      are unable to obtain financing for acquisitions on economically acceptable
      terms.


24





We will require
substantial capital expenditures to replace our production and reserves, which
will reduce our available cash
for interest and principal payments. We may be unable
to obtain needed capital or financing due to our financial condition,
  which could
adversely affect our ability to replace our production and proved
reserves.





To fund
our projects, we will be required to use cash generated from our operations in
addition to cash raised in financing activities. We may engage in additional
borrowings or obtain financing from the issuance of additional equity interests
in the Company, or some combination thereof.  To the extent our production
declines faster than we anticipate, or the cost to acquire additional reserves
is greater than we anticipate, we will require a greater amount of capital to
maintain our production and proved reserves.  The use of cash generated
from operations to fund oil and gas investments will reduce cash available to
pay interest and principal on our debt.  Our ability to obtain bank
financing or to access the capital markets for future equity or debt offerings
may be limited by our financial condition at the time of any such financing or
offering, the covenants in our existing debt or future financing agreements,
adverse market conditions or other contingencies and uncertainties that are
beyond our control.  Our failure to obtain the funds necessary for future
oil and gas investments could materially affect our business, results of
operations, financial condition, the value of our equity and our ability to pay
interest and principal on our debt.




Any new wells in
which we participate are subject to
substantial risks that could reduce our ability to make profits from
operations.





Investments
that we believe will increase revenue may nevertheless result in losses.
 Any oil and gas investment involves potential risks, including, among
other things:





•
            the
      validity of our assumptions about reserves, future production, revenues
      and costs;





•
            a
      decrease in our liquidity by using a significant portion of our available
      cash to finance investments;





•
            a
      significant increase in our interest expense or financial leverage if we
      incur additional debt to finance
investments;





•
            the
      diversion of management’s attention from other business concerns;
      and





•
            an
      inability to hire, train or retain qualified personnel to manage and
      operate our growing business and
assets.





We
could lose our ownership interests in our properties due to a title defect of
which we are not presently aware.





As is
customary in the oil and gas industry, only a perfunctory title examination, if
any, is conducted at the time properties believed to be suitable for drilling
operations are first acquired. Before starting drilling operations, a more
thorough title examination is usually conducted and curative work is performed
on known significant title defects. We typically depend upon title opinions
prepared at the request of the operator of the property to be drilled. The
existence of a title defect on one or more of the properties in which we have an
interest could render it worthless and could result in a large expense to our
business. Industry standard forms of operating agreements usually provide that
the operator of an oil and natural gas property is not to be monetarily liable
for loss or impairment of title. The operating agreements to which we are a
party provide that, in the event of a monetary loss arising from title failure,
the loss shall be borne by all parties in proportion to their interest
owned.





The prices
of oil and
gas have
reached historic highs in
recent years and are highly
volatile. A sustained decline in these commodity prices would
cause a
decline in our cash flow from operations, which may adversely affect investments
in our debt or equity.





The oil
and gas markets are highly volatile, and future oil and gas prices are
uncertain. Prices for oil and gas may fluctuate widely in response to relatively
minor changes in the supply of and demand for oil and gas, market uncertainty
and a variety of additional factors, such as:





•
            domestic
      and foreign supply of and demand for oil and
  gas;





•
            weather
      conditions;





•
            overall
      domestic and global political and economic conditions, including those in
      the Middle East, Africa and South
America;





•
            actions
      of the Organization of Petroleum Exporting Countries and other
      state-controlled oil companies relating to oil price and production
      controls;


25





•
            the
      impact of increasing liquefied natural gas, or LNG, deliveries to the
      United States;





•
            technological
      advances affecting energy consumption and energy
  supply;





•
            domestic
      and foreign governmental regulations and
  taxation;





•
            the
      impact of energy conservation
efforts;





•
            the
      capacity, cost and availability of oil and gas pipelines and other
      transportation facilities, and the proximity of these facilities to our
      wells; and





•
            the
      price and availability of alternative
fuels.





Our
revenue, profitability and cash flow depend upon the prices and demand for oil
and gas, and a drop in prices can significantly affect our financial results,
impede our growth, and reduce the value of our equity. In addition, we may not
be able to sustain payments of principal and interest to our debt holders during
periods of lower commodity prices.




Future price
declines may result in another write-down of our asset carrying values, which
could adversely affect our results of operations, limit our ability to
make payments on the
principal and interest to our debt holders, and could adversely affect the value
of our equity.





Due to
low commodity prices for oil and gas at December 31, 2008, we were required to
impair our assets located in the Aldwell Unit. An impairment test was conducted
using data in a reserve report prepared by a reserve engineering firm. While
conducting the impairment test, management determined that the estimated
undiscounted future net cash flow provided in the reserve report was less that
the carrying value of the Aldwell Unit on the Company’s Balance Sheet on
December 31, 2008 and that the assets were subject to impairment. The assets
were subsequently impaired.





Further
declines in oil and gas prices may result in our having to make substantial
downward adjustments to our estimated proved reserves. If this occurs, or if our
estimates of production or economic factors change, accounting rules may require
us to write down, as a noncash expense, the carrying value of our oil and gas
properties for impairments. We are required to perform impairment tests on our
assets whenever events or changes in circumstances warrant a review of our
assets. To the extent such tests indicate a reduction of the estimated useful
life or estimated future cash flows of our assets, the carrying values may not
be recoverable and therefore require write-downs. We may incur further
impairment charges in the future, which could materially affect our results of
operations in the period incurred and our ability to raise capital, which in
turn may adversely affect our ability to generate revenues.





Our future
hedging
activities could result in financial losses or could reduce our income, which
may adversely affect the value of our equity or our ability to repay
interest
and principal on our debt when due.





To
achieve more predictable cash flow and to reduce our exposure to adverse
fluctuations in the prices of oil and gas, we may enter into derivative
arrangements covering a significant portion of our oil and gas production that
could result in both realized and unrealized hedging losses. These losses could
adversely affect investments in our debt or equity.





Our
estimated proved reserves are based on many assumptions that may prove to be
inaccurate. Any material inaccuracies in these reserve estimates or underlying
assumptions will materially affect the quantities and present value of our
proved reserves.





It is not
possible to measure underground accumulations of oil or gas in an exact way. Oil
and gas reserve engineering requires subjective estimates of underground
accumulations of oil and gas and assumptions concerning future oil, natural gas
and natural gas liquid (“NGL”) prices, production levels, and operating and
development costs. In estimating our level of proved oil and gas reserves, we
and our independent reservoir engineers make certain assumptions that may prove
to be incorrect, including assumptions relating to:


26





•
            a
      constant level of future oil, NGL and gas
  prices;





•
            future
      production levels;





•
            capital
      expenditures;





•
            operating
      and development costs;





•
            the
      effects of regulation; and





•
            Future
      availability of funds.




If these
assumptions prove to be incorrect, our estimates of proved reserves, the
economically recoverable quantities of oil, NGL and gas attributable to any
particular group of properties, the classifications of reserves based on risk of
recovery and our estimates of the future net cash flows from our proved reserves
could change significantly. Over time, we may make material changes to reserve
estimates to take into account changes in our assumptions and the results of
actual drilling and production.





The
present value of future net cash flows from our estimated proved reserves is not
necessarily the same as the current market value of our estimated proved oil and
gas reserves. We base the estimated discounted future net cash flows from our
estimated proved reserves on average prices and costs from the preceding year.
However, actual future net cash flows from our oil and gas properties also will
be affected by factors such as:





•
            the
      actual prices we receive for oil, NGL and
gas;





•
            our
      actual operating costs in producing oil, NGL and
  gas;





•
            the
      amount and timing of actual
production;





•
            the
      amount and timing of our capital
expenditures;





•
            supply
      of and demand for oil, NGL and gas;
and





•
            changes
      in governmental regulations or
taxation.





The
timing of both our production and our incurrence of expenses in connection with
the production and development of oil and gas properties will affect the timing
of actual future net cash flows from proved reserves, and thus their actual
present value. In addition, the 10% discount factor we use when calculating
discounted future net cash flows in compliance with FASB standards may not be
the most appropriate discount factor based on interest rates in effect from time
to time and risks associated with us or the oil and gas industry in
general.





Producing oil and
gas involves numerous risks and uncertainties that could adversely affect our
financial condition or results of operations and, as a result, decrease the
value of our equity or limit our ability to
pay principal and
interest payments to our
debt
holders.





As
non-operated working interest owners we do not operate wells; however, we share
in the costs of production for these wells. The operating cost of a well
includes variable costs, and increases in these costs can adversely affect the
economics of a well. Furthermore, our producing operations may be curtailed or
delayed or become uneconomical as a result of other factors,
including:





•
            high
      costs, shortages or delivery delays of equipment, labor or other
      services;





•
            unexpected
      operational events and/or
conditions;


27





•
            reductions
      in oil, NGL and gas prices;





•
            limitations
      in the market for oil, NGL and gas;





•
            adverse
      weather conditions;





•
            facility
      or equipment malfunctions;





•
            equipment
      failures or accidents;





•
            title
      problems;





•
            pipe
      or cement failures or casing
collapses;





•
            compliance
      with environmental and other governmental
  requirements;





•
            environmental
      hazards, such as gas leaks, oil spills, pipeline ruptures and discharges
      of toxic gases;





•
            lost
      or damaged oilfield work over and service
tools;





•
            unusual
      or unexpected geological formations or pressure or irregularities in
      formations;





•
            fires;





•
            natural
      disasters; and





•
            uncontrollable
      flows of oil, gas or well fluids.





If any of
these factors were to occur with respect to a particular field, we could lose
all or a part of our investment in the field, or we could fail to realize the
expected benefits from the field, either of which could materially and adversely
affect our revenue and profitability.





We may incur debt
to enable us to pay our interest and
principal payments, which may negatively affect our ability to execute our
business plan.





If we use
borrowings under a credit facility to meet our current liability obligations
rather than toward funding future investments and other matters relating to our
operations, we may be unable to support or grow our business. Such a curtailment
of our business activities, combined with our payment of principal and interest
on our future indebtedness to pay these distributions, will reduce our cash
available to make payments of principal and interest on our debt and will
materially affect our business, financial condition and results of
operations.





Our
operations are subject to operational hazards and unforeseen interruptions for
which we may not be adequately insured.





Operators
of our wells are subject to a variety of operating risks in our wells, gathering
systems and associated facilities, such as leaks, explosions, mechanical
problems and natural disasters, all of which could cause substantial financial
losses. Any of these or other similar occurrences could result in the disruption
of our operations, substantial repair costs, personal injury or loss of human
life, significant damage to property, environmental pollution, impairment of our
operations and substantial revenue losses.





We
currently possess a Business Owners insurance policy which includes property,
business interruption and general liability insurance at levels we believe are
appropriate for an early stage company; however, insurance against all
operational risk is not available to us. We are not fully insured against all
risks. In addition, pollution and environmental risks generally are not fully
insurable.


28





Shortages of
drilling rigs, supplies, oilfield services, equipment and crews could delay our
operations and reduce our available
cash.





To the
extent that in the future we acquire and develop undeveloped properties, higher
commodity prices generally increase the demand for drilling rigs, supplies,
services, equipment and crews, and can lead to shortages of, and increasing
costs for, drilling equipment, services and personnel. Shortages of, or
increasing costs for, experienced drilling crews and equipment and services
could restrict our future ability to drill wells and conduct operations. Any
delay in the drilling of new wells or significant increase in drilling costs
could reduce our future revenues and cash available for
distribution.





The
third parties on whom we rely for gathering and transportation services are
subject to complex federal, state and other laws that could adversely affect the
cost, manner or feasibility of conducting our business.





The
operations of the third parties on whom we rely for gathering and transportation
services are subject to complex and stringent laws and regulations that require
obtaining and maintaining numerous permits, approvals and certifications from
various federal, state and local government authorities. These third parties may
incur substantial costs in order to comply with existing laws and regulation. If
existing laws and regulations governing such third party services are revised or
reinterpreted, or if new laws and regulations become applicable to their
operations, these changes may affect the costs that we pay for such services.
Similarly, a failure to comply with such laws and regulations by the third
parties on whom we rely could have a material adverse effect on our business,
financial condition, and results of operations.





If third-party
pipelines and other facilities interconnected to our gas pipelines and
processing facilities become partially or fully unavailable to transport gas,
our revenues from
operations could be
adversely affected.





We depend
upon third party pipelines and other facilities that provide delivery options to
and from pipelines and processing facilities that our operators utilize. If any
of these third-party pipelines and other facilities become partially or fully
unavailable to transport gas, or if the gas quality specifications for these
pipelines or facilities change so as to restrict our operators’ ability to
transport gas on these pipelines or facilities, our revenues and cash available
to make principal and interest payments to our debt holders could be adversely
affected, as well as the value of our equity.





Our
operations are subject to various litigation risks that could increase our
expenses, impact our profitability and lower the value of your investment in
us.





We are
not currently involved in any litigation; however, the nature of our operations
exposes us to possible future litigation claims. There is a risk that any claim
could be adversely decided against us, which could harm our financial condition
and results of operations. Similarly, the costs associated with defending
against any claim could dramatically increase our expenses, as litigation is
often very expensive. Possible litigation matters may include, but are not
limited to, environmental damage and remediation, insurance coverage, property
rights and easements and the maintenance of oil and gas leases. Should we become
involved in any litigation we will be forced to direct our limited resources to
defending against or prosecuting the claim(s), which could impact our
profitability and lower the value of your investment in us.





Our
business is subject to environmental legislation and any changes in such
legislation could prevent us from earning revenues.





The oil
and gas industry is subject to many laws and regulations that govern the
protection of the environment, health and safety and the management,
transportation and disposal of hazardous substances. These laws and regulations
may require the removal or remediation of pollutants and may impose civil and
criminal penalties for any violations thereof. Some of the laws and regulations
authorize the recovery of natural resource damages by the government, injunctive
relief and the imposition of stop, control, remediation and abandonment
orders.





Complying
with environmental and natural resource laws and regulations may increase our
operating costs as well as restrict the scope of our operations. Any regulatory
changes that impose additional environmental restrictions or requirements on us
could affect us in a similar manner. If the costs of such compliance or changes
exceed our budgeted costs, we may not be able to earn revenues.


29





We
may become an “investment company” as defined in the Investment Company Act of
1940.





Under the
Investment Company Act of 1940 (the “Act”), as amended, we may be deemed to be
an inadvertent investment company if it is determined that the value of
investments in other company’s securities accounts for more than 40% of the
total value of our assets, and no other exemption is available. If so, and if we
were to be deemed an inadvertent investment company, we believe that we may be
eligible for temporary relief from the application of the Act if we have a bona
fide intent to be engaged primarily, as soon as reasonably possible (in any
event within one year), in a business other than that of investing, reinvesting,
owning, holding or trading in securities. We do not have any current plans,
proposals or arrangements, written or otherwise, to invest in the securities of
any other company.





Investment
companies are subject to substantial regulation concerning management,
operations, transactions with affiliated persons, portfolio composition,
including restrictions with respect to diversification and industry
concentration and other restrictions, and, unless we complied with the Act, we
would be prohibited from engaging in transactions involving interstate commerce.
To comply, we would be required to significantly modify our operating structure
and file reports with the SEC regarding various aspects of our business. The
cost of such compliance would result in the Company incurring substantial
additional annual expenses. In addition, compliance with the Act may not be
consistent with the Company’s current business strategies.





Risks
Related to Financing Activities





We may issue
additional debt, including notes
that are
senior to our current debt,without your
approval.





The
amount of additional debt that can be raised by us is not limited. We may incur
an unlimited amount of indebtedness that is senior to our existing debt without
your approval.





Debt
Holders will not have the same rights to vote on matters submitted to the
shareholders for consideration and approval as the holders of common
shares.





Certain
matters, such as the appointment of directors, amendment of corporate documents,
etc. must be submitted to a vote of the shareholders for approval. Debt Holders
will not have voting rights on such matters as do the common
shareholders.





Debt
Holders will have very limited liquidity in their investments. We do not intend
nor expect to request that Southfield’s debt instruments be listed for trading
on any exchange.





The
Company does not intend nor expect to list its debt for trading on any exchange
or over-the-counter listing service. As a result, the Holders of our debt are
not expected to have any market liquidity in their investment and should be
prepared to hold our debt to Maturity.





As a result of
investing in our debt, you may
become subject to state and local taxes.





Interest
earned on our debt instruments will be taxed by the Federal and state
governments in accordance with current and future tax laws. You should expect to
pay taxes at your marginal rate for investments of this type.





Some
of our officers and directors have relationships with other companies in the oil
and natural gas industry that could result in conflicts of
interest.





Some of
our officers and directors serve as officers and directors of other companies
engaged in the oil and natural gas industry and may have other relationships
with such companies. For example, Chet Gutowsky and Tyson Rohde both serve as
officers and directors of Biotricity Corporation, an alternative energy company
located in Houston, Texas. To the extent those companies are involved in
ventures in which we may participate, or compete for acquisitions or financial
resources with us, the relevant director will face a conflict of interest. In
the event such a conflict arises, the relevant director will be required to
disclose the nature and extent of the conflict and abstain from voting for or
against any action of the board of directors that is or could be affected by the
conflict.


30





We
are dependent upon our key officers and employees and our inability to retain
and attract key personnel could significantly hinder our growth strategy and
cause our business to fail.





A loss of
one or more of our current directors, officers or key employees could severely
and negatively impact our operations and delay or preclude us from achieving our
business objectives. Our executive officers have a combined experience of
approximately 50 years in the oil and gas and related industries. We have not
entered into employment agreements with our officers, and we could suffer the
loss of key individuals for one reason or another at any time in the future.
There is no guarantee that we could attract or locate other individuals with
similar skills or experience to carry out our business objectives.





Our
directors and officers hold significant positions in our shares of common stock
and their interests may not always be aligned with those of our other
shareholders.





As of
March 31, 2010 our directors and officers beneficially own 18.9% of our
outstanding common stock. See “Security Ownership of Certain Beneficial Owners
and Management.” This shareholding level will allow the directors, officers and
certain beneficial owners to have a significant degree of influence on matters
that are required to be approved by shareholders, including the election of
directors and the approval of significant transactions. The short-term interests
of our directors, officers and certain beneficial owners may not always be
aligned with the long-term interests of our shareholders, and vice versa.
Because our directors, officers and certain beneficial owners have a significant
degree of influence on matters that are required to be approved by our
shareholders, they could influence the approval of transactions.





ITEM 2.
            UNREGISTERED SALES OF EQUITY
      SECURITIES AND USE OF
PROCEEDS





We did
not purchase or sell any unregistered securities during the period covered by
this report.





We filed
a registration statement for $10 million of 3 Year Notes that became effective
on February 11, 2010. The 3 Year Notes are not convertible and are being offered
directly through the company with the assistance of placement agents. The sales
process for the placement of 3 Year Notes has commenced, however no sales were
made as of March 31, 2010. The reason that sales have not been made is because
we are working to fulfill state regulatory requirements and register the
offering in certain states pursuant to Blue Sky Laws.





ITEM 3.
            DEFAULTS
    UPON





None.





ITEM 4.
            SUBMISSION OF MATTERS TO A VOTE
      OF SECURITY HOLDERS





No
matters were submitted to a vote of our securityholders during the quarter ended
March 31, 2010.





ITEM 5.
            OTHER
      INFORMATION





None.





ITEM 6.
            EXHIBITS





(a)
            Exhibits.31.1
            Rule
      13(a)-14(a)/15(d)-14(a) Certification of Chief Executive
      Officer31.2
            Rule
      13(a)-14(a)/15(d)-14(a) Certification of Chief Financial
      Officer32.1/32.2
            Rule
      1350 Certification of Chief Executive and Financial
  Officer




31





SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





SOUTHFIELD
      ENERGY CORPORATIONDated:  May
      14, 2010
                By:
                /s/ Ben RobertsBen
      RobertsPresident
      and CEO




32