UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-Q

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

                For the quarterly period ended December 31, 2010

                                       OR

   [x] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                  ACT OF 1934

      For the transition period from _____________ to ___________________.
                        Commission file number: 000-51425

                              Rancher Energy Corp.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

       Nevada                                    98-0422451
--------------------                            ------------


                          999 - 18th Street, Suite 3400
                                Denver, CO 80202
                    (Address of principal executive offices)

                                 (303) 629-1125
              (Registrant's telephone number, including area code)

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

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

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [_]                     Accelerated filer [_]
Non-accelerated filer [_] (Do not check if a smaller reporting company)
Small  reporting  company [x]



                                       1
<PAGE>

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

Yes [_]  No [x]

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.  Yes [_] No [x]

As of February  14, 2011,  119,316,723  shares of Rancher  Energy  Corp.  common
stock, $.00001 par value, were outstanding.

























                                       2
<PAGE>


                              Rancher Energy Corp.
                                Table of Contents
                         PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>

<S>                                                                                                      <C>

Item 1. Financial Statements

        Unaudited Balance Sheets as of December 31, 2010 and March 31, 2010..............................  4

        Unaudited Statements of Operations for the Three and Nine Months ended
             December 31, 2010 and 2009..................................................................  6

        Unaudited Statement of Changes in Stockholders' Equity (Deficit) for the Nine Months ended
            December 31, 2010............................................................................  8

        Unaudited Statements of Cash Flows for the Nine Months ended
            December 31, 2010 and 2009...................................................................  9

        Notes to Financial Statements.................................................................... 10

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 21

Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 29

Item 4. Controls and Procedures.......................................................................... 30

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings............................................................................... 30
Item 1A.  Risk Factors................................................................................... 31
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds..................................... 31
Item 3.  Defaults Upon Senior Securities................................................................. 31
Item 4.  Rescinded and Reserved.......................................................................... 31
Item 5.  Other Information............................................................................... 31

Item 6.   Exhibits....................................................................................... 31

SIGNATURES............................................................................................... 32
</TABLE>




                                       3
<PAGE>


                         Part I. Financial Information.


Item 1.   Financial Statements

<TABLE>
<CAPTION>

                              Rancher Energy Corp.
                              Debtor in Possession
                                 Balance Sheets
                                    Unaudited



                                     ASSETS


                                                                                           December 31, 2010      March 31, 2010
                                                                                           -----------------      --------------
<S>                                                                                       <C>                    <C>

Current assets:
  Cash and cash equivalents                                                                     $     307,178       $     372,286
  Accounts receivable and prepaid expenses                                                            671,007             615,602
                                                                                          ---------------------- -------------------
    Total current assets                                                                              978,185             987,888
                                                                                          ---------------------- -------------------

Oil and gas properties at cost (successful efforts method):
  Unproved                                                                                         53,073,689          53,030,814
  Proved                                                                                           19,572,699          19,432,703
  Less:  Accumulated depletion, depreciation, amortization and impairment                         (57,299,336)        (56,355,224)
                                                                                          ---------------------- -------------------
    Net oil and gas properties                                                                     15,347,052          16,108,293
                                                                                          ---------------------- -------------------

Other assets:
Furniture and equipment net of accumulated depreciation of $683,731 and $568,529
   respectively                                                                                       461,622             574,938
Other assets                                                                                          878,895             914,097
                                                                                          ---------------------- -------------------
   Total other assets                                                                               1,340,517           1,489,035
                                                                                          ---------------------- -------------------

    Total assets                                                                                  $17,665,754         $18,585,216
                                                                                          ====================== ===================


                                   (Continued)
</TABLE>


   The accompanying notes are an integral part of these financial statements.




                                       4
<PAGE>

<TABLE>
<CAPTION>

                                      Rancher Energy Corp.
                                      Debtor in Possession
                                         Balance Sheets
                                            Unaudited
                                           (Continued)

<S>                                                                                     <C>                   <C>

                 LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

                                                                                         December 31, 2010        March 31, 2010
                                                                                         -----------------        --------------
Current liabilities:

  Accounts payable and accrued liabilities - post petition                                     $ 4,845,033           $ 1,698,488

  Asset retirement obligation                                                                      126,334               174,332

  Note payable                                                                                  10,089,987            10,089,987
                                                                                        --------------------- ---------------------

    Total current liabilities                                                                   15,061,354            11,962,807
                                                                                        --------------------- ---------------------

Long-term liabilities:

  Asset retirement obligation                                                                    1,370,629             1,255,497
                                                                                        --------------------- ---------------------

    Total long-term liabilities                                                                  1,370,629             1,255,497
                                                                                        --------------------- ---------------------


Total liabilities not subject to compromise                                                     16,431,983            13,218,304

Liabilities subject to compromise                                                                1,462,043             1,336,133

                                                                                        --------------------- ---------------------

Total liabilities                                                                               17,894,026            14,554,437
                                                                                        --------------------- ---------------------


Contingencies (Notes 2, 4, 7 and 8)



Stockholders' (deficit) equity:

   Common stock, $0.00001 par value, 275,000,000 shares authorized, 119,316,700
   shares issued and outstanding at December 31, 2010 and March 31, 2010                             1,194                 1,194

Additional paid-in capital                                                                      93,193,008            93,025,876

Accumulated deficit                                                                            (93,422,474)          (88,996,291)
                                                                                        --------------------- ---------------------

Total stockholders' (deficit) equity                                                              (228,272)            4,030,779
                                                                                        --------------------- ---------------------

Total liabilities and stockholders' (deficit) equity                                           $17,665,754           $18,585,216
                                                                                        ===================== =====================

   The accompanying notes are an integral part of these financial statements.
</TABLE>




                                       5
<PAGE>

<TABLE>
<CAPTION>

                                      Rancher Energy Corp.
                                      Debtor In Possession
                                    Statements of Operations
                                           (Unaudited)



                                                                                           Three Months Ended December 31,
<S>                                                                              <C>                      <C>

Revenues:                                                                                  2010                        2009
                                                                                           ----                        ----

   Oil & gas sales                                                                         $ 1,211,679                 $ 970,502
   Derivative losses                                                                             -                        (6,809)
                                                                                 ------------------------ -------------------------
                                                                                             1,211,679                   963,693
                                                                                 ------------------------ -------------------------
Operating expenses:
   Production taxes                                                                            149,295                   143,769
   Lease operating                                                                             545,150                   411,150
   Depreciation, depletion and amortization                                                    338,678                   299,184
   Accretion                                                                                    43,650                    38,821
   Impairment of unproved properties                                                                 -                13,525,642
   Exploration                                                                                   6,568                     3,340
   General and administrative                                                                  420,848                   568,717
                                                                                 ------------------------ -------------------------
    Total operating expenses                                                                 1,504,189                14,990,623
                                                                                 ------------------------ -------------------------

Loss from operations                                                                          (292,510)              (14,026,930)
                                                                                 ------------------------ -------------------------

Other income (expense):
  Amortization of deferred finance costs and discount on note payable                             -                     (239,106)
  Interest expense                                                                            (735,733)                 (460,165)
  Interest and other income                                                                      5,684                         7
                                                                                 ------------------------ -------------------------
Total other income (expense)                                                                  (730,049)                 (699,264)
                                                                                 ------------------------ -------------------------
   Loss before reorganization items                                                         (1,022,559)              (14,726,194)
Reorganization items:
  Professional and legal fees                                                                  418,804                   158,727

                                                                                 ------------------------ -------------------------
Net loss                                                                                  $ (1,441,363)            $ (14,884,921)
                                                                                 ======================== =========================

Basic and diluted net loss per share                                                           $(0.01)                    $(0.12)
                                                                                 ======================== =========================

Basic and diluted weighted average shares outstanding                                      119,316,700               119,316,700
                                                                                 ======================== =========================
</TABLE>



    The accompanying notes are an integral part of these financial statements



                                       6
<PAGE>

<TABLE>
<CAPTION>

                                      Rancher Energy Corp.
                                      Debtor In Possession
                                    Statements of Operations
                                           (Unaudited)



                                                                                            Nine Months Ended December 31,

Revenues:                                                                                  2010                        2009
                                                                                           ----                        ----
<S>                                                                              <C>                       <C>

   Oil & gas sales                                                                          $ 3,536,968               $ 2,498,376
   Derivative losses                                                                                  -                  (357,582)
                                                                                 ------------------------- -------------------------
                                                                                              3,536,968                 2,140,794
                                                                                 ------------------------- -------------------------
Operating expenses:
  Production taxes                                                                              444,303                   338,547
  Lease operating                                                                             1,837,267                 1,088,163
  Depreciation, depletion and amortization                                                    1,065,425                   868,263
  Accretion                                                                                     130,207                   119,480
  Impairment of unproved properties                                                                   -                13,525,642
  Exploration                                                                                    25,655                    15,172
  General and administrative                                                                  1,656,417                 2,066,226
                                                                                 ------------------------- -------------------------
    Total operating expenses                                                                  5,159,274                18,021,493
                                                                                 ------------------------- -------------------------

 Loss from operations                                                                        (1,622,306)              (15,880,699)
                                                                                 ------------------------- -------------------------

Other income (expense):
  Amortization of deferred finance costs and discount on note payable                                  -               (1,770,789)
  Interest expense                                                                           (1,682,787)               (1,250,859)
  Interest and other income                                                                      17,250                       731
                                                                                 ------------------------- -------------------------
    Total other income (expense)                                                             (1,665,537)               (3,020,917)
                                                                                 ------------------------- -------------------------

Loss before reorganization items                                                             (3,287,843)              (18,901,616)
Reorganization items:
  Professional and legal fees                                                                 1,138,340                   158,727

                                                                                 ------------------------- -------------------------
Net loss                                                                                    $(4,426,183)             $(19,060,343)
                                                                                 ========================= =========================

Basic and diluted net loss per share                                                             $(0.04)                   $(0.16)
                                                                                 ========================= =========================

Basic and diluted weighted average shares outstanding                                       119,316,700               119,357,245
                                                                                 ========================= =========================
</TABLE>


    The accompanying notes are an integral part of these financial statements





                                       7
<PAGE>

<TABLE>
<CAPTION>

                                      Rancher Energy Corp.
                                      Debtor In Possession
                     Statement of Changes in Stockholders' (Deficit) Equity
                           For the Nine Months Ended December 31, 2010
                                           (Unaudited)


                                                                                                             Total
                                                                        Additional                       Stockholders'
                                                                         Paid-In        Accumulated        (Deficit)
                                                                                                   -
                                              Shares        Amount       Capital          Deficit            Equity
                                              ------        ------       -------          -------            ------
<S>                                          <C>            <C>         <C>            <C>                   <C>

Balance, April 1, 2010                       119,316,700     $1,194     $93,025,876     $(88,996,291)        $4,030,779


  Stock-based compensation                             -          -         167,132                 -           167,132


  Net loss                                             -          -               -       (4,426,183)        (4,426,183)


                                           ---------------- ---------- --------------- ----------------- -----------------

Balance, December 31, 2010                   119,316,700     $1,194     $93,193,008     $(93,422,474)        $ (228,272)
                                           ================ ========== =============== ================= =================
</TABLE>


   The accompanying notes are an integral part of these financial statements.




















                                       8
<PAGE>

<TABLE>
<CAPTION>

                                      Rancher Energy Corp.
                                      Debtor In Possession
                                    Statements of Cash Flows
                                           (Unaudited)



                                                                                        Nine Months Ended December 31,

                                                                                         2010
                                                                                                                2009
<S>                                                                               <C>                  <C>

Cash flows from operating activities:

   Net loss                                                                             $(4,426,183)            $(19,060,343)

    Adjustments to reconcile net loss to cash used for operating activities:

    Depreciation, depletion, and amortization                                             1,065,425                   868,263

    Impairment of unproved properties                                                             -                13,525,642

    Reorganization items, net                                                             1,138,340                   158,727

    Accretion expense                                                                       130,207                   119,480

    Interest expense converted to short-term debt                                                 -                   188,112

    Interest expense beneficial conversion feature, convertible notes payable                     -                   105,000

    Amortization of deferred financing costs and discount on note payable                         -                 1,665,789

  Unrealized losses on derivative activities                                                      -                   455,960

  Stock-based compensation expense                                                          167,132                   210,829

  Services exchanged for common stock - directors                                                 -                    51,700


Changes in operating assets and liabilities:

  Accounts receivable and prepaid expenses                                                  (55,405)                (199,375)

  Other assets                                                                               29,130                    19,205

  Accounts payable and accrued liabilities                                                2,761,740                 1,154,390

  Asset retirement obligation settlements                                                   (63,074)                        -
                                                                                  -------------------- -------------------------

Net cash from (used for) operating activities, before reorganization                        747,312                 (736,621)

  Cash effect of reorganization items                                                      (627,662)                 (56,519)
                                                                                  -------------------- -------------------------

Net cash from (used for) operating activities                                               119,650                 (793,140)
                                                                                  -------------------- -------------------------

Cash flows from investing activities:

  Capital expenditures for oil and gas properties                                          (182,872)                  (3,805)

  Proceeds from sale of other assets                                                              -                    10,760

  Increase in furniture and equipment                                                        (1,885)                        -
                                                                                  -------------------- -------------------------

Net cash (used for) from investing activities                                              (184,757)                    6,955
                                                                                  -------------------- -------------------------
Cash flows from financing activities:

  Repayment of debt                                                                                -                 (98,125)

  Proceeds from issuance of convertible notes payable                                              -                  140,000

  Proceeds from issuance of common stock upon exercise of stock options                            -                        5
                                                                                  -------------------- -------------------------

    Net cash from financing activities                                                             -                   41,880
                                                                                  -------------------- -------------------------

Decrease in cash and cash equivalents                                                       (65,107)                (744,305)

Cash and cash equivalents, beginning of period                                              372,285                   917,160
                                                                                  -------------------- -------------------------

Cash and cash equivalents, end of period                                                   $307,178                  $172,855
                                                                                  ==================== =========================


Supplemental Statement of Cash Flow Information:

Cash paid for interest                                                                            -                  $613,479
                                                                                  ==================== =========================

Non-cash investing and financing activities:

  Deferred finance costs, conveyance net profits interest                                         -                $1,500,000
                                                                                  ==================== =========================
</TABLE>



                                       9
<PAGE>

                              Rancher Energy Corp.
                              Debtor in Possession
                          Notes to Financial Statements
                   For the Nine Months Ended December 31, 2010
                                   (Unaudited)

Note 1 - Organization and Summary of Significant Accounting Policies

Organization

         Rancher   Energy  Corp.   ("Rancher   Energy"  or  the  "Company")  was
incorporated  in the state of Nevada on February 4, 2004. The Company  acquires,
explores  for,  develops  and produces  oil and natural  gas,  concentrating  on
applying  secondary  and tertiary  recovery  technology  to older,  historically
productive fields in North America.
Basis of Presentation

         The accompanying unaudited financial statements include the accounts of
the Company's wholly owned  subsidiary,  Rancher Energy Wyoming,  LLC, a Wyoming
limited  liability  company that was formed on April 24, 2007.  In  management's
opinion,  the  Company  has  made all  adjustments,  consisting  of only  normal
recurring adjustments,  necessary for a fair presentation of financial position,
results of operations,  and cash flows. The financial  statements should be read
in conjunction with financial statements included in the Company's Annual Report
on Form 10-K for the year  ended  March 31,  2010.  The  accompanying  financial
statements have been prepared in accordance with accounting principles generally
accepted in the United  States for interim  financial  information.  They do not
include all  information  and notes  required by generally  accepted  accounting
principles  for  complete  financial  statements.  However,  except as disclosed
herein,  there has been no material change in the  information  disclosed in the
notes to financial  statements  included in the Company's  Annual Report on Form
10-K for the year  ended  March 31,  2010.  Operating  results  for the  periods
presented are not necessarily indicative of the results that may be expected for
the full year.

Bankruptcy Filing

            On October 28, 2009,  the Company  filed a voluntary  petition  (the
"petition") for  reorganization  relief ("the Bankruptcy  Filing") in the United
States  Bankruptcy  Court,  District of Colorado under Chapter 11 of Title 11 of
the U.S. Bankruptcy Code (the "Bankruptcy  Court"). The Company will continue to
operate its business as  "debtor-in-possession"  under the  jurisdiction  of the
Bankruptcy  Court and in accordance  with the applicable  provisions of the Code
and orders of the Bankruptcy Court. See Note 2 "Proceedings  Under Chapter 11 of
the Bankruptcy Code" for details regarding the Bankruptcy Filing and the Chapter
11 case.

         The accompanying  financial  statements have been prepared on the basis
of accounting principles  applicable to a going concern,  which contemplates the
realization of assets and  extinguishment of liabilities in the normal course of
business.  However,  the petition raises  substantial  doubt about the Company's
ability to remain a going concern. The Company's continuation as a going concern
may  be  contingent  upon,  among  other  things,  its  ability  (i)  to  obtain
Debtor-in-Possession  financing;  (ii) to reduce  administrative,  operating and
interest costs and liabilities through the bankruptcy process; (iii) to generate
sufficient cash flow from operations;  (iv) to obtain  confirmation of a plan of
reorganization  under  the  Bankruptcy  Code;  and (v) to  obtain  financing  to
facilitate an exit from bankruptcy.  We are currently evaluating various courses
of action to address the operational and liquidity  issues the Company is facing
and are in the process of formulating plans for improving operations.  There can
be no assurance that any of these efforts will be successful.  The  accompanying
financial  statements do not include any adjustments that might result should we
be  unable  to  continue  as  a  going  concern.  In  the  event  the  Company's
restructuring activities are not successful,  additional significant adjustments
in the  carrying  value of assets and  liabilities,  the  revenues  and expenses
reported and the balance sheet classifications used may be necessary.

         Financial   Accounting  Standards  Board  (FASB)  Accounting  Standards
Codification  (FASB  ASC)  852-10  "Financial  Reporting  During  Reorganization
Proceedings," which is applicable to companies in Chapter 11, generally does not
change the manner in which financial  statements are prepared.  However, it does

                                       10
<PAGE>

require that the financial  statements for periods subsequent to the filing of a
Chapter 11 case distinguish transactions and events that are directly associated
with the reorganization  from the ongoing operations of the business.  Revenues,
expenses,  realized  gains and  losses,  and  provisions  for losses that can be
directly  associated with the  reorganization  and restructuring of the business
must be  reported  separately  as  reorganization  items  in the  statements  of
operations  beginning in the period ending  December 31, 2009. The balance sheet
must distinguish  pre-petition liabilities subject to compromise from both those
pre-petition   liabilities   that  are  not  subject  to  compromise   and  from
post-petition  liabilities.  Liabilities  that  may be  affected  by a  plan  of
reorganization  must be reported at the amounts expected to be allowed,  even if
they  may  settled  for  lesser   amounts.   In  addition,   cash   provided  by
reorganization  items, if any, must be disclosed  separately in the statement of
cash flows.  The Company  adopted FASB ASC 852-10  effective on October 28, 2009
and currently segregates those items as outlined above for all reporting periods
subsequent to such date.

Use of Estimates in the Preparation of Financial Statements

         The  preparation of financial  statements in conformity with accounting
principles  generally accepted in the United States requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts of oil and gas
reserves,   assets  and  liabilities,   disclosure  of  contingent   assets  and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting periods.  Actual results could differ
from those estimates.  Estimates of oil and gas reserve  quantities  provide the
basis for calculations of depletion,  depreciation,  and amortization (DD&A) and
impairment,  each of which  represents a significant  component of the financial
statements.

Oil and Gas Producing Activities

         The Company uses the  successful  efforts  method of accounting for its
oil  and  gas  properties.   Under  this  method  of  accounting,  all  property
acquisition costs and costs of exploratory and development wells are capitalized
when  incurred,  pending  determination  of  whether  the well has found  proved
reserves.  If an exploratory  well does not find proved  reserves,  the costs of
drilling  the well are  charged  to  expense.  Exploratory  dry hole  costs  are
included in cash flows from investing activities as part of capital expenditures
within  the  statements  of cash  flows.  The  costs of  development  wells  are
capitalized  whether or not proved reserves are found. Costs of unproved leases,
which may become  productive,  are reclassified to proved properties when proved
reserves are  discovered  on the  property.  Unproved oil and gas  interests are
carried  at the lower of cost or  estimated  fair  value and are not  subject to
amortization.

         Geological  and  geophysical  costs  and  the  costs  of  carrying  and
retaining  unproved  properties  are expensed as incurred.  DD&A of  capitalized
costs   related  to  proved  oil  and  gas   properties   is   calculated  on  a
property-by-property  basis  using the  units-of-production  method  based  upon
proved reserves.  The computation of DD&A takes into consideration  restoration,
dismantlement, and abandonment costs and the anticipated proceeds from salvaging
equipment.

         The Company complies with FASB ASC932-360  "Extractive Activities - Oil
and  Gas."  The  Company  currently  does  not  have  any  existing  capitalized
exploratory  well costs,  and has therefore  determined  that no suspended  well
costs should be impaired.

         The Company reviews its long-lived  assets for impairments  when events
or changes in  circumstances  indicate that  impairment may have  occurred.  The
impairment test for proved properties compares the expected  undiscounted future
net cash flows on a property-by-property  basis with the related net capitalized
costs, including costs associated with asset retirement obligations,  at the end
of each  reporting  period.  Expected  future cash flows are  calculated  on all
proved  reserves  using a  discount  rate and price  forecasts  selected  by the
Company's  management.  The discount rate is a rate that management  believes is
representative  of current  market  conditions.  The price  forecast is based on
NYMEX strip pricing, adjusted for basis and quality differentials, for the first
three to five years and is held constant  thereafter.  Operating  costs are also
adjusted as deemed  appropriate  for these  estimates.  When the net capitalized
costs exceed the  undiscounted  future net revenues of a field,  the cost of the
field is reduced to fair value,  which is determined using discounted future net
revenues.  An  impairment  allowance is provided on unproved  property  when the
Company  determines  the property will not be developed or the carrying value is
not realizable.

                                       11
<PAGE>

Capitalized Interest

         The  Company's  policy is to capitalize  interest  costs to oil and gas
properties on expenditures made in connection with exploration,  development and
construction  projects  that are not  subject to current  DD&A and that  require
greater  than six  months to be  readied  for their  intended  use  ("qualifying
projects"). Interest is capitalized only for the period that such activities are
in  progress.  To date the Company has had no such  qualifying  projects  during
periods when interest  expense has been  incurred.  Accordingly  the Company has
recorded no capitalized interest.
Commodity Derivatives

         As of December 31, 2010, the Company has no hedges or other  derivative
positions in place.

Net Profits Interest

         The Company  assigned a 10% Net Profits  Interest  (NPI) to its Lender,
under the terms of the Eighth Amendment to the Term Credit Agreement (see NOTE 6
- Short-Term  Note  Payable).  Net profit is defined as the excess of the sum of
crude oil  proceeds  plus hedge  settlements,  over the sum of lease  operating,
marketing,  transportation and production tax expenses. The Company is obligated
to pay to the Lender 10% of such excess,  if any, on a monthly basis, so long as
the NPI  remains in effect.  The  Company  records  amounts due under the NPI as
operating  expense.  For the nine months  ended  December  31, 2010 and 2009 the
Company recognized $143,710 and $107,681 respectively as NPI expense,  including
such amount as lease operating expense in its Statement of Operations.

Net Loss Per Share

         Basic net loss per common share of stock is  calculated by dividing net
loss available to common  stockholders by the  weighted-average of common shares
outstanding  during  each  period.  Diluted  net  income  per  common  share  is
calculated  by  dividing  adjusted  net loss by the  weighted-average  of common
shares  outstanding,  including  the effect of other  dilutive  securities.  The
Company's  potentially  dilutive securities consist of in-the-money  outstanding
options and warrants to purchase the Company's  common  stock.  Diluted net loss
per common  share does not give effect to dilutive  securities  as their  effect
would be anti-dilutive.

         The treasury  stock  method is used to measure the  dilutive  impact of
stock options and warrants.  The  following  table details the  weighted-average
dilutive and anti-dilutive  securities related to stock options and warrants for
the periods presented:

                                    For the Nine Months Ended December 31,
                                    --------------------------------------
                                     2010                           2009
                                     ----                           ----

        Dilutive                       -                             -
        Anti-dilutive             66,523,564                     57,961,019

Reclassification

         Certain amounts in the  fiscal 2010 financial statements  have been re-
classified to conform to the fiscal 2011 financial statement presentation.  Such
reclassifications had no effect on net loss.

Other Significant Accounting Policies

         Other accounting policies followed by the Company are set forth in Note
1 to the Financial Statements included in its Annual Report on Form 10-K for the
year  ended  March 31,  2010,  and are  supplemented  in the Notes to  Financial
Statements  in this  Quarterly  Report  on Form 10-Q for the nine  months  ended
December 31, 2010. These unaudited financial statements and notes should be read
in  conjunction  with the financial  statements and notes included in the Annual
Report on Form 10-K for the year ended March 31, 2010.

                                       12
<PAGE>

Recent Accounting Pronouncement

         In  January  2010,  ASC  guidance  for  fair  value   measurements  and
disclosure was updated to require additional disclosures related to transfers in
and out of level 1 and 2 fair  value  measurements  and  enhanced  detail in the
level 3  reconciliation.  The  guidance  was  amended  to  clarify  the level of
disaggregation  required for assets and liabilities and the disclosures required
for inputs and valuation techniques used to measure the fair value of assets and
liabilities  that fall in either  level 2 or level 3. The updated  guidance  was
effective  for the  Company's  fiscal  year  beginning  April 1, 2010,  with the
exception of the level 3  disaggregation  which is effective  for the  Company's
fiscal year beginning April 1, 2011. The adoption had no impact on the Company's
consolidated  financial position,  results of operations or cash flows. Refer to
Note 5 "Fair  Value  Measurement"  herein  for  further  details  regarding  the
Company's assets and liabilities measured at fair value.

There were various other accounting standards and interpretations issued in 2010
and  2009,  none of which  had a  material  impact  on the  Company's  financial
position, operations or cash flows.

Note 2 - Proceedings Under Chapter 11 of the Bankruptcy Code

         As  discussed  in Note 1 above,  on  October  28,  2009 (the  "Petition
Date"), the Company filed a voluntary  petition for reorganization  relief under
Chapter 11 of the Bankruptcy Code with the Bankruptcy Court. The Chapter 11 Case
is being administered under the caption Rancher Energy Corp., Debtor, Chapter 11
Case No. 09-32943-MER.

         The Company  continues to operate its business as  debtor-in-possession
under  the  jurisdiction  of the  Bankruptcy  Court and in  accordance  with the
applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
As  debtors-in-possession,  the Debtors are authorized to continue to operate as
ongoing  businesses,  and may pay all debts and honor all obligations arising in
the ordinary course of their  businesses after the Petition Date.  However,  the
Debtors  may not pay  creditors  on account of  obligations  arising  before the
Petition Date or engage in transactions  outside the ordinary course of business
without approval of the Bankruptcy Court,  after notice and an opportunity for a
hearing.
         Subject to certain exceptions under the Bankruptcy Code, the Bankruptcy
Filing  automatically  enjoins,  or stays,  the  continuation of any judicial or
administrative  proceedings or other actions against the Company or its property
to recover on,  collect or secure a claim  arising  prior to the Petition  Date.
Thus, for example,  creditor  actions to obtain  possession of property from the
Company,  or to create,  perfect or enforce any lien against the property of the
Company,  or to collect on or otherwise exercise rights or remedies with respect
to a pre-petition claim are enjoined unless and until the Bankruptcy Court lifts
the automatic stay with respect thereto.

         Under the Bankruptcy  Code, the Company may assume,  assume and assign,
or reject certain executory contracts and unexpired leases,  including,  without
limitation,  leases of real property and  equipment,  subject to the approval of
the Bankruptcy Court and certain other conditions.  As of the date of the filing
of the Chapter 11 Case, no party,  subject to certain  exceptions,  may take any
action,  also subject to certain  exceptions,  to recover on pre-petition claims
against the Debtors.

         Under the priority scheme  established by the Bankruptcy  Code,  unless
creditors  agree   otherwise,   post-petition   liabilities   and   pre-petition
liabilities  must be  satisfied in full before  shareholders  of the Company are
entitled  to receive any  distribution  or retain any  property  under a plan of
reorganization.  The ultimate recovery, if any, to creditors and shareholders of
the Company will not be determined until confirmation and consummation of a plan
of reorganization.  No assurance can be given as to what values, if any, will be
ascribed in the Chapter 11 case to each of these constituencies or what types or
amounts of distributions, if any, they would receive.

         At this time,  it is not possible to predict with  certainty the effect
of the Chapter 11 Case on the Company's business or various  creditors,  or when
the Company will emerge from these  proceedings.  The Company's  future  results
depend upon the confirmation and successful  implementation,  on a timely basis,
of a Plan of Reorganization.

         The ability of the  Company to  continue as a going  concern may depend
upon, among other things, (i) the Company's ability to comply with the terms and
conditions of the cash  collateral  orders  entered by the  Bankruptcy  Court in

                                       13
<PAGE>

connection with the Bankruptcy Case; (ii) the ability of the Company to generate
cash from operations; (iii) the ability of the Company to maintain adequate cash
on hand;  (iv) the  ability  of the  Company  to obtain  confirmation  of and to
consummate a plan of  reorganization  under the  Bankruptcy  Code;  and, (v) the
cost, duration and outcome of the reorganization process.  Uncertainty as to the
outcome of these factors raises substantial doubt about the Company's ability to
continue as a going concern.  The Company has initiated specific actions related
to obtaining  Debtor in Possession  (DIP)  financing  and sale of assets.  While
there  can  be  no  assurance  that  these  efforts  will  be  successful,   the
accompanying  unaudited financial statements do not include any adjustments that
might result should the Company be unable to continue as a going  concern.  (See
Note 11 - Subsequent Events)

         The  uncertainty  resulting from the  Bankruptcy  Filing may hinder the
Company's  ongoing  business  activities  and its ability to  operate,  fund and
execute its  business  plan by  impairing  relations  with  property  owners and
potential lessees, vendors and service providers;  negatively impact the ability
of the Company to attract,  retain and  compensate  key executives and employees
and to retain employees  generally;  limit the Company's ability to obtain trade
credit;  and limit the  Company's  ability  to  maintain  and  exploit  existing
properties and acquire and develop new properties.

         As a  result  of the  Bankruptcy  Filing,  realization  of  assets  and
liquidation  of liabilities  are subject to  uncertainty.  While  operating as a
debtor-in-possession  under  the  protection  of  Chapter  11,  and  subject  to
Bankruptcy  Court  approval or otherwise  as  permitted in the normal  course of
business,  the Company may sell or otherwise  dispose of assets and liquidate or
settle  liabilities  for amounts  other than those  reflected  in the  condensed
financial statements.  Our historical financial statements do not give effect to
any  adjustments to the carrying value of assets or amounts of liabilities  that
might be necessary as a consequence of confirmation of a plan of reorganization.

         In order to successfully  exit Chapter 11 bankruptcy,  the Company will
need to obtain Bankruptcy Court  confirmation of, a plan of reorganization  that
satisfies the  requirements  of the  Bankruptcy  Code. A plan of  reorganization
would, among other things,  resolve the Debtors' pre-petition  obligations,  set
forth the revised capital structure of the newly reorganized  entity and provide
for corporate governance subsequent to exit from bankruptcy.

         On October  15,  2010,  the Company  filed with the Court its  proposed
Debtor's Plan of Reorganization  and a proposed  Disclosure  Statement was filed
simultaneously  with the Plan. On December 13, 2010,  the Company filed with the
Court  its  First  Amended  Proposed  Plan  of  Reorganization   and  Disclosure
Statement.  The  Disclosure  Statement  must be first approved by the Bankruptcy
Court before  creditors and  shareholders  are presented with the opportunity to
vote on the Plan.  Prior to confirmation and approval by the Court, the Proposed
Plan of Reorganization is subject to amendment.

         On December 15, 2010,  the Company filed a Motion to approve  financing
from a party not affiliated with its present lender.  The purpose of the loan is
to repay the  existing  lender in full and to pay  certain  past due ad  valorem
taxes owed to Converse County, Wyoming. Converse County has agreed that if it is
paid by February 1, 2011, it will waive penalties and interest of  approximately
$93,000 (See Note 11 - Subsequent Events).

     On December  20, 2010,  the Company  filed a Motion to allow the Company to
enter into an agreement and approve the sale of substantially  all its assets to
the same party providing the new financing for the price of approximately  $20.0
million. (See Note 11 - Subsequent Events).

Reorganization Items

         Reorganization items represent the direct and incremental costs related
to the Company's  Chapter 11 case,  such as professional  fees incurred,  net of
interest income earned on accumulated cash during the Chapter 11 process.  These
restructuring  activities may result in additional charges and other adjustments
for  expected  allowed  claims  (including  claims that have been allowed by the
Court) and other  reorganization  items that could be material to the  Company's
financial position or results of operations in any given period.

Liabilities Subject to Compromise

         Liabilities subject to compromise  at December 31,  2010  and March 31,
2010 include the following pre-petition liabilities:

<TABLE>
<CAPTION>

                                                                December 31,               March 31,
                                                                     2010                    2010
     ----------------------------------------------------------------------------------------------------
<S>                                                           <C>                           <C>

          Accounts payable, trade                                        $176,726             $164,390
          Damages pursuant to claim settlements                           375,000                    -
          Other payables and accrued liabilities                          243,358              265,516
          Property and ad valorem taxes payable                           526,959              766,227
          Convertible notes payable                                       140,000              140,000
                                                              -------------------------------------------

                    Total liabilities subject to compromise            $1,462,043           $1,336,133
                                                              ===========================================
</TABLE>

                                       14
<PAGE>

Note 3--Oil and Gas Properties
 The Company's oil and gas properties are summarized in the following table:

<TABLE>
<CAPTION>

                                                                          December 31,            March 31,
                                                                              2010                  2010
<S>                                                                      <C>                <C>

       Proved properties                                                     $19,572,699          $19,432,703
       Unproved properties excluded from DD&A                                 52,738,557           52,716,480
       Equipment and other                                                       335,132              314,334
                                                                         ------------------ --------------------
            Total oil and gas properties                                      72,646,388           72,463,517
       Less accumulated depletion, depreciation, amortization and
            impairment                                                       (57,299,336)         (56,355,224)
                                                                         ------------------ --------------------
                                                                             $15,347,052          $16,108,293
                                                                         ================== ====================
</TABLE>

Note 4 - Asset Retirement Obligations

         The  Company  recognizes  an  estimated   liability  for  future  costs
associated with the  abandonment of its oil and gas properties.  A liability for
the fair value of an asset retirement obligation and a corresponding increase to
the carrying  value of the related  long-lived  asset are recorded at the time a
well is  completed or  acquired.  The increase in carrying  value is included in
proved oil and gas properties in the balance  sheets.  The Company  depletes the
amount  added to proved  oil and gas  property  costs and  recognizes  accretion
expense in connection with the discounted liability over the remaining estimated
economic  lives of the respective  oil and gas  properties.  Cash paid to settle
asset  retirement  obligations  are  included  in the  operating  section of the
Company's statements of cash flows.

         The Company's estimated asset retirement  obligation liability is based
on  historical  experience  in  abandoning  wells,   estimated  economic  lives,
estimates  as to the cost to abandon  the wells in the  future,  and federal and
state   regulatory   requirements.   The   liability  is   discounted   using  a
credit-adjusted  risk-free  rate estimated at the time the liability is incurred
or revised,  as appropriate.  Revisions to the liability  result from changes in
estimated  abandonment  costs,  changes in well economic lives, or if federal or
state regulators enact new requirements regarding the abandonment of wells.

         A reconciliation of the Company's asset retirement obligation liability
during the nine months ended December 31, 2010 and 2009 is as follows:

                                               2010                 2009
                                               ----                 ----
Beginning asset retirement obligations           $1,429,830         $1,280,680
  Liabilities incurred                                    -                  -
  Liabilities settled                              (63,074)                  -
  Changes in estimates                                    -                  -
  Accretion expense                                 130,207            119,480
                                           ------------------- -----------------
Ending asset retirement obligation               $1,496,963         $1,400,160
                                           =================== =================

Current                                            $126,334           $122,269
Long-term                                         1,370,629          1,277,891
                                           ------------------- -----------------
                                                 $1,496,963         $1,400,160
                                           =================== =================


                                       15
<PAGE>

Note 5 -- Fair Value Measurements

         The Company complies with FASB ASC 820-10 "Fair Value  Measurements and
Disclosures"  which  defines fair value,  establishes a framework for using fair
value to measure  assets and  liabilities,  and expands  disclosures  about fair
value  measurements.  The  Statement  establishes a hierarchy for inputs used in
measuring fair value that  maximizes the use of observable  inputs and minimizes
the use of unobservable  inputs by requiring that the most observable  inputs be
used when available. Observable inputs are inputs that market participants would
use in pricing the asset or liability  developed  based on market data  obtained
from sources  independent  of the Company.  Unobservable  inputs are inputs that
reflect  the  Company's  assumptions  of what market  participants  would use in
pricing the asset or liability developed based on the best information available
in the  circumstances.  The  hierarchy is broken down into three levels based on
the reliability of the inputs as follows:

     o    Level 1: Quoted prices are  available in active  markets for identical
          assets or liabilities;
     o    Level 2:  Quoted  prices in active  markets  for  similar  assets  and
          liabilities that are observable for the asset or liability; or
     o    Level  3:   Unobservable   pricing  inputs  that  are  generally  less
          observable from objective sources, such as discounted cash flow models
          or valuations.

         FASB  ASC  820-10  requires  financial  assets  and  liabilities  to be
classified  based on the lowest level of input that is  significant  to the fair
value measurement.  The Company's assessment of the significance of a particular
input to the fair  value  measurement  requires  judgment,  and may  affect  the
valuation of the fair value of assets and liabilities and their placement within
the fair value hierarchy levels.

         As of December 31, 2010,  the Company has no hedge or other  derivative
positions in place.

         The Company's sole derivative financial instrument, a participating cap
costless  collar  agreement  expired during in the prior fiscal year ended March
31, 2010.  Prior to expiration,  the fair value of the costless collar agreement
was  determined  based on both  observable and  unobservable  pricing inputs and
therefore,  the data sources  utilized in these valuation models were considered
level 3 inputs in the fair value  hierarchy.  In the Company's  adoption of FASB
ASC  820-10-05,  it  considered  the impact of  counterparty  credit risk in the
valuation  of its  assets  and  its own  credit  risk  in the  valuation  of its
liabilities that are presented at fair value.  The Company  established the fair
value  of  its  derivative  instruments  using  a  published  index  price,  the
Black-Scholes  option-pricing model and other factors including volatility, time
value and the  counterparty's  credit  adjusted  risk free  interest  rate.  The
following  table  sets  forth a  reconciliation  of changes in the fair value of
financial  assets  and  liabilities  classified  as  level 3 in the  fair  value
hierarchy:


                                                      2010         2009
                                                   ------------ -------------
Balance as of April 1                                 $    -      $455,960
  Total gains (losses) (realized or unrealized):
    Included in earnings                                   -      (357,582)
    Included in other comprehensive income                 -             -
  Purchased, issuances and settlements                     -       (98,378)
  Transfers in and out of Level 3                          -             -

                                                   ------------ -------------
Balance as of December 31                             $    -        $    -
                                                   ============ =============


Note 6- Short-Term Note Payable

         On October 16, 2007,  the Company issued a Note Payable (the "Note") in
the amount of $12,240,000  pursuant to a Term Credit  Agreement with a financial
institution  (the  "Lender").  All  amounts  outstanding  under  the  Note  were
originally  due and payable on October 31, 2008 (the  "Maturity  Date") and bore
interest  at a rate  equal  to the  greatest  of (a) 12% per  annum  and (b) the

                                       16
<PAGE>

one-month  LIBOR rate plus 6% per  annum.  The Note was  amended on October  22,
2008,  (the "First  Amendment"),  to extend the Maturity Date by six months from
October 31, 2008 to April 30, 2009. In  consideration of the six month extension
and other  terms  included  in First  Amendment,  the  Company  made a principal
payment  to the  Lender in the  amount of  $2,240,000,  resulting  in a new loan
balance of $10,000,000. The Note was amended six times between April 30, and May
27, 2009 to extend the Maturity  Date for short periods of time while the Lender
and the Company finalized the terms of a longer extension.

         On June 3, 2009 the Note was again amended (the "Eighth  Amendment") to
among other things extend the maturity date until October 15, 2009.  The Company
did not make payment of the principal and accrued interest on the maturity date,
October 15, 2009.

          The Company's obligations under the Term Credit Agreement, as amended,
are  collateralized  by a first priority security interest in its properties and
assets, including all rights under oil and gas leases in its three producing oil
fields in the Powder  River Basin of Wyoming and all of its  equipment  on those
properties.  Under the terms of the original Term Credit Agreement,  the Company
granted  the Lender a 2%  Overriding  Royalty  Interest  (ORRI),  proportionally
reduced when the Company's  working interest is less than 100%, in all crude oil
and natural gas produced  from its three Powder  River Basin  fields.  The First
Amendment granted an increase in the proportionate  overriding royalty interests
("ORRI")  assigned to the Lender from 2% to 3%. The Company  estimated  the fair
value of the 2% ORRI granted to the Lender to be  approximately  $4,500,000  and
the value of the increase  ORRI to be  approximately  $1,050,000.  These amounts
were  recorded as  discounts to the Note Payable and as decreases of oil and gas
properties.  The Eighth  Amendment  granted a  Conveyance  of Net Profits to the
Lender.  The Company estimated the fair value of the 10% NPI to be approximately
$1,500,000. This amount was recorded as deferred finance costs and was amortized
over the term of the Note, as amended.

         As noted above,  the Note Payable  issued by the Company on October 16,
2007,  matured  on  October  15,  2009.  Payment  of the  principal  balance  of
approximately  $10,188,000,  plus accrued interest, was not made on the maturity
date,  and  therefore,  an event  of  default  occurred  under  the Term  Credit
Agreement, as amended. On November 16, 2009, the Lender presented to the Company
a Notice of Event of  Default,  a Demand for  Payment  and a Notice of Intent to
Foreclose   (collectively  "the  Notice").   The  Notice  declared  all  of  the
obligations  immediately  due and payable and demands that the Company  promptly
pay to Lender all of the  obligations  within ten days of receipt of the Notice,
and states that if the Company fails to pay the obligations in full as demanded,
the Lender intends to foreclose on the secured properties under the terms of the
Term Credit Agreement and other agreements. Effective as the date of the Notice,
the Lender has claimed that interest  under the Credit  agreement will accrue at
the default rate, 18% compounded  monthly,  and the percentage of net revenue to
be applied for debt service and other  obligations shall be 100%. (See Note 11 -
Subsequent Events)

         On October 16, 2009, the Lender gave instructions to the Company's bank
(the  "Instruction")  that  under  the  terms  of  the  Restricted  Account  and
Securities  Control  Agreement  executed  in  conjunction  with the Term  Credit
Agreement,  that as of the date of the Instruction,  the Company shall no longer
have  access to any funds held in  identified  accounts,  and the Lender now had
exclusive right to direct the disposition of such funds. On October 21, 2009 the
Company's bank transferred the all remaining funds from the Company's account to
the Lender.

         Under the terms of the Term Credit Agreement,  the Company is obligated
to  reimburse  the  Lender for all  expenses,  including  reasonable  legal fees
incurred in connection with the  administration,  amendment,  enforcement of the
Agreement  or  Lender's  rights  and  remedies  under  the  Loan  Documents.  In
connection with the Company's  bankruptcy  proceedings,  the Lender has incurred
legal fees and other expenses that could be covered by the above provisions.  As
of  December  31,  2010 the  Company  had  received  invoices  from  the  Lender
requesting   reimbursement   of  $673,000.   These   expenses  are  reported  in
reorganization  expense  for  professional  and legal  fees in the  consolidated
statement  of  operations.  A portion of these  costs are being  disputed by the
Company and pending  determination by the Bankruptcy Court, may become a part of
the secured claim of the Lender, become a general unsecured claim, or disallowed
as a claim against the Company.

         As  discussed  in Note 1 and Note 2 above,  on October  28,  2009,  the
Company  filed a voluntary  petition (the  "petition")  for relief in the United
States  Bankruptcy  Court,  District of Colorado under Chapter 11 of Title 11 of
the U.S.  Bankruptcy  Code.  Subject to certain  exceptions under the Bankruptcy
Code, the Bankruptcy Filing automatically enjoins, or stays, the continuation of
any judicial or administrative  proceedings or other actions against the Company

                                       17
<PAGE>

or its property to recover on,  collect or secure a claim  arising  prior to the
Petition  Date.  Thus,  for example,  creditor  actions to obtain  possession of
property from the Company, or to create, perfect or enforce any lien against the
property  of the  Company,  or to collect  on or  otherwise  exercise  rights or
remedies with respect to a pre-petition  claim are enjoined unless and until the
Bankruptcy Court lifts the automatic stay.

Note 7- Convertible Promissory Notes Payable

            On October 27, 2009, the Company issued Convertible Promissory Notes
(the "Promissory  Notes") totaling $140,000 in consideration for money loaned to
the Company of equal  amount.  One hundred  thousand  dollars of the  Promissory
Notes  were  issued  to four  officers  and/or  directors  ($25,000  each).  The
remainder  of the  Promissory  Notes were issued to existing  shareholders.  The
Promissory  Notes bear  interest  at an annual  rate equal to the greater of (i)
12%, or (ii) the prime rate (as  published in the Wall Street  Journal) plus 3%.
The  Promissory  Notes  matured on November  1, 2010,  and all  obligations  and
payments due under the Promissory  Notes are subordinate to the Company's senior
debt.  Principal and accrued  interest were due on maturity date. The Promissory
Notes are  convertible,  at the holder's  option,  into shares of the  Company's
common  stock at a conversion  price of $0.02 per share,  at any time during the
term of the Promissory Notes. The Company defaulted on these notes by failure to
pay principal and accumulated interest when due. As discussed in Note 1 and Note
2 above,  on October 28,  2009,  the Company  filed a  voluntary  petition  (the
"petition")  for relief in the  United  States  Bankruptcy  Court,  District  of
Colorado under Chapter 11 of Title 11 of the U.S.  Bankruptcy  Code.  Subject to
certain   exceptions   under  the  Bankruptcy   Code,   the  Bankruptcy   Filing
automatically   enjoins,   or  stays,   the  continuation  of  any  judicial  or
administrative  proceedings or other actions against the Company or its property
to recover on, collect or secure a claim arising prior to the Petition Date.

Note 8 - Contingencies

Pending Litigation

         On February 12,  2010,  the Company  filed an  adversary  action in the
Bankruptcy Court against the holder of the senior secured note payable (see NOTE
6 - Short  Term Note  Payable)  seeking  to avoid  certain  ownership  interests
assigned  to the  Lender  in  connection  with the  Term  Credit  Agreement  and
amendments  thereto. On March 18, 2010, the Lender filed a motion with the Court
to dismiss the complaint.  On October 21, 2010, the Court issued an order on the
Motion to Dismiss  dismissing  three of the nine  claims  made in the  adversary
action.  The Company plans to pursue the  remaining  six claims.  The Company is
unable to predict a likely  outcome or estimate the possible  benefit should the
Company prevail in the litigation.

Bankruptcy Proceedings:

         On October  29,  2009,  the  Company  filed a  voluntary  petition  for
reorganization  under Chapter 11 in the United States  Bankruptcy  Court for the
District of Colorado  During the  pendency  of the Chapter 11  proceedings,  the
Company operates the business as a  debtor-in-possession  in accordance with the
provisions  of  Chapter  11,  and will be  subject  to the  jurisdiction  of the
Bankruptcy  Court. All pending or threatened  litigation or claims involving the
Company were automatically stayed as a result of this Bankruptcy Filing, and all
such claims may be subject to  compromise or  modification  through the terms of
any Plan of Reorganization filed by the Company in the Chapter 11 proceedings.

Threatened Litigation

         In a letter  dated  February  18,  2009  sent to each of the  Company's
Directors, attorneys representing a group of persons who purchased approximately
$1,800,000 of securities (in the aggregate) in the Company's  private  placement
offering  commenced in late 2006,  alleged that securities laws were violated in
that offering.  In April 2009, the Company entered into tolling  agreements with
the  purchasers  to toll the statutes of  limitations  applicable  to any claims
related to the private placement.  The Company's Board of Directors directed the
Special  Committee to  investigate  these  allegations.  The Company  denies the
allegations and believes they are without merit.  The Company cannot predict the
likelihood of a lawsuit being filed, its possible  outcome,  or estimate a range
of possible losses, if any, that could result in the event of an adverse verdict
in any such  lawsuit.  Any suit  against the Company is stayed by the Chapter 11
case, and,  insofar as these claims are asserted  against the Company,  they are
subject to the claim  process  imposed by the  Bankruptcy  Code and the possible
subordination under Section 510(b) of the Bankruptcy Code.

                                       18
<PAGE>

Note 9 - Income Taxes

         As of December 31, 2010,  because the Company  believes that it is more
likely than not that its net  deferred tax assets,  consisting  primarily of net
operating  losses,  will not be utilized  in the  future,  the Company has fully
provided for a valuation of its net deferred tax assets.

         The Company is subject to United States  federal  income tax and income
tax from multiple state jurisdictions.  Currently,  the Internal Revenue Service
is not reviewing any of the Company's  federal income tax returns,  and agencies
in states  where the Company  conducts  business  are not  reviewing  any of the
Company's state income tax returns.  All tax years remain subject to examination
by tax authorities, including for the period from February 4, 2004 through March
31, 2010.

Note 10--Share-Based Compensation

Grant of Options to Directors

         On October 27, 2009,  in  conjunction  with the execution of Management
Retention  Agreements  (the "Retention  Agreement"),  each of the Company's four
directors  was granted  options to  purchase  2,500,000  share of the  Company's
common stock at an exercise price of $0.035 per share.

         The Company  recognized stock based  compensation  expense  relating to
the Director's  options of $133,628 for the nine months ended December 31, 2010.
There is no remaining  compensation  expense relating to the unvested options as
of December 31, 2010.

2006 Stock Incentive Plan

         As of December 31, 2010, there were 1,441,000 options outstanding under
the 2006 Stock Incentive Plan and 8,559,000  options are available for issuance.
Total  estimated  unrecognized  compensation  cost from  unvested  stock options
issues under the Plan as of December 31, 2010 was approximately $0.
Note 11--Subsequent Events

On  January  26,  2011,  the Court  granted  the  Company's  Motion  to  Approve
Debtor-In-Possession Secured Financing.

On January 28, 2011 the Company  received  debtor-in-possession  financing ("DIP
financing")  pursuant to a credit agreement (the "DIP Credit  Agreement") with a
lender not related to the pre-petition credit facility provider.  The DIP Credit
Agreement  provides for loan  advances up to an aggregate  of  $14,700,000,  and
matures May 28, 2011 (120 days after  closing  date)..  The proceeds of the loan
were used to pay the  allowed,  secured  claim for past due ad valorem  property
taxes,  pay the allowed,  secured  claim of the current  lender (see note 6) and
fund  $100,000 to be retained to the close the  Bankruptcy  Estate if no plan or
reorganization is successful.

The DIP Credit Agreement  specifies  interest at the rate of 10% for the 60 days
following  closing and 12%  interest for the period  commencing  on the 61st day
through loan  maturity.  Accumulated  interest  and  principal is due in full at
maturity.  The Lender  obtained a valid and perfected  first  priority  security
interest in and liens on all the collateral  including,  but not limited to: (a)
Rancher's  interests  in  oil  and  gas  producing   properties;   (b)  accounts
receivable;  (c)equipment;  (d) general intangibles;  (e) accounts;  (f) deposit
accounts;  and (g) all other real and  personal  property  of the  Company.  The
Lender has the right to credit bid the loan balance  against the purchase  price
of Rancher's assets.

On February 16, the Bankruptcy Court approved the order  authorizing the sale of
substantially  all of the Company's assets for a purchase price of approximately
$20  million.  The  closing  and  settlement  dates  for the  sale are yet to be
determined.


                                       19
<PAGE>

Note 12--Related Party Transactions

 A director  of the Company is a partner in the law firm that acts as counsel to
 the  Company.  The Company  paid legal fees and expenses to the law firm in the
 amount of  approximately  $61,000  and  $2,000  during  the nine  months  ended
 December 31, 2010 and 2009,  respectively.  The amount owed to the law firm was
 $59,000 and $0 as of December 31, 2010 and 2009, respectively.

 A  director  of  the  Company  is a  partner  in a  firm  that  provides  field
 supervision and consulting  services to the Company.  The Company paid fees and
 expenses to the firm in the amount of  approximately  $84,000 and $9,000 during
 the nine months ended December 31, 2010 and 2009, respectively. The amount owed
 to the  firm was  $43,000  and  $28,000  as of  December  31,  2010  and  2009,
 respectively.




















                                       20
<PAGE>


Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations - Need to update from here forward Forward-Looking Statements

         The statements contained in this Quarterly Report on Form 10-Q that are
not  historical  are  "forward-looking  statements,"  as that term is defined in
Section 21E of the  Securities  Exchange Act of 1934,  as amended (the  Exchange
Act), that involve a number of risks and  uncertainties.  These  forward-looking
statements include, among others, the following:

     o    business strategy;

     o    ability to raise debtor in possession financing and the terms thereof;

     o    ability  to  develop  a  plan  of  reorganization  acceptable  to  the
          Bankruptcy Court and to emerge from bankruptcy;

     o    ability  to  complete  a sale  of the  Company,  all or a  significant
          portion of its assets or financing or other strategic alternatives;

     o    ability to obtain the financial resources to continue  operations,  to
          repay secured debt, to enhance  current  production and to conduct the
          EOR projects;

     o    water availability and waterflood production targets;

     o    carbon  dioxide  (CO2)  availability,   deliverability,  and  tertiary
          production targets;

     o    construction  of surface  facilities for waterflood and CO2 operations
          and a CO2pipeline;

     o    inventories, projects, and programs;

     o    other anticipated capital expenditures and budgets;

     o    future cash flows and borrowings;

     o    the availability and terms of financing;

     o    oil reserves;

     o    reservoir response to water and CO2 injection;

     o    ability to obtain permits and governmental approvals;

     o    technology;

     o    financial strategy;

     o    realized oil prices;

     o    production;

     o    lease  operating  expenses,  general  and  administrative  costs,  and
          finding and development costs;

     o    availability and costs of drilling rigs and field services;

     o    future operating results;

     o    plans, objectives, expectations, and intentions; and

         These  statements  may be  found  under  "Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations,"  and other sections
of this Quarterly Report on Form 10-Q.  Forward-looking statements are typically
identified by use of terms such as "may," "could,"  "should,"  "expect," "plan,"
"project,"   "intend,"    "anticipate,"    "believe,"   "estimate,"   "predict,"
"potential,"  "pursue,"  "target" or  "continue,"  the negative of such terms or
other comparable  terminology,  although some forward-looking  statements may be
expressed differently.


                                       21
<PAGE>

The  forward-looking  statements  contained in this Quarterly Report are largely
based on our  expectations,  which reflect estimates and assumptions made by our
management.  These estimates and assumptions  reflect our best judgment based on
currently  known market  conditions and other factors.  Although we believe such
estimates and  assumptions to be reasonable,  they are inherently  uncertain and
involve a number of risks and  uncertainties  that are  beyond our  control.  In
addition,   management's  assumptions  about  future  events  may  prove  to  be
inaccurate.  Management cautions all readers that the forward-looking statements
contained in this  Quarterly  Report on Form 10-Q are not  guarantees  of future
performance,  and we cannot  assure  any  reader  that such  statements  will be
realized or the  forward-looking  events and  circumstances  will occur.  Actual
results  may  differ  materially  from  those  anticipated  or  implied  in  the
forward-looking  statements  due to the  factors  listed in the  "Risk  Factors"
section and elsewhere in our Annual Report on Form 10-K for the year ended March
31,  2010.  All  forward-looking  statements  speak  only as of the date of this
Quarterly Report on Form 10-Q. We do not intend to publicly update or revise any
forward-looking  statements  as a result of new  information,  future  events or
otherwise.  These cautionary  statements qualify all forward-looking  statements
attributable to us or persons acting on our behalf.

Proceedings under Chapter 11

         We  acquired  our  oilfields  in late  2006  and  early  2007  with the
intention of significantly  increasing crude oil production  through an enhanced
oil recovery  (EOR)  project  utilizing  modern CO2  injection  techniques.  The
planned EOR project  required a  significant  amount of capital to carry out. In
October 2007, we borrowed $12.24 million from GasRock Capital LLC (GasRock),  an
investment  bank, to serve as a "bridge loan" to enable us to complete plans for
the EOR  project  while we sought a larger,  longer-term  source of  capital  to
conduct the project.  At least partially due to the severe disruptions in credit
and financial  markets,  coupled with extreme volatility in crude oil prices, we
were not successful in raising the capital to repay the bridge loan and commence
the project.  Following a series of amendments to the GasRock loan agreement and
extensions of the maturity date, we were unable to repay the loan on the amended
due date of October 15,  2009.  On October  16,  2009,  GasRock  notified us the
failure to repay the loan  constituted  an event of default  and  notified us of
their  intention to foreclose on the assets  pledged as collateral for the loan.
GasRock  instructed  our bank to transfer all cash we had on deposit to GasRock,
leaving us without funds to operate the oilfields or pay overhead.

          On October 28,  2009,  we filed a voluntary  petition for relief under
Chapter 11 of Title 11 of the United States Code (the "Bankruptcy  Code") in the
United States  Bankruptcy Court for the District of Colorado (the "Court") (Case
number    09-32943)   We   will    continue   to   operate   our   business   as
"debtor-in-possession"  under the  jurisdiction  of the Court and in  accordance
with the  applicable  provisions  of the  Bankruptcy  Code and the  order of the
Court,  as we devote  renewed  efforts to resolve  our  liquidity  problems  and
develop a reorganization plan.

         In November  2009, the Court granted our motion for interim use of cash
collateral.  We immediately  took steps to reduce  operating costs and overhead,
including salary cuts of 10% - 20% for employees and the rejection of the office
lease for our corporate  headquarters.  In addition we  implemented a program of
repair  and  remediation  on a number  wells  that had  become  non-producing  ,
resulting  in a 25%  increase  in daily  crude oil  production  as  compared  to
pre-petition production levels.

         On October  15,  2010,  the Company  filed with the Court its  proposed
Debtor's Plan of Reorganization ("Proposed Plan of Reorganization").  A proposed
Disclosure  Statement  was filed  simultaneously  with the Plan. On December 13,
2010,  the  Company  filed  with the Court its First  Amended  Proposed  Plan of
Reorganization  and  Disclosure  Statement for the amended Plan.  The Disclosure
Statement must be first  approved by the Bankruptcy  Court before it may be sent
to  creditors  along with the  proposed  Plan for  voting on the Plan.  Prior to
confirmation and approval by the Court, the Proposed Plan of  Reorganization  is
subject to amendment.

         On December 15, 2010,  the Company filed a Motion to approve  financing
from a party not affiliated with its present lender.  The purpose of the loan is
to repay the  existing  lender in full and to pay  certain  past due ad  valorem
taxes

         On December 20, 2010, the Company filed a Motion to approve the sale of
substantially  all its assets to the same third party providing the loan for the
price of approximately $20.0 million. On February 16, 2011, the Bankruptcy Court
issued an order approving the Motion to sell  substantially all of the Company's
assets.  A closing and settlement date for the sale has not been determined,  at
the time of this filing.

                                       22
<PAGE>

         On January  26,  2011,  the Court  granted  the  Company's  Motion from
December  15,  2010 to  Approve  Debtor-In-Possession  Secured  Financing  ("DIP
Financing").  The DIP Financing Agreement authorizes the Company to borrow up to
a maximum of  $14,700,000  from the  lender,  for the limited  purposes  of: (a)
paying the prior lender  secured debt in full;  (b) holding a Carve-Out  Reserve
Amount  ($100,000  to be  used  to  pay  actual  administrative  expenses)  in a
Carve-Out  Account  until the  close of the Sale;  (c)  paying  pre-petition  ad
valorem  taxes with  respect to  property  located in  Wyoming;  (d) funding the
Escrow Amount into an interest  bearing  account to be maintained  and disbursed
pursuant  to the terms and  conditions  of an  Escrow  Agreement;  and (e) other
purposes  with the prior  written  consent of Lender,  in its sole and  absolute
discretion.  In exchange  for such funds,  the Company  will grant to the Lender
valid and perfected  first  priority  security  interests in and liens on all of
Rancher's  assets  ("the  Collateral"),  which  Collateral  includes  but is not
limited to (a)  Rancher's  interests in oil and gas  producing  properties;  (b)
accounts receivable;  (c) equipment; (d) general intangibles;  (e) accounts; (f)
deposit  accounts;  and (g) all other real and  personal  property  of  Rancher,
except for the Carve-Out  Amount.

On January 28, 2011,  the DIP Credit  Agreement
was closed and  funded.  On the date of loan  closing  proceeds of the loan were
disbursed in accordance with the DIP Credit Agreement as follows:

     o    To pay the  allowed,  secured  claim for past due ad valorem  property
          taxes in the amount of $532,000.

     o    To pay the  secured  claim of the  current  lender  in the  amount  of
          $13,653,698 (see note 6) representing  principal  outstanding,  unpaid
          interest,  and all  fees and  expenses  allowed  per the  terms of the
          credit agreement.

     o    To fund an escrow  account  established  per the  Order  issued by the
          Bankruptcy  Court  granting the motion to approve debtor in possession
          secured  financing.  The  escrow  account  was  established  with  the
          Company,  prior  lender,  and  current  lender  as  parties  until the
          Bankruptcy Court enters a final order regarding certain fees and costs
          claimed by the prior lender.

     o    The  remaining  balance  was used to fund a portion of the Lender loan
          fees and expenses of $186,235.

Organization

         We are an  independent  energy  company that  explores for and develops
produces,  and markets oil and gas in North America.  We operate four oil fields
in the Powder River Basin,  Wyoming.  Our long term  business plan is to use CO2
injection to increase oil production in these oil fields.

         Since  August  2008 we have  been  exploring  alternatives  to  improve
liquidity, including raising capital, refinancing outstanding debt, applying for
a Department of Energy Grant under the American  Recovery and Reinvestment  Act,
or the potential sale of the Company or a significant portion of its assets. Due
to  volatile  commodity  prices and the global  financial  crisis,  we have been
unsuccessful to date.

         We did not repay our short term debt on its maturity date,  October 15,
2009  resulting  in an event of  default  and the  commencement  of  foreclosure
proceedings  by GasRock  Capital,  the Lender.  On October 28, 2009,  we filed a
voluntary petition for relief in the United States Bankruptcy Court, District of
Colorado under Chapter 11 of Title 11 of the U.S.  Bankruptcy Code (the "Code").
We continued to operate our business as a  "debtor-in-possession"  in accordance
with the applicable  provisions of the Code and orders of the Bankruptcy  Court.
We have submitted a plan of reorganization  and, with Bankruptcy Court approval,
emerge from bankruptcy and pursue our business plan.

    The  following  summarizes  our goals  and  objectives  for the next  twelve
months:

     o    Minimize operating and  administrative  expenses to maximize return to
          the Company;

     o    Increase crude oil production by repairing or rehabilitating  existing
          wellbores that have experienced mechanical or other problems;

     o    Successfully emerge from Chapter 11 Bankruptcy under the provisions of
          a Bankruptcy Court approved plan of reorganization.


                                       23
<PAGE>

<TABLE>
<CAPTION>

Results of Operations

Three months ended December 31, 2010 Compared to Three Months December 31, 2009.

         The following is a comparative summary of our results of operations:

                                                                                             Three Months Ended
                                                                                                 December 31,
                                                                                        2010                      2009
                                                                                        ----                      ----
<S>                                                                             <C>                      <C>

Revenues:
Oil production (in barrels)                                                                     16,242                    14,484
Net oil price (per barrel)                                                      $                74.60   $                 67.01
Oil sales                                                                       $            1,211,679   $               970,502
Derivative gains (losses)                                                                            -                   (6,809)
                                                                                 ------------------------------------------------

Total revenues                                                                               1,211,679                   963,693
                                                                                 ------------------------------------------------

Operating expenses:
Production taxes                                                                               149,295                   143,769
Lease operating                                                                                545,150                   411,150
Depreciation, depletion, amortization and accretion                                            382,328                   338,005
Impairment of unproved properties                                                                    -                13,525,642
Exploration                                                                                      6,568                     3,340
General and administrative                                                                     420,848                   568,717

                                                                                 ------------------------------------------------
Total operating expenses                                                                     1,504,189                14,990,623
                                                                                 ------------------------------------------------

Loss from operations                                                                         (292,510)              (14,026,930)
                                                                                 ------------------------------------------------

Other income (expense):
Interest expense and financing costs                                                         (735,733)                 (699,271)
Interest and other income                                                                       5,684                         7
                                                                                 ------------------------------------------------
Total other income (expense)                                                                 (730,049)                 (699,264)
                                                                                 ------------------------------------------------

Loss before  reorganization items                                                          (1,022,559)              (14,726,194)

Reorganization items                                                                          418,804                   158,727
                                                                                 ----------------------   -----------------------
Net loss                                                                      $            (1,441,363)   $          (14,884,921)
                                                                              ===================================================
</TABLE>

         Overview.  For the three months ended  December 31, 2010, we reported a
net loss of $1,441,363,  or $0.01 per basic and fully-diluted share, compared to
a net loss of $14,884,921 or $0.02 per basic and  fully-diluted  share,  for the
corresponding  three months of 2009.  Discussions  of  individually  significant
period to period variances follow.

         Revenue,  production taxes, and lease operating expenses. For the three
months ended  December 31, 2010,  we recorded  crude oil sales of  $1,211,679 on
16,242 barrels of oil at an average price of $74.60,  as compared to revenues of
$963,693  on 14,484  barrels of oil at an average  price of $67.01 per barrel in
2009. The  year-to-year  variance  reflects a volume  variance of $117,800 and a
price variance of $123,400.  The increased  volume in 2010 reflects the positive
results  of repair  and  remediation  work  performed  on  non-productive  wells
following the bankruptcy  filing and reaching  agreement with our secured lender
for the use of cash.  Production taxes (including ad valorem and property taxes)
of  $149,295  in  2010  compared  to  $143,769  in  2009  remained  constant  at
approximately  12.5% of crude  oil  sales  revenues.  Lease  operating  expenses
increased to $545,150  ($33.56/bbl) in 2010 as compared to $411,150 ($28.39/bbl)
in 2009. The year to year variance reflects a volume variance of $(49,900) and a
cost  variance of  $(84,100).  The per barrel  increase in 2010 compared to 2009
reflects costs incurred in the  aforementioned  repair and  remediation  work to
increase production.

                                       24
<PAGE>

         Derivative losses. In connection with short term debt financing entered
into in October  2007, we entered into a crude oil  derivative  contract with an
unrelated  counterparty  to set a price  floor of $63 per  barrel for 75% of our
estimated  crude oil production  for the next two years,  and a price ceiling of
$83.50 for 45% of the same level of production.  A loss on derivative activities
of $6,809  consisting of realized losses was recorded for the three months ended
December 31, 2009. The derivative  contract  expired in October 2009 and was not
renewed.

         Depreciation,  depletion,  amortization  and  accretion.  For the three
months ended  December 31, 2010,  we reflected  total  depreciation,  depletion,
amortization  and  accretion  of $382,328  comprised  of  $299,239  ($18.42/bbl)
related to oil and gas properties, $39,439 related to other assets and accretion
of the asset retirement  obligation of $43,650.  The comparable  amounts for the
2009 period were $338,005 comprised of $252,368  ($17.42/bbl) related to oil and
gas  properties,  $46,816  related  to  other  assets  and  accretion  of  asset
retirement  obligation of $38,821.  The year to year increase in DD&A per barrel
reflects downward revisions to reserve estimates in 2010 compared to 2009.

         Reorganization items. The $418,804 of costs reflected as reorganization
items in the three months  ended  December  31,  2010,  include,  those items of
expense  specifically  related  our  reorganization  following  the  filing of a
voluntary  petition for relief under Chapter 11 of the Bankruptcy  Code with the
Bankruptcy Court on October 28, 2009. These costs consist  primarily of $185,000
in reimbursable  lender fees and $233,800 of professional  fees to legal counsel
for assistance with the filing process and the  development of a  reorganization
plan.  We expect  these  expenses to continue to be  significant  as we progress
through the bankruptcy process.

         General and administrative expense. For the three months ended December
31,  2010,  we  reflected  general  and  administrative  expenses of $420,848 as
compared to $568,716 for the corresponding three months ended December 31, 2009.
Period to period comparisons and explanations of significant variances follow:

<TABLE>
<CAPTION>
                                        Three Months Ended
                                           December 31,
----------------------------------- ---------------------------- -------------------------------------------------------------------
<S>                                 <C>           <C>            <C>
Expense Category                        2010          2009       Discussion
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Salaries, payroll taxes and                                      Decrease in 2010 reflects reduced staff count and pay cuts for
benefits                              $  184,467       $242,081  remaining employees following bankruptcy filing.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Consultants                               85,052         28,369  Increase in 2010 reflects costs associated with accounting, finance
                                                                 and land consultants to replacing employees.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Travel & entertainment                     1,424         10,244  Decrease in 2010 reflects utilization of communication technology
                                                                 instead of travel for Board of Director meetings.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
IT                                        19,289         17,970  2010 costs are comparable to 2009.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Legal fees                                50,259        103,822  Dramatic decrease in 2010 reflects new management's efforts to
                                                                 curtail legal fees. 2009 amount includes cost to investigate
                                                                 strategies and filing of Bankruptcy.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Audit, SOX and tax compliance             24,771         12,250  Increase in 2010 reflects quarterly financial procedures and annual
                                                                 tax preparation services compared to 2009 that included only
                                                                 quarterly financial services.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Investor relations, shareholders           3,942          6,856  Decrease in 2010 reflects reduction in shareholder correspondence
meeting                                                          and mailings due to bankruptcy period.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Office rent, communication  &            132,518        129,084  2010 costs are comparable to 2009.
other office expenses
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Insurance                                 24,404         32,988  Decrease in 2010 reflects lower D&O premiums reflecting reduced
                                                                 coverage in 2010.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Stock based compensation                  21,667         84,066  Decrease in 2010 reflects completion of compensation related to
                                                                 vesting in stock options.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Director fees                             15,000         15,000  Decrease in 2010 reflects changes to director compensation
                                                                 arrangements following election of new slate of directors in
                                                                 September 2009.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Field overhead recoveries              (141,945)      (114,013)  Increased recoveries in 2010 reflect higher number of producing
                                                                 wells following repair and remediation work carried out.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
                         TOTAL G&A      $420,848       $568,717
----------------------------------- ------------- -------------- -------------------------------------------------------------------
</TABLE>


                                       25
<PAGE>

         Interest  expense  and  financing  costs.  For the three  months  ended
December 31, 2010, we reflected interest expense and financing costs of $735,733
as compared to $699,271 for the  corresponding  three months ended  December 31,
2009.  The 2010  amount is  comprised  of interest  accrued on the Note  Payable
issued in October  2007,  as amended.  The 2009  amount  consists of $459,878 of
interest on the Note  Payable and  $239,106  of  deferred  finance and  discount
amortization.  The higher interest on Note Payable reflects the default interest
rate (additional 2%) computed and compounded monthly since the occurrence of the
event of default in October 2009.

Nine months ended December 31, 2010 Compared to Nine Months December 31, 2009.

<TABLE>
<CAPTION>

         The following is a comparative summary of our results of operations:

                                                                              Nine Months Ended
                                                                                 December 31,
                                                                        2010                      2009
                                                                        ----                      ----
<S>                                                             <C>                      <C>

Revenues:
Oil production (in barrels)                                                     50,609                    41,447
Net oil price (per barrel)                                      $              $ 69.89   $                 60.24
Oil sales                                                       $            3,536,968   $             2,498,376
Derivative gains (losses)                                                            -                 (357,582)
                                                                 ------------------------------------------------
Total revenues                                                               3,536,968                 2,140,794

Operating expenses:
Production taxes                                                               444,303                   338,547
Lease operating                                                              1,837,267                 1,088,163
Depreciation, depletion, amortization and accretion                          1,195,632                   987,742
Impairment of unproved properties                                                    -                13,525,642
Exploration                                                                     25,655                    15,173
General and administrative                                                   1,656,417                 2,066,226

                                                                 ------------------------------------------------
Total operating expenses                                                     5,159,274                18,021,493
                                                                 ------------------------------------------------

Loss from operations                                                       (1,622,306)              (15,880,699)
                                                                 ------------------------------------------------

Other income (expense):
Interest expense and financing costs                                       (1,682,787)               (3,021,648)
Interest and other income                                                       17,250                       731
                                                                 ------------------------------------------------
Total other income (expense)                                               (1,665,537)               (3,020,917)
                                                                 ------------------------------------------------

Loss before  reorganization items                                          (3,287,843)              (18,901,616)

Reorganization items                                                         1,138,340                   158,727
                                                                 ----------------------   -----------------------
Net loss                                                      $            (4,426,183)   $          (19,060,343)
                                                              ===================================================
</TABLE>

         Overview.  For the nine months ended  December 31, 2010,  we reported a
net loss of $4,426,183 or $0.04 per basic and fully-diluted share, compared to a
net loss of  $19,060,343  or $0.14 per basic and  fully-diluted  share,  for the
corresponding  nine  months of 2009.  Discussions  of  individually  significant
period to period variances follow.

         Revenue,  production taxes, and lease operating expenses.  For the nine
months ended  December 31, 2010,  we recorded  crude oil sales of  $3,536,968 on
50,609 barrels of oil at an average price of $69.89,  as compared to revenues of
$2,498,376 on 41,477 of oil at an average price of $60.24per barrel in 2009. The
year-to-year  variance  reflects  a  volume  variance  of  $550,068  and a price
variance of $488,524. The increased volume in 2010 reflects the positive results

                                       26
<PAGE>

of repair and remediation work performed on  non-productive  wells following the
bankruptcy filing and reaching  agreement with our secured lender for the use of
cash.  Production taxes (including ad valorem and property taxes) of $444,303 in
2010 as compared to $338,547 in 2009 remained constant at approximately 12.6% of
crude oil sales  revenues.  Lease  operating  expenses  increased to  $1,837,267
($36.30/bbl) in 2010 as compared to $1,088,163 ($26.25/bbl) in 2009. The year to
year variance  reflects a volume  variance of $(239,582)  and a cost variance of
$(509,522).  The per barrel  increase in 2010  compared to 2009  reflects  costs
incurred  in  the  aforementioned   repair  and  remediation  work  to  increase
production.

         Derivative losses. In connection with short term debt financing entered
into in October  2007, we entered into a crude oil  derivative  contract with an
unrelated  counterparty  to set a price  floor of $63 per  barrel for 75% of our
estimated  crude oil production  for the next two years,  and a price ceiling of
$83.50 for 45% of the same level of production.  A loss on derivative activities
of $316,409  consisting of a realized gain of $95,113 and  unrealized  losses of
$411,522  were  recorded  for the nine  months  ended  December  31,  2009.  The
derivative contract expired in October 2009 and was not renewed.

         Depreciation,  depletion,  amortization  and  accretion.  For the  nine
months ended  December 31, 2010,  we reflected  total  depreciation,  depletion,
amortization  and  accretion of  $1,195,632  comprised of $944,112  ($18.66/bbl)
related  to oil and  gas  properties,  $121,313  related  to  other  assets  and
accretion of the asset retirement obligation of $130,207. The comparable amounts
for the 2009 period were $987,742 comprised of $722,290  ($17.41/bbl) related to
oil and gas properties,  $145,973 related to other assets and accretion of asset
retirement obligation of $119,480.  The year to year increase in DD&A per barrel
reflects downward revisions to reserve estimates in 2010 compared to 2009.

         Reorganization   items.   The   $1,138,340   of  costs   reflected   as
reorganization items in the nine months ended December 31, 2010, include,  those
items of expense specifically related our reorganization following the filing of
a voluntary petition for relief under Chapter 11 of the Bankruptcy Code with the
Bankruptcy Court on October 28, 2009. These costs consist  primarily of $673,500
in reimbursable  lender fees and $464,840 of professional  fees to legal counsel
for assistance with the filing process and the  development of a  reorganization
plan.  We expect  these  expenses to continue to be  significant  as we progress
through the bankruptcy process.

         General and administrative  expense. For the nine months ended December
31, 2010,  we reflected  general and  administrative  expenses of  $1,656,417 as
compared to  $2,066,226  for the  corresponding  nine months ended  December 31,
2009.  Period to period  comparisons and  explanations of significant  variances
follow:

<TABLE>
<CAPTION>

----------------------------------- ----------------------------- ------------------------------------------------------------------
                                     Nine Months Ended December
                                                31,
----------------------------------- -------------- -------------- ------------------------------------------------------------------
<S>                                 <C>            <C>            <C>

Expense Category                        2010           2009       Discussion
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Salaries, payroll taxes and                                       Decrease in 2010 reflects reduced staff count and pay cuts for
benefits                                 $606,794      $ 825,239  remaining employees following bankruptcy filing.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Consultants                               178,463         98,983  Increase in 2010 reflects costs associated with accounting and
                                                                  finance consultants to replace chief accounting officer and
                                                                  engineering consultants to review well files and identify
                                                                  production increase opportunities.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Travel & entertainment                     15,400         21,525  Decrease in 2010 reflects utilization of communication technology
                                                                  instead of travel for Board of Diretor meeting.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
IT                                         55,638         55,619  2010 costs are comparable to 2009.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Legal fees                                122,430        398,308  Decrease in 2010 reflects new management's efforts to curtail
                                                                  legal fees. 2009 amount includes cost to manage proxy and annual
                                                                  meeting process, not carried out in 2010.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Audit, SOX and tax compliance              70,053         96,430  Decrease in 2009 reflects lower level of activity to be reviewed
                                                                  by audit staff, coupled with increased efficiency in audit process
                                                                  in 4th year of audit, and lack of outside spending on SOX
                                                                  consultants in as compared to 2009.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Investor relations, shareholders            6,931         18,919  Decrease in 2010 reflects reduction in shareholder correspondence
meeting                                                           and mailings due to bankruptcy period.
----------------------------------- -------------- -------------- ------------------------------------------------------------------

                                       27
<PAGE>

Office rent, communication  &             357,652        346,538  2010 costs are comparable to 2009.
other office expenses
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Insurance                                  76,252        130,364  Decrease in 2010 reflects an $8,000 refund received from carrier
                                                                  on prior year general liability coverage, coupled with lower D&O
                                                                  premiums reflecting reduced coverage in 2010.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Stock based compensation                  167,132        262,529  Decrease in 2010 reflects completion of compensation related to
                                                                  vesting in stock options.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Director fees                              45,000        164,500  Decrease in 2010 reflects changes to director compensation
                                                                  arrangements following election of new slate of directors in
                                                                  September 2009.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Damages pursuant to pending claim         375,000              -  Increase in 2010 reflects an expense for a pending claim settle-
settlement                                                        ment of $375,000. This amount results from a dispute from a
                                                                  supplier that has negotiated and pending settlement by allowing
                                                                  the claim as a non-priority, unsecured claim in the bankcruptcy.
                                                                  The settlement is subject to approval by the bankruptcy court,
                                                                  which the Company has not yet requested.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Field overhead recoveries               (420,328)      (352,728)  Increased recoveries in 2010 reflect a higher number of producing
                                                                  wells following repair and remediation work carried out.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
                         TOTAL G&A     $1,656,417     $2,066,226
----------------------------------- -------------- -------------- ------------------------------------------------------------------
</TABLE>

Interest  expense and financing  costs.  For the nine months ended  December 31,
2010,  we  reflected  interest  expense and  financing  costs of  $1,682,787  as
compared to  $3,021,648  for the  corresponding  nine months ended  December 31,
2009. The 2010 amount is comprised of interest accrued on the Notes Payable. The
2009 amount  consists of $1,250,859 of interest on Notes Payable and  $1,770,789
of  deferred  finance and  discount  amortization.  The higher  interest on Note
Payable  reflects the default  interest rate (additional 2%) in effect since the
occurrence of the event of default in October 2009.

Liquidity and Capital Resources

         The report of our independent  registered public accounting firm on the
financial  statements  for the years ended  March 31, 2010 and 2009  includes an
explanatory  paragraph relating to the uncertainty of our ability to continue as
a going concern. We have incurred a cumulative net loss of $93.4 million for the
period from  inception  (February 4, 2004) to December 31, 2010,  have a working
capital deficit of $12.8 million and have defaulted on our senior secured debt.

         On October  15,  2009,  short term debt in the amount of  approximately
$10,188,000  matured.  We were  unable  to repay  the  short  term  debt,  which
constituted an Event of Default under the terms of the Term Credit Agreement. On
October  16, 2009 we received  notice of the Event of Default  from  GasRock and
notice of their  intent to  foreclose on the  properties  securing the debt.  On
October 21, 2009,  GasRock swept the remaining  $98,000 from our operating  bank
account,  leaving us without the ability to meet operating expense  obligations,
or pay staff or other administrative expenses.

            On October 27, 2009, we raised $140,000 in cash through the issuance
of  convertible  promissory  notes to certain  of our  officers,  directors  and
shareholders  and used the funds to retain  counsel to provide debtor advice and
to provide working capital. The promissory notes matured on November 1, 2010 and
bear  interest  at an annual  rate equal to the  greater of (i) 12%, or (ii) the
prime rate (as published in the Wall Street  Journal)  plus 3%. All  obligations
and payments due under the  promissory  notes are  subordinate  to the Company's
senior debt.  Principal and accrued  interest was due on the maturity  date. The
promissory  notes are convertible,  at the holder's  option,  into shares of the
Company's  common  stock at a conversion  price of $0.02 per share,  at any time
during the term of the promissory notes. The Company defaulted on these notes by
failure to pay principal and accumulated interest when due.

         On October 28,  2009,  we filed a voluntary  petition for relief in the
United States Bankruptcy  Court,  District of Colorado under Chapter 11 of Title
11 of the U.S.  Bankruptcy  Code. We reached  agreement  with  GasRock,  and the
Bankruptcy Court approved an order for use of cash  collateral.  Under the terms

                                       28
<PAGE>

of the order we have been  receiving  the proceeds from crude oil sales and have
been able to pay  operating,  and  administrative  costs in accordance  with the
approved cash  collateral  budget.  This  arrangement has enabled us to meet all
allowable  operating and  administrative  obligations  and to build an operating
cash reserve totaling $307,178 as of December 31, 2010.

         On January 28, 2011 the Company received debtor-in-possession financing
("DIP  financing")  pursuant to a credit agreement (the "DIP Credit  Agreement")
with a lender not related to the pre-petition credit facility provider.  The DIP
Credit  Agreement  provides for loan advances up to an aggregate of $14,700,000,
and matures May 28, 2011 (120 days after  closing  date)..  The  proceeds of the
loan  were  used to pay the  allowed,  secured  claim  for past  due ad  valorem
property taxes,  pay the allowed,  secured claim of the current lender (see note
6) and fund  $100,000 to be retained  to the close the  Bankruptcy  Estate if no
plan or reorganization is successful

         We continue to operate our business as "debtor-in-possession" under the
jurisdiction  of the  Bankruptcy  Court and in  accordance  with the  applicable
provisions   of  the   Code   and   orders   of   the   Bankruptcy   Court.   As
debtors-in-possession,  the Company is  authorized  to continue to operate as an
ongoing business, and may pay all debts and honor all obligations arising in the
ordinary  course of its business after the Petition Date.  However,  the Company
may not pay creditors on account of obligations arising before the Petition Date
or engage in  transactions  outside  the  ordinary  course of  business  without
approval of the Bankruptcy Court, after notice and an opportunity for a hearing.

         On February  16, 2011, the Bankruptcy Court issued an order approving a
motion to sell substantially all assets of the Company for $20 million.  No sale
closing  date  has  been  set,  at the  time of  this  filing,  and the  Company
anticipates  that such sale will occur  within the next 30 to 45 days.  Proceeds
from the sale will be used to repay the  principal  and accrued  interest on the
DIP financing loan, bankruptcy administration costs and creditors.


         The following is a summary of Rancher Energy's comparative cash flows:
<TABLE>
<CAPTION>

                                                                      For the Nine Months Ended
                                                                             December 31,
                                                                -----------------------------------------
                                                                              2010                2009
                                                                --------------------- -------------------
<S>                                                             <C>                   <C>

         Cash flows from (used for):
                                                                         $ 119,650          $(793,140)
         Operating activities, including reorganization items
                                                                           184,757
         Investing activities                                                                    6,955
                                                                                 -
         Financing activities                                                                   41,880
</TABLE>

         Positive cash flows from operating  activities in 2010 reflects general
and  administrative  as discussed above,  coupled with stay on interest payments
during the bankruptcy process.

         Funds used for  investing  activities in 2010 includes the cost of work
performed  to  establish  oil  production  in a new zone of an existing  well as
compared to a modest positive cash flow resulting from the sale of surplus field
equipment in the period, in the 2009 period.

Off-Balance Sheet Arrangements

         We have no material  off-balance sheet  arrangements nor do we have any
unconsolidated subsidiaries.

Critical Accounting Policies and Estimates

         Critical  accounting  policies and  estimates  are provided in Part II,
Item 7, Management's  Discussion and Analysis of Financial Condition and Results
of Operations, to the Annual Report on Form 10-K for the fiscal year ended March
31, 2010.  Additional footnote disclosures are provided in Notes to Consolidated
Financial  Statements  in  Part I,  Financial  Information,  Item  1,  Financial
Statements  to this  Quarterly  Report on Form 10-Q for the three  months  ended
December 31, 2010.

                                       29
<PAGE>

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

Commodity Price Risk

         Because of our relatively low level of current oil and gas  production,
we are not  exposed to a great  degree of market  risk  relating  to the pricing
applicable  to our oil  production.  However,  our  ability to raise  additional
capital at attractive pricing,  our future revenues from oil and gas operations,
our future profitability and future rate of growth depend substantially upon the
market prices of oil and natural gas, which fluctuate widely.  With increases to
our production,  exposure to this risk will become more  significant.  We expect
commodity price volatility to continue.

Financial Market Risk

         The debt and equity markets have recently exhibited adverse conditions.
The  unprecedented  volatility and upheaval in the capital markets  impacted our
ability to refinance  or extend our existing  short term debt when it matured on
October 15, 2009.  Alternatively,  market conditions may affect the availability
of capital for prospective  purchasers of our assets or equity. Item 4. Controls
and Procedures.

Disclosure Controls and Procedures

         We  conducted  an  evaluation   under  the  supervision  and  with  the
participation of our management,  including our Chief Executive Officer,  of the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures.  The term "disclosure  controls and procedures," as defined in Rules
13a-15(e) and 15d-15(e)  under the  Securities  Exchange Act of 1934, as amended
(Exchange  Act),  means  controls  and other  procedures  of a company  that are
designed to ensure that  information  required to be disclosed by the company in
the reports it files or submits  under the Exchange Act is recorded,  processed,
summarized and reported, within the time periods specified in the Securities and
Exchange  Commission's rules and forms.  Disclosure controls and procedures also
include,  without  limitation,  controls and procedures  designed to ensure that
information  required to be  disclosed by a company in the reports that it files
or  submits  under the  Exchange  Act is  accumulated  and  communicated  to the
company's  management,  including its principal  executive  officer,  or persons
performing similar functions, as appropriate to allow timely decisions regarding
required  disclosure.  The  conclusion  by our  Chief  Executive  Office  is the
identification  of the following  material weakness in our internal control over
financial reporting and, as a result of this material weakness,  we concluded as
of March 31,  2010 and as of the end of the  period  covered  by this  Quarterly
Report that our disclosure controls and procedures were not effective.

         We did not  adequately  segregate  the  duties of  different  personnel
within our Accounting Department due to an insufficient  complement of staff and
inadequate management oversight.

         We have  limited  accounting  personnel  with  sufficient  expertise in
generally  accepted  accounting  principles to enable  effective  segregation of
duties with respect to recording  journal  entries and to allow for  appropriate
monitoring of financial  reporting  matters and internal  control over financial
reporting.  Specifically,  the Chief  Accounting  Officer  resigned  during  the
current fiscal year resulting in the creation and review of journal  entries and
note disclosures  without adequate  independent review and  authorization.  This
control deficiency is pervasive in nature and impacts all significant  accounts.
This control  deficiency also affects the financial  reporting process including
financial  statement  preparation and the related note  disclosures.

Changes in Internal Control over Financial Reporting

         There have been no  changes  in our  internal  control  over  financial
reporting during the most recently completed fiscal quarter that have materially
affected,  or are reasonably likely to materially  affect,  our internal control
over financial reporting.

                                       30
<PAGE>

PART II. OTHER INFORMATION.

Item 1. Legal Proceedings

         On October 28,  2009,  the  Company  filed a  voluntary  petition  (the
"petition")  for relief in the United  States  Bankruptcy  Court (the  "Court"),
District of Colorado  under Chapter 11 of Title 11 of the U.S.  Bankruptcy  Code
(the  "Bankruptcy  Code").  The Bankruptcy  proceedings are discussed in further
detail in Part 1 of this filing.

         On February 12, 2010, the Company filed an adversary  proceeding in the
Bankruptcy  Court  against  GasRock  Capital  LLC,  Case No.  10-01173-MER.  The
complaint  seeks to recover the 10% NPI conveyed to GasRock in  connection  with
the Eighth  Amendment to the Term Credit  Agreement  and the  additional 1% ORRI
conveyed to the Lender in October  2008 in  connection  with an extension of the
short term note. The primary basis of the complaint is that the Lender gave less
than fair  equivalent  value for the  conveyances at a time when the Company was
insolvent,  or when the conveyances left the Company with insufficient  capital.
In other words, the Company has claimed that the value of the conveyances was in
excess of a reasonable fee for the extensions, and, as a result, the conveyances
were  "constructively  fraudulent" under both applicable  Bankruptcy law and the
Uniform  Fraudulent  Transfers Act. In addition,  the Company has challenged the
conveyance  of the NPI and the 1%  ORRI,  together  with  the  original  2% ORRI
conveyed to Lender when its loan was first made, on the grounds that they should
be  recharacterized  as security  interests and not outright transfers of title.
The Company has also claimed  that the  conveyances  rendered the Loan  usurious
under  Texas law.  Further,  the  Company has sought to have the NPI and 1% ORRI
avoided  as  preferences  under  Sections  547 of  the  Bankruptcy  Code  and to
equitably  subordinate  the Lender's  claim.  Although the Company  believes its
claims are  well-taken,  the  Company  expects the Lender to  vigorously  defend
against the  complaint,  and no assurance  can be given that the Company will be
successful in whole or in part.  On October 21, 2010,  the Court issued an order
dismissing  three  of  nine  claims  made  in  the  adversary  action  regarding
recharacterization.  The Company  plans to pursue the  remaining  claims and may
move  to  have  the   Bankruptcy   Court   reconsider   the   dismissal  of  the
recharacterization claims.

         See also Note 8 - Contingencies,  of Part 1 - Financial Information, of
this quarterly  filing for a description of threatened  litigation Item 1A. Risk
Factors Not applicable to smaller reporting companies.

ITEM 2.  CHANGES IN SECURITIES

NONE.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

NONE.


ITEM 4.  RESERVED AND RESCINDED.


ITEM 5.  OTHER INFORMATION

  NONE.


ITEM 6.  EXHIBITS

Exhibits.  The  following is a complete  list of exhibits  filed as part of this
Form 10-Q.  Exhibit  numbers  correspond  to the numbers in the Exhibit Table of
Item 601 of Regulation S-K.

                                       31
<PAGE>

     Exhibit 31.1 Certification of Chief Executive Officer and Acting Chief
                        Financial Officer pursuant to Section 302 of  the
                        Sarbanes-Oxley Act

     Exhibit 32.1 Certification of Principal Executive Officer and Acting Chief
                        Financial Officer pursuant to Section 906 of the
                        Sarbanes-Oxley Act



























                                       32
<PAGE>

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

                                         RANCHER ENERGY CORP., Registrant

Dated:  February 18, 2011                By: /s/ Jon C. Nicolaysen
                                             -----------------------------------
                                             Jon C. Nicolaysen, President, Chief
                                             Executive Officer, and Acting Chief
                                             Accounting Officer


















                                       33