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 June 30, 2010

                                       OR

/_/ 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
--------------------------------     -----------------------------------------
(State or other jurisdiction of         (I.R.S. Employer Identification No.)
incorporation or organization)


                          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 /_/                           Small reporting company /X/
(Do not check if a smaller reporting company)

<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 [X ] No [ ]

As of August 13, 2010,  119,316,723 shares of Rancher Energy Corp. common stock,
$.00001 par value, were outstanding.










































                                      -2-
<PAGE>
<TABLE>
<CAPTION>
                                                RANCHER ENERGY CORP.
                                                  TABLE OF CONTENTS

                                           PART I - FINANCIAL INFORMATION
<S>       <C>                                                                                                    <C>
Item 1.   Financial Statements

                 Unaudited Balance Sheets as of June 30, 2010 and March 31, 2010..................................4

                 Unaudited Statements of Operations for the Three Months ended
                 June 30, 2010 and  2009 .........................................................................6

                 Unaudited Statement of Changes in Stockholders' Equity for the Three Months ended
                 June 30, 2010....................................................................................7

                 Unaudited Statements of Cash Flows for the Three Months ended
                 June 30, 2010 and  2009..........................................................................8

                 Notes to Financial Statements....................................................................9

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations..................19

Item 3.   Quantitative and Qualitative Disclosures About Market Risk.............................................25

Item 4.   Controls and Procedures................................................................................26

Item 4T.  Controls and Procedures................................................................................26

                                             PART II - OTHER INFORMATION

Item 1.   Legal Proceedings......................................................................................26

Item 1A.  Risk Factors...........................................................................................27

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds............................................27

Item 3.   Defaults Upon Senior Securities........................................................................27

Item 4.   Rescinded and Removed..................................................................................27

Item 5.   Other Information .....................................................................................27

Item 6.   Exhibits...............................................................................................27

SIGNATURES.......................................................................................................28

</TABLE>

















                                      -3-
<PAGE>

                         PART I. FINANCIAL INFORMATION.

ITEM 1.   FINANCIAL STATEMENTS

                              Rancher Energy Corp.
                              Debtor in Possession
                                 Balance Sheets
                                    Unaudited


<TABLE>
<CAPTION>

                                                              ASSETS

                                                                                               JUNE 30, 2010      MARCH 31, 2010
                                                                                             ----------------- -------------------
<S>                                                                                          <C>               <C>
Current assets:
 Cash and cash equivalents                                                                   $      481,633    $        372,286
  Accounts receivable and prepaid expenses                                                          507,124             615,602
                                                                                             ----------------- -------------------
    Total current assets                                                                            988,757             987,888
                                                                                             ----------------- -------------------

Oil and gas properties at cost (successful efforts method):
  Unproved                                                                                       53,051,101          53,030,814
  Proved                                                                                         19,557,927          19,432,703
  Less:  Accumulated depletion, depreciation, amortization and impairment                       (56,672,599)        (56,355,224)
                                                                                             ----------------- -------------------
    Net oil and gas properties                                                                   15,936,429          16,108,293
                                                                                             ----------------- -------------------

Other assets:
  Furniture and equipment, net of accumulated depreciation of $604,107
  and $568,529, respectively                                                                        541,246             574,938
Other assets                                                                                        907,730             914,097
                                                                                             ----------------- -------------------
    Total other assets                                                                            1,448,976           1,489,035
                                                                                             ----------------- -------------------
    Total assets                                                                             $   18,374,162    $     18,585,216
                                                                                             ================= ===================


                                                            (Continued)
</TABLE>



























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

                                      -4-

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

<TABLE>
<CAPTION>

                                               LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                                            JUNE 30, 2010       MARCH 31, 2010
                                                                                        ------------------- ---------------------
<S>                                                                                     <C>                 <C>
Current liabilities:

  Accounts payable and accrued liabilities - post petition                                     2,403,104             1,698,488
  Asset retirement obligation                                                                    115,564               174,332
  Note payable                                                                                10,089,987            10,089,987
                                                                                        ------------------- ---------------------
Total current liabilities                                                                     12,608,655            11,962,807
                                                                                        ------------------- ---------------------

Long-term liabilities:

  Asset retirement obligation                                                                  1,293,276             1,225,497
                                                                                        ------------------- ---------------------
Total long-term liabilities                                                                    1,293,276             1,255,497
                                                                                        ------------------- ---------------------

Total liabilities not subject to compromise                                                   13,901,931            13,218,304

Liabilities subject to compromise                                                              1,326,684             1,336,133
                                                                                        ------------------- ---------------------
Total liabilities                                                                             15,228,615            14,554,437
                                                                                        ------------------- ---------------------


Contingencies (Notes 2, 4, 7 and 8)



Stockholders' equity:

   Common stock, $0.00001 par value, 275,000,000 shares authorized June 30, 2010
   and March 31, 2010;  119,316,700  shares issued and  outstanding  at June 30,
   2010 and March 31, 2010                                                                         1,194                 1,194

   Additional paid-in capital                                                                 93,100,935            93,025,876

   Accumulated deficit                                                                       (89,956,582)          (88,996,291)
                                                                                        ------------------- ---------------------

Total stockholders' equity                                                                     3,145,547             4,030,779
                                                                                        ------------------- ---------------------

Total liabilities and stockholders' equity                                              $     18,374,162    $       18,585,216
                                                                                        =================== =====================
</TABLE>















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

                                      -5-





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


<TABLE>
<CAPTION>

                                                                                          Three Months Ended June 30,
                                                                                         2010                    2009
                                                                                 ---------------------- ---------------------
<S>                                                                              <C>                    <C>
Revenues:

 Oil & gas sales                                                                 $         1,177,049    $          696,295
 Derivative losses                                                                                 -              (316,409)
                                                                                 ---------------------- ---------------------
                                                                                           1,177,049               379,886
                                                                                 ---------------------- ---------------------
Operating expenses:
 Production taxes                                                                            153,740                88,844
 Lease operating                                                                             557,005               353,150
 Depreciation, depletion and amortization                                                    359,064               279,202
 Accretion                                                                                    42,085                36,502
 Exploration                                                                                   8,430                 2,505
 General and administrative                                                                  424,402               781,846
                                                                                 ---------------------- ---------------------
  Total operating expenses                                                                 1,544,726             1,542,049
                                                                                 ---------------------- ---------------------
 Loss from operations                                                                       (367,677)           (1,162,163)
                                                                                 ---------------------- ---------------------

Other income (expense):
 Amortization of deferred finance costs and discount on note payable                               -              (706,348)
  Interest expense                                                                          (463,481)             (371,569)
  Interest and other income                                                                   11,342                   205
                                                                                 ---------------------- ---------------------
  Total other expense                                                                       (452,139)           (1,077,712)
                                                                                 ---------------------- ---------------------
 Loss before reorganization items                                                           (819,816)           (2,239,875)
                                                                                 ---------------------- ---------------------
Reorganization items
  Professional and legal fees                                                                140,475                     -
                                                                                 ---------------------- ---------------------
Net loss                                                                         $          (960,291)   $       (2,239,875)
                                                                                 ====================== =====================

Basic and diluted net loss per share                                             $             (0.01)   $            (0.02)
                                                                                 ====================== =====================

Basic and diluted weighted average shares outstanding                                    119,316,700           119,239,227
                                                                                 ====================== =====================
</TABLE>




















    The accompanying notes are an integral part of these financial statements
                                      -6-



<PAGE>
                              Rancher Energy Corp.
                              Debtor In Possession
                  Statement of Changes in Stockholders' Equity
                    For the Three Months Ended June 30, 2010
                                   (Unaudited)

<TABLE>
<CAPTION>

                                           SHARES        AMOUNT      ADDITIONAL       ACCUMULATED           TOTAL
                                                                      PAID-IN          DEFICIT           STOCKHOLDERS'
                                                                      CAPITAL                              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                           -          -          75,059                -             75,059


Net loss                                           -          -               -         (960,291)          (960,291)
                                       ---------------- ---------- --------------- ----------------- -----------------

Balance, June 30, 2010                   119,316,700    $ 1,194    $ 93,100,935    $ (89,956,582)    $    3,145,547
                                       ================ ========== =============== ================= =================


</TABLE>

































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

                                      -7-





<PAGE>
                              Rancher Energy Corp.
                              Debtor In Possession
                            Statements of Cash Flows
                                   (unaudited)


<TABLE>
<CAPTION>

                                                                                            Three Months Ended June 30,
                                                                                              2010              2009
                                                                                       ----------------- --------------------
<S>                                                                                    <C>               <C>
Cash flows from operating activities:

Net loss                                                                               $     (960,291)   $      (2,239,875)

Adjustments to reconcile net loss to cash used for operating activities:
  Depreciation, depletion, and amortization                                                   359,064              279,202
  Reorganization items, net                                                                   140,475                    -
  Accretion expense                                                                            42,085               36,502
  Asset retirement obligation settlements                                                    (63,074)                    -
  Interest expense converted to short-term debt                                                     -               67,892
  Amortization of deferred financing costs and discount on note payable                             -              706,348
  Unrealized (gains) losses on derivative activities                                                -              411,522
  Stock-based compensation expense                                                             75,059              142,169

Changes in operating assets and liabilities:
  Accounts receivable and prepaid expenses                                                    108,477              149,009
  Other assets                                                                                (7,290)                9,274
  Accounts payable and accrued liabilities                                                    570,416              114,203
                                                                                       ----------------- --------------------

Net cash from (used for) operating activities, before reorganization                          264,921             (323,754)
  Cash effect of reorganization items                                                         (75,069)                   -
                                                                                       ----------------- --------------------

Net cash from (used for) from operating activities                                            189,852             (323,754)
                                                                                       ----------------- --------------------
Cash flows from investing activities:
  Capital expenditures for oil and gas properties                                             (76,734)                   -
  Proceeds from sale of other assets                                                                -               10,466

Increase in other assets                                                                       (3,770)                   -
                                                                                       ----------------- --------------------

Net cash used for investing activities                                                        (80,504)              10,466
                                                                                       ----------------- --------------------
Cash flows from financing activities:
  Proceeds from issuance of common stock upon exercise of stock options                             -                    5
                                                                                       ----------------- --------------------
    Net cash used for financing activities                                                          -                    5
                                                                                       ----------------- --------------------

Increase (decrease) in cash and cash equivalents                                              109,348             (313,283)

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

Cash and cash equivalents, end of period                                               $      481,633    $         603,877
                                                                                       ================= ====================


Supplemental Statement of Cash Flow Information:

  Cash paid for interest                                                                            -    $         371,569
                                                                                       ================= ====================

Non-cash investing and financing activities:

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



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

                                       -8-

<PAGE>
                              Rancher Energy Corp.
                              Debtor in Pos session
                          Notes to Financial Statements
                    For the Three Months Ended June 30, 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
relief 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  and it is required to liquidate,
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.

                                      -9-
<PAGE>

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 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 will  segregate  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 ASC 932-360  "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.


                                      -10-
<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 June 30, 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 three months ended June 30, 2010 and 2009 the Company
recognized  $43,663 and $12,647,  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 THREE MONTHS ENDED JUNE 30,
                                --------------------------------------------
                                    2010                           2009
                                -------------               ----------------

        Dilutive                      -                             -
        Anti-dilutive            66,838,564                     64,892,304


RECLASSIFICATION

Certain amounts in the fiscal 2010 financial  statements have been  reclassified
to  conform   to  the  fiscal   2011financial   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 three months ended June 30, 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.

                                      -11-
<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.

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 relief under Chapter 11 of the Bankruptcy
Code with the  Bankruptcy  Court.  The petition was filed in order to enable the
Company to pursue  reorganization  efforts  under  Chapter 11 of the  Bankruptcy
Code.  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.
In general, as debtor-in-possession,  the Company is authorized under Chapter 11
to  continue  to  operate  as  an  ongoing  business,  but  may  not  engage  in
transactions  outside  of the  ordinary  course of  business  without  the prior
approval of the Bankruptcy Court.

No assurance can be provided as to what values,  if any, will be ascribed in the
bankruptcy proceedings to the Company's pre-petition  liabilities,  common stock
and  other  securities.   Based  upon  the  status  of  the  Company's  plan  of
reorganization, we currently believe that it is uncertain whether holders of our
securities will receive any payment in respect of such securities.  Accordingly,
extreme  caution  should be  exercised  with  respect  to  existing  and  future
investments in any of these liabilities or securities.

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.

In order to  successfully  exit Chapter 11 bankruptcy,  the Company will need to
propose,  and 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. The Company had the
exclusive  right  for  120  days  after  the  Petition  Date  to  file a plan of
reorganization  and 60 additional days to obtain necessary  acceptances.  On May
26, 2010, the Company filed its second motion to extend exclusive period to file
a  reorganization  plan  through  August 24,  2010 and the  exclusive  period to
solicit  acceptance of a plan through  October 22, 2010. The motion is currently
under consideration by the Bankruptcy Court. If the Company's exclusivity period
lapses, any party in interest may file a plan of reorganization for the Company.
In addition to the need for Bankruptcy  Court  confirmation  and satisfaction of
Bankruptcy  Code  requirements,  a plan of  reorganization  must be  accepted as
described below by holders of impaired  claims and equity  interests in order to
become effective.  A Company's Chapter 11 plan of reorganization will have to be
accepted by holders of claims against and equity interests in the Company if (i)
at least one-half in number and  two-thirds in dollar amount of claims  actually
voting in each  impaired  class of claims have voted to accept the plan and (ii)
at least  two-thirds  in  amount  of equity  interests  actually  voting in each
impaired  class  of  equity  interests  has  voted to  accept  the  plan.  Under
circumstances  specified  in the  so-called  "cramdown"  provisions  of  section
1129(b) of the Bankruptcy  Code, the Bankruptcy Court may confirm a plan even if
such plan has not been  accepted  by all  impaired  classes of claims and equity
interests. A class of claims or equity interests that does not receive or retain
any property  under the plan on account of such claims or interests is deemed to
have voted to reject the plan. The precise  requirements and evidentiary showing
for  confirming a plan  notwithstanding  its  rejection by one or more  impaired

                                      -12-
<PAGE>

classes  of  claims  or  equity  interests  depends  upon a number  of  factors,
including  the status and  seniority  of the claims or equity  interests  in the
rejecting  class -- I.E. , secured claims or unsecured  claims,  subordinated or
senior claims, preferred or common stock.

Under Section 365 of the  Bankruptcy  Code,  the Company may assume,  assume and
assign,  or reject  executory  contracts and unexpired  leases,  including  real
property and equipment  leases,  subject to the approval of the Bankruptcy Court
and certain other conditions. Rejection constitutes a court-authorized breach of
the lease or contract in question and, subject to certain  exceptions,  relieves
the Company of its future obligations under such lease or contract but creates a
deemed  pre-petition  claim  for  damages  caused by such  breach or  rejection.
Parties  whose  contracts  or leases are  rejected  may file claims  against the
Company for damages.  Generally,  the  assumption  of an  executory  contract or
unexpired  lease  requires  the  Company to cure all prior  defaults  under such
executory  contract or unexpired lease,  including all pre-petition  arrearages,
and to provide adequate  assurance of future  performance.  In this regard,  the
Company  expects that  liabilities  subject to compromise  and resolution in the
Chapter 11 case will arise in the future as a result of damage claims created by
the Company's  rejection of various  executory  contracts and unexpired  leases.
Conversely,  the Company would expect that the  assumption of certain  executory
contracts and unexpired  leases may convert  liabilities  shown in our financial
statements  as subject to compromise to  post-petition  liabilities.  Due to the
uncertain  nature of many of the  potential  claims,  the  Company  is unable to
project the magnitude of such claims with any degree of certainty at this time.

The  Bankruptcy  Court  established a deadline for the filing of proofs of claim
under  the  Bankruptcy  Code of March 5,  2010,  which  required  the  Company's
creditors to submit claims for  liabilities  not paid and for damages  incurred.
There may be differences  between the amounts at which any such  liabilities are
recorded in the Company's  financial  statements  and the amount  claimed by the
Company's creditors.  Litigation may be required to resolve any such disputes or
discrepancies.

There can be no  assurance  that a  reorganization  plan will be proposed by the
Company or  confirmed  by the  Bankruptcy  Court,  or that any such plan will be
consummated.

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 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.  We are currently  evaluating  various  courses of action to
address the operational and liquidity issues the Company is facing. There can be
no assurance  that any of 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.  Preparing  the
accompanying   unaudited   financial   statements   on  a  going  concern  basis
contemplates  the  realization of assets and the discharge of liabilities in the
normal course of business for the foreseeable future.

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.  Further, a plan of reorganization could materially change
the  amounts  and  classifications  reported in our  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.

The  uncertainty  resulting  from the Chapter 11 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.

                                      -13-
<PAGE>
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.

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 June 30, 2010 and March 31, 2010 include
the following pre-petition liabilities:
<TABLE>
<CAPTION>
                                                         June 30, 2010       March 31, 2010
                                                       -------------------------------------
<S>                                                    <C>                 <C>
   Accounts payable, trade                             $     163,427       $      164,390
   Other payables and accrued liabilities                    256,980              265,516
   Property and ad valorem taxes payable                     766,277              766,227
   Convertible notes payable                                 140,000              140,000
                                                       -------------------------------------

              Total liabilities subject to compromise  $   1,326,684       $    1,336,133
                                                       =====================================
</TABLE>
NOTE 3--OIL AND GAS PROPERTIES
------------------------------

The Company's oil and gas properties are summarized in the following table:
<TABLE>
<CAPTION>
                                                                              June 30, 2010       March 31, 2010
                                                                           ------------------- -------------------
<S>                                                                        <C>                 <C>
Proved properties                                                          $       19,557,927  $       19,432,703
Unproved properties excluded from DD&A                                             52,725,480          52,716,480
Equipment and other                                                                   325,621             314,334
                                                                           ------------------- -------------------
Total oil and gas properties                                                       72,609,028          72,463,517
Less accumulated depletion, depreciation, amortization and impairment             (56,672,599)        (56,355,224)
                                                                           ------------------- -------------------
                                                                           $       15,936,429  $       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.

                                      -14-
<PAGE>

A reconciliation of the Company's asset retirement  obligation  liability during
the three months ended June 30, 2010 and 2009 is as follows:

                                               2010             2009
                                          --------------- ---------------
Beginning asset retirement obligations    $    1,429,829  $    1,280,680
Liabilities incurred                                   -               -
Liabilities settled                              (63,074)              -
Changes in estimates                                   -               -
Accretion expense                                 42,085          36,502
                                          --------------- ---------------
Ending asset retirement obligation        $    1,408,840  $    1,317,182
                                          --------------- ---------------

Current                                   $      115,564  $      113,180
Long-term                                      1,293,276       1,204,002
                                          --------------- ---------------
                                          $    1,408,840  $    1,317,182
                                          =============== ===============

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 June 30, 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:

                                      -15-
<PAGE>
                                                            2010        2009
                                                         ---------- ------------
Balance as of April 1                                    $       -  $   455,960
  Total gains (losses) (realized or unrealized):
    Included in earnings                                         -    ( 316,412)
    Included in other comprehensive income                       -            -
  Purchased, issuances and settlements                           -      (95,113)
  Transfers in and out of Level 3                                -            -
                                                         ---------- ------------
Balance as of June 30                                    $       -  $    44,435
                                                         ========== ============

Change in unrealized gains (losses) included in earnings
 relating to derivatives still held as of June 30        $       -  $ 1,677,392
                                                         ========== ============

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  greater  of (a)  12% per  annum  and (b) the
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,

                                      -16-
<PAGE>

interest  under the Credit  agreement  will accrue at the default rate,  and the
percentage  of net revenue to be applied for debt service and other  obligations
shall be 100%.

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,  $98,415, from the Company's account to the
Lender.

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.  (the  "Bankruptcy  Court").  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.

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 was 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 mature 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  are  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.

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.  The Company  filed its response to the Lender's  motion on March 31,
2010 and oral arguments  were made in the Bankruptcy  Court on May 10, 2010. The
complaint and motions are now under review by the Court.

The lawsuit is in the early stages and the Company is unable to predict a likely
outcome or estimate  the  possible  benefit  should the  Company  prevail in the
litigation.

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,

                                      -17-
<PAGE>

insofar as these  claims are asserted  against the Company,  they are subject to
the claim process imposed by the Bankruptcy Code and the possible  imposition of
Section 510 of the Bankruptcy Code.

OTHER

Under  the  terms of the Term  Credit  Agreement,  see Note 6- Short  Term  Note
Payable,  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 the date of filing this annual report,  the Company has
received no formal  notification of the amount or nature of such costs,  nor can
we estimate a range of possible  amounts to be reimbursed  under the provisions.
Accordingly,  the Company has not recorded a loss  contingency  relating to this
issue.

NOTE 9 - INCOME TAXES
---------------------

As of June 30, 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 $57,269  for the three  months  ended June 30,  2010 and
expects to recognize the remaining  compensation  expense of $76,358 relating to
the unvested options over the next four months.

2006 STOCK INCENTIVE PLAN

As of June 30, 2010,  there were 2,206,000  options  outstanding  under the 2006
Stock  Incentive  Plan and 7,794,000  options are available for issuance.  Total
estimated  unrecognized  compensation  cost from unvested  stock options  issues
under the Plan as of June 30, 2010 was approximately  $17,719, which the Company
expects to recognize over the next four months.

                                      -18-
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------

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 CO2 pipeline;
     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; and
     o    plans, objectives, expectations, and intentions.

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.

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.

                                      -19-
<PAGE>

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 carried out 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.

With  the  Court's  consent,  we  have  engaged  professionals  and  consultants
including an engineering consultant to conduct a market valuation of our oil and
gas  properties;  a geologist to conduct an evaluation  and analysis of Niobrara
Shale  potential  for  hydrocarbon  production  in our oilfields and a financial
advisor to assist us in the  development  of a plan of  reorganization.  We have
filed a motion with the Court to extend the exclusive  period through August 24,
2010,  and are  awaiting a decision on the  motion.  We intend to file a plan of
reorganization prior to the expiration of the exclusivity period.

On  February  12,  2010,  the  Company  filed  an  adversary  proceeding  in the
Bankruptcy Court against  GasRock.  The complaint seeks to avoid the interest of
GasRock  in 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 ss. 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.

ORGANIZATION

We are an independent  energy  company that explores for and develops  produces,
and markets  oil and gas in North  America.  We operate  three 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.

                                      -20-
<PAGE>

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 have
reached a Bankruptcy  Court  approved  agreement with the Lender for use of cash
collateral   and  we  intend  to  continue   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 are actively  engaged in discussions with
potential DIP finance providers that, if successful, would enable us to submit 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 ensure that within
          the  short  term  we are  able  to  continue  to  operate  within  the
          constraints of the use of cash collateral agreement;

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

     o    Emerge from Chapter 11 Bankruptcy under the provisions of a Bankruptcy
          Court  approved  plan of  reorganization,  or  otherwise  achieve  the
          dismissal from Chapter 11 with the approval of the Bankruptcy Court.



















                  (REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)

                                      -21-
<PAGE>

                              RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2010 COMPARED TO THREE MONTHS JUNE 30, 2009.

<TABLE>
<CAPTION>
The following is a comparative summary of our results of operations:

                                                                   Three Months Ended June 30,
                                                                    2010                2009
                                                              -----------------   ------------------
<S>                                                            <C>                <C>
Revenues:
Oil production (in barrels)                                             17,057               13,135
Net oil price (per barrel)                                     $         69.01    $           53.01
Oil sales                                                      $     1,177,049    $         696,295
Derivative gains (losses)                                                    -             (316,409)
                                                              -----------------   ------------------
Total revenues                                                       1,177,049              379,886

Operating expenses:
Production taxes                                                       153,740               88,844
Lease operating                                                        557,005              353,150
Depreciation, depletion, amortization and accretion                    401,149              315,704
Exploration                                                              8,430                2,505
General and administrative                                             424,402              781,846
                                                              -----------------   ------------------
Total operating expenses                                             1,544,726            1,542,049
                                                              -----------------   ------------------

Loss from operations                                                  (367,677)         (1,162,163)
                                                              -----------------   ------------------

Other income (expense):
Interest expense and financing costs                                  (463,481)         (1,077,918)
Interest and other income                                               11,342                  206
                                                              -----------------   ------------------
Total other income (expense)                                          (452,139)         (1,077,712)
                                                              -----------------   ------------------

Loss before  reorganization items                                     (819,816)         (2,239,875)

Reorganization items                                                   140,475                    -
                                                              -----------------   ------------------
Net loss                                                       $      (960,291)   $     (2,239,875)
                                                              =================   ==================
</TABLE>

OVERVIEW.  For the three  months  ended June 30,  2010 we reported a net loss of
$960,291,  or $0.01 per basic and fully-diluted share, compared to a net loss of
$2,239,875 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 June 30, 2010, we recorded crude oil sales of $1,177,049 on 17,057 barrels
of oil at an average  price of $69.01,  as  compared  to revenues of $696,295 on
13,135  barrels  of oil at an average  price of $53.01  per barrel in 2009.  The
year-to-year  variance  reflects  a  volume  variance  of  $207,908  and a price
variance of $272,846. 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 $153,740 in
2010 as compared to $88,844 in 2009 remained constant at approximately  13.0% of
crude oil  sales  revenues.  Lease  operating  expenses  increased  to  $557,005
($32.66/bbl)  in 2010 as compared to $353,150  ($26.89/bbl) in 2009. The year to
year variance  reflects a volume  variance of $(105,477)  and a cost variance of
$(98,407).  The per barrel  increase  in 2010  compared to 2009  reflects  costs
incurred  in  the  aforementioned   repair  and  remediation  work  to  increase
production.


                                      -22-
<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 $316,409
consisting of a realized gain of $95,113 and unrealized losses of $411,522,  was
recorded  for the three  months ended June 30,  2009.  The  derivative  contract
expired in October 2009 and was not renewed.

DEPRECIATION,  DEPLETION, AMORTIZATION AND ACCRETION. For the three months ended
June 30, 2010, we reflected  total  depreciation,  depletion,  amortization  and
accretion of $401,149 comprised of $317,376  ($18.61/bbl) related to oil and gas
properties,  $41,688  related  to  other  assets  and  accretion  of  the  asset
retirement  obligation of $42,085.  The  comparable  amounts for the 2009 period
were  $315,714  comprised  of  $227,999  ($17.36/bbl)  related  to oil  and  gas
properties,  $51,203  related to other assets and accretion of asset  retirement
obligation  of $36,502.  The year to year  increase in DD&A per barrel  reflects
downward revisions to reserve estimates in 2010 compared to 2009.

REORGANIZATION ITEMS. The $140,175 of costs reflected as reorganization items in
the  three  months  ended  June  30,  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 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 June 30, 2010, we
reflected  general  and  administrative  expenses  of  $424,402  as  compared to
$781,846 for the  corresponding  three  months  ended June 30,  2009.  Period to
period comparisons and explanations of significant variances follow:
<TABLE>
<CAPTION>

                                    THREE MONTHS ENDED JUNE 30,
----------------------------------- ------------- -------------- -------------------------------------------------------------------
<S>                                 <C>           <C>            <C>
EXPENSE CATEGORY                        2010          2009       DISCUSSION
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Salaries, payroll taxes and         $    224,798  $     289,109  Decrease in 2010 reflects reduced staff count and pay cuts for
benefits                                                         remaining employees following bankruptcy filing.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Consultants                               61,010         29,648  Increase in 2010  reflects  costs  associated  with  engineering
                                                                 consultants  to  review  well  files  and  identify   production
                                                                 increase opportunities.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Travel & entertainment                     5,391          2,821  Increase in 2010 reflects  travel costs of new board member from
                                                                 overseas   residence  to  corporate  office  for  reorganization
                                                                 strategy meetings.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
IT                                        26,087         12,388  Increase  in  2010  primarily  reflects  costs  associated  with
                                                                 software  licensing  compliance,  coupled  with repair  costs to
                                                                 server backup power supply.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Legal fees                                 7,874        133,576  Dramatic  decrease in 2010 reflects new  managements  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             15,000         34,821  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
meeting                                    2,552          2,908  -
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Office rent, communication  &                                    Decrease in 2010  reflects lower staff count and resultant lower
other office expenses                    108,609        126,755  cost of supplies, communications and other office costs.
----------------------------------- ------------- -------------- -------------------------------------------------------------------

                                      -23-
<PAGE>

                                    THREE MONTHS ENDED JUNE 30,
----------------------------------- ------------- -------------- -------------------------------------------------------------------
EXPENSE CATEGORY                        2010          2009       DISCUSSION
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Insurance                                 21,533         57,420  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                  75,059        142,169  Decrease in 2010 reflects  lower stock price  resulting in lower
                                                                 fair value for stock option, particularly for options granted to
                                                                 former President and CEO which were fully vested in prior year.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Director fees                             15,000         73,250  Decrease in 2010 reflects changes to director compensation
                                                                 arrangements following election of new slate of directors in
                                                                 September 2009.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Field overhead recoveries               (138,511)      (123,019) Increased recoveries in 2010 reflects higher number of producing
                                                                 wells following repair and remediation work carried out.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
                         TOTAL G&A  $    424,402  $     781,846
----------------------------------- ------------- -------------- -------------------------------------------------------------------

</TABLE>

INTEREST  EXPENSE AND FINANCING COSTS. For the three months ended June 30, 2010,
we reflected  interest  expense and  financing  costs of $463,481 as compared to
$1,077,918  for the  corresponding  three months  ended June 30, 2009.  The 2010
amount is  comprised of interest  accrued on the Note Payable  issued in October
2007, as amended.  The 2009 amount  consists of $371,569 of interest on the Note
Payable and $706,348 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 $90 million for the period
from  inception  (February  4, 2004) to June 30,  2010,  have a working  capital
deficit of $11.6 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 mature 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 are 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.

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 "Bankruptcy  Court").  We have reached agreement
with GasRock,  and the Bankruptcy  Court has approved,  an order for use of cash
collateral.  Under the terms of the order we receive the proceeds from crude oil
sales and are able to pay operating, and administrative costs in accordance with

                                      -24-
<PAGE>

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 $482,000 as of June 30, 2010.

We intend to 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.  The  Company  is
currently  holding   discussions  with  a  number  of  potential   investors  in
conjunction   with  the   development  of  developing  our   restructuring   and
reorganization plan. In addition, we have prepared and filed with the Bankruptcy
Court all required financial and operating reports and other documents. There is
no assurance the Company  efforts to raise  financing will be successful or that
the restructuring plans will enable the Company to emerge from bankruptcy.

The following is a summary of Rancher Energy's comparative cash flows:

                                                   For the Three Months Ended
                                                           June 30,
                                                 -------------- ---------------
                                                      2010            2009
                                                 -------------- ---------------
 Cash flows from (used for):
    Operating activities, including
     reorganization items                        $   189,852         $(323,754)
    Investing activities                             (80,504)           10,466
    Financing activities                                   -                 5

Positive cash flows from  operating  activities  in 2010 reflects  substantially
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 June
30, 2010.

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.

                                      -25-
<PAGE>

ITEM 4 AND ITEM 4T.  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 and Chief  Accounting
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 and
principal  financial  officers,  or persons  performing  similar  functions,  as
appropriate  to  allow  timely  decisions  regarding  required  disclosure.   We
identified  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 has involvement 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.

In July 2010, the Dodd-Frank Wall Street Reform and Consumer  Protection Act was
enacted, which among other things,  exempted  non-accelerated SEC filers such as
the Company,  i.e.,  companies  with a public float below $75 million,  from the
requirement  of the  Sarbanes-Oxley  Act's  Section  404(b)  external  auditor's
attestation of internal controls over financial reporting.

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.

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 Item 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

                                      -26-
<PAGE>

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 ss. 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.

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.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

NONE.


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.

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

Exhibit 31.2   Certification of Chief Accounting Officer pursuant to Section 302
               of the Sarbanes-Oxley Act

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

Exhibit 32.2   Certification of Principal Financial Officer pursuant to Section
               906 of the Sarbanes-Oxley Act

                                      -27-
<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:  August 16, 2010         By /s/ Jon C. Nicolaysen
                                --------------------------------------------
                                Jon C. Nicolaysen, President, Chief Executive
                                Officer, and Principal Officer and Acting
                                Accounting Officer
                                (Principal Executive and Accounting Officer)




































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