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 September 30, 2009

                                       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                   (IRS Employer Identification No.)
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 [ ] (Do not check if a smaller reporting  company)
Small reporting company [X]

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



                                       1
<PAGE>

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

As of November  23, 2009,  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>

Item 1.      Financial Statements

                 Unaudited Balance Sheets as of September 30, 2009 and March 31, 2009..........................      4

                  Unaudited Statements of Operations for the Three and Six Months ended
                  September 30, 2009 and 2008..................................................................      6

                  Unaudited Statement of Changes in Stockholders' Equity as of
                  September 30, 2009...........................................................................      8

                  Unaudited Statements of Cash Flows for the Six Months ended
                  September 30, 2009 and 2008..................................................................      9

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

Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations..............     22

Item 3.     Quantitative and Qualitative Disclosures About Market Risk.........................................     31

Item 4.     Controls and Procedures............................................................................     31

Item 4T.  Controls and Procedures..............................................................................     31

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings -Not Applicable.....................................................................     33

Item 1A.  Risk Factors -  Not Applicable.......................................................................     33

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
                  -Not Applicable..............................................................................     33

Item 3.  Defaults Upon Senior Securities - Not Applicable......................................................     33

Item 4.  Submission of Matters to a Vote of Security Holders - Not Applicable..................................     33

Item 5.  Other Information - Not Applicable....................................................................     34

Item 6.  Exhibits..............................................................................................     34

SIGNATURES.....................................................................................................     35
</TABLE>




                                       3
<PAGE>


                         Part I. Financial Information.


Item 1.   Financial Statements

<TABLE>
<CAPTION>

                                      Rancher Energy Corp.
                                         Balance Sheets
                                           (unaudited)



                                                                ASSETS


                                                                                             September 30,      March 31, 2009
                                                                                                  2009             Audited
<S>                                                                                          <C>                <C>
Current assets:
  Cash and cash equivalents                                                                  $      162,518
                                                                                                                       $917,160
  Accounts receivable and prepaid expenses                                                          384,304
                                                                                                                        584,139
  Derivative receivable                                                                               6,809
                                                                                                                        455,960
                                                                                             ----------------- -------------------
    Total current assets                                                                            553,631
                                                                                                                      1,957,259

Oil and gas properties at cost (successful efforts method):
  Unproved                                                                                       53,077,682
                                                                                                                     53,328,147
  Proved                                                                                         19,371,487
                                                                                                                     20,631,487
  Less:  Accumulated depletion, depreciation, amortization and impairment                      (42,310,901)
                                                                                                                   (41,840,978)
                                                                                             ----------------- -------------------
    Net oil and gas properties                                                                   30,138,268          32,118,656

Other assets:
  Furniture and equipment net of accumulated depreciation of $477,303 and  $381,396,
respectively                                                                                        666,163             770,354
 Deferred finance costs                                                                             134,106
                                                                                                                              -
 Other assets                                                                                       919,259
                                                                                                                        933,592
                                                                                             ----------------- -------------------
    Total other assets                                                                            1,719,528
                                                                                                                      1,703,946
                                                                                             ----------------- -------------------
    Total assets                                                                                $32,411,427         $35,779,861
                                                                                             ================= ===================


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

                                               4
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                      Rancher Energy Corp.
                                         Balance Sheets
                                           (unaudited)


                                           LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                                         September 30,
                                                                                              2009           March 31, 2009
                                                                                              ----           --------------
Current liabilities:                                                                                             Audited
<S>                                                                                       <C>               <C>

  Accounts payable and accrued liabilities                                                   $ 1,027,719             $816,808

  Accrued oil and gas property costs                                                                                        -

  Asset retirement obligation                                                                    117,215              108,884

  Note payable, net of unamortized discount of $-0- and $165,790, respectively                10,171,160            9,834,210
                                                                                         ------------------ --------------------

Total current liabilities                                                                     11,316,094           10,759,902

Long-term liabilities:

  Asset retirement obligation                                                                  1,244,124            1,171,796
                                                                                         ------------------ --------------------

Total long-term liabilities                                                                    1,244,124            1,171,796


Contingencies (Note 6)



Stockholders' equity:

   Common stock, $0.00001 par value, 275,000,000 shares authorized September 30,
   2009 and March 31, 2009; 119,316,700 and 119,016,700 shares issued
   and outstanding at September 30, 2009 and March 31, 2009, respectively                          1,194                1,191

    Additional paid-in capital                                                                92,760,466           92,582,001

    Accumulated deficit                                                                     (72,910,451)         (68,735,029)
                                                                                         ------------------ --------------------

Total stockholders' equity                                                                    19,851,209           23,848,163
                                                                                         ------------------ --------------------


Total liabilities and stockholders' equity                                                   $32,411,427          $35,779,861
                                                                                         ================== ====================

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


                                               5
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                              Rancher Energy Corp.
                            Statements of Operations
                                   (unaudited)



                                                                                           Three Months Ended
                                                                                              September 30,

Revenues:                                                                                  2009             2008
<S>                                                                                    <C>              <C>

 Oil & gas sales                                                                           $ 831,579       $1,995,901
 Derivative gains (losses)                                                                  (34,364)        1,305,551
                                                                                       ---------------- ----------------
                                                                                             797,215        3.301.452
                                                                                       ---------------- ----------------
Operating expenses:
 Production taxes                                                                            105,934          243,366
 Lease operating expenses                                                                    323,863          549,441
 Depreciation, depletion and amortization                                                    289,877          301,708
 Accretion expense                                                                            44,156           30,835
 Impairment of unproved properties                                                                 -        6,800,000
 Exploration expense                                                                           9,328                -
 General and administrative                                                                  715,663          959,777
                                                                                       ---------------- ----------------
  Total operating expenses                                                                 1,488,821        8,885,127

                                                                                       ---------------- ----------------
 Loss from operations                                                                      (691,606)      (5,583,675)
                                                                                       ---------------- ----------------

Other income (expense):
 Amortization of deferred finance costs and discount on note payable                       (825,335)      (1,366,527)
 Interest expense                                                                          (419,124)        (375,399)
  Interest and other income                                                                      518            8,737

                                                                                       ---------------- ----------------
  Total other income (expense)                                                           (1,243,941)      (1,733,189)
                                                                                       ---------------- ----------------

Net loss                                                                                $(1,935,547)     $(7,316,864)
                                                                                       ================ ================

Basic and diluted net loss per share                                                         $(0.02)          $(0.06)
                                                                                       ================ ================

Basic and diluted weighted average shares outstanding                                    119,514,516      115,457,475
                                                                                       ================ ================


                              The accompanying notes are an integral part of these financial statements


                                                                6
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                              Rancher Energy Corp.
                            Statements of Operations
                                   (unaudited)

                                                                                         Six Months Ended September 30,

Revenues:                                                                                  2009               2008
<S>                                                                                    <C>              <C>

 Oil & gas sales                                                                          $1,527,874           $3,894,869
 Derivative gains (losses)                                                                 (350,773)            (589,743)
                                                                                       ---------------- --------------------
                                                                                           1,177,101            3,305,126
                                                                                       ---------------- --------------------
Operating expenses:
 Production taxes                                                                            194,778              473,649
 Lease operating expenses                                                                    677,013            1,172,863
 Depreciation, depletion and amortization                                                    569,079              577,549
 Accretion expense                                                                            80,658               77,111
 Impairment of unproved properties                                                                 -            6,800,000
 Exploration expense                                                                          11,832                9,602
 General and administrative                                                                1,497,510            2,008,154
  Total operating expenses                                                                 3,030,870           11,118,928

                                                                                       ---------------- --------------------
 Loss from operations                                                                    (1,853,769)          (7,813,802)
                                                                                       ---------------- --------------------

Other income (expense):
 Amortization of deferred finance costs and discount on note payable                     (1,531,683)          (2,675,702)
 Interest expense                                                                          (790,693)            (746,694)
  Interest and other income                                                                      723               19,318
                                                                                       ---------------- --------------------
  Total other income (expense)                                                           (2,321,653)          (3,403,078)
                                                                                       ---------------- --------------------

Net loss                                                                                $(4,175,422)        $(11,216,880)
                                                                                       ================ ====================

Basic and diluted net loss per share                                                         $(0.03)              $(0.10)
                                                                                       ================ ====================

Basic and diluted weighted average shares outstanding                                    119,377,629          115,213,149
                                                                                       ================ ====================


                              The accompanying notes are an integral part of these financial statements


                                                               7
</TABLE>

<PAGE>


<TABLE>
<CAPTION>
                              Rancher Energy Corp.
                  Statement of Changes in Stockholders' Equity
                                   (Unaudited)


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

Balance, March 31, 2009                                119,016,700     $1,191     $92,582,001     $(68,735,029)       $23,848,163


Common stock issued on exercise of options                 500,000          5               -                 -                 5


Cancelation of non-vested restricted stock               (200,000)        (2)               2                                   -

Stock-based compensation                                         -          -         178,463                 -           178,463


Net loss                                                         -          -               -       (4,175,422)       (4,175,422)
                                                     ---------------- ---------- --------------- ----------------- -----------------


Balance,September 30, 2009                             119,316,700     $1,194     $92,760,466     $(72,910,451)       $19,851,209
                                                     ================ ========== =============== ================= =================




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






                                                                8
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                              Rancher Energy Corp.
                            Statements of Cash Flows
                                   (unaudited)

                                                                                              Six Months Ended September 30,
                                                                                                  2009              2008
                                                                                                  ----              ----
<S>                                                                                           <C>              <C>
Cash flows from operating activities:
Net loss                                                                                       $(4,175,422)     $(11,216,880)

Adjustments to reconcile net loss to cash used for operating activities:
  Depreciation, depletion, and amortization                                                         569,079           577,549

  Impairment of unproved properties                                                                       -         6,800,000

  Accretion expense                                                                                  80,659            77,111

  Asset retirement obligation settlements                                                                 -          (32,657)

  Interest expense converted to short-term debet                                                    171,160                 -

  Amortization of deferred financing costs and discount on note payable                           1,531,683         2,675,703

  Unrealized (gains) losses on derivative activities                                                449,151          (60,165)

  Stock-based compensation expense                                                                  126,763           235,778

  Services exchanged for common stock - directors                                                    51,700           200,200

  Loss on asset sale                                                                                      -            35,797

Changes in operating assets and liabilities:
  Accounts receivable and prepaid expenses                                                          199,835           170,611

  Other assets                                                                                       19,365                 -

  Accounts payable and accrued liabilities                                                          210,914         (630,323)
                                                                                              ---------------- -----------------
  Net cash used for operating activities                                                          (765,113)       (1,167,276)
                                                                                              ---------------- -----------------
 Cash flows from investing activities:
  Capital expenditures for oil and gas properties                                                         -         (199,882)

  Proceeds from sale of other assets                                                                 10,466                 -

Increase in other assets                                                                                  -         (232,363)
                                                                                              ---------------- -----------------
Net cash used for investing activities                                                               10,466         (432,245)
                                                                                              ---------------- -----------------

Cash flows from financing activities:

  Payment of deferred financing costs                                                                     -         (101,478)

  Proceeds from issuance of common stock upon exercise of stock options                                   5                 5
                                                                                              ---------------- -----------------
    Net cash used for financing activities                                                                5         (101,473)
                                                                                              ---------------- -----------------
Decrease in cash and cash equivalents                                                             (754,642)       (1,700,994)

Cash and cash equivalents, beginning of period                                                      917,160         6,842,365
                                                                                              ---------------- -----------------
Cash and cash equivalents, end of period                                                           $162,518        $5,141,371
                                                                                              ================ =================
Non-cash investing and financing activities:
  Cash paid for interest                                                                           $784,368         $ 746,640
                                                                                              ================ =================
  Payables settled for oil and gas properties                                                           $ -          $ 47,478
                                                                                              ================ =================
  Asset retirement asset and obligation                                                                  $-         $  30,644
                                                                                              ================ =================
  Deferred finance costs, conveyance of net profits interest                                     $1,500,000           $     -
                                                                                              ================ =================
           The accompanying notes are an interal part of these financial statements.


                                               9
</TABLE>

<PAGE>

                              Rancher Energy Corp.
                          Notes to Financial Statements
                   For the Six Months Ended September 30, 2009
                                   (Unaudited)

Note 1 - Organization and Summary of Significant Accounting Policies

Organization
------------

         Rancher   Energy  Corp.   ("Rancher   Energy"  or  the  "Company")  was
incorporated in 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,  2009.  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,  2009.  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.

         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
is  contingent  upon,   among  other  things,   its  ability  (i)  to  obtain  a
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.  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.

         Financial   Accounting  Standards  Board  (FASB)  Accounting  Standards
Codification  (FASB ASC) 852-10-05  (Prior  authoritative  literature:  American
Institute of Certified Public Accountants Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization  under the Bankruptcy  Code"),  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 the Reorganization

                                       10
<PAGE>

Cases 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 must be  disclosed  separately  in the  statement  of cash
flows. The Company adopted FASB ASC 852-10-05  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 consolidated 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  932-360-25  (Prior  authoritative
literature:  Statement of Financial  Accounting Standards Staff Position No. FAS
19-1,  Accounting for Suspended Well Costs.) 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

                                       11
<PAGE>

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.  The Company  recognized  no  impairment  of proved or unproved
properties  during  the six  months  ended  September  30,  2009 and  recognized
impairment of unproved  properties  in the amount of  $6,800,000  during the six
months ended September 30, 2008.

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

The Company accounts for derivative  instruments or hedging activities under the
provisions of FASB ASC 815-10-05 (Prior authoritative  literature:  Statement of
Financial  Accounting  Standards  ("SFAS") No. 133,  "Accounting  for Derivative
Instruments and Hedging  Activities." FASB ASC 815-10-05 requires the Company to
record derivative instruments at their fair value. The Company's risk management
strategy  is to enter into  commodity  derivatives  that set "price  floors" and
"price  ceilings" for its crude oil  production.  The objective is to reduce the
Company's  exposure to commodity  price risk  associated with expected crude oil
production.

         The Company has elected not to designate the commodity  derivatives  to
which they are a party as cash flow hedges, and accordingly,  such contracts are
recorded at fair value on its balance  sheets and changes in such fair value are
recognized in current earnings as income or expense as they occur.

         The  Company  does  not  hold  or  issue   commodity   derivatives  for
speculative or trading purposes.  The Company is exposed to credit losses in the
event of nonperformance by the counterparty to its commodity derivatives.  It is
anticipated,  however,  that its counterparty  will be able to fully satisfy its
obligations  under the  commodity  derivatives  contracts.  The Company does not
obtain  collateral  or other  security  to  support  its  commodity  derivatives
contracts  subject to credit risk but does  monitor  the credit  standing of the
counterparty.  The price the Company receives for production in its three fields
is indexed to Wyoming Sweet crude oil posted  price.  The Company has not hedged
the basis  differential  between the NYMEX price and the  Wyoming  Sweet  price.
Under the terms of our Term Credit  Agreement issued in October 2007 the Company
was required hedge a portion of its expected future  production,  and it entered
into a costless collar  agreement for a portion of its anticipated  future crude
oil  production.  The  costless  collar  contains a fixed  floor price (put) and
ceiling price (call).  If the index price exceeds the call strike price or falls
below the put strike  price,  the Company  receives the fixed price and pays the
market price.  If the market price is between the call and the put strike price,
no payments are due from either party.  The table below  summarizes the terms of
the Company's costless collar:

         Derivative losses are included in cash flows from operating  activities
in the  accompanying  Consolidated  Statements  of Cash  Flows.  The table below
summarizes  the  realized  and  unrealized  losses  related  to  our  derivative
instruments for the three and six months ended September 30, 2009 and 2008.

<TABLE>
<CAPTION>

                                                          Three Months Ended September 30,    Six Months Ended September 30,
                                                               2009             2008             2009             2008
                                                               ----             ----             ----             ----
<S>                                                       <C>              <C>              <C>             <C>

    Realized gains (losses) on derivative instruments              $3,265       $(299,428)         $98,378        $(649,908)
    Unrealized gains (losses) on derivative instruments         $(37,629)       $1,604,979       (449,151)            60,165
                                                          ---------------- ---------------- --------------- -----------------
    Total   realized  and   unrealized   gains  (losses)        $(34,364)       $1,305,551      $(350,773)        $(589,743)
    recorded
                                                          ================ ================ =============== =================
</TABLE>



                                       12
<PAGE>
<TABLE>
<CAPTION>

                                The  table  below  summarizes  the  terms of the Company's costless collar:

                                                                                                                     Position at
                                                                                                                      September
   Contract                                                  Remaining                                              30, 2009 Due
   Feature          Contract Term       Total Volume       Volume Hedged           Index           Fixed Price        To (From)
   -------          -------------                                                  -----
                                        Hedged (Bbls)          (Bbls)                                ($/Bbl)           Company
                                               ------          ------                                -------           -------
<S>               <C>                   <C>                <C>                   <C>               <C>              <C>

     Put          Nov 07--Oct 09            113,220             4,578             WTI NYMEX           $ 65.00           $6,809

     Call         Nov 07--Oct 09            67,935              2,747             WTI NYMEX           $ 83.50              -
</TABLE>

         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  and  the
Company's  credit  adjusted risk free interest rate. The actual  contribution to
the Company's future results of operations will be based on the market prices at
the time of settlement and may be more or less than the value  estimates used at
September 30, 2009.

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 5
- 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 six months  ended  September  30,  2009 the Company
recognized  $52,302 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 Six Months Ended September 30,
                                     --------------------------------------
                                     2009                           2008
                                     ----                           ----

        Dilutive                       -                             -
        Anti-dilutive             55,203,564                     75,216,895


Reclassification
----------------

         Certain amounts in the 2008 financial statements have been reclassified
to conform to the 2009 financial statement presentation.  Such reclassifications
had no effect on net loss.

                                       13
<PAGE>

Other Significant Accounting Policies
-------------------------------------

         Other accounting policies followed by the Company are set forth in Note
1 to the Consolidated Financial Statements included in its Annual Report on Form
10-K for the year ended March 31,  2009,  and are  supplemented  in the Notes to
Consolidated  Financial Statements in this Quarterly Report on Form 10-Q for the
six months ended June 30, 2009. 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, 2009.

Recent Accounting Pronouncements
--------------------------------

         In June 2009, the Financial  Accounting Standards Board ("FASB") issued
"FASB Accounting Standards Codification  ("Codification"),  as the single source
of authoritative US GAAP" for all non-governmental  entities, with the exception
of the SEC and its staff. The Codification, which became effective July 1, 2009,
changes the referencing and organization of accounting guidance and is effective
for interim and annual  periods  ending after  September  15, 2009.  The Company
adopted  the  Codification  on  July 1,  2009  which  provides  for  changes  in
references to technical accounting literature (if used) in this Quarterly Report
on Form 10-Q and subsequent  reports,  but did not have a material impact on the
Company's financial position, results of operations or cash flows.

         In September 2006, the FASB issued accounting  guidance related to fair
value  measurements  and related  disclosures.  This new  guidance  defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value  measurements.  The Company  adopted this  guidance on April 1,
2008, as required for its financial assets and financial  liabilities.  However,
the FASB deferred the effective date of this guidance for one year as it relates
to fair value measurement  requirements for nonfinancial assets and nonfinancial
liabilities  that are not  recognized  or disclosed at fair value on a recurring
basis,  which  include,  among  others,  those  nonfinancial  long-lived  assets
measured  at  fair  value  for  impairment   assessment  and  asset   retirement
obligations  initially  measured at fair  value.  Fair value used in the initial
recognition of asset  retirement  obligations is determined based on the present
value of expected  future  dismantlement  costs  incorporating  our  estimate of
inputs  used  by  industry   participants  when  valuing  similar   liabilities.
Accordingly,  the  fair  value  is  based on  unobservable  pricing  inputs  and
therefore,  is considered a level 3 value input in the fair value hierarchy (See
Note 5 "Fair  Value  Measurements"  herein).  The  adoption  of this  accounting
guidance  related to these items did not have a material impact on the Company's
financial position or results of operations.

         In March  2008,  the FASB  issued new  accounting  guidance  related to
disclosures about derivative  instruments and hedging activities.  This guidance
amends and expands disclosure  requirements to provide a better understanding of
how and why an entity uses derivative  instruments,  how derivative  instruments
and related  hedged  items are  accounted  for,  and their effect on an entity's
financial  position,  financial  performance,  and cash flows.  This guidance is
effective for financial  statements  issued for fiscal years and interim periods
beginning after November 15, 2008. The Company adopted this guidance  January 1,
2009, which requires additional  disclosures  regarding the Company's derivative
instruments in this Quarterly Report on Form10-Q and subsequent reports, but did
not have an impact on the Company's financial position or results of operations.
See Note 1 "Commodity Derivatives" herein for the required disclosures.

         In April 2009, the FASB issued additional guidance regarding fair value
measurements and impairments of securities  which makes fair value  measurements
more consistent with fair value  principles,  enhances  consistency in financial
reporting by increasing  the frequency of fair value  disclosures,  and provides

                                       14
<PAGE>

greater  clarity and  consistency in accounting  for and  presenting  impairment
losses on  securities.  The  additional  guidance is  effective  for interim and
annual  periods ending after June 15, 2009,  with early  adoption  permitted for
periods ending after March 15, 2009. The Company  adopted the provisions for the
period ending June 30, 2009. The adoption did not have a material  impact on its
financial position or results of operations.

         In April  2009,  the FASB  issued new  accounting  guidance  related to
interim  disclosures  about  the fair  values  of  financial  instruments.  This
guidance  requires  disclosures  about the fair value of  financial  instruments
whenever a public company issues  financial  information  for interim  reporting
periods.  This guidance is effective for interim  reporting periods ending after
June 15,  2009.  The Company  adopted this  guidance  upon its  issuance,  which
requires   additional   disclosures   regarding  the  fair  value  of  financial
instruments in this Quarterly Report on Form10-Q and subsequent reports, but had
no material impact on the Company's consolidated financial statements.  See Note
4 "Fair Value Measurements" herein for the required disclosures.

         In June 2009,  the FASB issued new accounting  guidance  related to the
accounting and disclosures of subsequent events. This guidance  incorporates the
subsequent events guidance contained in the auditing  standards  literature into
authoritative  accounting literature.  It also requires entities to disclose the
date through which they have  evaluated  subsequent  events and whether the date
corresponds  with the release of their  financial  statements.  This guidance is
effective  for all interim and annual  periods  ending after June 15, 2009.  The
Company adopted this guidance upon its issuance and it had no material impact on
the  Company's   consolidated   financial  statements.   The  Company  evaluates
subsequent  events up to  immediately  prior to the  issuance  of its  financial
statements,   and  for  purposes  of  the  accompanying  consolidated  financial
statements,  the Company has evaluated  subsequent  events through  November 23,
2009,  the filing  date of this 10-Q,  and has  disclosed  such items in Note 10
"Subsequent Events" herein.

         In August  2009,  the FASB  issued new  accounting  guidance to provide
clarification  on measuring  liabilities at fair value when a quoted price in an
active market is not available. This guidance became effective for us on October
1, 2009.  The Company  adopted this  guidance on October 1, 2009,  and it had no
material impact on its consolidated financial statements.

         On December 31, 2008,  the SEC adopted a final rule that amends its oil
and gas  reporting  requirements.  The revised  rules change the way oil and gas
companies  report their reserves in their  financial  statements.  The rules are
intended  to reflect  changes  in the oil and gas  industry  since the  original
disclosures were adopted in 1978. Definitions were updated to be consistent with
Petroleum Resource  Management  System.  Other key revisions include a change in
pricing used to prepare  reserve  estimates,  the  inclusion of  non-traditional
resources in reserves,  the allowance for use of new technologies in determining
reserves,  optional disclosure of probable and possible reserves and significant
new  disclosures.  The revised rules will be effective for the Company's  Annual
Report on Form 10-K for the  fiscal  year  ending  March 31,  22010.  The SEC is
precluding  application of the new rules in quarterly reports prior to the first
annual report in which the revised  disclosures  are required and early adoption
is not permitted.

         In September 2009, the FASB issued its proposed  updates to oil and gas
accounting  rules to align the oil and gas  reserve  estimation  and  disclosure
requirements  of  Extractive  Industries--Oil  and  Gas  (Topic  932)  with  the
requirements in the SEC's final rule discussed  above. The public comment period
for the FASB's  proposed  updates  ended  October 15,  2009;  however,  no final
guidance has been issued by the FASB.  The Company is  evaluating  the potential
impact of any updates to the oil and gas  accounting  rules and will comply with
any new accounting and disclosure  requirements once they become effective.  The
Company  anticipates  that the  following  rule changes could have a significant
impact on its results of operations as follows:

    o         The  price  used  in  calculating  reserves  will  change  from  a
              single-day closing price measured on the last day of the company's
              fiscal  year to a  12-month  average  price  and will  affect  the
              Company's depletion and ceiling test calculations.

    o         Several  reserve  definitions  have  changed that could revise the
              types of reserves that will be included in the Company's  year-end
              reserve report.

Many of the Company's financial  reporting  disclosures could change as a result
of the new rules.


                                       15
<PAGE>


Note 2--Oil and Gas Properties

 The Company's oil and gas properties are summarized in the following table:

<TABLE>
<CAPTION>

                                                                                September 30,       March 31, 2009
                                                                                     2009
<S>                                                                            <C>                 <C>


Proved properties                                                                   $19,371,487         $20,631,487

Unproved properties excluded from DD&A                                               52,713,480          52,953,185

Equipment and other                                                                     364,202             374,962
                                                                               ------------------- -------------------

Subtotal Unevaluated Properties                                                      53,077,682          53,328,147
                                                                               ------------------- -------------------

Total oil and gas properties                                                         72,449,169          73,959,634

Less accumulated depletion, depreciation, amortization and impairment              (42,310,901)        (41,840,978)
                                                                              ------------------- -------------------

                                                                                    $30,138,268         $32,118,656
                                                                               =================== ===================
</TABLE>

Assignment of Overriding Royalty Interest and Net Profits Interest
------------------------------------------------------------------

         In  conjunction  with the  issuance of short term debt in October  2007
(See Note 5),the Company  assigned 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 Company  estimated that the fair value of the ORRI granted to
the Lender to be  approximately  $4,500,000  and recorded  this amount as a debt
discount and a decrease of oil and gas  properties.  In October 2008 the Company
extended  the  maturity  date of the short term debt by six  months.  As partial
consideration  for  the  extension,  the  Company  granted  an  increase  in the
proportionate  ORRI from 2% to 3%. The Company  estimated that the fair value of
the incremental  ORRI granted to the Lender to be  approximately  $1,050,000 and
has  recorded  this  amount as a debt  discount  and a  decrease  of oil and gas
properties.  In June 2009 the Company  extended the  maturity  date of the short
term debt until October 15, 2009. As partial  consideration  for the  extension,
the Company  assigned the Lender a 10% Net Profits  Interest  (the "NPI") in all
crude oil and natural gas produced from its three Powder River Basin fields. The
Company  estimated the fair value of the NPI to be approximately  $1,500,000 and
recorded  this  amount as deferred  finance  costs and a decrease of oil and gas
properties.

Impairment of Unproved Properties
---------------------------------

         The Company  recorded no impairment  of unproved  properties in the six
months  ended  September  30,  2009  and  $6,800,000  for the six  months  ended
September 30, 2008.

Note 3 - 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.

                                       16
<PAGE>

         A reconciliation of the Company's asset retirement obligation liability
during the six months ended September 30, 2009 and 2008 is as follows:

                                                 2009                2008
                                                 ----                ----

Beginning asset retirement obligations         $1,280,681        $1,259,851
Liabilities incurred                                    -
Liabilities settled                                     -          (32,657)
Changes in estimates                                    -            30,644
Accretion expense                                  80,658            77,111
                                            ---------------- -----------------
Ending asset retirement obligation             $1,361,339        $1,334,949
                                            ---------------- -----------------

Current                                          $117,215          $360,638
Long-term                                       1,244,124           974,311
                                            ---------------- -----------------
                                               $1,361,339        $1,334,949
                                            ================ =================

Note 4 -- Fair Value Measurements

         The  Company  complies  with FASB ASC  820-10-05  (Prior  authoritative
literature SFAS No. 157, "Fair Value  Measurements,")  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;

     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 820-10-05  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.  The following  table  presents the company's
financial  assets and  liabilities  that were  accounted  for at fair value on a
recurring  basis as of  September  30,  2009 by  level  within  the  fair  value
hierarchy:
                                        Fair Value Measurements Using
                                        -----------------------------

                            Level 1               Level 2                Level 3
                            -------               -------                -------
Assets:
  Derivative instrument        $-                    $-                  $6,809
Liabilities                    $-                    $-                    $ -
  Asset retirement obligation  $-                    $-              $1,361,339

                                       17

<PAGE>

         The Company's sole derivative  financial  instrument is a participating
cap costless collar  agreement.  The fair value of the costless collar agreement
is determined  based on both  observable  and  unobservable  pricing  inputs and
therefore,  the data sources  utilized in these valuation  models are 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 actual
contribution to the Company's  future results of operations will be based on the
market prices at the time of  settlement  and may be more or less than the value
estimates used at September 30, 2009.  See Note 3 - Asset Retirement Obligations
for a discussion of the Company's fair value measurements for liabiliities.

         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:

<TABLE>
<CAPTION>

                                                                             Derivatives as of September 30,
                                                                             -------------------------------
                                                                                 2009              2008
<S>                                                                          <C>              <C>

Balance as of April 1                                                             $455,960         $(836,907)
  Total gains (losses) (realized or unrealized):
    Included in earnings                                                         (350,773)          (589,743)
    Included in other comprehensive income                                               -                 -
  Purchased, issuances and settlements                                            (98,378)           658,429
  Transfers in and out of Level 3                                                                          -

                                                                            ----------------- ------------------
Balance as of September 30                                                          $6,809         $(768,221)
                                                                            ================= ==================


Change in unrealized gains (losses) included in earnings relating to
derivatives still held as of September 30                                       $(449,151)          $(60,165)
                                                                            ================= ==================
</TABLE>

Note 5 - 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.  Under the
provisions  of the  Eighth  Amendment  the  Company  executed  and  delivered  a
Conveyance of Net Profits,  granting to the Lender a net profits interest in and
to the Company's  properties equal to 10% of the net profit  attributable to the
Company's  interest  in and to all  hydrocarbons  produced  or  saved  from  its
properties.  Under the terms of the Eighth Amendment,  the Company had the right
to purchase  from the Lender:  (a)  two-thirds  (2/3),  but not less, of the net
profits  interest for the period  beginning on June 3, 2009 and ending on August
7, 2009 for the sum of  $2,000,000  in cash (the Company did not  exercise  this
purchase  option);  or (b) for the period beginning August 8, 2009 and ending on
October 15, 2009,  one-third  (1/3),  but not less, for the sum of $1,333,333 in
cash.

          Under the terms of the Eighth Amendment, all amounts outstanding under
the Term  Credit  Agreement,  as amended,  bear  interest at a rate equal to the
greater  of (a)  16%  per  annum  and (b) the  LIBOR  rate,  plus 6% per  annum.
Furthermore,  the Eighth Amendment  specifies that 4% of the interest rate shall

                                       18
<PAGE>

be capitalized so that it is added to and becomes a part of the Principal Amount
in lieu of payment in cash.  Under the terms of the Term  Credit  Agreement,  as
amended,  the  Company is  required  to make  monthly  interest  payments on the
amounts outstanding but is not required to make any principal payments until the
Maturity  Date.  The Company may prepay the amounts  outstanding  under the Term
Credit Agreement at any time without penalty.

         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 estimates the fair value of the 10% NPI to be approximately
$1,500,000.  This amount was  recorded as  deferred  finance  costs and is being
amortized  over the term of the Note,  as amended.  The Company  recorded  total
amortization  of  discounts  and  deferred   finance  costs  of  $1,531,683  and
$2,675,702 for the six months ended September 30, 2009 and 2008 respectively.

         The Term Credit  Agreement,  as  amended,  contains  several  events of
default,  including if, at any time after  closing,  the  Company's  most recent
reserve report  indicates that its projected net revenue  attributable to proved
reserves is  insufficient  to fully amortize the amounts  outstanding  under the
Term Credit  Agreement  within a 48-month period and it is unable to demonstrate
to the Lender's  reasonable  satisfaction  that it would be able to satisfy such
outstanding  amounts through a sale of its assets or a sale of equity.  Upon the
occurrence  of an event of default under the Term Credit  Agreement,  the Lender
may accelerate the Company's  obligations under the Term Credit Agreement.  Upon
certain events of bankruptcy,  obligations under the Term Credit Agreement would
automatically  accelerate.  In  addition,  at any time that an event of  default
exists  under the Term Credit  Agreement,  the  Company  will be required to pay
interest on all amounts outstanding under the Term Credit Agreement at a default
rate, which is equal to the then-prevailing  interest rate under the Term Credit
Agreement plus four percent per annum.

         The Company is subject to various restrictive  covenants under the Term
Credit  Agreement,  including  limitations on its ability to sell properties and
assets,  pay  dividends,   extend  credit,   amend  material  contracts,   incur
indebtedness,  provide guarantees, effect mergers or acquisitions (other than to
change  its  state  of  incorporation),  cancel  claims,  create  liens,  create
subsidiaries,  amend its  formation  documents,  make  investments,  enter  into
transactions  with its affiliates,  and enter into swap agreements.  The Company
must  maintain  (a) a  current  ratio  of  at  least  1.0  (excluding  from  the
calculation of current  liabilities any loans  outstanding under the Term Credit
Agreement) and (b) a loan-to-value ratio greater than 1.0 to 1.0 for the term of
the loan.  As of March 31,  2009,  the  Company was not in  compliance  with the
loan-to-value ratio covenant, primarily due to a lower crude oil price deck used
in computing the reserve value. The lender has waived this  non-compliance  from
March 31, 2009  through the  amended  maturity  date,  October 15,  2009.  As of
September  30, 2009 the Company was in  compliance  with the loan to value ratio
covenant but was not in compliance with the current ratio covenant. As discussed
in Note 10- Subsequent Events, on October 28, 2009 the Company 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..  Such a filing
constitutes  an Event of Default and triggers an immediate  acceleration  of all
obligations due under the Term Credit Agreement, as amended.

         The  Company did not make  payment of the  balance due on the  maturity
date October 15, 2009. See Note 10 - Subsequent Events for further discussion.

                                       19
<PAGE>

Note 6 - Contingencies

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.


Note 7 - Income Taxes

         As of September 30, 2009,  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, 2008.

Note 8--Common Stock

         The Company's  capital stock as of September 30, 2009 and 2008 consists
of 275,000,000  authorized shares of common stock, par value $0.00001 per share.

Issuance of Common Stock
------------------------

For the Six Months Ended September 30, 2009

During the six months ended  September  30,  2009,  the Company  issued  500,000
shares to an officer of the Company upon the exercise of stock options. No other
shares of stock were issued during the period.

Note 9--Share-Based Compensation

Chief Executive Officer (CEO) Options
-------------------------------------

         During the six  months ended  September  30, 2009,  the  Company's  CEO
exercised  options to acquire  500,000 shares of common stock,  for a cumulative
exercise price of $5.00 ($0.00001/share).

2006 Stock Incentive Plan
-------------------------
         There were no options to purchase shares of common stock granted during
the six months ended  September 30, 2009.  During the six months ended September
30, 2009,  options to purchase 5,000 shares of common stock granted to employees
expired. The options had exercise prices of $1.18.

         Total  estimated  unrecognized  compensation  cost from unvested  stock
options as of September  30, 2009 was  approximately  $54,000  which the Company
expects to recognize over two and one half years. As of September 30, 2009 there

                                       20
<PAGE>

were  571,000  options  outstanding  under  the 2006  Stock  Incentive  Plan and
9,429,000 options are available for issuance.

Restricted Stock Award
----------------------

         On April 20,  2007,  four new members were  appointed to the  Company's
Board of Directors. Each director appointed to the Board of Directors received a
stock  grant of  100,000  shares of the  Company's  common  stock that vests 20%
(20,000  shares) on the date of grant with vesting 20% per year  thereafter.  On
May 31, 2007,  the remaining  independent  Board member not covered by the April
20, 2007 award received a stock grant of 100,000 shares of the Company's  common
stock that vests 20% (20,000  shares) on the date of grant with  vesting 20% per
year thereafter.

On May 22, 2007,  the Company  issued 400,000 shares of common stock to the four
new board  members,  and on June 26, 2007,  the Company issued 100,000 shares of
common stock to the remaining independent Board member.  Pursuant to the vesting
discussed above,  for the six months ended September 30, 2009,  $51,700 has been
reflected as a charge to general and administrative  expense in the statement of
operations,  with a corresponding credit to additional paid-in capital. During a
September 30, 2009 meeting of the shareholders', the non-employee directors were
not  re-elected  to the  Board of  Directors.  Because  continued  service  as a
director  was a  condition  for ongoing  vesting,  the  non-vested  shares as of
September  30,  2009  (200,000   shares)  were   immediately   cancelled.   Such
cancellation  has been  reflected as a reduction of common stock and an increase
additional  paid in capital in the  accompanying  Balance Sheet and Statement of
Changes in Stockholders' Equity.

         On April 20, 2007, the Board of Directors approved a resolution whereby
members  may receive  stock in lieu of cash for Board  meeting  fees,  Committee
meeting fees and Committee Chairman fees.

         Board members elected to forego stock  compensation  for the six months
ended September 30, 2009.

Note 10--Subsequent Events
         -----------------

Board of Directors and Management Changes
-----------------------------------------

         On September 30, 2009, at a meeting of the  Company's shareholders, the
following individual were elected to replace the six standing directors:  Andrei
Stytsenko, Silvia Soltan, Vladimir Vaskevich, Mathijs van Houweninge, A.L. "Sid"
Overton  and  Jeffrey B.  Bennett.  On October 1, 2009,  the Board of  Directors
terminated  the  employment  of  John  Works,  the  Company's  President,  Chief
Executive Officer, Chief Financial Officer,  Secretary and Treasurer. On October
2. 2009 the board of Directors  appointed Jon C. Nicolaysen  President and Chief
Executive  Officer and Mathijs van  Houweninge as Secretary and Treasurer of the
Company,  each to serve  until the Board's  next  annual  meeting or until their
successors are appointed. On October 21, 2009, Mr. Stytsenko,  Mr. Vaskevich and
Ms. Soltan, resigned their positions as Directors of the Company. On October 27,
2009, Jon C. Nicolaysen was appointed to the
Board of Directors.

Short-term Note Payable
-----------------------

         As noted  above in Note 5- Short Term Note  Payable,  the Note  Payable
issued by the Company on October 16, 2007,  matured on October 15, 2009. Payment
of the principal  balance of approximately  $10,222,000,  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 declares
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

                                       21
<PAGE>

of the Notice,  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 has
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.

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.  The  Company  is  currently  seeking  to  obtain  Debtor-In-
Possession  (DIP)  financing  from a number of  sources  and is  developing  its
restructuring  plans should such  financing  be  successful.  In  addition,  the
Company  has  prepared  and filed with the  Bankruptcy  Court  certain  required
financial  and other  documents.  There is no assurance  the Company  efforts to
raise DIP  financing  will be successful  or that the  restructuring  plans will
enable the Company to emerge from Bankruptcy.

Convertible Promissory Notes
----------------------------

            On October 27, 2009, the Company issued Convertible Promissory Notes
(the "Promissory Notes") totaling $140,000.  One hundred thousand dollars of the
Promissory  Notes were issued to officers and/or  directors  ($25,000 each). The
remainder of the Promissory  Notes were issued to  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.

Issuance of Stock Options
-------------------------

            On October 27,  2009,  as part of  Management  Retention  Agreements
between the  Company  and its four  directors,  the  Company  issued  options to
purchase  2,500,000  shares  of the  Company's  common  stock to each  director,
exercisable  at  $0.035  per  share.  The  options  are  exercisable  as to  10%
immediately upon grant, and 90% upon the earliest to occur of the following: (1)
November  1,  2010;  (ii)  the  confirmation  of a  Reorganization  Plan  by the
Bankruptcy  Court:  (iii) the  dismissal  from  Chapter 11  Bankruptcy  with the
approval of the court; (iv) an event of a merger, consolidation,  sale of assets
or other transaction  which results in the holders of the  Corporation's  Common
Stock  immediately  before  such  transaction  owning less than 50% of the stock
outstanding immediately before the transaction;  (v) any other form of change of
control; or (vi) Voluntary Termination for Good Reason.





                                       22
<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;

     o    plans, objectives, expectations, and intentions; and

         These  statements  may be  found  under  "Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations,"  and other sections

                                       23
<PAGE>

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,  2009.  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.

Organization
------------

         We are an  independent  energy  company that explores for and develops,
produces,  and  markets oil and gas in North  America.  We were known as Metalex
Resources,  Inc.  until April 2006 when our name was  changed to Rancher  Energy
Corp.  We operate  three oil  fields in the Powder  River  Basin,  Wyoming.  Our
business  plan is to use CO2  injection to increase oil  production in these oil
fields.

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

     On September  30, 2009,  at a meeting of the  Company's  shareholders,  the
following individual were elected to replace the six standing directors:  Andrei
Stytsenko, Silvia Soltan, Vladimir Vaskevich, Mathijs van Houweninge, A.L. "Sid"
Overton  and Jeffrey B.  Bennett..  On October 1, 2009,  the Board of  Directors
terminated  the  employment  of  John  Works,  the  Company's  President,  Chief
Executive Officer, Chief Financial Officer,  Secretary and Treasurer. On October
2. 2009 the board of Directors  appointed Jon C. Nicolaysen  President and Chief
Executive  Officer and Mathijs van  Houweninge as Secretary and Treasurer of the
Company,  each to serve  until the Board's  next  annual  meeting or until their
successors are appointed. On October 21, 2009, Mr. Stytsenko,  Mr. Vaskevich and
Ms. Soltan, resigned their positions as Directors of the Company. On October 27,
2009, Jon C. Nicolaysen was appointed to the Board of Directors.

         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
limited use of cash collateral and we intend to continue to operate our business
as a  "debtor-in-possession"  (DIP) 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    Reduce operating and administrative expenses to ensure that within the
          short term we are able to operate within the constraints of the use of
          cash collateral agreement;
     o    Secure  DIP  financing  that  would  enable  us to  enhance  crude oil
          production from our existing wells;

                                       24
<PAGE>

     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.


Results of Operations
---------------------

Three months ended  September  30, 2009  Compared to Three Months  September 30,
2008.

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

<TABLE>
<CAPTION>

                                                             Three Months Ended September 30,
                                                                  2009               2008
                                                                  ----               ----
<S>                                                         <C>                <C>

Revenues:
Oil production (in barrels)                                            13,858            18,179
Net oil price (per barrel)                                  $           60.01  $         109.79
Oil sales                                                   $         831,579  $      1,995,901
Derivative gains (losses)                                             (34,364)        1,305,551
                                                              ----------------------------------
Total revenues                                                        797,215         3,301,452

Operating expenses:
Production taxes                                                      105,934           243,366
Lease operating expenses                                              323,863           549,441
Depreciation, depletion, amortization                                 289,877           301,708
Impairment of unproved properties                                           -         6,800,000


Accretion expense                                                      44,156            30,835
Exploration expense                                                     9,328                 -
General and administrative expense                                    715,663           959,777
                                                              ----------------------------------
Total operating expenses                                            1,488,821         8,885,127
                                                              ----------------------------------

Loss from operations                                                 (691,606)      (5,583,675)
                                                              ----------------------------------

Other income (expense):
Interest expense and financing costs                               (1,244,459)      (1,741,926)
Interest and other income                                                 518             8,737
                                                              ----------------------------------
Total other income (expense)                                       (1,243,941)      (1,733,189)
                                                              ----------------------------------

Net loss                                                    $      (1,935,547) $    (7,316,864)
                                                            ====================================
</TABLE>

         Overview.  For the three months ended September 30, 2009, we reported a
net loss of $1,935,547,  or $0.02 per basic and fully-diluted share, compared to
a net loss of $7,316,864  or $0.06 per basic and  fully-diluted  share,  for the
corresponding  three months of 2008.  Discussions  of  individually  significant
period to period variances follow.

         Revenue,  production taxes, and lease operating expenses. For the three
months  ended  September  30, 2009,  we recorded  crude oil sales of $831,579 on
13,858 barrels of oil at an average price of $60.01,  as compared to revenues of
$1,995,901 on 18,179 barrels of oil at an average price of $109.79 per barrel in

                                       25
<PAGE>

2008. The year-to-year  variance  reflects a volume variance of $(474,409) and a
price variance of $(689,912).  The decreased volume in 2009 reflects the loss of
several producing wells due to mechanical  problems in late 2008 and early 2009,
coupled with routine  production  decline  from year to year.  Production  taxes
(including  ad valorem  and  property  taxes) of $105,934 in 2009 as compared to
$243,366 in 2008,  remained  constant at approximately  12.5% of crude oil sales
revenues. Lease operating expenses decreased to $323,863 ($23.37/bbl) in 2009 as
compared to $549,441  ($30.22/bbl) in 2008. The year to year variance reflects a
volume  variance of  $130,598  and a cost  variance  of $94,980.  The per barrel
decrease in 2009 compared to 2008 reflects  costs saving  efforts  undertaken to
preserve  capital,  coupled with a lack of significant  well or surface facility
repair work in the 2009 quarter as compared to the 2008 quarter.

         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.  During the three  months ended
September  30, 2009 we recorded  total losses on the  derivative  activities  of
$34,364  compared to derivative  gains of  $1,305,551 in 2008..  The 2009 losses
were  comprised of $3,266 of realized  gains and $37,629 of  unrealized  losses,
compared to $299,428 of realized  losses and $1,604,979 of unrealized  gains for
the comparable 2008 quarter.

         Depreciation,  depletion,  amortization..  For the three  months  ended
September 30, 2009, we reflected total depreciation, depletion, and amortization
of  $289,877  comprised  of  $241,924   ($17.46/bbl)  related  to  oil  and  gas
properties,  and $47,953 related to other assets. The comparable amounts for the
2008 period were $301,708 comprised of $253,269 ($13.93/bbl), related to oil and
gas properties, and $48,439 related to other assets) for the corresponding three
months ended June 30, 2008.  The increase in per barrel DD&A reflects  decreases
in the crude oil reserve  base used to calculate  such DD&A in 2009  compared to
2008

         Impairment  of  unproved  properties.  We  recorded  no  impairment  of
unproved  properties  in the three months ended  September  30, 2009 compared to
$6,800,000 of impairment  expense in the comparable  period of 2008. That amount
represented the excess of the carrying value over the estimated realizable value
of the assets

         General  and  administrative   expense.  For  the  three  months  ended
September30,  2009, we reflected general and administrative expenses of $715,663
as compared to $959,777 for the  corresponding  three months ended September 30,
2008.  Period to period  comparisons and  explanations of significant  variances
follow:

<TABLE>
<CAPTION>

                                        Three Months Ended
                                           September 30,
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Expense Category                        2009          2008       Discussion
<S>                                 <C>           <C>            <C>

----------------------------------- ------------- -------------- -------------------------------------------------------------------
Salaries, payroll taxes and                                                                        -
benefits                                $294,049       $298,201
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Consultants                               33,321         67,892  Decrease reflects cost cutting measures primarily contract
                                                                 accounting services savings of $30,000.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Travel & entertainment                     3,831         33,162  Cost cutting measure imposed.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
IT                                        25,261         19,563  Slight increase reflects cost of IT consultant utilized in place of
                                                                 former IT employee.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Legal fees                               160,910        174,092  -
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Audit, SOX and tax compliance             49,609         87,330  Decrease  reflects audit  efficiencies in the third year of review
                                                                 and and lower costs of SOX documentation and testing efforts.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Investor relations, shareholders           9,155         18,662  Cancelation  of  contract  with  outside  investor  relation  firm,
meeting                                                          partially offset by expense associated with shareholder meeting in
                                                                 2009.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Office rent, communication  &            102,159        105,751                                    -
other office expenses
----------------------------------- ------------- -------------- -------------------------------------------------------------------

                                       26
<PAGE>

----------------------------------- ------------- -------------- -------------------------------------------------------------------
Insurance                                 39,957         37,096                                    -
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Stock based compensation                  36,294        143,739  Former CEO's stock options fully vested in first quarter of fiscal
                                                                 year 2009; no further stock based compensation expense to be
                                                                 recorded.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Director fees                             76,817         96,647                                    -
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Field overhead recoveries              (115,700)      (122,358)  Fewer producing  wells in  2009 as compared  to  2008,  generating
                                                                 overhead recoveries.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
                         TOTAL G&A      $715,663       $959,777
----------------------------------- ------------- -------------- -------------------------------------------------------------------
</TABLE>

         Interest  expense  and  financing  costs.  For the three  months  ended
September  30,  2009,  we  reflected  interest  expense and  financing  costs of
$1,244,459 as compared to $1,741,926  for the  corresponding  three months ended
September  30, 2008.  The 2009 amount is comprised of interest  paid on the Note
Payable  issued in October 2007, as amended,  of $413,069,  interest  penalty on
non-timely  filed Wyoming  severance tax reports of $6,055,  and amortization of
deferred  financing  costs and discount on Note Payable of $825,335.  Comparable
amounts for the 2008  period  were$375,360  of interest on the Note  Payable and
$1,366,566 of deferred  finance  discount  amortization.  The higher interest on
Note Payable  reflects a 4% increase in the interest  rate  occurring as part of
the amendment to the Term Credit Agreement in June 2009.

Six months ended September 30, 2009 Compared to Six Months September 30, 2008.

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

                                           Three Months Ended September 30,
                                                2009               2008
                                                ----               ----
Revenues:
Oil production (in barrels)                          26,993            34,262
Net oil price (per barrel)                $           56.60  $        113,.68
Oil sales                                 $       1,527,874  $      3,894,869
Derivative gains (losses)                          (350,773)        (589,743)
                                            ----------------------------------
Total revenues                                    1,177,101         3,305,126

Operating expenses:
Production taxes                                    194,778           473,649
Lease operating expenses                            677,013         1,172,863
Depreciation, depletion, amortization               569,079           577,549
Impairment of unproved properties                         -         6,800,000

Accretion expense                                    80,658            77,111
Exploration expense                                  11,832             9,602
General and administrative expense                1,497,510         2,008,154
                                            ----------------------------------
Total operating expenses                          3,030,870        11,118,928
                                            ----------------------------------

Loss from operations                             (1,853,769)      (7,813,802)
                                            ----------------------------------
Other income (expense):
Interest expense and financing costs             (2,322,376)      (3,422,396)
Interest and other income                               723            19,318
                                            ----------------------------------
Total other income (expense)                     (2,321,653)      (3,403,078)
                                            ----------------------------------

Net loss                                  $      (4,175,422) $   (11,216,880)
                                          ====================================


                                       27
<PAGE>

         Overview.  For the six months ended  September  30, 2009, we reported a
net loss of $4,175,422,  or $0.03 per basic and fully-diluted share, compared to
a net loss of $11,216,880 or $0.10 per basic and  fully-diluted  share,  for the
corresponding six months of 2008. Discussions of individually significant period
to period variances follow.

         Revenue,  production taxes, and lease operating  expenses.  For the six
months ended  September 30, 2009,  we recorded  crude oil sales of $1,527,874 on
26,993 barrels of oil at an average price of $56.60,  as compared to revenues of
$3,894,869 on 34,262 barrels of oil at an average price of $113.68 per barrel in
2008. The year-to-year  variance  reflects a volume variance of $(826,332) and a
price variance of  $(1,540,662).  The decreased volume in 2009 reflects the loss
of several  producing  wells due to  mechanical  problems in late 2008 and early
2009,  coupled with  routine  production  decline from year to year.  Production
taxes  (including ad valorem and property taxes) of $194,778 in 2009 as compared
to $473,469 in 2008, remained constant at approximately 12.5% of crude oil sales
revenues. Lease operating expenses decreased to $677,013 ($25.08/bbl) in 2009 as
compared to $1,172,863  ($34.23/bbl) in 2008. The year to year variance reflects
a volume  variance of $248,834 and a cost  variance of $247,016.  The per barrel
decrease in 2009 compared to 2008 reflects  costs saving  efforts  undertaken to
preserve  capital,  coupled with a lack of significant  well or surface facility
repair work in the 2009 period as compared to the 2008 period.

         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.  During  the six months  ended
September  30, 2009 we recorded  total losses on the  derivative  activities  of
$350,773 compared to losses of $589,743 in 2008.  The 2009 losses were comprised
of $98,378 of realized  gains and  $449,151 of  unrealized  losses,  compared to
$649,908 of realized  losses and $60,165 of unrealized  gains for the comparable
2008 quarter.

         Depreciation,  depletion,  amortization.  For  the  six  months   ended
September 30, 2009, we reflected total depreciation, depletion, and amortization
of  $569,079  comprised  of  $469,923   ($17.41/bbl)  related  to  oil  and  gas
properties,  and $99,157 related to other assets. The comparable amounts for the
2008 period were $577,549 comprised of $479,053 ($13.98/bbl), related to oil and
gas properties, and $98,496 related to other assets). The increase in per barrel
DD&A  reflects  decreases in the crude oil reserve  base used to calculate  such
DD&A in 2009 compared to 2008.

         Impairment  of  unproved  properties.  We  recorded  no  impairment  of
unproved  properties  in the six months  ended  September  30, 2009  compared to
$6,800,000 of impairment  expense in the comparable  period of 2008. That amount
represented the excess of the carrying value over the estimated realizable value
of the assets

         General  and   administrative   expense.   For  the  six  months  ended
September 30,  2009,  we  reflected  general  and  administrative   expenses  of
$1,497,510  as compared to  $2,008,154  for the  corresponding  six months ended
September 30, 2008. Period to period comparisons and explanations of significant
variances follow:

<TABLE>
<CAPTION>

                                         Six Months Ended
                                           September 30,
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Expense Category                        2009          2008       Discussion
<S>                                 <C>           <C>            <C>

----------------------------------- ------------- -------------- -------------------------------------------------------------------
Salaries, payroll taxes and                                                                        -
benefits                                $583,157       $702,042
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Consultants                               62,968        193,278  Decrease reflects cost cutting measures primarily contract
                                                                 accounting services savings of $30,000.
----------------------------------- ------------- -------------- -------------------------------------------------------------------

                                       28
<PAGE>

Travel & entertainment                     6,652         59,550  Cost cutting measure imposed.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
IT                                        37,649         72,058  Slight increase reflects cost of IT consultant utilized in place of
                                                                 former IT employee.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Legal fees                               294,486        187,259  -
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Audit, SOX and tax compliance             84,430        164,888  Decrease  reflects audit  efficiencies in the third year of review
                                                                 and and lower costs of SOX documentation and testing efforts.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Investor relations, shareholders          12,063         52,891  Cancelation  of  contract  with  outside  investor  relation  firm,
meeting                                                          partially offset by expense associated with shareholder meeting in
                                                                 2009.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Office rent, communication  &            228,914        300,001                                    -
other office expenses
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Insurance                                 97,377         75,215                                    -
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Stock based compensation                 178,463        287,478  Former CEO's stock options fully vested in first quarter of fiscal
                                                                 year 2009; no further stock based compensation expense to be
                                                                 recorded.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Director fees                            150,067        175,669                                    -
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Field overhead recoveries              (238,716)      (262,175)  Fewer producing  wells in  2009 as compared  to  2008,  generating
                                                                 overhead recoveries.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
                         TOTAL G&A    $1,497,510     $2,008,154
----------------------------------- ------------- -------------- -------------------------------------------------------------------
</TABLE>

         Interest  expense  and  financing  costs.  For  the  six  months  ended
September  30,  2009,  we  reflected  interest  expense and  financing  costs of
$2,322,376  as compared to  $3,422,396  for the  corresponding  six months ended
September  30, 2008.  The 2009 amount is comprised of interest  paid on the Note
Payable  issued in October 2007, as amended,  of $784,638,  interest  penalty on
non-timely  filed Wyoming  severance tax reports of $6,055,  and amortization of
deferred financing costs and discount on Note Payable of $1,531,683.  Comparable
amounts for the 2008  period  were$746,640  of interest on the Note  Payable and
$2,675,756 of deferred  finance  discount  amortization.  The higher interest on
Note Payable  reflects a 4% increase in the interest  rate  occurring as part of
the amendment to the Term Credit Agreement in June 2009.

Liquidity and Capital Resources
-------------------------------

         As of  September  30, 2009 we had cash on hand of  $162,500,  a working
capital deficit of $10,762,000 and short term debt of $10,171,000 due on October
15,  2009.  On October  15,  2009,  we did not 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 Capital
LLC,  the Lender  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.

Convertible Notes Payable and Bankruptcy
----------------------------------------

         On October 27, 2009 we raised  $140,000 in cash through the issuance of
convertible  notes to certain of our officers,  directors and  shareholders  and
used the funds to retain counsel to provide  debtor advice.  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 a Bankruptcy Court approved agreement
with the Lender for limited use of cash  collateral and 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  seeking to obtain

                                       29
<PAGE>

DIP financing from a number of sources and is developing its restructuring plans
should such financing be successful.  In addition,  the Company has prepared and
filed with the Bankruptcy Court certain required  financial and other documents.
There is no  assurance  the  Company  efforts  to raise  DIP  financing  will be
successful  or that the  restructuring  plans will  enable the Company to emerge
from bankruptcy.

Going Concern
-------------

         The report of our independent  registered public accounting firm on the
financial  statements  for the year ended  March 31,  2009 and 2008  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 $72.9 million for the
period from inception (February 4, 2004) to September 30, 2009.

         Our primary  source of  liquidity to meet  operating  expenses and fund
capital  expenditures  is our  access to debt and equity  markets.  The debt and
equity markets,  public,  private,  and  institutional,  have been our principal
source of capital  used to  finance a  significant  amount of growth,  including
property  acquisitions.  We will need substantial  additional  funding to emerge
from bankruptcy, continue operations and to pursue our business plan. The recent
unprecedented  events in global financial  markets have had a profound impact on
the global economy. Many industries, including the oil and natural gas industry,
are impacted by these market conditions.  Some of the key impacts of the current
financial  market turmoil include  contraction in credit markets  resulting in a
widening of credit risk,  devaluations  and high  volatility  in global  equity,
commodity,  natural resources and foreign exchange markets, and a lack of market
liquidity.  A continued or worsened  slowdown in the financial  markets or other
economic  conditions,  including but not limited to, employment rates,  business
conditions,  lack of available  credit,  the state of the financial  markets and
interest rates may adversely affect our opportunities.

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

                                               For the Six Months Ended
                                                    September 30,
                                          ------------------ ------------------
                                                     2009               2008
                                          ------------------ ------------------

    Cash flows from (used for):
                                               $(765,113)       $(1,167,276)
       Operating activities
                                                   10,466
       Investing activities                                        (432,245)
                                                        5
       Financing activities                                        (101,473)

         Cash flows used for operating activities  decreased  substantially as a
result of lower  general  and  administrative  and lease  operating  expenses as
discussed above, coupled with realized derivative gains in the period.

         Investing  activities  in 2009  reflect  a modest  positive  cash  flow
resulting  from the sale of surplus field  equipment in the period,  compared to
oil and gas capital  expenditures of $199,882 and expenditures to increase bonds
and other assets of $232,363 in the 2008 period.

         Cash flows from financing activities in 2009  reflect proceeds from the
exercise of common stock options,  compared to expenditures incurred on deferred
financing costs in the 2008 period.

Off-Balance Sheet Arrangements
------------------------------

         Under the terms of the Term Credit  Agreement  entered  into in October
2007 we were  required  to hedge a portion  of our  expected  production  and we
entered into a costless collar agreement for a portion of our anticipated future
crude oil production. The costless collar contains a fixed floor price (put) and
ceiling price (call).  If the index price exceeds the call strike price or falls
below the put strike price, we receive the fixed price and pay the market price.

                                       30
<PAGE>

If the market  price is between the call and the put strike  price,  no payments
are due from either party. During the six months ended September er 30, 2009, we
reflected  realized gains of $98,378 and  unrealized  gains of $449,151 from the
hedging  activity,  as compared to realized  losses of $649,908  and  unrealized
gains of $60,165 for the comparable 2008 period.

         We  have no  other  off-balance  sheet  financing  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, 2009.  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
September 30, 2009.

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.  Under the terms of our Term  Credit
Agreement we entered into in October 2007,  we were required  hedge a portion of
our expected future production.

Financial Market Risk
---------------------

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

Items 4 and 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, 2009 and as of the end of the period  covered by this
Quarterly Report that our disclosure controls and procedures were not effective.

                                       31
<PAGE>

          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.

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.























                                       32
<PAGE>


PART II. OTHER INFORMATION.

Item 1. Legal Proceedings

         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 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.

         See also Note 6 - 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

On September 30, 2009,the  Company held its Annual Meeting of Stockholders  (the
"Meeting") at the Law Offices of Patton Boggs LLP, 1801 California Street, Suite
4900, Denver, Colorado at 11:00 a.m. (MDT).

The sole  proposal at the meeting  was the  election of the board of  directors.
Prior to the Meeting, a group of shareholders called the Stytsenko Group filed a
proxy statement soliciting proxies to elect alternative director nominees to the
board of the directors in opposition to those director  nominees proposed by the
Company. The Company's shareholders were asked to vote for six directors between
two slates of nominees. The results were as follows:

PROPOSAL1:  Election  of the  board of  directors  (management*  and  opposition
slate**) until the next Annual Meeting:

              Director Nominee                FOR                WITHHELD
              ----------------                ---                --------

John H. Works *                           19,965,497              931,109
William A. Anderson*                      20,020,944              875,662
Joseph P. McCoy*                          20,021,533              875,073
Patrick M. Murray*                        20,020,944              875,662
Myron (Mickey) M. Sheinfeld*              20,020,944              875,662
Mark A. Worthey*                          20,021,533              875,073

Andrei Stytsenko**                        53,941,804              71,251
Silvia Soltan**                           53,935,004              78,051
Vladmir Vaskevich**                       53,944,804              68,251
Mathijs van Houweninge**                  53,927,113              85,942
A.L. "Sid" Overton **                     53,944,804              68,251
Jeffrey B. Bennett**                      53,935,004              78,051


                                       33
<PAGE>

As of the  record  date of the  Meeting,  there were  119,516,723  shares of the
Company's common stock issued and outstanding.

As a result of the Meeting, Andrei Stytsenko,  Silvia Soltan, Vladmir Vaskevich,
Mathijs van  Houweninge,  A.L. "Sid" Overton and Jeffrey B. Bennett were elected
to the Board of Directors of the Company.

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 Accountingl 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























                                       34
<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: November 23, 2009                    By: /s/ Jon  C. Nicolaysen
                                                --------------------------------
                                                Jon C. Nicolaysen, President,
                                                Chief Executive Officer
                                                (Principal Executive Officer)



Dated: November 23, 2009                    By: /s/ Richard E. Kurtenbach
                                                --------------------------------
                                                Richard E. Kurtenbach, Chief
                                                Accounting Officer
                                                (Principal Accounting Officer)



















                                       35